Link to Co-author Kealey Poole* Co-author Kealey Poole*
We at Energy and the Law solemnly swear and affirm that we will no longer report on the Van Dyke Presumption just as soon as litigants – win, lose or remand – exhaust their efforts to confirm, refute, distinguish or overcome it. Until then …
By a 1956 deed the Hoffmans conveyed 1,070 acres in McMullen County to Peeler. The deed “expressly reserved . . . an undivided three thirty-second’s (3/32’s) interest (same being three-fourths (3/4’s) of the usual one-eighth (1/8th) royalty)” in oil, gas, and other minerals. For decades, the holders of the reserved NPRI were paid royalties based on a fixed 3/32 (3/4 X 1/8 = 3/32). Simple multiplication; case closed?
The San Antonio Court of Appeals issued an opinion in this dispute that the reservation was of a floating 3/4 interest. The Supreme Court of Texas then decided Van Dyke v. Navigator Group, explaining that courts should not simply perform multiplication when confronting a double fraction reservation that contains “1/8”. Van Dyke requires courts to begin with a rebuttable presumption that the term “1/8” in a double fraction instrument is shorthand for the lessor’s entire royalty (whatever that royalty might be under the lease in effect) and not a fixed arithmetical value. The court rejected two widespread misconceptions Texas landowners and their lawyers had been living with for generations: a lessor who received a 1/8 royalty in an oil and gas lease retained only a 1/8 interest in the minerals, and the landowner’s royalty would forever remain 1/8. Deed drafters had been using “1/8” as a placeholder for “whatever the royalty is”, not as a number to multiply.
The Supreme Court vacated the Court of Appeals’ earlier decision and directed it to apply the new Van Dyke framework. In Hoffman v. Thomson the court has reached the same conclusion as before. Applying Van Dyke, the court dispatched several arguments raised by the Peelers. The Court reasoned:
- The presumption applies to royalty interests, not just mineral estates;
- The presumption applies to more recent deeds (this one is from the 1950s), not just “archaic” instruments (from the 1920s, as in Van Dyke);
- Repeated use of 3/32 elsewhere in this deed did not allow the court to overlook the double fraction that that triggered the presumption in the first place;
- A pre-existing lease with a 1/10 royalty on “other minerals” did not rebut the presumption. Rebuttal must arise from within the four corners of the deed itself and not from extrinsic evidence.
- A provision barring grantors from participating in future bonus payments refers to cash consideration for lease execution, not to royalty increases.
The court found none of the Peelers’ arguments were “sufficiently clear” to permit a conclusion that the double fraction was meant as simple math. The Court ruled for the Hoffmans: The 1956 instrument reserved a 3/4 floating NPRI. Once again, an appellate court has determined that after the Van Dyke presumption attaches an unhappy litigant will have a difficult time rebutting it.
Andy Rooney talks about D Day.
*Kealey, a rising 3L at Texas A&M School of Law, is a Gray Reed summer associate.