Was The Royalty Reservation “Floating” Or “Fixed”?

more+
less-
more+
less-

The question in Graham v. Prochaska: Did the grantors in a 1950 Texas warranty deed reserve a “floating” 1/2 royalty interest or a “fixed” 1/16th royalty?

The Deed

At issue were three provisions:

  • Save and except there is reserved … ½ of the 1/8th royalty to be provided in any and all leases …, same being equal to 1/16th … “.
  • Provided …” there were outstanding reservations “… each of 1/4th of 1/8th royalty …”.
  • “It being the intent of the parties that the Regmunds shall be vested with and entitled to ½ of the usual 1/8th …, and the reservation hereinabove recited in favor of the grantor shall relate royalty  to and cover only the ½ of 1/8th royalty interest previously reserved …”.

The Analysis

The court concluded that “1/8th royalty” in the save and except clause must be read with the surrounding descriptive language and was thus modified by “the … to be provided in any and all leases …”. The use of the word “the” denotes that the 1/8th royalty is a distinct or particular royalty. Thus, the reservation reserved a floating royalty. The court declined to construe “1/8th” in the description of the landowner’s royalty as a limitation of the Prochaska’s interest to a fixed royalty.

The court construed the intent clause as intending that the Regmunds would receive half of whatever royalty there was in future leases. The court acknowledged that in another case it might construe the description differently but chose not to do so in this case.

The court construed the provided clause describing the outstanding mineral royalty reservations as potentially inconsistent, but the court chose to construe this deed by incorporating the earlier deeds and reservations and concluded that by specifically referencing the prior deeds incorporated their description into itself. Those deeds referred to a floating royalty interest.

Takeaways

  • This result cannot be squared with other cases that are discussed in the opinion. The court admitted in several places that it could have gone the other way.  That might explain the dissenting opinion.
  • If your reservation seems to be tied to a 1/8th royalty, do not despair.
  • Be wary in relying on these opinions because each is so unique.  Hire an 8th grade English teacher to parse your deed.
  • Confusion will continue in cases construing older reservations.  The parties assumed that because the typical lessor’s royalty was 1/8th it would always be that way. We now know better. The lease in existence in this litigation had a 1/5th royalty

Bonus quiz: What are the five rights owned under the “mineral estate”? See the answer on page 6 of the Opinion.

Topics:  Energy, Oil & Gas, Royalties, Warranty Deed

Published In: General Business Updates, Energy & Utilities Updates, Commercial Real Estate Updates, Residential Real Estate Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Gray Reed & McGraw, P.C. | Attorney Advertising

Don't miss a thing! Build a custom news brief:

Read fresh new writing on compliance, cybersecurity, Dodd-Frank, whistleblowers, social media, hiring & firing, patent reform, the NLRB, Obamacare, the SEC…

…or whatever matters the most to you. Follow authors, firms, and topics on JD Supra.

Create your news brief now - it's free and easy »