098 Temple – Inland Forest Products Corp. v. Henderson Family Partnership, 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.
 
Temple – Inland Forest Products Corp. v. Henderson Family Partnership, Ltd. 958 S.W.2d 183 (Tex. 1997), is a case on the mineral/royalty distinction. The case holds that the deeds in question reserved a 1/16 fixed royalty interest rather than a 1/16 mineral interest stripped of all rights except the right to receive royalties. The deeds first clearly conveyed an undivided 15/16 of the minerals, and then recited:
 
In respect to the undivided one-sixteenth (1/16) part of and interest in the oil, gas and other minerals retained and reserved by the grantor in said land, it is understood and agreed that said one-sixteenth (1/16) interest is and shall always be a royalty interest . . .
 
The deeds go on to convey to the grantee as to the reserved interest: (1) the right to develop (2) the right to lease (3) the right to bonus, and (4) the right to delay rentals. Thus, of the five legal attributes of the mineral estate, grantor retained only the right to receive royalty. The issue then was whether this bare royalty right was an attribute of a reserved mineral interest, or a 1/16 fixed royalty. The word “royalty” was used six times in each deed. The outcome would have a significant economic impact (fixed royalty = 1/16 of production; mineral interest = 1/16 of 1/8 of production).
 
The court determined that the case of Watkins v. Slaughter, 144 Tex. 179, 189 S.W.2d 699 (1945), was controlling. The deed in Watkins purported to convey 15/16 of the minerals, and it described the 1/16 retained as an “interest in and to all of the oil, gas and other minerals in and under and that may be produced from said land.” However, the instrument later recited that “the grantor shall receive the royalty retained herein only from actual production.” The court concluded in Watkins that a royalty had been reserved, and therefore, the same result must follow in interpreting the Temple-Inland deed.
 
As to the express recitals in the deeds that the “interest is and shall always be a “royalty interest,” the Court of Appeals had held that such a reference cannot serve to create a royalty interest without an express reference to royalties for actual production of minerals. This was assumed to be the controlling factor in Watkins v. Slaughter and subsequent cases. The Supreme Court reviewed these decisions and others and recited that it has never required that any particular word or phrase be used. A mineral conveyance must be considered in its entirety.
 
This case and other recent decisions indicate that the Supreme Court has moved away from “magic words” and moved away from favoring one clause over another. It has been believed that “in and under” were magic words defining a mineral interest, that “from actual production” were magic words defining a royalty interest, that the granting clause was more important than other clauses, and that deeds could be analyzed by tracing the splintering of the mineral estate’s bundle of sticks [(1) right to develop, (2) right to lease, (3)right to bonus, (4) right to delay rentals, and (5) right to royalty] to define whether the interests examined were minerals or royalties. The Court now appears to lean more toward finding the grantor’s “intent” and in favor of the “harmonizing” canon of construction. This may not make the job of the title examiner any easier, because there are no “bright-line” rules of construction. The title examiner may find the harmony in a clumsy deed, but the fact finder at trial may prefer to listen to rap.