Texas Supreme Court Departs From Long-Standing Rules of Deed Construction

Texas Supreme Court Departs From Long-Standing Rules of Deed Construction

By Miguel Suazo and Chelsea Allen

          The conditional phrase “subject to,” used frequently in deeds, may no longer mean what you think it means. In June, the Texas Supreme Court issued a narrow 5-4 decision in Wenske v. Ealy, that may bring more confusion than clarity to the construction of mineral deeds. Interpreting documents can often be difficult, and this decision undoubtedly obfuscates and complicates the process of interpreting conveyances.

Wenske revolves around the Court’s interpretation of the (apparently) deceptively straightforward phrase “subject to” as being potentially able to mean something besides what it actually says. Now, as a result, drafters who rely on the previously understood meaning of “subject to” as actually meaning that something (i.e. the grantee’s interest) is subject to something else (e.g. an exception or reservation) when it says so, could be in for an unexpected result. Ironically, the Court made its decision citing a desire not to “vitiate the established background principles of oil-and-gas law” but rather to enhance “continuity and predictability” and “the principle of certainty under the law.” But, just how far the decision goes toward this end is questionable, especially in light of the fact that nearly half of the Court vehemently disagreed with the majority.

The case background presents a relatively common intersection of property and oil and gas law in Texas. In 1988, a prior owner conveyed a 55-acre property to Wenske excepting a ¼ non-participating royalty interest (“NPRI”). In 2003, Wenske, in turn, conveyed all of the surface estate and a 5/8 interest in the minerals to Ealy, reserving a 3/8 mineral interest. Subsequently, a dispute arose over how much each party was burdened by the ¼ NPRI exception. Wenske argued that its reserved interest was not burdened by the NPRI at all, while Ealy maintained that the parties shared the burden. The Court described the issue as “whether the language of the deed passed the entire burden of an outstanding non-participating royalty interest to the grantees or whether the NPRI proportionately burdened the grantor’s reserved interest.”

By significant departure from its own rules of deed construction, the Court concluded that the NPRI burdened the reserved interest (the Wenskes’) and the conveyed interest (the Ealys’) proportionately. The Court’s stated mission was to dispense with supposedly “arcane” rules of deed construction, and honor the true intent of the parties. And, that intent, it held, was that the parties would share the burden of the NPRI, because the deed never specified that Ealy’s interest would bear all of it alone. One problem with this reasoning is that the deed never contained such language; and, in fact, it says the contrary. The deed plainly states, as noted immediately by the dissent, that the grantee (Ealy) takes the property “subject to the Reservations from Conveyance” (the 3/8 Wenske interest) and “the Exceptions to Conveyance” (the ¼ NPRI).

Given the very plain language that the Ealy interest was intended to be the interest subject to the ¼ NPRI, it seems obvious that the Wenske interest was intended to be the interest not subject to it. The fact that the Texas Supreme Court found its way to another result is rather perplexing. And, the Texas oil and gas industry and legal community are not the only ones surprised by this outcome. In an exceptionally clear and cogent dissent, Justice Boyd (joined by Justices Willett, Lehrmann, and Devine) was direct in his contradiction: “Contrary to the Court’s only reason for its holding, the deed does in fact express an intent that the Ealys’ interest be “the sole interest subject to” the ¼ NPRI.

Ultimately, while the Court’s own intent in Wenske may have been to simplify the rules of deed construction, it may instead have actually made matters more complicated. As a partial rationale for its decision, the court complains of more traditional rules of construction as being “arbitrary,” “mechanical,” and “arcane,” yet it does not address the fact that the Court itself, through past jurisprudence, advanced such rules in order to create an orderly, consistent, and predictable legal framework for drafters and courts to rely on. By departing from these predictable, if “mechanical,” rules, the Court may have made the process of deed construction more subjective and difficult, and not necessarily more fair. The Court claims to examine the conveyance’s plain language, yet as Justice Boyd points out in dissent, “the Court never addresses the controlling question: under this deed’s plain language, what exactly is “subject to” what? By failing to ask the controlling question, the Court ends up with the wrong answer.”

The practical importance of this decision is what counts for Texas industry and lawyers alike. If there is anything certain to take away from this case, it is that, going forward, even more attention than usual will need to be given to making sure that your conveyances are clear and that your intent is boldly and unmistakably obvious.

FOR ASSISTANCE WITH MINERAL AND ROYALTY INTEREST CONVEYANCES, CONTACT MIGUEL SUAZO AT 512-991-4788 OR MAS@SUAZOLEGALGROUP.COM.

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