Co-author Katherine Sartain*

If you are scoring at home, count Permico Royalties LLC v. Barron Properties, Ltd., as a win for “floating” in the fixed-or-floating royalty battles. Permico, successor to grantors in a 1937 Deed for a tract in Ward County, argued that a mineral reservation was of a ½ floating royalty interest. Barron, successor to grantee and owner of the mineral estate subject to the reservation, claimed that the deed reserved a 1/16 fixed royalty. Grantors reserved:

“… a one-sixteenth (1/16) free royalty interest (being ½ of the usual 1/8th free royalty) … And the Grantors, …. shall be entitled to receive 1/16th of the oil and/or gas produced, saved and sold from said land, being ½ of the usual 1/8th royalty therein.”

In dueling motions for summary judgment the trial court denied Permico’s motion and granted Barron’s, ordering that Permico take nothing.

The double-fraction question and the usual doctrines

In reversing and rendering judgment that the deed reserved a ½ floating royalty, the court of appeals cited Hysaw v. Dawkins. Under the “legacy of the 1/8th royalty”, use of “1/8” has a special meaning. In deeds of that era the parties had an erroneous belief that a royalty in a lease would always be 1/8. The fraction was used as a placeholder for future royalties generally. It was “shorthand” for what the mineral owner believed was the entire royalty a lessor could retain under a mineral lease. It had no mathematical value.

Then you have the estate misconception doctrine recognizing that in that era mineral owners erroneously believed that they only retained a 1/8th interest in their mineral estate after leasing for a 1/8th royalty, citing Van Dyke v. Navigator Group.

Barron urged the court to reject the legacy doctrine, arguing that it is incorrect to presume that all mineral interest owners at the time believed that their royalty interest would always be 1/8. By the 1930s oil and gas leases existed providing for royalties other than 1/8. The court responded that Van Dyke shows continued reliance on the legacy doctrine.

Barron also argued there was no need for the legacy doctrine because there were no inconsistencies in the Deed that required harmonization of provisions. The Court responded: That is not true here, but even if so, Hysaw says the courts can use the doctrine even if there are no internal inconsistencies. Under the estate misconception doctrine the use of a double fraction created the rebuttable presumption that the parties intended to use the 1/8th as a placeholder for the grantor’s entire mineral estate.

Barron also contended that the court should ignore the double fractions as nonessential to the deed language, therefore to grantor’s intent, because the double fractions were in non-restrictive clauses.  The court rejected that assertion as taking the grammatical argument to an extreme.  Applying grammatical rules may be helpful in interpreting a deed, but the focus is still on harmonizing the entire deed.

The conclusion

If grantors had meant to reserve a fixed 1/16th royalty interest, there would have been no reason for them to use the double fractions in not one, but two clauses. The only way to give meaning to all of the Deed’s provisions was to apply the legacy doctrine and find that grantors’ use of the 1/8 fraction was a placeholder.

The Deed consistently demonstrated the parties’ intent to reserve a ½ floating royalty interest given its repeated use of the “usual 1/8 royalty” in the double fraction describing that interest.

Your musical interlude.

*Katherine is a rising 3L at Baylor School of Law and progeny of your author.