On July 26, 2022, in Senterra, Ltd. v. Winland, Slip Opinion No. 2022-Ohio-2521, the Supreme Court of Ohio held that the Duhig rule did not apply to the facts of the case and that the Ohio Marketable Title Act (the “OMTA”) operated to preserve the severed oil and gas interest at issue. In its decision, the Court clarified that the Duhig rule only applies if the grantor owns the exact interest needed to remedy the breach of warranty at the time of the conveyance. However, you should know that Senterra was a 4-3 decision, and the dissent would have applied the OMTA, and construed certain deeds, very differently.

You can read the decision here.

BACKGROUND

The following title transactions are germane to understanding the Court’s decision:

  • In 1925, Lulu and James Winland, together with Alta and William Dermot, conveyed an 86 acre tract of land (the “Property”) to Joseph E. Russell and George W. Russell by a quit-claim deed (the “Winland-Dermot Deed”), excepting and reserving a one-quarter interest in the oil and gas (the “Winland-Dermot Mineral Interest”).
  • In 1941, Joseph Russell and George Russell conveyed the Property to George Russell by a warranty deed (the “Joseph-George Deed”), excepting all of the oil and gas (the “Joseph-George Mineral Interest”).
  • In 1954, George Russell conveyed the Property to Stanley and Margaret Juzwiak by a warranty deed (the “George Russell Deed”), excepting and reserving a one-quarter interest in the oil and gas (the “George Russell Mineral Interest”) (together with the Winland-Dermot Mineral Interest and the Joseph-George Mineral Interest, the “Severed Mineral Interests”). Importantly, the George Russell Deed did not mention the Winland-Dermot Mineral Interest or the Joseph-George Mineral Interest.
  • The next two conveyances of the Property included in the Juzwiaks’ chain of title (in 1971 and 1987, respectively) referenced the George Russell Mineral Interest, but made no reference to the Winland-Dermot Mineral Interest or Joseph-George Mineral Interest. The Property was then conveyed three additional times, concluding with a 2012 conveyance to Senterra, Ltd (“Senterra”). These last three deeds conveying the Property did not specifically reference any of the Severed Mineral Interests.

After bringing a quiet title action in 2018, Senterra filed a motion for summary judgment against the believed holders of the Severed Mineral Interests and other defendants,[1] arguing, among other things, that the Winland-Dermot Mineral Interest and Joseph-George Mineral Interest were extinguished by the OMTA and that the George Russell Deed’s purported creation of the George Russell Mineral Interest was made ineffective due to the Duhig rule, which prevents a grantor from claiming title to a severed interest when doing so would breach the grantor’s warranty of title with respect to the interest purportedly conveyed to the grantee. Specifically, Senterra argued that because George Russell only owned a three-eighths interest in the oil and gas at the time he executed the George Russell Deed,[2] allowing him to then reserve a one-quarter interest in the oil and gas would result in a breach of his warranty of title, as he did not otherwise account for the Winland-Dermot Mineral Interest or Joseph-George Mineral Interest (i.e., the grantees under the George Russell Deed would have expected to receive a three-quarters interest in the oil and gas, which is twice the interest in the oil and gas that George Russell actually owned at the time). Senterra prevailed at the trial court, which determined that the Winland-Dermot Mineral Interest and Joseph-George Mineral Interest were extinguished by the OMTA, and the purported creation of the George Russell Mineral Interest was void ab initio under ordinary rules of contract construction and the Duhig rule. On appeal, the Seventh District Court of Appeals affirmed the trial court’s decision as to the extinguishment of the Winland-Dermot Mineral Interest and Joseph-George Mineral Interest, but ultimately found that the Duhig rule did not apply to the George Russell Deed. Because the OMTA extinguished the prior severed oil and gas interests (i.e., the Winland-Dermot Mineral Interest and Joseph-George Mineral Interest), the appellate court held that the OMTA operated to validate the creation of the George Russell Mineral Interest. The Supreme Court of Ohio accepted Senterra’s sole proposition of law, namely, that “[w]hen a reservation fails under the Duhig Rule, it is declared void ab initio at the time of the deed and cannot be revived pursuant to later determinations that prior reservations were made or deemed ineffective pursuant to statutory mechanisms.”

DECISION

Ruling against Senterra, the Supreme Court of Ohio affirmed the judgment of the appellate court, holding that (i) the Duhig rule did not apply to the facts of this case and (ii) the OMTA applied to preserve the George Russell Mineral Interest. The Court adopted the Supreme Court of Texas’ position in Trial v. Dragon, 593 S.W.3d 313 (Tex.2019), which held that the Duhig rule only applies “if the grantor owns the exact interest to remedy the breach at the time of the execution and equity otherwise demands it.” Here, because George Russell did not own the exact interest necessary to remedy the breach at the time he executed the George Russell Deed (i.e., a three-quarters interest in the oil and gas), forfeiting his reservation of a one-quarter interest in the oil and gas would not fully remedy the alleged breach, as it would not provide the grantees with a three-quarters interest in the oil and gas. The Court also rejected Senterra’s argument that a grantor’s exception or reservation is void at the time of the deed’s execution if the grantor purports to convey a greater interest than he owns. Instead, the Court emphasized that the Duhig rule embodies a “narrow, equitable principle” that applies to a very distinct fact pattern that was not present in this case.

Next, applying the OMTA to the George Russell Interest, the Court concluded that it was not extinguished because there is a forty-year unbroken chain of title that preserved the interest. The Court highlighted the fact that there were no recorded, competing interests to the George Russell Mineral Interest, as (i) the OMTA extinguished the Winland-Dermot Mineral Interest and Joseph-George Mineral Interest, and (ii) the 1971 root of title deed and subsequent conveyance in 1987 contained a specific reference to the George Russell Interest.

In the opinion, the majority rejected the dissenting opinion’s suggestion that the Court was validating a “defunct” one-quarter reservation in the George Russell Deed by applying the OMTA. Rather, the majority explained that it merely disagreed with Senterra and the dissenting opinion that the one-quarter reservation was void at the outset.

DISSENT

In a dissenting opinion, Justice DeWine wrote that the majority opinion launched into a “pseudo-[O]MTA analysis” before considering the legal effect of the George Russell Deed. Examining the plain language of the George Russell Deed, the dissent argued that there are two points from said language that warrant clarification: (1) whether the George Russell Deed contained a reservation or exception and (2) the effect of George Russell’s overconveyance in the George Russell Deed.

As to the first point, based on the language in the George Russell Deed, the dissent concluded that it was George Russell’s intention to retain an existing interest. Under the prevailing view in Ohio, the retention of an existing right is an exception, not a reservation. Therefore, the dissent found that the George Russell Deed did not “create” a mineral interest. The dissent went on to emphasize that, under Ohio Revise Code § 5301.47(E), the root of title must be a title transaction “purporting to create the interest claimed.” Therefore, the dissent opined that because George Russell intended to except a portion of a previously created interest, the George Russell Deed cannot be his root of title as it does not purport to “create the interest claimed.” Accordingly, the dissent contends that if the majority is going to apply the OMTA to effectively quiet title in favor of George Russell’s heirs, despite the fact that no such heir has ever appeared or claimed an interest, it must apply the OMTA by identifying the correct root of title for the interest claimed.

As to the second point, the dissent began with the principle that a person cannot convey a greater interest in land than that person owns. Therefore, because George Russell did not own a three-quarters interest in the oil and gas at the time he executed the George Russell Deed, the dissenting opinion argues that there were only two possible outcomes: (i) he conveyed his entire three-eighths interest or (ii) he excepted a one-quarter interest and conveyed his remaining one-eighth interest. Of these two possible outcomes, the dissent argued it is clear that the conveyance superseded the exception, such that George Russell conveyed his entire three-eighths interest in the oil and gas. The dissent maintained that this outcome would be in accordance with the general rule that when the grantor’s interest is insufficient to give effect to both the grant and a reservation, the reservation must fail and the risk of title loss is on the grantor.