The Texas Supreme Court recently addressed how a bequest in a will of a double fractional oil and gas interest should be interpreted in Hysaw v. Bretton et al in an opinion entered on January 29, 2016. A double fraction occurs when an instrument expresses a royalty interest as the product of two fractions, such as “1/4 of the usual 1/8 royalty”. The problem with using a double fraction in a deed or a will is that it is not often clear whether the instrument has created a fixed or “fractional royalty”, or a floating “fraction of” royalty in situations where the lease provides for a royalty different than 1/8. Back in the day, royalties were almost always 1/8. However, these days royalties are usually not 1/8: they can range from 10% to 30% or more. So the question becomes whether the testator or grantor meant for the beneficiary or grantee to get 1/4 times 1/8, i.e., 1/32, no matter what the actual royalty is or whether the term “the usual 1/8” was meant as a stand-in figure to represent whatever the actual royalty is. For even a moderately producing oil or gas well, this difference can represent a lot of money over the life of the well. The dispute in this case was between the children’s heirs, some claiming the will intended a fractional interest of 1/32 royalty and others claiming that the will intended a floating fraction of 1/3 of whatever the royalty was.
Ethel Hysaw executed a will in 1947, dividing her three tracts among her three children. The fee simple distribution was as follows:
● Inez received 600 acres from a 1065 acre tract,
● Dorothy received the remaining 465 acres of the 1065 tract, and
● Howard received a separate 200 acre tract and a second separate 150 acre tract.
Mrs. Hysaw’s will distributed the mineral estates using double fraction language. The mineral distribution language states 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 that may be produced from any of said lands…and should there be any royalty sold during my lifetime then [the three children], shall each receive one-third of the remainder of the unsold royalty.”
The Texas Supreme Court noted that for decades the “usual royalty” was 1/8, citing Graham v. Prochaska, 429 S.W.3d 650, 657 (Tex. App.—San Antonio 2013, pet.denied). However, these days mineral owners are able to negotiate a wider range of royalties in mineral leases, many larger than 1/8th, creating an issue in whether the double fraction language fixed the heirs devised royalty at 1/24th (1/3 of 1/8th) and passing any negotiated royalty above 1/8th to the current fee owner, or if the testator intended her heirs to receive 1/3 of all future royalties, regardless of what the royalty fraction was. Howard’s and Dorothy’s heirs sought declaratory-judgment each seeking 1/3 of the 1/5th royalty in a new oil and gas lease, while Inez’ successors argued that Howard’s and Dorothy’s descendants are only entitled to 1/3 of 1/8th (1/24) and that any additional royalty belonged to the owner of the fee simple estate.
The trial court sided with Howard’s and Dorothy’s successors, ruling that each of Hysaw’s children (and their heirs) were entitled to 1/3 of any and all royalty interest on the devised land tracts. When Inez’ descendants appealed the case, the Texas Fourth Court of Appeals reversed the trial court, concluding in its opinion that the 1/3 royalty provision that “each child receive one-third of the remainder of the unsold royalty” applied only in the event of an inter vivos royalty sale, and not in the case of an oil and gas lease.
The Texas Supreme Court discussed that in construing a will the objective is to determine the testator’s intent as reflected in the instrument as a whole. A court must focus both on the testator’s intention and the meaning of the words actually used. See Shriner’s Hosp. for Crippled Children of Tex. v. Stahl, 610 S.W.2d 147, 151 (Tex. 1980). As a result, the Texas Supreme Court reasoned that the Court of Appeals erred by construing each royalty provision individually, in isolation, and comparing each royalty provision to the closest match among a number of example phrases, without regard to context. In doing so, the Court of Appeals ignored evidence of Hysaw’s intent to equally divide the royalties among her children. The Texas Supreme Court therefore held that the will of Ethel Hysaw devised a 1/3 fraction of royalty interest (regardless of the amount of that royalty) to each of her children.
One would think that oil and gas lawyers would take note of the abundance of cases involving disputes over double fraction language and never use double fraction language in a will or a deed or any other instrument. Unfortunately, we still see double fraction language used, which is in effect, an invitation to a future lawsuit. The moral of this case is clear: when you need an important legal document involving mineral interests or royalties drafted, seek out an experienced oil and gas lawyer who can avoid future pitfalls by using precise and appropriate language in the document.