Rhetorical Question: When will Texas be done with fixed/floating royalty cases such as Johnson et al v. Clifton et al?

Rhetorical Answer: When scriveners of deeds that are open to eight conceivably plausible meanings have completed their remedial scrivening courses.

How did it happen?

In 1951 Young and others conveyed to Clifton and others several thousand acres in Reeves County by a deed reserving a 1/128 interest in oil, gas and other minerals. It was stipulated that the land was under lease with a 1/8th royalty and grantees shall receive 1/16th of the royalty provided for in the lease, but grantees would not be entitled to receive any of the bonus for future leases, would not have executive rights, and would only receive in subsequent leases a “1/128th (1//16th of the usual 1/8th royalty)”. The title “Mineral Deed was crossed out and substituted with ”Royalty Deed”, handwritten. Current lease royalties are 25% or 22.5%.

 Grantees’ descendants sued, arguing that the deed conveyed a floating 1/16th NPRI. COG and other defendants argued limitations, waiver, estoppel, payment, laches, and trespass to try title.

The trial court ruled that plaintiffs take nothing, leaving them with the 1/128th royalty they had historically received.

Possible outcomes

According to the litigants, the deed conveyed:

  • A nonparticipating 1/16th mineral interest and a floating 1/16th royalty
  • A fixed 1/128th nonparticipating mineral interest and a floating 1/128th royalty in future leases
  • A 1/128th mineral interest and a fixed 1/128th in future leases
  • If there was a NPRI and not a mineral interest, then also a fixed 1/128th royalty in future leases
  • A floating 1/128th royalty interest
  • A floating 1/16th royalty interest
  • A fixed 1/128th royalty interest, or
  • Two separate estates, a 1/128th mineral interest and a fixed 1/128th royalty in future leases.

Title examiners can debate whether some of these constructions end up at the same place, but the court deemed them different enough to discuss each.

The result

The court of appeal reversed, granting judgment that the deed conveyed a nonparticipating 1/16th mineral interest and floating 1/16th royalty. The deed conveyed a mineral interest shorn of all attributes but for the right to receive royalty payments.

The court could reconcile the entire deed only by interpreting the granting clause as conveying a mineral estate and the remainder of the deed as clarifying that the grantors intend to strip all attributes of the mineral estate but for the royalty interest.

Each unsuccessful interpretation suffered more or less the same defect:  failing to consider, or ”harmonize”, all aspects of the deed.

Estate misconception in a different scenario

The court applied the Van Dyke v. Navigator estate misconception doctrine even though there was no double fraction in the granting clause. Discussing the “legacy of the 1/8 royalty”, the court concluded that 1/8th had acquired a special meaning in the standard royalty contract. Parties used 1/8th as a placeholder for future royalty without understanding that reference to set an arithmetical value. 1/128th is a multiple of 1/8th raised the presumption that the grantors believed they only owned 1/8th of the mineral estate. Rather than conveying a 1/128th interest, they intended to convey 1/16th of what they believed they owned. The result was a 1/16th mineral interest conveyance which has a corresponding 1/16th floating royalty interest. This interpretation reconciled the granting, existing-lease, and future-lease clauses. Use of the double fraction “1/16th of the usual 1/8th” is consistent with the description of a floating 1/16th royalty.

The court declined to address the presumed grant theory because it was not raised at trial or in appellate briefing. That affirmative defense must be pleaded at the trial court to preserve the issue for appeal.

Your musical interlude.