Co-author Chance Decker
Recall the Battle of the Bastards: The heroic Lady Sansa and the duplicitous Lord Baelish gallop over the hill to save the foolish Jon Snow from the heinous Ramsey Bolton. In similar fashion, but without the malnourished canines, the Texas Supreme Court in Conoco Phillips Company v. Koopmann saved the Koopmanns and you, the document drafters and title examiners, from brutal application of the Rule Against Perpetuities.
Strieber conveyed a 120 acre tract to the Koopmanns via a warranty deed, reserving a one half NPRI for a 15 year term and “… as long thereafter as there is production in paying or commercial quantities.” If there was no production (or other events; see the savings clause below) at the end of the term, the interest would revert to Streiber. The high court agreed with the court of appeal that the reservation did not violate the Rule, but for altogether different reasons.
Does it vest or not?
An interest that vests at its creation is not subject to the Rule. The Koopmanns had a “springing executory interest” in the minerals, which was not certain to vest, if at all, within the period required by the Rule. Their interest did not vest, by definition, until the condition terminating the grantor’s present possessory interest was met. Lack of production in paying quantities might not happen within 21 years after the death of some life or lives in being. So far, Koopmanns lose. (Note the court’s observation that if the conveyance had been a grant of the NPRI and not a reservation, the Koopmanns’ future interest would be a vested possibility of reverter and not subject to the Rule.)
If an instrument is equally open to two constructions it should be construed as valid rather than void. To apply the Rule to invalidate the Koopmanns’ future interest would not serve the purpose of the Rule, which is to prevent landowners from using remote contingencies to preclude alienability of land for generations.
According to Williams and Myers, defeasible term interests serve a useful social purpose. The term interest tends to remove title complications when the land is no longer productive, which simplifies title and promotes alienability of land. The interest in this case is certain to vest at some point in the future in a known grantee. Thus, it promotes the purpose of the Rule.
(Ready to wade into the weeds? The court discussed the historical difference between a vested remainder and an executory interest. Go on ahead without us.)
The court rejected the two grant theory, a legal fiction relied upon by the court of appeals to conclude that the Koopmanns’ interest did not violate the Rule.
Ambiguity in the savings clause
The court agreed with the lower court that the term in the savings clause that the lease that could extend the NPRI would be maintained by shut-in royalties “or any other similar payments” in lieu of production was ambiguous and created a fact issue as to the parties’ intent. That portion of the case was remanded for trial.
Suit Under the Natural Resources Code or Breach of Contract?
How about both? The court held that Section 91.402(b) of the Natural Resources Code does not preclude a breach of contract claim for failure to make royalty payments.