Navigating the Navigator Decision: New Guidance on the “Double Fraction Dilemma”

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“Only in a legal text could the formula ‘one-half of one-eighth’ mean anything other than one-sixteenth.” – Justice Evan A. Young[1]

In Van Dyke v. Navigator Group, the Texas Supreme Court once again grappled with the so-called “Double-Fraction Dilemma” surrounding fixed vs. floating interest calculations.[2]  The Court also took the opportunity to discuss the “presumed-grant doctrine.”

The Navigator decision is compelling because: (i) it sets forth a rebuttable presumption that the use of a double fraction in an antiquated deed will create a “floating” interest; (ii) it indicates that the presumed-grant doctrine may “ratify” the historic treatment of an interest as fixed or floating; and (iii) it applies the Estate Misconception Theory to a mineral interest as opposed to the prototypical NPRI.[3]

In 1924, George H. Mulkey and Frances E. Mulkey, as Grantors, conveyed their west Texas ranch to G.R. White and G.W. Tom, as Grantees, reserving “one-half of one-eighth of all minerals and mineral rights in said land” (the “Mulkey Deed”).[4]  Common sense and grade-school arithmetic would seemingly dictate that a reservation of “one-half of one-eighth” would create a one-sixteenth mineral interest.[5]  However, ninety years of subsequent conveyances and affirmations by the Mulkey Deed successors demonstrated an understanding that one-half of the minerals was reserved.  Despite this long-running assumption of a one-half mineral interest, both the trial court and the Eastland Court of Appeals found that the Mulkey Deed had reserved only a one-sixteenth interest.[6]  The Mulkey successors thus filed this appeal to recover the disputed seven-sixteenths mineral interest.

The Supreme Court reversed and remanded, finding that the Mulkey Deed reserved an undivided one-half mineral interest.[7]  In doing so, the court essentially ignored the “one-eighth” portion of the formula, noting that “the rules that courts must apply are not primarily those of arithmetic, but of textual construction.”[8]  Put differently, the Court found that “one-eighth” in this context was actually intended to mean eight-eighths or one hundred percent.  In reaching its conclusion, the Court looked first discussed the Double Fraction Dilemma in light of the Estate Misconception Theory.

Per the Court, antiquated instruments often use “one-eighth” within a double fraction as a term of art to refer to the mineral estate.[9]  In fact, “the very use of a double fraction should be considered patent evidence that the parties were functioning under estate misconception[10] . . . there is little explanation for the use of double fractions to express a fixed interest absent a misunderstanding about the grantor’s retained ownership interest or use of 1/8 as a proxy for the customary royalty”.[11]  Further, “when courts confront [the ‘Double Fraction Dilemma’] involving 1/8 in an instrument, the logic of our analysis in [Hysaw v. Dawkins][12] requires that we begin with a presumption that the mere use of such double fraction was purposeful and that 1/8 reflects the entire mineral estate, not just 1/8 of it.”[13]  The Court goes on to note that this floating presumption may be rebuttable based on the four corners of a deed or extrinsic evidence.  However, no language rebutting the presumption of a 1/2 interest was present in the Mulkey Deed.[14]

While the Navigator court was satisfied that the Mulkey Deed granted a one-half mineral interest under the analysis above, it took this opportunity to discuss another “distinct path” to the same conclusion.[15]  The presumed-grant doctrine, also referred to as title by circumstantial evidence, has been described as a common law form of adverse possession.[16]  It requires three elements: (1) a long-asserted and open claim, adverse to that of the apparent owner; (2) nonclaim by the apparent owner; and (3) acquiescence by the apparent owner in the adverse claim.”[17]  For the first element, nearly a century had passed in which a long and asserted open claim existed. The claim was adverse because it potentially would entitle one party to a greater share of the mineral estate.  The second element was satisfied because there was no adverse claim until 2013.  As for the third element, the Court recognized that the parties had a ninety-year history of acting in reliance on each having a 1/2 mineral interest.  This history included conveyances, leases, ratifications, division orders, contracts, and probate inventories.[18]  Although the court of appeals had attempted to impose a fourth element – a gap in the chain of title – the Supreme Court declined to recognize this additional test, finding the subsequent conveyances of one-half interests by both parties conclusive.[19]

On its face, Navigator appears to track recent judicial trends by declaring a rebuttable presumption that double fractions in antiquated deeds create floating interests.[20]  However, under the presumed-grant doctrine subsequent acts over a long period of time could color the characterization of an interest as fixed or floating.  Thus, the subsequent treatment of a double fraction as “fixed” over a significant period of time could arguably overcome the Navigator presumption.  Further, if the presumed-grant doctrine is a “common law form of adverse possession,” should it be extended to nonpossessory interests such as NPRIs?  Is the presumed-grant doctrine better thought of as a form of ratification or estoppel?

Although this decision provides a new tool to “navigate” fixed vs. floating interests, it appears that Texas practitioners must continue to assess (i) whether anything in a double-fraction deed rebuts the Navigator presumption and (ii) whether consistent historical treatment of an interest over a long period of time could give rise to a presumed-grant argument.

 

[1] Van Dyke v. Navigator Group., 2023 Tex. LEXIS 144, 1 (Tex. 2023).

[2] In the oil and gas context, a “floating” interest will generally vary depending on the royalty provided in an oil and gas lease, while a “fixed” interest remains static.

[3] An “NPRI” is a nonparticipating royalty interest.  Note that it is not being argued in Navigator that “1/8th” is a placeholder for a future lease royalty, but instead that “1/8th” in this context is a proxy for 8/8ths or 100%.

[4] Id. at 2-3.

[5] The Court later states that it must “overcome the cognitive dissonance that arises because, at least at first glance, ‘one-half of one-eighth’ seems unusually clear yet it is alleged to mean something radically different from what we might expect.”  Id. at 11.

[6] Id.

[7] Id.

[8] Id. at 1.

[9] Id. at 7.

[10] The “Estate Misconception Theory” is the notion that in the early days of oil and gas leasing, the reservation of a one-eighth royalty in an oil and gas lease was so ubiquitous that “one-eighth” became a generic proxy for a landowner’s rights in the mineral estate.

[11] Id. at 18.

[12] 483 S.W.3d 1 (Tex. 2016).

[13] Van Dyke v. Navigator Group. at 21.

[14] Id. at 27.

[15] Id. at 7.

[16] Id.  at 25.

[17] Id.

[18] Id. at 28.

[19] Id. at 26.

[20] There does, of course, remain the possibility that Navigator will be relegated to its facts, and there is presently no reason to suspect that this decision trumps the standard “four-corner” analysis.

Brad represents clients in connection with upstream energy transactions, complex mineral titles, pooling issues, lease analysis, joint operating agreements, surface use issues, title curative and general oil and gas business matters.

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