439 Wynne/Jackson Dev., L.P. v. PAC Capital Holdings, Ltd.

Richard F. Brown

 
The following is not a legal opinion.  You should consult your attorney if the case may be of significance to you.
 
Wynne/Jackson Dev., L.P. v. PAC Capital Holdings, Ltd., No. 13-12-00449-CV, 2013 WL 2470898 (Tex. App.—Corpus Christi June 6, 2013, pet. denied)(mem. op.), held that a conveyance of a non-participating royalty interest (“NPRI”) was effective to convey a fractional royalty of 1/16 of production.  The parties aligned as successors-in-interest to the Grantor and Grantee under three deeds with an identical issue.  The deeds reserved to Grantor an NPRI equal to “one-half (1/2) of the usual one-eighth (1/8) royalty in and to all oil, gas, and other minerals produced, saved and sold . . . .”  A subsequent lease provided for royalty payments equal to 1/4 of production.  The issue in the case was whether Grantor reserved 1/16 of production (1/2 of 1/8 = 1/16 [fractional royalty]) or 1/8 of production (1/2 of 1/4 = 1/8 [fraction of royalty]).
 
The Texas Supreme Court has construed “one-half of one-eighth of the oil, gas and other mineral royalty” to mean a 1/16 fractional royalty.  The language that the Texas Supreme Court construed did not contain the words “the usual.”  The San Antonio Court of Appeals has construed “an undivided 1/4 of the usual 1/8 royalty in all of the oil, gas or other minerals produced, saved and sold from the premises conveyed under the terms of any valid oil and gas lease” to mean a 1/32 fractional royalty.  The court found these precedents to be persuasive and held that the deeds reserved a 1/16 fractional royalty as a matter of law, after relying upon the usual canons of construction:  determining the intent of the parties, the “four corners” rule, and harmonizing all parts.
 
There continues to be some tension between various opinions construing the effect of the words “the usual 1/8 royalty” when used in instruments executed during the time when the lease royalty was almost always 1/8.  The tilt seems to be toward holding that the words are merely descriptive of the fractional royalty conveyed or reserved, rather than objective evidence of an intent to create a fraction of royalty (floating royalty).