On February 17, 2023, the Texas Supreme Court issued its decision in Van Dyke v. Navigator Group, No. 21-0146, 2023 WL 2053175 (Tex. Feb. 17, 2023), which analyzed the meaning of double fractions in mineral reservations.1 Construing a 1924 deed, the Texas Supreme Court held that the grantors' reservation of "one-half of one-eighth of all minerals and mineral rights" reserved one half of the mineral interest, not one sixteenth of the mineral interest as simple arithmetic would suggest. Van Dyke at *1. In so holding, the Court focused on the meaning of "1/8" at the time of execution. See id. at *5-7.
The Court analyzed the meaning of double fractions looking to the meaning of contract language at the time of execution.
The dispute arose when an oil and gas operator drilled a well on the subject ranch land in 2012—88 years after the deed at issue was executed—and paid production royalties on the assumption that both grantors' successors and grantees' successors held a ½ mineral interest. Id. at *2.The grantees' successors objected to this royalty division, asserting that the "one-half of one-eighth" reservation language in the deed reserved only 1/16 of the mineral estate to the grantors, giving the grantees' successors a 15/16 ownership interest. Id. On the other hand, the grantors' successors argued that the language reserved half of the mineral interest because the double fraction reflects a term of art common at the time the deed was drafted where 1/8 referred to the entire mineral estate. Id.
With at least $44 million in accumulated disputed royalties at stake, the parties filed dueling motions for summary judgment. Id. The trial court agreed with the grantees and held that the deed's reservation of "one-half of one-eighth" in the mineral estate unambiguously reserved only a 1/16 interest. Id. The Eastland Court of Appeals agreed and affirmed the trial court's decision. Id.
The Texas Supreme Court reversed. Id. at *3.In holding that the language "one-half of one-eighth" reserved one half of the mineral interest to the grantors (rather than a 1/16 interest), the Court reasoned that at the time the parties executed the deed, "'1/8' was widely used as a term of art to refer to the total mineral estate." Id. at *5. Building upon its opinion in Hysaw v. Dawkins, 483 S.W.3d 1, 13 (Tex. 2016), the Court offered this guidance to courts interpreting similar language in the future:
[W]hen courts confront a double fraction involving 1/8 in an instrument, the logic of our analysis in Hysaw requires that we begin with a presumption that the mere use of such a double fraction was purposeful and that 1/8 reflects the entire mineral estate, not just 1/8 of it. . . . Our analysis in Hysaw thus warrants the use of a rebuttable presumption that the term 1/8 in a double fraction in mineral instruments of this era refers to the entire mineral estate.
Id. at *7 (emphasis in original).The Court did clarify that such a presumption "is readily and genuinely rebuttable" and confirmed that "the entire instrument should be examined to determine whether its text rebuts the presumption." Id. Whether, for example, a document that uses both "one-half of one-eighth" language and "one-sixteenth" language rebuts the presumption that "one-eighth" refers to the entire mineral estate remains to be seen.The Texas Supreme Court did not foreclose this possibility, noting that "[n]o one has presented us with examples of parties to instruments of the relevant era who used a double fraction just for its arithmetical purpose, but courts should be ready to find not just confirmation but contradictions of the presumption." Id. Other open questions include whether and to what extent the Court's decision applies to reservations of royalty interests, as opposed to the reservation of a mineral interest that was at issue in Van Dyke.
The Court reviewed the Presumed-Grant Doctrine and left open questions for future courts to consider.
After construing the deed, the Court analyzed the presumed-grant doctrine, "also referred to as title by circumstantial evidence, [that] has been described as a common law form of adverse possession." Id. at *9.The Court found that in this particular case, that "parties' history of repeatedly acting in reliance on each having a ½ mineral interest conclusively satisfies the presumed-grant doctrine's requirements." Id.
While in Van Dyke the Court reached the presumed-grant doctrine only after undertaking the deed construction analysis, the Court clarified in a footnote that in "cases where the presumed-grant doctrine is clearly implicated, a court could dispense with the deed-construction analysis" altogether. Id. at *11 n. 11.The Texas Supreme Court provided no guidance as to what showing is required for a finding of a clear implication of the presumed-grant doctrine.Future courts may thus grapple with what factual scenarios meet this standard.For example, there is an open question as to how long is long enough for the parties to demonstrate adherence to one particular contractual construction to implicate the presumed-grant doctrine.In Van Dyke, there was a ninety-year history for the Court to analyze (id. at *9), but it is unclear what shorter amounts of time may suffice in other cases.
Further, while the Court's presumed-grant analysis in Van Dyke supported its deed-construction analysis, the Court suggested that there may be future cases in which the presumed-grant doctrine supports a different contractual interpretation than that of the textual construction analysis.See id. at *11."When historical records are sufficiently clear to implicate the presumed-grant doctrine's demanding requirements, the result could cut either way—in favor of or contrary to the party invoking the double-fraction presumption." Id. at *11 n. 11.Combined with the Court's suggestion that a deed-construction analysis could be abandoned altogether in certain circumstances (id.), future cases will no doubt hinge on how much evidence is enough evidence to invoke the presumed-grant doctrine, especially where reliance on the presumed-grant doctrine would lead to a result that does not harmonize with the textual analysis.
Two hallmarks of the Court's broader approach to contract interpretation in Van Dyke should not be overlooked. First, the Texas Supreme Court emphasized an originalist theory of contract interpretation, holding that "the ordinary meaning at the time of drafting remains the meaning to which courts must later adhere. . . .'Words must be given the meaning they had when the text was adopted.'" Id. at *3 (citing Hysaw, 483 S.W.3d at 13 (quoting Antonin Scalia & Bryan A. Garner, Reading Law: The Interpretation of Legal Texts 78 (2012)). This accords with the Court's recent trend of looking to how words were used at the time of execution, rather than analyzing what meaning those same words may have today.
Second, the Court "emphasize[d] that the initial analysis remains "confined to the four corners of the document as usual." Id. at *4. Courts "do not start with extrinsic evidence, nor do [they] credit claims made in litigation of a secret or bespoke meaning that no one not privy to the code reasonably would have understood." Id. However, the Court acknowledged that contractual ambiguities may arise and necessitate extrinsic evidence. Id. at *8. For example, in the context of construing a reservation with double-fractions, the Court did not rule out the possibility that "an instrument may have enough textual evidence to drain confidence in the presumption yet insufficient evidence for a court to conclude that a reasonable reader at the time would have understood the instrument to require mere multiplication" such that "a factfinder may be needed to finally resolve the text's meaning." Id.
This presents a balancing act for practitioners considering whether and how to use "industry experts" in contract interpretation disputes. Practitioners should balance (i) the Texas Supreme Court's reminder that the four corners of the contract controls with (ii) the need to understand what certain contract terms meant at the time of execution, and (iii) extrinsic evidence needed to explain ambiguity. Especially in highly-specialized, technical industries like oil and gas, expert testimony may be needed to shed light on the historical meaning of a contract term even if neither party alleges contractual ambiguity. Future cases may provide more insight on this and other questions raised by the Court's decision.
1 Respondents filed a Motion for Rehearing on April 5, 2023, and the Court requested a response from Petitioners.
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