WTX Fund, LLC v. Brown, is Texas mineral deed construction case.

In the same year as that crazy thing happened at Coogan’s Bluff, the Roaches executed a Mineral Conveyance to the Holts. Let’s review the transaction and ask ourselves why – or if – there had to be so many “intentions” clauses in addition to the granting clause, and whether “magic words” are needed to reserve a royalty interest.

The granting clause

By the granting clause the Roaches conveyed:

“ … all of grantor’s right, title, interest, and estate in and to the leasing rights, bonuses and delay rentals in and to the oil gas and other minerals … under [the described land].

Intentions clause, part 1

The grantors intended to grant:

” … the right to control and execute all oil and gas leases now on said property or which may be made thereon in the future without the necessity of grantors, heirs or assigns joining in the execution of same.”

Intentions clause, part 2

Grantees were given the right:

… to collect any and all bonuses and benefits on any future oil and gas leases and any and all delay rentals on all … leases now upon said property or which may hereafter be made by grantee his heirs or assigns… .

Intentions clause, part 3

The grantors intended to convey:

… all of grantor’s right … the 7/8 leasing rights or working interest in the oil, gas and minerals … together with all bonuses, delay rentals, oil payments and all other rights and benefits [from leases] … together with the right of ingress and egress … .

The shall-not-affect clause

The conveyance would not affect any interest that any grantor:

“ … may have in the future to the non-participating 1/8th royalty … “. But the grantors would have no right to “bonuses, delay rentals, oil payments or other benefits under any … leases which have been made or which may hereafter be made.”

Heirs and successors of the original parties to the deed sued, counter-sued and cross-sued each other seeking proceeds from production from property. By this time, a lease with a 1/6th royalty was in effect.

The analysis

The court noted that the granting clause individually named (1) the leasing rights, (2) bonuses, and (3) delay rentals, so the deed expressly conveyed those attributes. The intentions clause described the conveyance of (4) leasing/executive rights, (5) the rights to collect bonus and delay rentals, and (6) right of development (with ingress and egress).

Importantly, the intentions clause specified that it was a conveyance of “the 7/8 leasing rights or working interest … “ The court concluded that, together with a reference to a “1/8 non-participatory royalty rights” in the later clause, and given the deed’s vintage, signified an intent of the Grantors to reserve a 1/8th royalty interest.

“Shall-not-affect” as a reservation?

The sharpest point of contention was the meaning of “benefits” and the effect of the shall-not-affect clause.The court construed “benefits” as “ … an interchangeable term operating as a catch-all to describe the economic gains of a mineral lease. Such gains include bonuses, delay rentals, royalties, or other forms of payment. “ In this case it included the 1/8th royalty in the shall-not-affect clause.

The court held that the deed conveyed leasing rights, bonuses, delay rentals, and development rights in their entirety, but reserved the entire non-participatory royalty as a floating (rather than fixed) royalty in favor of grantors. How’s that, you say? Because the intention of the reserved 1/8th was informed by the transfer of the 7/8ths, and recalling that in 1951 the 1/8th royalty was standard and everybody thought it would be that way forever. The court rejected the argument that “shall-not-affect” language in a deed could not be construed as a reservation.

RIP Ellis Marsalis.  While we’re at it, let’s hear from Winton and Branford.