Interpreting Mineral Reservations

Interpreting Mineral Reservations me The Duhig Rule Author i'i By Mike Howard

r1,jr,1h Background Ike Howard received ii (`V a �� ri? Y ^?}ai�5 he Duhig Rule originated from a 1912 Orange County, Texas, deed the University of Oklahoma 1n i Gb�c'� r Tinterpreted by the Texas Supreme Court in 1940. The significance of obtained ajuris doctorate degree in la v Syr; Okla n the Duhig Rule is that it is followed in the majority of oil and gas jurisdic- University in 1975. Howard passed ti Pj r? ;;fT11 �' 1 tions. Louisiana adopted the Duhig Rule in the case of Dillon v. Moran (362 So. 2d 1130, La. App. 2d Circuit, 1978); Oklahoma adopted it earlier He began his career as an in-house lend.,511 In 19,75 is (Murphy v. Athans, 265 P2d 461, 1954). Oil Company in Denver, Colorado, Ho,�. � rd was tin r rr r,3 According to Williams and Meyers in section 311 of their commentary on for Post Petroleum Co., Inc. in Oklahoma City for rig C yeas (19)9 oil and gas law, other states adopting the Duhig Rule are: Alabama, Colorado, Mississippi, North Dakota and Wyoming. 1987), In addition to working in-house for several o°tzr 41e r eri he has three years of independent field land erperer:e. i ie f5 Statement of the Duhig Rule currently employed in the land adminisiradon department rr-r The Duhig Rule of interpreting mineral reservations is applied to con- Unocal Corp., Houston, Texas. veyances of mineral ownership by warranty or mineral deed (but not quitclaim deed) in which the owner of a fractional mineral interest reserves a fractional share of the mineral estate without also stating in the deed that there are outstanding mineral interests. The effect of the rule is to estop the grantor, by his warranty, from claiming the total fractional share of the minerals he reserved in the deed.

Facts of the Case Duhig was the grantee of a Warranty Deed wherein his grantor reserved 1/2 of the mineral rights. Thus, at the time Duhig made his conveyance he was the owner of the surface and 1/2 of the minerals. In trying to clarify what occurred in the case, the author obtained a copy of the deed from Orange County. The following references to that deed point out the major clauses where Duhig failed to except the 1/2 mineral interest reserved by his grantor. First, the granting clause contains words of grant and describes the property being conveyed. Second, the clause which begins "To Have and to Hold" is the habendum clause which defines the duration of the interest. Third, the warranty clause begins "Warrant and forever defend..." Duhig attempted to reserve 1/2 of the minerals to himself. According to the case that clause reads: "But it is expressly agreed and stipulated that the grantor herein retains an undivided 1/2 interest in and to all mineral rights or minerals of whatever description in the land." Duhig's contention was that the above language reserved 1/2 of the minerals to him and that since 1/2 of the minerals were previously outstanding, his grantee received only the surface estate. The grantee contended that Duhig's deed conveyed the surface and 1/2 of the minerals leaving Duhig with nothing. The court held for Duhig's grantee, noting that his warranty covered the entire surface and mineral estate. Although his reservation showed an intent to reserve 1/2 of the minerals, Duhig could not warrant title to the entire mineral interest and also reserve 1/2 of the minerals without breaching his warranty (because of the outstanding 1/2 mineral interest). Since both intentions could not be given effect the covenant of warranty operated to estop Duhig from claiming the 1/2 mineral interest. J. FRED HAMBRIGHT, CPL (1) the field landman faces the problem in record checking Kansas' only Aggie Landman and leasing; AAPL WAPL (2) the in-house landman faces Oil & Gas Lease Acquisitions the problem when a drilling E KANSAS - NEBRASKA - COLORADO or division order title opinion L125 N. Market #1415 Wichita, Kansas 67202 (316) 265-8541 notes the problem as a title requirement;

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Aworkforce on-demand Competing Rule Another complicating factor is that, with the skills you need in the absence of a dispute, the intention of the parties is controlling. In right now.: order to harmonize both rules, you should contact the parties involved, if possible, to understand their intent. Should that intent be contrary to the Outsourcing... Contract Work... ' Land & Property Management Title Research & Curative " Lease & Division Order Abstracts of Title Maintenance & Disbursements * Oil & Gas Leasing Payrolling Seismic Permitting Payroll Administration Right of Way Acquisitions " `Temporary & Permanent Due Diligence Placement 7rgmP

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A basic premise in understanding the Example #2: Third Party owns 3/8 of Duhig rule is that the court first looks to the minerals. Grantor owns the bal- make the grantee whole before allowing ance. Grantor conveys to Grantee all the grantor to reserve what is left. right, title and interest by Warranty Deed and makes no mention of the Example #1: Third Party owns 2/8 of the outstanding 3/8 mineral interest. minerals. Grantor conveys to Grantee by Grantor reserves 1/4 of the minerals. Mineral Deed all right, title, and interest. In the deed, Grantor reserves 3/8 of the Result: Third Party still has 3/8 of minerals to himself but makes no mention the mineral interest, Grantee receives in the deed of the outstanding 2/8 interest. 5/8 and the Grantor ends up with nothing. Result: The Grantee gets 5/8 of the minerals. Third party owns 2/8 of the Rationale: Grantor attempted to minerals, and Grantor is left with 1/8. reserve 1/4 of the minerals but there was already 3/8 which was not excepted. Rationale: The Grantor warranted title Since the Grantee was to receive 3/4 of to all of the minerals and attempt- the minerals, there has been a breach of warranty with the Grantee being ed to convey 5/8 of the minerals to made whole to the extent possible. Grantee and reserve 3/8 to himself. Since there was no language in the deed excepting the outstanding 2/8 How Does This Rule Apply to Me? mineral interest, this portion was taken A Duhig-type deed can arise (and 21 out of the Grantor's share. confound) any type of land professional: Duhig rule, it would be advisable to rule applies: secure a Stipulation of Interest and Cross-Conveyance and have the (1) the instrument is a warranty or document recorded to give third mineral deed (not a quitclaim parties notice of the intention of with no warranty of title); the parties. You will, of course, also need to (2) less than the entire mineral obtain a rental division order or ownership is being transferred transfer order depending on whether (i.e., grantor is reserving part of the lease is undeveloped or producing. the mineral interest); Do not hesitate to contact an attor- ney or in-house counsel if you have any (3) the Grantor owns less than questions. the entire mineral interest at the time of conveyance; Summary Since recognition of the problem (4) nowhere in the deed does the is often half the battle, be alert Grantor indicate that he is when examining title to the following excepting from the warranty circumstances in which the Duhig any prior reservations or conveyances of record.

22 Landman / September/October 1996 Prior History: Error to the Court of having reference to the previously judgment of the trial court and rendered Civil Appeals for the Ninth District, severed and reserved mineral interest. judgment in favor of that company. in an appeal from Orange County. Buckner v. Keny, 109 S.W. (2d) (119 S.W. (2d) 688.) 361; Sun Oil Co. v. Burns, 125 The ownership by Gilmer's estate, Suit by Peavy-Moore Lumber Texas 549, 84 S.W. (2d) 442; Klein and its assignees, of an undivided Company against Mrs. W. J. Duhig v. Humble Oil & Refining Co. 67 one-half interest in the minerals in and others for the title and possession S.W. (2d) 911. A. M. Huffman, the land through the reservation in the of 574 3/8 acres in the Jordan Survey, of Beaumont, for defendant in error. ifrst deed, which was duly recorded, is in Orange County, Texas. Further admitted by the parties. Plaintiffs in statement of the facts will be found in Baker, Botts, Andrews & Wharton, error, Mrs. Duhig and others, make no the opinion. The trial court rendered Jesse Andrews, Fulbright, Crooker & claim of title to the surface estate, but judgment for the plaintiff lumber company Freeman, John H. Freeman, Leon their contention, sustained by the trial for the title and possession of the land Jaworski, and C. A. Leddy, all of court and denied by the Court of Civil but not as to the mineral rights. This Houston, filed briefs as amici curiae. Appeals, is that W. J. Duhig, their pre- judgment was reversed by the Court decessor, reserved for himself in his conveyance of the land to Miller-Link of Civil Appeals which rendered judg- Opinion by Smedley ment in favor of the lumber company Lumber Company the remaining undi- Through conveyance from the executor for the entire fee including the minerals, vided one-half interest in the minerals. of the estate of Alexander Gilmer, 119 S.W. (2d) 688, and the defendants Defendant in error, Peavy-Moore Lumber deceased, W. J. Duhig became the have brought error to the Supreme Court. Company, takes the position that the owner of the Josiah Jordan Survey in deed last referred to did not reserve Orange County, subject, however, to The case was submitted to the court to or for the grantor such remaining reservation by the grantor of an undivided sitting with the Commission of Appeals one-half interest in the minerals, but one-half interest in the minerals. Thereafter that it in effect excepted only the one- and an opinion written by Mr. Judge Duhig conveyed the survey to Miller-Link Smedley of the Commission was adopted half interest that had theretofore been Lumber Company, and in the deed it was reserved by Gilmer's estate and invested as the opinion of the court. agreed and stipulated that the grantor the grantee with title to the surface The judgment of the Court of Civil retained an undivided one-half interest estate and an undivided one-half interest in Appeals was affirmed. in all of the mineral rights or minerals the minerals. in and on the land. Peavy-Moore Lumber The deed from W. J. Duhig to Miller- Counsel: Strong, Moore & Strong, Company became the owner of whatever Link Lumber Company is a general K. W. Stephenson and Oscar C. Dancy, title and estate Miller-Link Lumber warranty deed, describing the property Jr., all of Beaumont, for plaintiffs in Company acquired by the deed from conveyed as that certain tract or parcel of error. Duhig in 574 3/8 acres of the said survey. land in Orange County, Texas, known as the Josiah Jordan Survey, further Where a deed reserved to the grantor The suit is by defendant in error, identifying [*5061 the land by survey a one-half interest in the minerals in Peavy-Moore Lumber Company, against plaintiffs in error, Mrs. W. J. and certificate number and giving a and under said tract of land, thereby Duhig and others, who claim under W. description by metes and bounds. severing same from the surface right, J. Duhig, for the title and possession of After the metes and bounds, the fol- a subsequent deed by the said vendee the 574 3/8 [**8791 acres in the Jordan lowing matter of description is added: could not be construed as conveying Survey. The trial court's judgment was all the minerals under said land, that the plaintiff, Peavy-Moore Lumber "* * * and being the same tract of because the description in the deed of land formerly owned by the Talbot- the term "all that certain tract or parcel Company, recover the title and possession of the land, except all minerals and Duhig Lumber Company, and after of land," did not include the previously mineral rights therein, and that as to the dissolution of said company, con- reserved one-half mineral interest, and the minerals and mineral rights, it take veyed to W. J. Duhig by B. M. Talbot." therefore said subsequent reservation nothing against the defendants. On appeal of the one-half mineral interest cannot by Peavy-Moore Lumber Company, the After the habendum and the clause of be construed as an exception and as Court of Civil Appeals reversed the general warranty and constituting the Landman / September/October 1996 last paragraph in the deed, appears the of the parties to the deed was to invest following: "But it is expressly agreed the grantee with title to the surface and and stipulated that the grantor herein a one-half [**880] interest in the minerals, retains an undivided one-half interest excepting or withholding from the in and to all mineral rights or minerals operation of the conveyance only the of whatever description in the land." one-half interest theretofore reserved We cannot agree with plaintiffs in in the deed from Gilmer's estate to error's contention that the granting Duhig. It is the court's opinion, however, paragraph of the deed purports to convey that the judgment of the Court of Civil only the surface estate and an undivided Appeals should be affirmed by the one-half interest in the minerals. It is application of a well settled principle of r oppotiny 0 pt wl our opinion that the statement in the estoppel. 3r� Publioatiol dots not deed, that the land described is the The granting clause of the deed, as „ �sirP Me vimin non, ii ia) � u• same tract as that formerly owned by has been said, purports to convey to z , it v ll be toisidered Talbot-Duhig Lumber Company and the grantee the land described, that is, tar; rest be conveyed to Duhig by Talbot, is not the surface estate and all of the mineral intended to define or qualify the estate estate. The covenant warrants the title or interest conveyed but that it is to "the said premises." The last paragraph rA( r� , 'r; rile inserted to further identify the tract of the deed retains an undivided one-half or area described by metes and bounds. interest in the minerals. Thus the deed The deed, of course, does not actually is so written that the general warranty convey what the grantor does not own. extends to the full fee simple title to Richardson v. Levi, 67 Texas 359, 365, the land except an undivided one-half 3 S.W. 444. But the granting clause in interest in the minerals. this deed describes what is conveyed as The language used in the last paragraph of the tract or parcel of land known as the the deed is that "grantor retains an Jordan Survey. This description includes undivided one-half interest in the the minerals, as well as the surface, and minerals." The word "retain" ordinarily thus the granting clause purports to Steve M. Dillard means to hold or keep what one already convey both the surface estate and Wichita, KS owns. 54 C.J. p. 738; Words & Phrases, all of the mineral estate. Holloway's Second Series, Vol. 4, p. 371, Fourth Unknown Heirs v. Whatley, 133 Texas Series, Vol. 3, p. 400; Webster's New 608, 131 S.W. (2d) 89; Schlittler v. Smith, International Dictionary. If controlling 128 Texas 628, 101 S.W. (2d) 543; Bibb effect is given to the use of the word v. Nolan, 6 S.W. (2d) 156 (application "retains," it follows that the deed for writ of error refused). Likewise the reserved to Duhig an undivided one- clause of general warranty has reference half interest in the minerals and that to "the said premises," meaning the the grantee, Miller-Link Lumber Company, land described in the granting clause, acquired by and through the deed only and, but for the last paragraph of the the surface estate. We assume that the deed retaining an undivided interest deed should be given this meaning. in the minerals, would warrant the title When the deed is so interpreted, the to the land including the surface estate warranty is breached at the very time of and all of the minerals. the execution and delivery of the deed, The writer believes that the judgment for the deed warrants the title to the of the Court of Civil Appeals should be surface estate and also to an undivided affirmed for substantially the same reasons one-half interest in the minerals. The as those set out in the opinion of that result is that the grantor has breached court, that is, that the language of the his warranty, but that he has and holds deed as a whole does not clearly and in virtue of the deed containing the plainly disclose the intention of the warranty the very interest, one-half parties that there be reserved to the of the minerals, required to remedy grantor Duhig an undivided one-half the breach. Such state of facts at once interest in the minerals in addition to suggests the rule as to after-acquired that previously reserved to Gilmer's title, which is thus stated in American estate, and that when resort is had to Jurisprudence: established rules of construction and facts taken into consideration which "It is a general rule, supported may properly be [*507] considered, it by many authorities, that a deed becomes apparent that the intention purporting to convey a fee simple or a lesser definite estate in land suffered afterwards to acquire or of after-acquired title, it is, we believe, and containing covenants of general assert a title and turn his grantee equally fair and effectual and also warranty of title or of ownership over to a suit upon his covenants appropriate here. will operate to estop the grantor for redress; the short and effectual We recognize the rule that the from asserting an after-acquired method of redress is to deny him covenant of general warranty does title or interest in the land, or the the liberty of setting up his after- not enlarge the title conveyed and estate which the deed purports to acquired title as against his previ- does not determine the character of convey, as against the grantee and ous conveyance; that is merely the title. Richardson v. Levi, 67 Texas those claiming under him." Vol. 19, refusing him the countenance and 359, 365-366, 3 S.W. 444; White v. p. 614, Sec. 16. See also Robinson assistance of the courts in breaking Frank, 91 Texas 66, 70, 40 S.W. 962. the assurance which his covenants v. Douthit, 64 Texas 101; Baldwin v. The decision here made assumes, as had given." Root, 90 Texas 546, [*508] 40 S.W. has been stated, that Duhig by the 3; Jacobs v. Robinson, 113 Texas deed reserved for himself a one-half In the instant case, Duhig did not 231, 254 S.W. 309; Caswell v. Llano interest in the minerals. acquire title to the one-half interest in Oil Company, 120 Texas 139, 36 The covenant is not construed as the minerals after he executed the deed S.W. (2d) 208; Moore v. Crawford, affecting or impairing the title so containing the general warranty, but he 130 U.S. 122, 32 L. Ed. 878. reserved. It operates as an estoppel retained or reserved it in that deed. denying to the grantor and those Plaintiffs in error, who claim under The case last cited quotes from a claiming under him the right to set him, insist that they should be permit- decision of the Michigan court the up such title against the grantee ted to set up and maintain that title following clear statement of the rule and those who claim under it. and the reasons supporting it: against the suit of defendant in error For the foregoing reasons, the judg- and to require it to seek redress in a ment of the Court of Civil Appeals is "When one assumes, by his deed, suit for breach of the warranty. What affirmed. to convey a title, and by any form the rule above quoted prohibits is the of assurance obligates himself to assertion of title in contradiction or Opinion adopted by the Supreme protect the grantee in the enjoy- breach of the warranty. Court, Oct. 16, 1940. ment of that which the deed pur- If such enforcement of the warranty ports to give him, he will not be is a fair and effectual remedy in case Rehearing overruled Dec. 18, 1940.

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Charlie Hughes Land Supervisor Offshore Anadarko Petroleum Corporation ph: (713) 874 8715 17001 Northchase fax: (713) 874 8714 Houston, Texas 77060 ph: (713) 875 1101 Larry Brown Land Supervisor Unconventional Reservoirs ph: (713) 874 1624 fax: (713) 873 1389 24 Landman / September/October 1996 :-tendman [September/October 1996 2 5