AGONY OF THE 1/8TH: THE CONSISTENTLY INCONSISTENT ROLE OF “ESTATE MISCONCEPTION” AND THE “LEGACY OF THE 1/8TH ROYALTY” IN TEXAS DEED CONSTRUCTION PRECEDENT
State Bar of Texas, Oil, Gas & Energy Resources Law Section Report; March 3, 2022
by Ryan Clinton
I. INTRODUCTION
By now, Texas oil-and-gas lawyers are familiar with the Texas Supreme Court’s recent “fixed vs. floating” royalty opinions: U.S. Shale Energy II, LLC v. Laborde Properties, L.P., 551 S.W.3d 148 (Tex. 2018) and Hysaw v. Dawkins, 483 S.W.3d 1 (Tex. 2016). Most analyses of the two opinions understandably focus on the interpretation of “double fractions” within royalty provisions of instruments conveying or reserving mineral interests—specifically, whether a royalty provision containing two fractions (e.g., “one half of one eighth”) conveys a “fixed” fractional royalty or a royalty that “floats” with whatever the lease’s royalty fraction is at the time.
Some might argue that Laborde and Hysaw have established a new general “rule”—that a deed’s inclusion of double fractions evidences the drafters’ intent to convey a floating royalty—but the two opinions’ holdings may ultimately be viewed as bound by the language of their particular deeds under each case’s particular factual circumstances. We don’t yet know, for example, how important the underlying facts in Hysaw were to the Court’s ultimate conclusion. If the facts had been different, would the Court have given the instrument another construction? And perhaps more importantly, what role should underlying facts have in construing the meaning of unambiguous deed language when, in most instances (and certainly during most title examinations), those facts will not be known to the person or persons construing the deed?
Less attention has been focused on the Court’s consideration in Laborde and Hysaw of two presumed-mistake doctrines—the “estate misconception” doctrine and the “legacy of the 1/8th.” When and how should those mistakes be presumed to have been made by the drafters of oil-and-gas deeds? Should courts be in the business of “fixing” presumed mistakes when engaging in a holistic construction of an instrument? And at what point in the history of Texas oil-and-gas law should courts stop presuming parties to deeds intended something other than what they said?
This paper highlights key Texas appellate opinions on the “estate misconception” and “legacy of the 1/8th royalty” presumed-mistake doctrines, analyzes how judicial precedent on the topics has evolved over time, and identifies critical questions that remain unanswered by existing judicial precedent. Section II summarizes the Texas Supreme Court’s current rules of instrument construction, along with the version of textualism advanced by Justice Antonin Scalia and Bryan Garner. Section III highlights the Texas Supreme Court’s most recent opinions analyzing the two presumed mistakes, summarizes the doctrines, and notes relevant court of appeals opinions that have followed. Section IV discusses key Texas appellate opinions over the last century that involve the two presumed mistakes—including cases in which the Texas Supreme Court itself made the “estate misconception” mistake. Section V discusses lessons, observations, and unanswered questions, and Section VI offers a brief conclusion.
II. Plain Meaning, Holistic Construction, and Textualism
No one should be surprised that Texas’s ordinary rules of instrument construction emphasize the actual words of the deeds as selected by the parties—not what the parties may have or likely intended but did not say. The Texas Supreme Court has made clear that the goal of construing an instrument “is to determine and enforce the parties’ intent as expressed within the four corners of the” instrument. Piranha Partners v. Neuhoff, 596 S.W.3d 740, 743-44 (Tex. 2020). The Court has said that its “primary” duty is to give effect to the “intentions of the parties as expressed in the instrument.” J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 229 (Tex. 2003) (emphasis added). “To achieve this objective,” courts “must examine and consider the entire writing in an effort to harmonize and give effect to all of the provisions of the contract so that none will be rendered meaningless.” Id. (citing Universal C.I.T. Credit Corp. v. Daniel, 150 Tex. 513, 243 S.W.2d 154, 158 (1951)). Finally, courts construing an instrument should not disregard contract terms that don’t support a favored construction or “rewrite the parties’ contract.” Fischer v. CTMI, L.L.C., 479 S.W.3d 231, 239 (Tex. 2016) (quoting Am. Mfrs. Mut. Ins. Co. v. Schaefer, 124 S.W.3d 154, 162 (Tex. 2003)). These plain-text-construction rules are in place because parties to an agreement “are free to decide their contract’s terms, and the law’s ‘strong public policy favoring freedom of contract’ compels courts to ‘respect and enforce’ the terms on which the parties have agreed.” Endeavor Energy Res., L.P. v. Discovery Operating, Inc., 554 S.W.3d 586, 595 (Tex. 2018) (citations omitted).
In recent years, the Texas Supreme Court has emphasized a “holistic approach” to construing an instrument’s text. E.g., Hysaw, 483 S.W.3d at 13. For the Court, that means construing “words and phrases … together and in context, not in isolation,” and harmonizing “inconsistencies or contradictions … by construing the document as a whole.” Id. (citing Plainsman Trading Co. v. Crews, 898 S.W.2d 786, 789 (Tex. 1995); State Farm Life Ins. Co. v. Beaston, 907 S.W.2d 430, 433 (Tex. 1995); Luckel v. White, 819 S.W.2d 459, 462 (Tex. 1991)). Further, the Court has recently said that it “eschew[s] reliance on mechanical or bright-line rules as a substitute for an intent-focused inquiry rooted in the instrument’s words.” Hysaw, 483 S.W.3d at 13.
The Texas Supreme Court’s description of its approach to instrument construction in some ways matches, and in some ways departs from, the version of textualism that Justice Antonin Scalia and Bryan Garner advocated for in Reading Law: The Interpretation of Legal Texts. In describing their “Supremacy-of-Text Principle,” Scalia and Garner write that “[t]he words of a governing text are of paramount concern, and what they convey, in their context, is what the text means.” Antonin Scalia & Bryan A. Garner, Reading Law: The Interpretation of Legal Texts 56 (2012). But Scalia and Garner make a key distinction between intent and meaning. For them, the purpose of focusing on an instrument’s words is to give effect to the instrument’s meaning—not the drafter’s intent. See id. Said another way, the meaning of the text is what must be operative. Id. at 397. The text isn’t evidence of what governs, but is instead the thing that governs. Id. Criticizing a focus on intent rather than meaning, the authors wrote, “there is hardly a better way to unshackle oneself” from an instrument’s text “than to minimize [the text] by calling it mere ‘evidence’” of intent. Id. at 398.
Scalia and Garner also argue that although a document’s purpose may inform its meaning, “the purpose is derived from the text, not from … an assumption about the legal drafter’s desires.” Id. at 56. They wrote that, “except in the rare circumstances of an obvious scrivener’s error, purpose—even purpose as most narrowly defined—cannot be used to contradict text or to supplement it. Purpose sheds light only on deciding which of various textually permissible meanings should be adopted.” Id. at 57.
III. Laborde and Hysaw: An Embrace of the Presumed Mistake Doctrines
In each of the Texas Supreme Court’s recent “fixed versus floating” royalty cases, the Court indicated an openness to presuming that parties to oil-and-gas instruments had made mistakes in drafting their instruments—and a potential willingness to retroactively fix those mistakes even in the absence of evidence corroborating that the parties in fact intended something other than what they said.
In Hysaw, the Court was asked to determine the meaning of a will stating that (1) each child of the testatrix would receive “one-third (1/3) of an undivided one-eighth (1/8) of all oil … that may be produced from any of said lands, the same being a non-participating royalty interest”; and (2) if any of the testatrix’s royalty is sold during her lifetime, then each child will receive “one-third of the remainder of the unsold royalty.” 483 S.W.3d at 5. The issue was whether the will’s “double-fraction language” provided each child with a fixed 1/24th royalty interest or a floating interest equal to 1/3rd of royalty. Id. at 4. The Court held that because the second clause indicated that the testatrix intended her children to share royalty equally, “[t]he only plausible construction supported by a holistic reading of the will is that [the testatrix] used ‘one-eighth royalty’ as shorthand for the entire royalty interest a lessor could retain under a mineral lease.” Id. at 15. Accordingly, the Court read the will as conferring upon each child a floating interest of 1/3rd of royalty—not a fixed 1/24th royalty interest. Id. at 16.
In Laborde, the Court was tasked with determining the meaning of a deed stating that the grantor reserved “an undivided one-half (1/2) interest in and to the Oil Royalty, … the same being equal to one-sixteenth (1/16) of the production.” 551 S.W.3d at 150. The parties disagreed as to whether the deed reserved a floating 1/2 royalty interest or a fixed 1/16th royalty. The Court reasoned that, standing alone, the first part of the clause created a “floating royalty interest equal to one-half of the royalty.” Id. at 152. It characterized the issue presented as whether the second half of the clause “indicates an interest fixed at 1/16 of production despite the language in the first [half] tying it to the royalty.” Id. The Court answered that question “no,” reasoning that “the only reasonable way” to read the deed is to construe it as reserving a floating 1/2 royalty interest that, at the time the deed was executed, conferred a 1/16th royalty interest (given the existing lease’s 1/8th royalty). Id. at 153-54.
In construing both deeds, the Court indicated a willingness to look beyond the text of the instruments to determine the parties’ intent. Specifically, the Court indicated that a holistic view may consider whether the parties’ selected terms were evidence of mistakes that caused them to use terms they didn’t really mean.
A. The “Legacy of the 1/8th Royalty”
First, the Court discussed the “legacy of the 1/8th royalty.” Hysaw, 483 S.W.3d at 9-10. According to the Court, the “legacy of the 1/8th royalty” recognizes that “the ubiquitous nature of the 1/8 royalty … influenced the language used to describe the quantum of royalty in conveyances of a certain vintage.” Id. This “ubiquity of the 1/8 landowner royalty led many landowners to presume that the landowner royalty would remain 1/8 in perpetuity.” Laborde, 551 S.W.3d at 152. The “reality,” said the Court, “is that the use of 1/8 (or a multiple of 1/8) in some instances undoubtedly embodies the parties’ expectation that a future lease will provide the typical 1/8th landowners’ royalty with no intent to convey a fixed fraction of gross production.” Id. (quoting Hysaw, 483 S.W.3d at 11). In other words, because parties to oil-and-gas deeds may have incorrectly believed that 1/8th would always be the royalty paid under leases, they may have incorrectly used the term “1/8th” where they really meant “royalty.” See Laborde, 551 S.W.3d at 152; see also Hysaw, 483 S.W.3d at 9-10. So, for example, a deed describing an interest conveyed as “1/2 of 1/8th royalty” might have been intended to convey an interest of 1/2 of whatever royalty is payable under any given lease (i.e., a “floating” 1/2 of royalty)—rather than a 1/16th royalty (i.e., a “fixed” 1/16th of production).
B. The “Estate Misconception” Doctrine
Second, the Court discussed the “estate misconception” doctrine. Hysaw, 483 S.W.3d at 10. This refers to an early misunderstanding of the character of the interest retained by a mineral owner after executing an oil-and-gas lease. Id. According to the Court, some early Texas oil-and-gas deeds reflected the mistaken understanding that after executing a lease, the mineral owner retained only a mineral interest in the quantum of the fraction of royalty in the lease. See id. So, for example, if a lease had a 1/8th royalty, the lessor may have incorrectly believed that the lessor retained a 1/8th mineral interest while the lessee acquired a 7/8ths mineral interest. See id. According to the Court, this misconception may be reflected in a deed that conveys minerals in a double-fraction—such that the lessor might, after executing a lease with a 1/8th royalty—intend thereafter to convey 1/2 of his mineral interests by conveying an interest described as “1/2 of 1/8.” Id. (citing Laura H. Burney, The Regrettable Rebirth of the Two-Grant Doctrine in Texas Deed Construction, 34 S. Tex. L. Rev. 73, 89 (1993)). Under this misconception, the “1/8” in such deeds may have been intended to describe the full mineral interest made subject to a lease—not 1/8 of the minerals. See id.
In 2016, the El Paso Court of Appeals offered this description of the “estate misconception” doctrine:
In earlier times, many landowners labored under the misconception that when they leased their mineral estate to an operator, they only retained 1/8 of the minerals in place, rather than a fee simple determinable with the possibility of reverter in the entirety of the mineral estate (i.e., in 8/8 of the mineral estate). Therefore, when the landowner conveyed a mineral interest to a third party in land that was already subject to a lease, he would often use a fraction of 1/8 to express what interest he intended to convey in his possibility of reverter. Since a landowner in reality retains a full 8/8 interest in the reverter, the application of the estate misconception doctrine has tremendous consequences.
Greer v. Shook, 503 S.W.3d 571, 580 (Tex. App.—El Paso 2016, pet. denied) (citations omitted). The El Paso Court went on to explain that a double-fraction of “1/2 of 1/8” could have very different meanings depending on whether the mistake is presumed:
Under this example, if the grantee is only given a 1/16 mineral interest, he or she only receives 1/16 of any royalty set under a lease; however, if the grantee is given 1/2 of the entire mineral estate in the reverter, he owns a full 1/2 of the mineral interests, and would therefore be entitled to a full 1/2 of any royalty owed under any future lease.
Id.
C. WTX Fund, LLC v. Brown
After Hysaw and Laborde, the El Paso Court of Appeals used both mistake doctrines to construe a textually perplexing deed in WTX Fund, LLC v. Brown, 595 S.W.3d 285 (Tex. App.—El Paso 2020, pet. denied). The case’s 1951 deed started off by stating that it conveyed “all of grantors’ right, title, interest and estate in and to the leasing rights, bonuses and delay rentals in and to all the oil, gas and other minerals in and under the following described land.” Id. at 294. Next, the deed stated that the parties intended it “to convey … all of grantors’ right, title, interest and estate in and to the 7/8 leasing rights or working interest in the oil, gas and minerals in and under said land together with all bonuses, delay rentals, oil payments and all other rights and benefits which may be provided for in any oil and gas leases.” Id. at 296. Last, the deed stated that “this conveyance shall not affect any interest which any grantors, heirs or assigns, have or may have in the future of the non-participating 1/8th royalty in and under said land.” Id.
The El Paso Court of Appeals concluded that the deeds’ “parties operated under both the presumption of the 1/8 royalty and the estate misconception.” Id. at 302-03. The Court suggested that the parties’ reference to “the 7/8 leasing rights” must have been a poorly worded and incorrectly understood reference to what estate that the grantors had retained after previously executing a mineral lease with a 1/8th royalty. Id. at 303. And the Court reasoned that the deed’s reservation of a non-participating 1/8th royalty “was not used to describe a fractional share of 1/8 but rather as a proxy for the usual and customary royalty of the deed’s era.” Id. Accordingly, “[c]onstruing all language,” the court concluded “that the 1951 deed conveyed the leasing rights, bonuses, delay rentals, and development rights, in their entirety, but reserved the entire non-participatory royalty as a floating royalty (rather than a fixed fraction or fixed royalty) in favor of grantors.” Id.
D. Van Dyke v. Navigator Group
Also after Hysaw and Laborde, the Eastland Court of Appeals rejected application of the presumed-mistake doctrines in Van Dyke v. Navigator Grp., No. 11-18-00050-CV, 2020 WL 7863330 (Tex. App.—Eastland Dec. 31, 2020, pet. filed) (mem. op.). The Van Dyke deed stated that “one-half of one-eighth of all minerals and mineral rights in said land are reserved in grantors.” Id. at *1. The issue was whether the deed reserved one half of the minerals or 1/16th of the minerals. Id. The appellants argued that the estate-misconception doctrine rendered the deed’s use of the double fraction ambiguous, id. at *3, but the court disagreed for two reasons. First, the court reasoned that the two doctrines have been employed to resolve arguable conflict within a deed created by the presence of differing fractions to describe the interest conveyed—but not to create ambiguity in a deed that doesn’t contain differing fractions. See id. at *3-4. Second, the court reasoned that the appellants’ predecessors couldn’t have been operating under the estate-misconception doctrine—which describes a misunderstanding of the interest owned by a lessor after executing a deed—“because, at the time of the deed, … there was no lease of the minerals and there had been no conveyance of any part of the bundle of sticks that make up mineral and mineral rights ownership.” Id. at *5.[1]
III. The Mistake Doctrines in Precedent Before Laborde and Hysaw
Although the Texas Supreme Court’s embrace of the two presumed-mistake doctrines in Laborde and Hysaw have caught some of the most experienced Texas oil-and-gas lawyers off guard, the concepts are not new to Texas law. Discussion of the “estate misconception” doctrine appears in a handful of Texas appellate opinions predating Laborde and Hysaw, and those opinions are mixed as to the weight that the doctrines should bring to a court’s analysis.
A. Graham v. Prochaska
A few years before Hysaw and Laborde, the San Antonio Court of Appeals discussed the “legacy of the 1/8th” in Graham v. Prochaska, 429 S.W.3d 650 (Tex. App.—San Antonio 2013, pet. denied). The court wrote that “[i]n the 1920s and 1930s, the landowner’s royalty became standardized at one-eighth of production.” Id. at 657 (citations omitted). According to the court, this “historical standardization of the landowner’s royalty at one-eighth of production has sometimes created confusion in the construction of deeds from that period, where the use of conflicting fractions suggests the parties mistakenly assumed the landowner’s royalty would always be one-eighth.” Id. (citations omitted). The court further explained that “[w]hen a deed contains a reservation of ‘a fraction of one-eighth,’ ‘a fraction of one-eighth royalty,’ ‘a fraction of the one-eighth royalty,’ or ‘a fraction of the usual one eighth royalty,’ a party [advancing an argument based on the ‘legacy of the 1/8th royalty’] may argue that ‘one-eighth’ should be understood as a stand-in for the landowner’s royalty and therefore convey or reserve unto them a floating royalty interest.” Id. at 658. The court ultimately relied on the “legacy of the 1/8th” mistake doctrine to resolve differing descriptions of the interests conveyed in the deed analyzed: “We decline … to construe ‘one-eighth’ in the description of the landowner’s royalty as a limitation of the … interest to a fixed royalty. Instead, its presence reflects the common misconception of that period that the landowner’s royalty would always be one-eighth of production obtained under a lease.” Id. at 660 (citations omitted).
B. Hernandez v. El Paso Prod. Co.
The Corpus Christi-Edinburg Court of Appeals applied the “estate misconception” doctrine to resolve arguably conflicting descriptions of the interest conveyed in a deed in Hernandez v. El Paso Prod. Co., No. 13-09-184-CV, 2011 WL 1442991 (Tex. App.—Corpus Christi-Edinburg Apr. 14, 2011, pet. denied). There, the deed stated that it conveyed a “[o]ne sixteenth interest in and to all of the oil, gas and other minerals in and under and that may be produced,” and that the sale “covers and includes one half (1/2) of all the oil royalty and gas rental or royalty due and to be paid under the term of [an existing] lease.” Id. at *2. The court reasoned that the differing fractions could be explained by the “estate misconception” doctrine, and held that the parties to the deed had intended to convey a 1/2 mineral interest—not a one-sixteenth mineral interest. Id. at *4-6.
C. Concord Oil Co. v. Pennzoil Expl. & Prod. Co.
In 1998, the Texas Supreme Court effectively applied the “estate misconception” doctrine in a case in which it said that it didn’t apply the doctrine. See Concord Oil Co. v. Pennzoil Expl. & Prod. Co., 966 S.W.2d 451 (Tex. 1998). The case involved the construction of “two differing fractions … within the [same] conveying instrument”: a granting clause that conveyed “a 1/96 interest in minerals” and another clause stating that the lease conveys “1/12 of all rentals and royalty of every kind and character.” Id. at 452-53. The Court appears to have essentially disregarded the granting clause’s language conveying a 1/96 interest, instead reasoning that the conveyance of the attributes to a 1/12 mineral interest conveyed a 1/12 mineral interest. See id. at 458-59.
Interestingly, the Court specifically acknowledged the “estate misconception” doctrine, but stated that it did not base the decision on the doctrine. The Court wrote:
Concord and some commentators suggest that conflicting fractions appear in so many deeds because of a common misconception of what an owner of a mineral interest retains after the execution of a lease. Commentators have also observed that most grantors do not intend to convey interests of differing magnitudes. Under a typical lease providing for a 1/8 royalty, the lessor may think that the interest retained is 1/8 of the minerals including 1/8 of the royalties. This misconception is evidenced in a few decisions. In actuality, a lease conveys a fee simple determinable with the possibility of reverter. When the lessor owns all the mineral estate (8/8) and executes an oil and gas lease, the lessor has conveyed all the mineral estate (8/8) but has retained a possibility of reverter in the entire mineral estate (8/8). The lessor also receives, of course, all rights that are bargained for in connection with the lease, which usually include the payment of royalties, delay rentals, and bonuses.
…
We are thus mindful of extant circumstances at the time the Concord and other deeds were executed. But we do not base our decision in this case on the theory of an “estate misconception.” An understanding of the misconceptions under which some operated is helpful and instructive, but not dispositive.
Id. at 460 (citations omitted). It is unclear why the Court said that it didn’t base its decision on the “estate misconception” doctrine given that the presumed mistake is the only way to harmonize the deed’s language conveying a 1/96th mineral interest with 1/12th of the minerals’ attributes. See id. at 452-53.
D. Luckel v. White
In Luckel v. White, the Texas Supreme Court rejected an argument based on the “legacy of the 1/8th” mistake doctrine—reasoning that intent is derived from the words of the instrument and that, in any event, knowing that parties to oil-and-gas deeds may have mistakenly believed 1/8th would always be a lease’s royalty doesn’t tell us one way or another what these particular parties intended. 819 S.W.2d 459, 462 (Tex. 1991). There, the Court was faced with a deed stating that it conveyed “an undivided one thirty-second (1/32nd) royalty interest,” but also stating that under the deed, the grantee would receive “one-fourth of any and all royalties” paid under the existing or any future leases. Id. at 461. The Court harmonized the provisions by reasoning that the deed’s description of a 1/32nd royalty interest was merely a description of the interest granted “until the existing lease expired”—which had a 1/8th royalty. Id. at 464. Thus, “[t]he interest conveyed was an undivided one-fourth of the total reserved royalty interest.” Id.
In reaching its decision, the Court criticized the court of appeals for “assuming that the parties to the deed contemplated that all future leases would provide for one-eighth royalty”—even though it was true that “[o]ne-eighth was the ‘usual’ royalty so standard in the 1920s and 1930s that all Texas courts took judicial notice of it.” Id. at 462 (citation omitted). The Court reasoned that relying on a presumed mistake “is not a proper ‘harmonizing’ under the four corners rule, and conflicts with a number of this court’s decisions.” Id. Furthermore, the Court reasoned, parties could use the “legacy of the 1/8th” mistake doctrine to argue either of two conclusions—that the parties to the deed intended to convey “a fixed 1/32nd interest” or that they intended to convey “one-fourth of all future royalties.” Id. In other words, even knowing for certain that the parties mistakenly presumed a future 1/8th royalty doesn’t inform the analysis as to the scope or character of the interest the parties actually intended to convey. Id. The Court explained:
Even if the court could discern the actual intent, it is not the actual intent of the parties that governs, but the actual intent of the parties as expressed in the instrument as a whole, “without reference to matters of mere form, relative position of descriptions, technicalities, or arbitrary rules.”
Id. at 462 (quoting Sun Oil Co. v. Burns, 125 Tex. 549, 552, 84 S.W.2d 442, 444 (1935)).
E. Garrett v. Dils Co.
The Texas Supreme Court said that it applied the “legacy of the 1/8th” mistake doctrine—but in reality appeared to have applied the “estate misconception” doctrine—to resolve conflicting descriptions of the interest conveyed in a deed in Garrett v. Dils Co., 157 Tex. 92, 299 S.W.2d 904 (1957). The granting clause of the deed stated that it conveyed “an undivided one sixty-fourth interest in and to all of the oil, gas and other minerals in and under … the land,” id. at 905—which describes a 1/64th mineral interest. But the deed later stated that it “covers and includes one-eighth of all of the oil royalty and gas rental or royalty due” under an existing lease, and “one-eighth of the lease interest and all future rentals.” Id. The Court acknowledged that the granting clause, by itself, would have conveyed a 1/64th mineral interest. Id. at 906. But the Court reasoned that within the context of the rest of the deed, the deed had actually conveyed a 1/8th mineral interest. Id. at 907. The Court referenced the “legacy of the 1/8th” in reaching its conclusion:
The court takes judicial knowledge of the fact that the usual royalty provided in mineral leases is one-eighth. The parties doubtless assumed that the royalty under future leases would be one-eighth, as it was under the lease in existence when the deed was executed.
Id.
In reality, however, it appears that the Court was actually applying the “estate misconception” doctrine—not the “legacy of the 1/8th.” The parties’ initial express grant of a 1/64th mineral interest—when the Court believes they intended to convey a 1/8th mineral interest—makes sense only if we assume that the parties mistakenly believed that the existing lease had conveyed 7/8ths of the minerals to the lessee and that the lessors had retained only 1/8th of the minerals. Thus, if they had intended to convey one eighth of the full mineral interest (which they mistakenly believed was only a 1/64th mineral interest after leasing—i.e., 1/8th of 1/8th), they would describe their mistakenly conveyed interest as a 1/64th mineral interest as they did in the deed.
F. Tipps v. Bodine
In the late 1930s, the Texas Supreme Court resolved a differing fractions case with a complete embrace of the “estate misconception” doctrine; in fact, the Court made the “estate misconception” mistake itself. See Tipps v. Bodine, 101 S.W.2d 1076 (Tex. Civ. App.—Texarkana 1936, writ ref’d). In that case, the deed conveyed “an undivided 1/16 interest” in the minerals and “[o]ne-half of all the oil royalty and gas rental due” under the current lease and future leases. Id. at 1076-77.
The Court construed the deed by making the “estate misconception” mistake itself—i.e., miscomprehending the nature of the estate owned by a lessor after executing an oil-and-gas lease. The Court wrote:
It will be noted that … the grantor conveys to the grantee an undivided one-sixteenth interest in all the minerals in and under the land described. In the second paragraph it is expressed that the conveyance is made subject to the terms of a lease …. The lease interest conveyed by the … lease consisted of a determinable fee in seven-eighths of all the minerals in place and the right of exploration. …[T]he fee owner and lessor in that lease … retained one-eighth of all the minerals in place, subject to the lease. Hence, the conveyance of an undivided one-sixteenth in all the minerals … conveyed one-half of all the minerals in place then owned by [the lessor].
Id. at 1078. Again, the Court didn’t identify the mistake and construe the deed to correct for the mistake, but instead actually made the mistake itself—stating (incorrectly) that an oil-and-gas lease conveys 7/8ths of the minerals to the lessee and retains 1/8th of the minerals for the lessor. Id. [2]
The modern Texas Supreme Court does not agree with that description of the interests conveyed in a lease. As the Court wrote in Concord Oil, “[w]hen the lessor owns all the mineral estate (8/8) and executes an oil and gas lease, the lessor has conveyed all the mineral estate (8/8) but has retained a possibility of reverter in the entire mineral estate (8/8).” 966 S.W.2d at 460.[3]
G. Jones v. Bedford
Five years before Tipps v. Bodine, the Texas Supreme Court expressly rejected the “legacy of the 1/8th” argument as a matter of policy—reasoning in 1932 that it was already well known that a lease could have a royalty fraction that differed from the usual 1/8th royalty. Jones v. Bedford, 56 S.W.2d 305, 308 (Tex. Civ. App.—Eastland 1932, writ ref’d) (op. on reh’g). There, the issue was how to resolve apparently conflicting provisions of a deed that stated (1) it conveyed a “1/8 of 1/8 royalty”; (2) it conveyed “an undivided 1/8 of 1/8 of the lease interest and all future rentals,” and (3) the grantee received “1/8 of 1/8 of all oil, gas and other minerals.” Id. at 307-08. The Court noted that it could be argued that the parties used “1/8 of 1/8,” rather than “1/64th,” because the existing leases provided for a 1/8th royalty. Id. at 308. But the Court rejected that argument as “not reasonable” because “some future lease …, as we well know, may provide a different royalty than 1/8 of the production.” Id. The Court effectively dismissed the deed’s use of the words “1/8 of 1/8 royalty,” and held that “a reading of the entire instrument” demonstrated that “the interest conveyed [is] a 1/64th mineral interest.” Id.
V. Lessons, Observations, and Unanswered Questions
To be candid, it isn’t easy to discern a set of clear rules within Texas precedent for applying the two presumed-mistake doctrines—“estate misconception” and the “legacy of the 1/8th royalty.” If anything, a close reading of the case law suggests that there is no clear set of rules for when and how to apply either of the two doctrines.
The “legacy of the 1/8th royalty” cases are hardest to reconcile. In 1932, the Texas Supreme Court wrote that it was “not reasonable” to construe a parties’ deed as having mistakenly assumed that that all future lease royalties would be 1/8th because it was—at that time—already “well know[n]” that a lease could have a royalty fraction larger or smaller than the usual 1/8th. Jones, 56 S.W.2d at 308. And contemporaneous judicial precedent very much backs up the Court’s recognition in Jones that although a 1/8th royalty was typical at the time, it was already known that royalty fractions may differ from the “usual” 1/8th royalty. See Ryan v. Kent, 36 S.W.2d 1007, 1011 (Tex. Comm’n App. 1931, judgm’t adopted) (distinguishing lease providing more than 1/8th royalties from lease that “merely provided for the usual one-eighth royalty”); see also Cowden v. Broderick & Calvert, 131 Tex. 434, 437, 114 S.W.2d 1166, 1167 (1938) (noting that lease had an “unusual provision … relating to development,” but “requires the payment of the usual one-eighth royalties”); Ehlinger v. Clark, 117 Tex. 547, 557, 8 S.W.2d 666, 670 (1928) (describing lease as requiring payment of “the usual one-eighth royalty from the oil produced”). Moreover, the Texas Supreme Court was very likely correct when—in 1991—it wrote that the “legacy of the 1/8th royalty” both (1) offers no guidance, one way or the other, as to whether parties to a deed intended a fixed or floating royalty; the mistake doctrine could be argued for either outcome; and (2) conflicts with the rule of construction that contracts are construed not based on the “intent of the parties,” but rather on the intent “as expressed in the instrument.” Luckel, 819 S.W.2d at 462.
Yet it is nonetheless also true that Texas courts today—including the Texas Supreme Court—are open to considering the “legacy of the 1/8th” mistake when construing oil-and-gas deeds. See Laborde, 551 S.W.3d at 152 (“[T]he use of 1/8 (or a multiple of 1/8) in some instruments undoubtedly embodies the parties’ expectation that a future lease will provide the typical 1/8th landowners’ royalty.”) (emphasis added); Hysaw, 483 S.W.3d at 9-10; see also WTX Fund, 595 S.W.3d at 302-03 (the “parties operated under … the presumption of the 1/8 royalty”). Indeed, the Texas Supreme Court in Laborde embraced the exact use of the “legacy of the 1/8th” mistake that the Texas Supreme Court rejected in Luckel—i.e., the idea that the use of 1/8th in a deed somehow demonstrates that the parties to the deed favored a floating royalty over a fixed royalty. Compare Laborde, 551 S.W.3d at 152 (use of 1/8th can “undoubtedly” demonstrate parties’ intent to convey a floating royalty) with Luckel, 819 S.W.2d at 462 (use of 1/8th cannot demonstrate whether parties intended to convey a fixed or floating royalty). Quite obviously, litigants should assume that Laborde is the correct current state of Texas law; but it is impossible to reconcile that view with the Court’s view of the same argument a few decades ago in Luckel.
There is also a question of timing. In Jones, the Texas Supreme Court criticized the “legacy of the 1/8th royalty” argument because it was already then “well know[n]” that a future lease may or may not include a 1/8th royalty fraction. 56 S.W.2d at 308. In Hysaw, the Court wrote that “conveyances of a certain vintage” reflect the “legacy of the 1/8th royalty” mistake. 483 S.W.3d at 9-10. What is that vintage? Does the era in which we consider the 1/8th mistake when interpreting deeds end in 1932—when the Court said that no one should be making that mistake? And more problematically, should a deed’s execution date matter in determining the meaning of its terms? Are we comfortable saying that the same language can mean one thing in a 1915 deed and another thing in a 1945 deed because the two deeds are of different “vintages”? If we are comfortable with differing constructions of the same deed language depending on the date of the deed’s execution, aren’t we openly conceding that we are not actually engaging in a plain-meaning construction, but we are instead seeking to discern—and apply—whatever we find the parties’ intent to be regardless of the words they used?
If a deed was executed in, say, 1930, how do we decide whether the deed’s drafters were (1) ignorant of the true availability of differing royalty fractions (and therefore mistakenly presumed a perpetual 1/8th royalty); or (2) highly informed of the true availability of differing royalty fractions (and therefore understood that lease royalties may be more or less than 1/8th in the future and chose to incorporate a 1/8th fraction into the deed anyway)? In other words, isn’t it possible that, by presuming the parties to a deed made a mistake in using a 1/8th fraction, we may actually be overriding the intent of sophisticated parties who didn’t make a mistake?
Texas’s “estate misconception” cases reveal a more clear and consistent doctrine, but leave us with many similar questions. In early Texas oil-and-gas precedent, the Texas Supreme Court itself made the “estate misconception” mistake—demonstrating that parties to deeds relying on early precedent were not really making a “mistake” so much as they were drafting deeds in light of existing Texas oil-and-gas law. E.g., Tipps, 101 S.W.2d at 1078; Murphy, 151 S.W.2d at 1006; Watkins, 189 S.W.2d at 699. By 1957, the Court recognized that parties to deeds might use a fraction of a 1/8th to describe a mineral interest conveyed when the parties actually intended to convey a mineral interest of the particular fraction itself—although the Court described that as a “legacy of the 1/8th” error rather than “estate misconception.” See Garrett, 299 S.W.2d at 904-07. By 1998, the Court recognized and identified the “estate misconception” mistake, but said that the knowledge of the misconception “is helpful and instructive, but not dispositive.” Concord Oil, 966 S.W.2d at 460. And, of course, the Court’s most recent “fixed versus floating” royalty cases fully embrace the idea that a deed may be construed in light of the “estate misconception” problem. See Hysaw, 483 S.W.3d at 10.
The timing question is salient to the “estate misconception” doctrine too, though. Given that the Texas Supreme Court was itself making the “estate misconception” mistake into the 1940s (and arguably identified the mistake for the first time in the 1950s), it is reasonable to assume that parties to deeds made the same mistake at least through the 1950s. But at what point should courts stop presuming that the parties made the “estate misconception” mistake and start applying the plain meaning of the words the parties actually used? And again, how do we reconcile the need to discern and apply intent from the words of the instrument itself with a construction of an instrument that relies on presuming the parties made a mistake and attempts to give effect to the parties’ true intent not contained within the instrument?
There are substantive questions left to answer too. In its Van Dyke opinion, for example, the Eastland Court of Appeals reasoned that the mistake doctrines should be used only to resolve apparent conflicts within the language of a deed—not to create conflict or ambiguity within a deed that has no textual conflict on its face. See 2020 WL 7863330, at *3-4. That seems right. The court also reasoned that the “estate misconception”—which describes the potential misunderstanding of the interest owned by the lessor after executing a lease—shouldn’t be used to construe a deed when the property wasn’t under lease at the time. Id. The case has been appealed to the Texas Supreme Court, which is awaiting briefing on the merits from the parties as of January 2022. If the petition is granted, we may learn whether the Eastland Court was right on both issues.
IV. CONCLUSION
Only with the benefit of more time—and judicial resolution of more deed-construction disputes—will we learn how Texas courts will answer these questions in applying the “legacy of the 1/8th” and “estate misconception” doctrines. What we do know now is that the courts are at least open to (1) presuming that the parties to a deed misunderstood the consequences of the words they used, and (2) construing deeds to give effect to what the parties are presumed to have intended, but didn’t say. That, by itself, is remarkable.
[1] Appellants in Van Dyke v. Navigator Group have filed a petition for review and the Court has requested briefing on the merits.
[2] The Texas Supreme Court repeated the “estate misconception” mistake four years later in Murphy v. Dilworth, 137 Tex. 32, 38, 151 S.W.2d 1004, 1006 (1941) (“The outstanding lease had the effect of placing the title in the lessee to 7/8 of the minerals for the purpose of exploration and development, but subject to reversion upon termination of the lease; and of retaining in the lessor the title to 1/8 of the minerals with the possibility of reversion of the remaining 7/8 interest.”). And again three years after that in Watkins v. Slaughter, 144 Tex. 179, 181, 189 S.W.2d 699, 699 (1945) (describing execution of lease as conveying “the usual 7/8 leasehold estate”).
[3] See also Nat. Gas Pipeline Co. of Am. v. Pool, 124 S.W.3d 188, 192 (Tex. 2003) (“In a typical oil or gas lease, the lessor is a grantor and grants a fee simple determinable interest to the lessee, who is actually a grantee. Consequently, the lessee/grantee acquires ownership of all the minerals in place that the lessor/grantor owned and purported to lease, subject to the possibility of reverter in the lessor/grantor.”).