Does Texas Have a New “Rule” in Conveyancing?

by Gray Reed & McGraw

“The only sensible way to live in this world is without rules”. The Joker to Batman, The Dark Knight

Subject-to, reservations-from, and exceptions-to problems have been lurking in the shadows of Texas jurisprudence for a while now, and the courts have been all over the map in recent holdings (Title nerd and proud of it? Compare this example with this one.)

In Wenske v. Ealy, the Supreme Court channeled the Joker, essentially jettisoning the old rules and confirming the new rule in deed construction cases: There are no “rules”. 

This shouldn’t be a surprise. In recent cases (see Hysaw v. Dawkins), the court has been on an “intent, 4-corners, each-deed-is-different” trajectory.

The conveyances

The Wenskes purchased a mineral estate from Vyvjala, Novak and others.  Vyvjala and Novak each reserved a 1/8th NPRI for 25 years.  Wenske then conveyed the property to Ealy.  The conveyance was “subject to the Reservations from Conveyance and Exceptions to Conveyance and Warranty.”  The deed then reserved a 3/8ths royalty to Wenske and excepted the Vyvjala NPRI from the conveyance and warranty.

Wenske claimed their 3/8ths royalty interest was free and clear of the Vyvjala NPRI. Ealy claimed the NPRI burdened the parties’ interests proportionately.  The trial court granted summary judgment for Ealy; the court of appeals and the Supreme Court affirmed.

The new “rule”

The deed’s subject-to clause made Wenske’s conveyance “subject to” both the “Reservations from Conveyance” and “Exceptions to Conveyance and Warranty.”  The deed clearly “reserved” a 3/8ths royalty interest for Wenske.  By listing the Vyvjala NPRI as an “Exception[] from Conveyance and Warranty,” the deed notified Ealy that the conveyance did not include that portion of the mineral estate subject to the Vyvjala NPRI. This protected Wenske from a warranty claim.

The court noted that a “severed fraction of a royalty interest”—such as an NPRI—generally burdens the entire mineral interest from which it is carved out.  The Wenske-to-Ealy deed did not have language altering that general rule.  Thus, the parties bore the Vyvjala NPRI proportionately to their respective ownership in the mineral estate.

The dissent

The five-justice decision is not without its detractors, including four of their colleagues, who complained that by making the Wenskes’ conveyance “subject to” the Vyvjala NPRI, the deed “subjected” the Ealys’ mineral estate to the entire Vyvjala NPRI.

What does it mean?

Confused? Don’t be. The court is now more openly discouraging “default rules” when interpreting conveyances. The court of appeals based its decision on the default rule: In the absence of contrary language a deed conveying a partial mineral estate subject to an NPRI subjects the conveyed and reserved interests to the NPRI proportionately.

That was so 20th century. Now, five justices say such “mechanical rules of construction” are improper. Instead, courts must engage in “careful and detailed examination” of a deed “in its entirety” to determine how the parties intended to allocate an NPRI.

Will it open the floodgates to challenges to long-understood assumptions about conveyances? Time will tell. Until then, let the debate begin about what Wenske has done to Texas jurisprudence.

Hear this solemn promise: We will never again subject you this sort of musical interlude.

[View source.]

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.

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