WTX Fund, LLC v. Brown, No. 08-17-00104-CV, 2020 Tex. App. LEXIS 94 (Tex. App.—El Paso Jan. 8, 2020, pet. filed)
In WTX Fund v. Brown, the El Paso Court of Appeals reviewed a dispute as to whether language in a 1951 mineral deed was sufficient to reserve a royalty interest in whole or in part. That issue turned largely on the meaning of the phrases “shall not affect” and “benefits.” Ultimately, the El Paso Court of Appeals held that, under the holistic four-corners approach, the proper interpretation was that the deed reserved the entirety of the grantor’s royalty interest.
The granting clause expressly conveyed “the leasing rights, bonuses and delay rentals …” The deed also contained an “intention clause,” expressing the intention to convey executive rights, “the 7/8 leasing rights or working interest,” and “all bonuses, delay rentals, oil payments and all other rights and benefits…” (emphasis added). The court explained that, by describing the rights as “executive rights,” as a “working interest,” and as a 7/8 interest (lessee’s historic share of production), revealed no intention to include a royalty interest.
However, the court explained that the sharpest points of contention turned on the meaning of the phrase “all other rights and benefits.” The court held this did not equate with a conveyance of the royalty interest. Unlike “royalty” or “bonus” which have well-understood meanings, “benefit” is interchangeable and operates as a catch-all. By appearing in the deed alongside “bonus” and “delay rental,” the word “benefit” in this deed represented the economic benefits of a mineral lessee, in contrast to the royalty interest “expressly reserved … by other language.”
The court also indicated there was sharp contention regarding the meaning of the following provision:
This conveyance shall not affect any interest … in the future to the non-participating 1/8th royalty in and under said land, and the grantors shall have no right to any bonuses, delay rentals, oil payments or other benefits under any oil, gas and mineral leases which have been made or which may hereafter be made by grantee… (emphasis by court).
The grantee’s successors argued the “shall not affect” language was too unclear to effect a reservation. The court disagreed stating that this phrase described mandatory language, and that it indicated the granting language was not to act on those specified ownership rights. The court further stated that no “magic words” are required for a reservation. The court also refused to interpret the clause as a “subject to” clause, explaining that “rather than refer to the rights of another party, the deed’s language specifies that the conveyance to grantee shall not affect grantors’ own rights to the non-participating 1/8th royalty.”
Ultimately, the Court concluded that the Deed conveyed the leasing right, bonuses delay rentals, and development rights in their entirety, but reserved the entire non-participating royalty interest as a floating royalty (rather than a fixed fraction or fixed royalty) in favor of the grantors.