Face Challenges Confidently

595 Hysaw v. Dawkins, 483 S.W.3d 1 (Tex. 2016)

Tuesday, December 6th, 2016

Richard F. Brown

The following is not a legal opinion. You should consult your attorney if the case may be of significance to you.

Hysaw v. Dawkins, 483 S.W.3d 1 (Tex. 2016) (Double fraction conveyances) considered the double-fraction issue in the context of a will-construction dispute and held that the will devised a fraction of royalty, not a fractional royalty. The Court used this case to give some guidance on how these double-fraction conveyances are to be construed. The parties aligned as descendants of three sibling-beneficiaries, Inez, Dorothy, and Howard, under the 1947 will of their mother, Ethel. Ethel’s will divided her land into three unequal tracts, and to each child, she devised fee simple title in one of the tracts, subject to the conveyance of a non-participating royalty to each child in all of the tracts. The will provided (with mirror-image provisions for each child) as follows:

I will and bequeath to each of the above named children fee simple title to the lands designated to go to them, subject, however, to the following. . . [1] each of my children shall have and hold an undivided one-third (1/3) of an undivided one-eighth (1/8) of all oil, gas or other minerals in or under or that may be produced from any of said lands, the same being a non-participating royalty interest; that is to say, . . . [the named child shall not participate as to the land devised to the other two children], but that [2] the said [named child] shall receive one-third of one-eighth royalty, provided there is no royalty sold or conveyed by me covering the lands so willed to [the child], and [3] should there be any royalty sold during my lifetime then [the three children] shall each receive one-third of the remainder of the unsold royalty.

(The Court broke the clause into the three separate numbered clauses for analysis.)

Inez’s descendants executed a lease that provided for a royalty of 1/5. Inez’s descendants contended the will devised to Dorothy and Howard a fractional royalty on Inez’s land (1/3 of 1/8 = 1/24 to each). Dorothy’s and Howard’s descendants contended the will devised to Dorothy and Howard a one-third fraction of royalty on Inez’s land (1/3 of 1/5 = 1/15 to each).

The Court reviewed construction principles applicable to wills and observed that similar construction principles apply to non-testamentary instruments (deeds) conveying mineral interests. The Court used will and deed precedents without distinction. The Court concluded that the will shows Ethel intended for each of her children to share equally in all royalties under all circumstances and relied on the first provision’s sharing of royalty by each child in the royalties from all the lands, the equal sharing required under the third provision’s fraction of royalty devise, and that Ethel used “one-eighth royalty” as shorthand for the entire royalty interest a lessor could retain under a mineral lease. “We therefore hold that Ethel’s will devised to each child 1/3 of any and all royalty interest on all the devised land tracts.”

From the beginning of the oil and gas industry in Texas until the mid1970’s, the lessor’s royalty under an oil and gas lease was almost always 1/8. The royalty rate of 1/8 was so pervasive that, for decades, courts took judicial notice of it as the standard and customary royalty. Thousands of mineral deeds drafted during those years may have been drafted under the assumption that the royalty would always be 1/8 (i.e. that it would never be e.g. 1/5, referred to as “historical standardization”) or that the lessor’s interest in lands after the execution of a lease was only a 1/8 interest (rather than all, subject to a fee simple determinable in the lessee, referred to as “estate misconception”). Conveyances containing double fractions or two or more differing fractions present recurring interpretative challenges. The simplest example would be a conveyance of “1/2 of the usual 1/8 royalty,” followed by a subsequent oil and gas lease providing for a 3/16 royalty. In this example, did grantee receive a fixed royalty of 1/2 of 1/8 = 1/16 of production, or a floating royalty of 1/2 of 3/16 = 3/32 of production? “[C]ourt opinions construing double-fraction language have yielded mixed results, with no discernible unifying principle except to the extent the outcome derives from the conveying instrument’s specific language.”

“Today, we reaffirm our commitment to a holistic approach aimed at ascertaining intent from all words and all parts of the conveying instrument. To discern intent, words and phrases must be construed together and in context, not in isolation. . . . We further eschew reliance on mechanical or bright-line rules as a substitute for an intent-focused inquiry rooted in the instrument’s words. To that end, the estate-misconception theory and the historical use of 1/8 as the standard royalty may inform the meaning of fractions stated in multiples of 1/8, but these considerations are not alone dispositive.” There are no bright-line rules, but we are each looking for rules to better forecast the construction to be given to a problematic conveyance. This case, and other precedents, suggest that fractional royalties (particularly large ones) will be rare, courts will lean toward finding fraction “of” royalty to be the parties’ intent, “two grants” will be rare, and historical standardization and/or estate misconception will be liberally applied to harmonize conflicting provisions.

Thus, much to the chagrin of title examiners, the significance of the case is that, like pornography, you will know the meaning of a double-fraction conveyance when you see it—or maybe not.