11 Jun Ambiguous Mineral Deeds… by Sara K. Paciente

A seller and a buyer come to an agreement on the sale of a mineral interest. The price is set, the interest conveyed is understood by both parties, and they are ready to sign. The seller has drafted the deed showing that he is selling a fraction of his mineral interest to the buyer, and everyone is eager to move forward. The seller signs and acknowledges, and the buyer pays. The deed is filed with the county.

Years pass, and the buyer’s descendants find out about this mineral interest. Those same lands are now being leased by the seller’s descendants to an oil and gas developer, and the buyer’s descendants are in talks to sign a similar oil and gas lease. That would be fine under normal circumstances, but unfortunately, the old mineral deed mentions a 1/8 interest in the mineral estate in one part of the instrument, a 1/16 interest in another part, and a 1/2 interest in yet another. Naturally, the seller’s descendants argue that the seller only conveyed a 1/16 mineral interest, but the buyer’s descendants claim that it was a 1/2 mineral interest. Once oil and gas production begins, the difference in royalties paid to an owner of a 1/16 mineral interest and a 1/2 mineral interest will be significant. Who is right? Who gets the dough?

Mineral Deed Interpretation in Texas

Deed interpretation has proven to be a complicated business in Texas, particularly when it comes to mineral deeds. Not only does the legal description of the property need to pass muster, but the description of any severed interests should be clear. An existing oil and gas lease can introduce further complications. When there are conflicting terms like in our example above, the instrument is said to be ambiguous. If the parties cannot come to an agreement, it is up to the court to decide what the parties to the mineral deed had intended.

Four Corners Rule

Courts in states like New Mexico determine the intent of the parties by looking at extrinsic evidence, meaning facts outside the instrument’s writing, even if the terms of an instrument are clear and unambiguous. However, Texas follows the Four Corners Rule. This rule means the courts find the intent of the parties within the contents of the instrument. Extrinsic evidence is allowed only in ambiguous cases. Even with ambiguous cases, Texas courts try to interpret the deeds without relying on extrinsic evidence if possible. It is assumed that the parties wrote what they intended, and courts will therefore go to great lengths to enforce exactly what is written.

Canons of Construction

If a mineral deed contains conflicting fractions within the same instrument, the court may use different rules or Canons of Construction to interpret the deed without having to introduce extrinsic evidence. Depending on the situation, the court may interpret the mineral deed to favor the party who did not draft the instrument, usually the buyer, or grantee, like in our example above.

Greatest-Estate-Possible Rule

Alternatively, the court may decide to interpret the mineral deed based on the Greatest-Estate-Possible Rule, meaning it will use the interpretation that conveys the greatest interest, which would also put the buyer in our example ahead.

Two-Grant Doctrine

If the court employs the Two-Grant Doctrine, on the other hand, it will assume that the grantor meant to convey different fractions to different interests. To use our above example, that could be a 1/2 interest in the minerals, and a 1/8 interest in the royalties under an existing oil and gas lease, or perhaps a 1/16 interest in royalties under a future lease. It can be difficult to determine what the courts will ultimately decide, and it will depend on the exact wording of the deed, among other factors.

To avoid these issues, buyers and sellers should always check the terms of the instrument for consistency and clarity before signing. The attorneys at KMD offer expertise to ensure that ambiguous terms do not negatively impact your transactions.

By Sara K. Paciente, Attorney at KMD Law