Montgomery Trustee v. ES3 Minerals and Echo Minerals is another Texas fixed or floating royalty case. Before diving into the details, perhaps it's best to describe the pattern the courts seem to fall into to resolve these disputes. These are general rules of construction one sees time after time in these cases:
- To the extent possible apparent inconsistencies or contradictions must be harmonized by construing the document as a whole. In other words, the court will consider the entire document, not just each party's favorite parts.
- To discern the parties' intent, words and phrases of the instrument must be construed together and in context, not in isolation.
- Words and phrases generally bear their ordinary meaning unless the context supports a technical meaning or different understanding.
- The text of an instrument retains the same meaning today that it had when it was drafted.
- When faced with a double fraction involving 1/8 in a mineral reservation or conveyance the court is not to give the fraction its arithmetical meaning; rather, evaluation of conveyances and reservations executed in the "early to mid-20th century" (Whenever that was, this one is a 1955 deed) begins with the presumption that 1/8 reflects the entire mineral estate, not just 1/8 of it.
- The estate misconception theory refers to the prevalent mistaken belief during that time that a lessor reserving a 1/8 royalty only retained a 1/8 interest in the minerals rather than the entire mineral estate in fee simple determinable with the possibility of reverter.
- Because of the presumption, treating 1/8 as a placeholder for future royalties generally results in a floating royalty interest.
- The presumption is "readily and generally" rebuttable but the court must examine the entire instrument to determine whether the text rebuts the presumption.
- Although not present in this case, courts often consider the presumed grant doctrine.
The conveyance at issue
"The grantors... exclude from this conveyance, a [NPRI] of one fourth (1/4) of the landowners' usual one eighth (1/8) royalty."
Because the conveyance used a double fraction involving 1/8 the court began with the rebuttable presumption that the 1/8 was a placeholder for the standard royalty and not a set arithmetical value. The court concluded that the deed reserved a floating ¼ NPRI in existing and future leases.
Appellees relied on six clauses in the deed that they argued rebutted the floating presumption because they established that the grantors were under no misconception about the extent of their ownership of the mineral estate. The court was not convinced. These exceptions were too far afield from the granting language for the conclusions based on the granting language to be rebutted.
It's sometimes not that easy.
These "rules" remain the same even where the interests to be conveyed or reserved are described in two – or even more – seemingly different or even contradictory ways, often scattered throughout the instrument. The court then has to engage in the additional task of harmonizing the different clauses, which is not easy to accomplish in many cases.
John Mayall RIP. You have choices today.
with Eric Clapton ...
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