Van Dyke v. Navigator Grp., 2023 Tex. LEXIS 144 (Tex. 2023)
In this landmark case, the Texas Supreme Court reaffirmed its recognition of the so-called “estate misconception theory,” and created a new rebuttable presumption governing so-called “double fraction” deed interpretation cases. Under this new rebuttable presumption, any time an “antiquated” mineral instrument uses the term “1/8” in a double fraction, there is a rebuttable presumption that “1/8” was used as a term of art that refers to the entire mineral estate, and not merely to a mathematical 1/8th. The case is also notable in its discussion of what might rebut that presumption, and its discussion of the presumed-grant doctrine.
The case involves a 1924 deed, under which the “Mulkeys” conveyed to “White and Tom” an interest in their land, with the following reservation:
It is understood and agreed that one-half of one-eighth of all minerals and mineral rights in said land are reserved in grantors... and are not conveyed herein.
The Court held that this language did not use the double fractions in a rote mathematical sense, where they would be multiplied together resulting in a 1/16th interest. Instead, the Court held that this language objectively referred to “1/8” as a synonym for the entire mineral estate. The Texas Supreme Court provided three primary rationales that, in its view, supported the adoption of this new presumption.
1) Determining the Original Meaning of the Text
First, the Court emphasized that the proper focus is on determining the original meaning of the text when it was drafted in 1924, not the meaning the text would have if written today. The Court also indicated that the proper analysis is an objective inquiry confined to an interpretation of the four corners of the text, not on a subjective inquiry into extrinsic evidence of what the parties may have “secretly or unusually” intended. The Court approved the use of dictionaries in this endeavor, explaining that “they convey objective and generally available – not subjective or bespoke – guides to meaning.”
2) Two Historical Features
Next, the Court relied on the so-called “estate misconception theory” and the “historical use of 1/8 as the standard royalty” as two “historical features” that, in the Court’s view, provide “objective indication of what parties meant by using 1/8 within a double fraction.”
According to the Court, the so-called “estate misconception theory” is a theory that “reflects the prevalent (but, as it turns out, mistaken) belief that, in entering into an oil-and-gas lease, a lessor retained only a 1/8 interest in the minerals, rather than the entire mineral estate in fee simple determinable with the possibility of reverter of the entire estate.” According to the Court, “for many years, lessors would refer to what they thought reflected their entire interest in the ‘mineral estate’ with a simple term they understood to convey the same message: ‘1/8.’” The Court quoted a popular commentator on this subject, with approval, saying “the very use of 1/8 in a double fraction ‘should be considered patent evidence that the parties were functioning under the estate misconception’” and reasoning “there is ‘little explanation’ for the use of double fractions to express a fixed interest absent a misunderstanding about the grantor’s retained ownership interest or use of 1/8 as a proxy for the customary royalty.”
The Court also relied on the so-called “legacy of the 1/8 royalty,” or “historical standardization” of a 1/8 royalty in historical oil and gas leases. According to the Court, lease royalty rates were so standardized at 1/8 for a period of time that “parties mistakenly assum[ed] the landowner’s royalty would always be 1/8.” In the Court’s view, there is “no doubt” that this mistaken belief “influenced the language used to describe the quantum of royalty in conveyances of a certain vintage.”
The Court concluded that those two historical principles, working in tandem, “provide objective indications about what the parties to this deed meant by deploying a double fraction. At that time, the fraction 1/8 had various meanings that linked to the land- owner’s conception of the entirety of the estate.” In the Court’s view, based on those two theories, there is a “now- familiar observation that, at the time the parties executed this deed, ‘1/8’ was widely used as a term of art to refer to the total mineral estate.”
3) The Court Adopts a New "Rebuttable Presumption"
Rather than issue a narrow holding limited to the specific facts of this case, the Court adopted a broad “rebuttable presumption,” which it described as follows:
Antiquated instruments that use 1/8 within a double fraction raise a presumption that 1/8 was used as a term of art to refer to the “mineral estate.” That presumption is readily rebuttable, however. If the text itself has provisions – whether express or structural—illustrating that a double fraction was in fact used as nothing more than a double fraction, the presumption will be rebutted.
However, the Court rejected a “bright-line rule” that the presumption applies to all “antiquated” double-fraction deeds, instead holding that “a full textual analysis of an instrument” is required. On that note, the Court noted the following as to rebutting the presumption:
[C]ourts should be ready to find not just confirmation but contradictions of [this] presumption. A rebuttal could be established by express language, distinct provisions that could not be harmonized if 1/8 is given the term- of-art usage (the mirror image of Hysaw), or even the repeated use of fractions other than 1/8 in ways that reflect that an arithmetical expression should be given to all fractions within the instrument. [...] The key point is that there must be some textually demonstrable basis to rebut the presumption.
On the other hand, the Court indicated there could be a middle ground, resulting in ambiguity. As the Court described:
an instrument may have enough textual evidence to drain confidence in the presumption yet insufficient evidence for a court to conclude that a reasonable reader at the time would have understood the instrument to require mere multiplication. In such a case, and if our ordinary rules of construction are incapable of generating a single answer, then our case law involving inescapable ambiguity – including the authorized but reluctant recourse to extrinsic evidence – provides the next step. When that happens, a factfinder may be needed to finally resolve the text’s meaning.
4) The Presumed-Grant Doctrine
The Court then turned to the second justification for its holding: the presumed-grant doctrine. After the 1924 deed, for approximately 90 years, the parties, their assignees and various third parties engaged in numerous transactions that repeatedly reflected that each side of the original conveyance owned an equal 1/2 interest in the minerals. That included further conveyances, leases, division orders, probate inventories, and other recorded documents.
According to the Court, there were no exceptions to that consistent treatment until 2012 when an oil and gas company drilled a well and then began paying royalties and the White heirs filed suit.
The Court held that, under these facts, “the record conclusively establishes that [the Mulkey] parties acquired the other 7/16 interest through the presumed-grant doctrine.”
The Court held that the presumed-grant doctrine requires three elements: (1) a long-asserted and open claim, ad- verse to that of the apparent owner; (2) nonclaim by the apparent owner; and (3) acquiescence by the apparent owner in the adverse claim. The Court rejected a fourth element that was described by the appellate court: a gap in the title. According to the Court, “[s]atisfying the doctrine is properly difficult....”
The Court held that these elements were conclusively established based on the parties’ ninety-year history of “repeatedly acting in reliance on each having a 1/2 mineral interest.”
Interestingly, the Court indicated that its presumed-grant analysis required analysis of “extrinsic evidence [that] is not probative in the [rebuttable presumption analysis] because it would go beyond the text.” On the other hand, the Court also indicated in a footnote that if the presumed-grant doctrine were “clearly implicated, a court could dispense with the deed-construction analysis,” which could ultimately “cut either way – in favor of or contrary to the party invoking the double-fraction presumption.”
