The Eastland Court of Appeals addressed, for the first time, the interpretation of a double-fraction royalty reservation in light of Van Dyke. The case (Boren Descendants v. Fasken Oil & Ranch, Ltd., Nos. 11-22-00365-CV, 11-23-00001-CV, 2024 Tex. App. LEXIS 8405, at *1 (Tex. App.—Eastland Dec. 5, 2024, no pet. h.) centered on whether a 1933 deed reserved a floating 1/4 royalty interest or a fixed 1/32 interest. Specifically, the deed’s language reserved “an undivided one-fourth (1/4th) of the usual one-eighth (1/8th) royalty.” By way of background, in 1933, Midland Farms Company, Fasken Oil & Ranch Ltd.’s (“Fasken”) predecessor, conveyed ninety sections of land in Andrews and Martin Counties, Texas, to J.E. Mabee (“Mabee”), reserving a 1/4 interest in the “usual one-eighth royalty” as a nonparticipating royalty interest. Mabee and Boren Descendants and Royalty Owners (“Boren”) are successors to the grantee. Between 2013 and 2020, Fasken, as Midland Farms’ successor, signed division orders allocating itself a fixed 1/32 royalty interest, which was paid accordingly. In 2019, Fasken sued, claiming it was entitled to a floating 1/4 royalty interest, seeking damages for overpayments to Mabee and Boren, a declaratory judgment, and the removal of a cloud on its title. The trial court granted Fasken’s motions for summary judgment, affirming its claim to a floating 1/4 royalty and precluding Mabee and Boren’s affirmative defenses.
Legal Interpretation and Ruling
Applying the Van Dyke presumption, which treats references to “1/8” in double-fraction royalty provisions as terms of art referring to the entire mineral estate, the appellate court affirmed that the deed reserved a floating 1/4 royalty interest. Moreover, Mabee and Boren’s arguments to attempt to rebut this presumption were rejected. First, the appellants argued that the phrase “the usual one-eighth” in the deed’s language demonstrated an intent to reserve a fixed royalty interest. However, the court found this phrase consistent with the Van Dyke presumption and insufficient to rebut it. Specifically, Texas courts have previously interpreted similar language as supporting the presumption, and no additional evidence from the 1933 deed suggested a contrary intent according to the court. Second, the appellants pointed to the deed’s nonparticipation clause, which stated that the reserved royalty would not participate in bonuses or rentals. They contended that this language implied a fixed royalty interest, as any amount above 1/8 would constitute a bonus under the historical definition. The court rejected this reasoning, explaining that royalties and bonuses are distinct concepts, with royalties representing ongoing payments tied to production and bonuses constituting one-time payments. The clause clarified the nature of the reserved royalty but did not affect whether it was fixed or floating.
Affirmative Defenses
Also notable is that the appellants raised a number of affirmative defenses, something that had not been done to attempt to rebut the presumption announced in Van Dyke.
First, the appellants argued that several theories of estoppel, including quasi-estoppel, estoppel by contract, division order estoppel, and judicial estoppel, precluded Fasken from claiming a floating 1/4 royalty interest. The court rejected quasi-estoppel and estoppel by contract, finding no unconscionable conduct or evidence that Fasken’s prior acknowledgments of a fixed 1/32 interest created binding obligations. The court also rejected division order estoppel, noting that this theory protects payors from double liability and does not shield payees from claims of overpayment or alter contractual terms. Finally, the court denied judicial estoppel because Fasken’s prior statements about its interest were made when the law on double fractions was unsettled, and no evidence showed an intent to mislead or “play fast and loose” with the judicial system.
Second, the appellants argued that Fasken waived its rights to claim a floating ¼ royalty interest by historically accepting payments based on a fixed 1/32 interest. However, the court rejected the argument on the basis that waiver requires intentional conduct or clear intent to relinquish a known right, which was absent because the law regarding double-fraction royalty reservations in “antiquated deeds” was unsettled during the period in question. Thus, Fasken could not have formed a clear understanding of its rights, nor could its action show the intent necessary to establish waiver.
Third, the appellants argued that Fasken ratified its acceptance of a fixed 1/32 royalty interest by requesting and accepting payments at that rate. In rejecting the argument, the court explained that ratification requires a clear intention to adopt or confirm an agreement with full knowledge of the material facts. Because the law surrounding double-fraction conveyances was unsettled during the relevant period, the evidence failed to show that Fasken intended to be permanently bound to the 1/32 interest.
Appellants also attempted to raise the presumed grant defense, which is akin to the common law defense of adverse possession. But the appellate court declined to address the issue, noting that the trial court’s order permitting an interlocutory appeal did not identify the presumed grant defense, and thus the appellate court was without jurisdiction.
Conclusion
Finally, one of the appellants argued that Fasken’s claims should be governed by the two-year statute of limitations for unjust enrichment, rather than the four-year statute for breach of contract, because Fasken had no viable breach-of-contract claim. The court agreed that no evidence demonstrated a contractual obligation requiring the appellants to identify or return royalty overpayments, thus rejecting Fasken’s breach-of-contract claim. However, the court found that Fasken’s claim for unjust enrichment, based on payments made within the two-year limitations period, remained viable because the appellant failed to establish that all payments sought by Fasken fell outside this period.
