Subject to Interpretation
“‘The words ‘subject to,’ used in their ordinary sense, mean ‘subordinate to,’ ‘subservient to’ or ‘limited by.’” Kokernot v. Caldwell, 231 S.W.2d 528 (Tex. Civ. App. – Dallas, 1950).
“As a long series of cases has made painfully clear, however, the use of [a subject-to] clause to perform some function other than a limitation on the deed warranty is likely to introduce an element of ambiguity into the deed which may be resolved only through litigation.” Ernest E. Smith, The “Subject to” Clause, 30 Rocky Mtn. Min. L. Inst., 15.01 (1984), quoted in Wenske v. Ealy, 521 S.W.3d 791 (2017).
In Wenske v. Ealy, the Texas Supreme Court dealt with these facts: In 1988, Vyvjala and Novak conveyed a 55-acre tract to Wenske, reserving a floating 1/4 NPRI. In 2003, Wenske conveyed the 55-acre tract to Ealy. The 2003 deed was made “subject to the Reservations from Conveyance and the Exceptions to Conveyance and Warranty.” The Reservations from Conveyance reserved to Wenske an undivided 3/8 interest in the minerals. The Exceptions to Conveyance and Warranty listed the 1/4 NPRI reserved in the 1988 deed.
Wenske filed an action against Ealy seeking a declaration that Ealy’s 5/8 interest bore the entire burden of the 1/4 NPRI. Ealy counterclaimed seeking a declaration that the outstanding NPRI should be borne by Wenske and Ealy proportionately.
The trial court ruled for Ealy, holding that the NPRI should be borne proportionately. The Court of Appeals affirmed at Wenske v. Ealy, 521 S.W.3d 369 (Tex. App. 2016). The Texas Supreme Court, in a 5-4 decision, affirmed the Court of Appeals decision, holding that the NPRI should be borne by both parties proportionately.
The Supreme Court first held that the 2003 deed was unambiguous, enabling the Court to construe the deed as a matter of law. The Court made that determination in the face of its own observation that “The deed here is not a model of clarity” (Id. at 13) and in the face of the conclusion of four of the nine justices that the majority’s interpretation was mistaken.
The majority opinion’s reasoning is somewhat obscure. The Court recognized that a conveyance of a mineral interest ordinarily carries with it a corresponding right to royalty. It cited Benge v. Scharbauer, 259 S.W.2d 166 (Tex. 1953) for the proposition that if the parties want to deviate from the norm, then they should “plainly and in a formal way express that intention.” The Court concluded that the parties did not plainly express such an intention. It also recognized that the 2003 deed was between individuals dealing with 55 acres in Lavaca County, implying that the parties to the deed were unsophisticated and that the deed should be read as the unsophisticated would read it.
The dissenting opinion is more clear. The dissent pointed out that the 2003 deed conveyed the 55-acre tract “subject to [1] the Reservations from Conveyance and [2] the Exceptions to Conveyance and Warranty.” The four dissenting justices would have held that the grant of the 55-acre tract was diminished by [1] the reservation of a 3/8 interest in the minerals and [2] the obligation to pay the 1/4 NPRI. They would, therefore, have burdened the assignee’s interest with the entire NPRI burden.
The case teaches two lessons: First, draft instruments affecting title with a weather eye on how a court, convinced that it can divine the parties’ intention from the four corners of an instrument, can misinterpret them. Second, heed Dean Smith’s warning that the use of a “subject-to” clause to restrict the grant introduces ambiguity that can lead to litigation.
This article was reprinted with permission from Permian Basin Landmen’s Association Takeoff
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