Last month, we posted about issues that can arise when a landowner conveys or reserves a fractional mineral or royalty interest. In addition to questions about the amount of the interest an imprecisely drafted document conveys or reserves, previously granted or retained fractional interests can create conveyancing issues as well. Consider the following scenario:
Suppose Adam, who owns 100% of a piece of land (both the surface estate and the underground mineral rights), sells the property to Brian under a warranty deed but reserves a 1/4 mineral interest for himself. Brian later sells the property to Carol. Brian intends to sell Carol the entire surface estate and 3/4 of his interest in the minerals, keeping the other 1/4 of his interest in the minerals (or 3/8 of the total minerals) for himself, so the warranty deed conveying the property includes a 1/4 reservation to Brian. The deed, however, fails to mention Adams’ prior 1/4 reservation.
Canons Vs. Rules
Courts addressing a dispute like the one above may do so by either employing a canon of construction or by adopting a rule. Canons of construction are “statements of judicial preference for the resolution of a particular problem” that are “based on common human experience and are designed to achieve what the court believes to be the ‘normal’ result for the problem under consideration.” 6A Richard R. Powell, Law of Real Property § 899(3) at 81A-108 (Rohan rev. 1982). Their purpose is not to ascertain the parties’ intent but to resolve a dispute when their intent is otherwise impossible to ascertain. Id. There are numerous canons, however, many of which may be inconsistent with one another, and courts applying canons risk doing so in a manner that results in factually similar cases being decided differently.
By contrast, a rule must be applied in any situation where the conditions for its application are met. When applied, a rule leads to a single result – one which may be intent-defeating rather than intent-effectuating. Although the result of a rule may be harsh in certain circumstances, they are far more certain than the results reached applying canons of construction and people can reasonably rely on them in property transactions.
The Duhig Rule
Addressing essentially the same facts as those set forth above, the Texas Supreme Court in Duhig v. Peavy-Moore Lumber Co., 135 Tex. 503 (1940) rejected the canon approach and established a widely followed rule to resolve disputes arising from overconveyance of fractional mineral interests. In Duhig, the grantor argued that his deed to the grantee conveyed only the surface estate. 135 Tex. at 505. The grantee contended that the deed conveyed the surface and the grantor’s interest in the minerals – in other words, the grantor’s entire interest in the land – leaving the grantor with nothing. Id.
The Duhig court held for the grantee. Id. at 507. Noting that the grantor’s warranty covered the entire surface and mineral estate, the court found that although his reservation showed an intent to reserve a fraction of the minerals, he could not warrant title to the entire mineral interest and also reserve a fraction of the minerals without breaching his warranty (because of the outstanding fractional mineral interest that his grantor retained). Id. Because both intentions could not be given effect, the covenant of warranty operated to estop the grantor from claiming the fractional mineral interest he attempted to reserve. Id. Courts that follow Duhig have decided that if full effect cannot be given both to the granted interest and to the reserved interest, priority should be given to the granted interest until the granted interest is fully satisfied.
According to Duhig, Brian Has Deeded His Entire Mineral Interest To Carol.
Applying the Duhig Rule to the hypothetical scenario set forth above, Brian has conveyed his entire interest in the property – including his entire mineral interest – to Carol. Because the deed from Brian to Carol does not specifically identify Adam’s prior reservation, on its face it appears to convey to Carol 3/4 of the total mineral interest, not 9/16 of that interest (3/4 of Brian’s 3/4 interest). Brian, like the grantor in Duhig, thus appears to have conveyed more of the property than he owns – 3/4 of the total mineral interest to Carol and 1/4 to himself. According to the Duhig Rule, Brian’s entire mineral interest vests in Carol.
Avoiding The Duhig Problem
Although Ohio courts have not previously decided a case involving the issues addressed in the Duhig case, given the recent increase in and expected continued expansion of underground mineral development it is likely just a matter of time before such a case arises. The problem of over-conveyance can be avoided through precise deed writing, including disclosure of prior reservations and clear explanation of the current reservation, or by preparing a deed that contains only a grant and no reservations. In any event, the Duhig case underscores the necessity of working with a reputable and experienced attorney to prepare conveyances, especially in a state where the law on the subject remains unsettled.