In a case notable for its interpretation of the term “net mineral acre” in a conveyance of mineral interests and its analysis of the estoppel-by-deed doctrine, the Eastland Court of Appeals has ruled in favor of the grantor, who asserted that the grant was burdened by previously reserved nonparticipating royalty interests (NPRIs) and such burden was shared proportionally by the grantor and grantee.
Kay Brooke-Willbanks v. Flatland Mineral Fund, L.P.; Flatland Sidecar, LLC; and Expedition Royalty Company, LLC (No. 11-21-00105-CV; filed January 12, 2023) arose from a conveyance of mineral interests in a tract of land located in Martin and Howard counties. In 2016 Willbanks received a 45/100 mineral interest in 320 acres, the equivalent of an undivided 144-acre mineral interest. That same year, she conveyed to Flatland “an undivided Seventy-Two (72) Net Mineral Acres” in all minerals and mineral royalty, producing or non-producing, on the 320-acre tract. The conveyance was “made subject to the terms of any valid and subsisting oil, gas, and other mineral lease or leases on said land” and transferred to the Grantee “the above stated in interest of Grantor’s interest” in such lease or leases. The deed went on to state that “it is the specific intent of the instrument to convey the Grantee the right to receive all bonuses, rents, royalties, production payments, or monies . . . accrued in the past or in the future, associated with the undivided interest herein conveyed.” The deed did not contain any reservations or exceptions, but at the time of the conveyance an active oil and gas lease existed on the tract, which provided a 3/16 royalty.
Two years later Flatland sold half of its interest in the tract to Expedition (36 net mineral acres). While negotiating the deal, Flatland learned of the two NPRIs dating from the 1940s that burdened the royalty interest in the tract. Flatland asked Willbanks to execute a correction deed, which she declined to do. Willbanks brought suit against Flatland to quiet title and for a declaratory judgment, asserting that the parties intended the deed to convey one-half of whatever interest Willbanks owned and that any valid NPRIs burdened the entire mineral estate because it necessarily limited the royalty interests attached to the underlying mineral interests. Flatland counterclaimed for breach of contract, conversion, unjust enrichment, and money had and received. Expedition intervened, asserting its interest in the undivided 36 acres of the mineral estate. All parties moved for summary judgment. The trial court granted summary judgment in favor of Flatland and Expedition and dismissed Willbanks’ claims. Willbanks appealed.
The court of appeals reversed, rendering in part and remanding in part. First determining that the proper cause of action was for a declaratory judgment (since the interest conveyed was nonpossessory), the court proceeded to an interpretation of the deed. None of the parties argued that the deed was unambiguous, nor did the court find it so. The question then became ascertaining the parties’ intentions from the language of the deed. First, the court had to determine the meaning of the term “net mineral acres” in order to identify the scope of the grant. Finding no case authority, the court looked to oil and gas commentators, concluding that the term “as used in the deed’s granting clause is subject to only one reasonable and plain meaning—an undivided fee simple mineral interest in the 72 acres that [Willbanks] conveyed to Flatland, including the right to receive royalty payments therefrom.”
Second, the court turned to the “subject to” clause in the deed, which “limit the estate and associated rights” (citations omitted). As the grantor of a fee simple determinable interest, Willbanks “only possessed a possibility of reverter and a royalty interest at the time the conveyance was consummated” (citations omitted). Thus, the court reasoned, the parties intended “that Flatland would (1) take its interest in the land subject to the outstanding, existing oil and gas lease on the land and (2) receive the same royalty interest in the 72 acres” Willbanks conveyed. The “subject to” clause further clarified the amount of royalty interest conveyed with the mineral interests. Absent an express provision in the deed to the contrary, the general principle in a mineral conveyance is that “a severed fraction of the royalty interest—like [an] NPRI—generally would burden the entire mineral estate because it necessarily limits the royalty interests attached to the underlying mineral interests” (citations omitted). Consequently, in order to harmonize the granting clause and the “subject clause,” the court concluded that the parties intended to limit “Flatland’s interest, as grantee, in the royalties to the same interest which [Millbanks] possessed at the time of conveyance—the royalties associated with the 72 acres that [Millbanks] conveyed to Flatland.” By conveying 72 net mineral acres without any other qualifying language, the deed conveyed only the proportional royalty interest that is associated with” those 72 acres.
Flatlands urged the court to apply the so-called Duhig rule or estoppel-by-deed doctrine, which “stands for the proposition that if a grantor reserves an interest and breaches a general warranty at the very time of execution, then an immediate passage of title is triggered to the grantee for that property that was described in the reservation—in other words, if the grantor owns the exact interest to remedy the breach at the time of execution and equity otherwise demands it.” Trial v. Dragon, 593 S.W.3d 313, 319 (Tex. 2019); Duhig v. Peavy-Moore Lumber Co., 135 Tex. 503, 144 S.W.2d 878 (1940). But noting that SCOTX has narrowed Duhig to a specific fact situation, the court distinguished this case because Willbanks did not purport to reserve royalties in the deed. The limitation on the grant was found in the “subject to” clause, which expresses the parties intent that the 72-acre mineral interest granted to Flatlands would be burdened by the NPRIs to the same extent as Willbanks’ interest was burdened prior to the conveyance. Willbanks thus did not “overconvey” property in the granting clause, which under other circumstances could have triggered estoppel-by-deed.
The court of appeals rendered judgment for Willbanks that “the outstanding NPRIs in the chain of title burdened” the interests of Willbanks and Flatland proportionately. It further reversed the trial court’s summary judgment in favor of Flatlands on its money had and received claim. It remanded to the trial court for reconsideration of the damages Flatland asserted on that claim.
This case may only be of interest to oil and gas lawyers and landmen, but it nevertheless continues to interest us that parties to a mineral conveyance or lease can agree that the deed or lease is unambiguous but assert contradictory interpretations of the language. One can see why this is the case, since presumably nobody wants to admit that they agreed to an ambiguously drafted document. In any event, the opinion’s discussion of “net mineral acre” and estoppel-by-deed advances the law, and the court of appeals clearly knew that. This in itself makes the case worthy of our attention.
