Allocating the NPRI Burden – Wenske v. Ealy
Contributor, Kathryn Gentry
The recent Texas Supreme Court case Wenske v. Ealy , analyzed how to allocate the burden of an outstanding Non-Participating Royalty Interest (“NPRI”) based on the language used in a deed. The issue in the case was whether the Mineral Interest reserved was proportionally burdened by the NPRI. The Supreme Court emphasized that Texas Courts should look to the true intent of the parties, rather than resorting to the application of “default or arbitrary rules.” The Court determined the intent of the parties by examining the deed in its entirety and did not restrict themselves to the “default rules” created in prior cases containing different facts, such as Pich v. Langford , or Bass v. Harper .
In the case, the Wenskes reserved a 3/8ths mineral interest in a 2003 Deed to Ealy. The Wenskes made the conveyance “subject to” an existing NPRI reservation in a 1988 Deed (the “1988 NPRI”). There was no question that the Ealy’s interest was burdened by the 1988 NPRI reservation.
However, the dispute arose as to whether the Wenskes’ interest was also burdened by the 1988 NPRI. The Court concluded that the Wenskes’ interest was burdened by the 1988 NPRI. The 2003 Deed’s reference to the 1988 NPRI emphasized the fact that the reservation was made “for all purposes.” The portion of the 2003 Deed which referenced mineral reservations concluded that “if the mineral estate is subject to existing production or an existing lease, the production, the lease, and the benefits from it are allocated in proportion to ownership in the minerals.” The Supreme Court held this to be determinative language signifying the parties’ intent to proportionally allocate the burden of the existing 1988 NPRI reservation. Giving the deed’s words their plain meaning, the Court could not construe the language to solely burden the grantees with the NPRI.
In this case the Supreme Court specifically compared the facts to the prior analysis used in Bass v. Harper. The Court determined that the analysis in Bass was not applicable in the present case because of the location of the “subject-to” language in the deed. The “subject-to” language in Bass was tied specifically to the grant. Thus, the “subject-to” language operated to limit the estate granted, rather than solely limiting the warranty provided in the Deed.
Importantly, the Court did not criticize the decision in Bass, but stated that it was applicable to the specific deed language in that case. Additionally, the Supreme Court did not follow the “default rule” in Pich v. Lankford, which provides that ordinarily a royalty interest should burden two mineral ownerships proportionately. Instead, the Court believed the intent was sufficiently clear within the four corners of the 2003 Deed, and discouraged relying on mechanical rules of construction over intent of the parties.
The Supreme Court ruled in favor of the Ealys, deciding that the intent of the parties was to proportionally allocate the 1988 NPRI between the Wenskes and the Ealys. In reaching its conclusion the Court relied solely on the intent of the parties through a reasonable interpretation of the 2003 Deed. In this case, the Court emphasizes the importance of clearly expressing the parties’ intent within the four corners of the instrument because Texas courts “should favor ascertaining and giving effect to that intent over employing arcane rules of construction.”