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Intent Prevails Over Mechanical Construction in the Case of the Double Fraction

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On January 29, 2016, the Texas Supreme Court issued its opinion in Hysaw v. Dawkins, which examined the double-fraction issue in the context of a will-construction dispute.  The Court strived to give effect to the testatrix’s intent as expressed in the will’s four corners and looked beyond “a mechanical approach requiring rote multiplications of double fractions.” P. 3  Rather, it found that “considering the testatrix’s will in its entirety, we hold that she intended her children to share future royalties equally, bequeathing to each child a 1/3 floating royalty, not a 1/24 fixed royalty.”  Id.

Background

Ethel Hysaw (“Ethel”) had three children and divided her lands in Karnes County, Texas via her will.  While she gave one tract (each differing in size) to each child in fee-simple title, she provided that

"Each of my children shall have and hold 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, the same being a non-participating royalty interest . . . "

The will further provided language that (1) each child “shall receive one-third of one-eighth royalty” providing there is no royalty sold or conveyed by me covering the lands so willed and (2) should there be any royalty sold during the lifetime, then each child “shall each receive one-third of the remainder of the unsold royalty.”

Historically, landowner royalties were generally limited to 1/8.  However, some of the subject lands were now subject to mineral leases providing for royalties in excess of 1/8.  Therefore, a dispute arose and the issue became whether the siblings were devised a fixed (“fractional”) royalty, being a 1/24 interest (1/3 multiplied by 1/8), or whether the siblings were to each receive a floating (“fraction of”) royalty, being a 1/3 interest in all future royalties.

The trial court believed each child was entitled to a floating royalty (the royalties should be divided equally); however, the appellate court reversed finding each child was entitled to a fixed royalty, being a 1/24 royalty, with the excess to go to that sibling owning fee-simple title to the subject tract.  The Supreme Court took on this case finding that “[t]he proper construction of instruments containing double-fraction language is a dilemma of increasing concern in the oil and gas industry, as uncertainty abounds, disputes proliferate, and courts have seemingly varied in their approaches to this complicated issue.”  P. 2

Analysis

The Court provided background on mineral interests and the double-fraction dilemma.  It noted that “historical standardization” of the 1/8 royalty will not alter clear and unambiguous language that can otherwise be harmonized.  The Court went on to reiterate its commitment to a holistic approach aimed at ascertaining intent from all words and all parts of the conveying instrument.  The Supreme Court found that the appellate court erred by analyzing each royalty provision in isolation, instead of examining the language as a whole.        

In examining the will, the Supreme Court examined the four corners of the will in an effort to determine the meaning of the words Ethel chose and found that “all the other language in the document must be considered to deduce intent.”  P. 19 [citations omitted].  The Supreme Court found that Ethel intended to treat her children equally and therefore her intent was to equally divide the royalties among the children. 

What This Means to You

The double-fraction issue is not new and is of increasing concern in the oil and gas industry, as it occurs in multiple types of instruments, including wills and deeds.  While this decision does not provide a bright-line rule or test, it does provide instruction that an instrument’s language as a whole shall be considered to deduce intent.  The parties to an instrument, as well as oil and gas companies, should carefully review the instrument as a whole when determining intent in cases of double-fractions, and should construe the document accordingly. 

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