The Double-Fraction Dilemma: Intent-Focused Inquiry Prevails

by Jackson Walker

As the oil and gas industry has moved away from the legacy of the 1/8th royalty, double-fraction language has generated a multitude of disagreements as to whether a royalty interest should be construed as "fixed" or "floating" or, stated differently, "fractional" as opposed to "fraction of." Historically, court opinions construing instruments with double-fraction language have yielded mixed results. In Hysaw v. Dawkins, issued on January 29, 2016, the Texas Supreme Court passed on the opportunity to establish a bright-line standard in favor of a more holistic approach which focuses upon the intent of the parties as determined from the four corners of the instrument.

The Double-Fraction Dilemma

In Hysaw, the double-fraction problem arose in the context of a will construction dispute. The testatrix bequeathed various-sized tracts of land in Karnes County in fee simple to each of her three children, Inez, Howard and Dorothy, but globally devised to each child a non-participating royalty interest of "an undivided one-third (1/3) of an undivided one-eighth (1/8) of all oil, gas or other minerals in or under or that may be produced from any of said lands." Separately, the will specified, in nearly identical paragraphs, that each child "shall receive one-third of one-eighth royalty." Each such paragraph then concluded with a residual royalty clause specifying that, if there had been an inter vivos sale or conveyance of royalty on the land willed to that child, the three children "shall each receive one-third of the remainder of the unsold royalty."

Years later, after some of the lands became subject to mineral leases providing for royalties in excess of 1/8, the children's heirs and successors in interest disputed the quantum of royalty bequeathed to each sibling. The issue was whether the double-fraction language of the will fixed the siblings' devised royalty at fixed at 1/24 or whether the testatrix intended the devisees to share equally in all future royalties. Howard's successors in interest initiated a declaratory judgment action and aligned with Dorothy's successors in interest to assert that the will gave each child a "floating" 1/3 of any royalty obtained from all the tracts of land. Inez's successors in interest construed the will as providing for a "floating" royalty interest on the tracts subject to an inter vivos royalty sale or conveyance and a "fixed" royalty interest of 1/24 on the tracts not subject to an inter vivos sale or conveyance.

After the parties filed cross-motions for summary judgment, the trial court rendered judgment in favor of Howard's and Dorothy's successors, construing the will as providing to each child a "floating" 1/3 interest in any and all royalty interest on all the devised tracts of land. The Fourth Court of Appeals reversed and rendered judgment in favor of Inez's successors, holding that the will devised to all three children a fixed, fractional royalty on the tracts of land devised to two of the children and a fraction of royalty on the separate tracts of land devised to the third child, the conveyance of an inter vivos royalty gift being the differentiating factor.

The Legacy Of the "Customary 1/8" Royalty

The Texas Supreme Court's analysis recognized that issues regarding the amount of a royalty interest are increasing as today's landowners frequently secure mineral leases offering royalties larger than the historically standard 1/8th. The court expressly noted that the "historical standardization" of the 1/8 royalty will not alter clear and unambiguous language that can otherwise be harmonized. Accordingly, the court appears to indicate that the "legacy of the 1/8 royalty" will not trump a testator's intent as expressed within the four corners of the will.

The court "reaffirmed [its] commitment to a holistic approach aimed at ascertaining intent from all words and all parts of the conveying instrument." In finding for the proponents of a floating royalty interpretation, the court concluded that the error in the court of appeals occurred as a result of construing "each royalty provision in isolation, deriving their meaning by comparing them to exemplar phrases that were themselves divorced from context." The Court decided this issue as a matter of law, not of fact, based on the terms used in the instrument.

While the court's opinion in Hysaw is unlikely to put an end to the mixed results that have occurred when the double-fraction has been considered in the past, it does provide clear instructions that all language in a document should be considered to deduce intent, rather than ascribing meaning to double-fraction language in isolation as was often done in the past. Through the lens of such analysis, the court held that the language in the will and "overall structure of the royalty devise" confirmed the testatrix's intent to treat the children equally in the distribution of the devised royalty interests and thus, to vest each child with a 1/3 interest in any royalty interest in the devised land.

The main take-away from this case is that there is no bright line rule for interpreting double-fraction conveyances. As the court has stated in prior decisions, the objective is instead to give effect to the grantor's intent, as expressed within the four corners of the conveyance documents.

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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