Interpreting Mineral Reservations by hY7s1p0X


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

      Ike Howard received ii r1,jr,1h(`V a �� ri? Y           ^?}ai�5              he Duhig Rule originated from a 1912 Orange County, Texas, deed
     the University of Oklahoma 1n i                                          Tinterpreted by the Texas Supreme Court in 1940. The significance of
                                           Gb�c'� r                           the Duhig Rule is that it is followed in the majority of oil and gas jurisdic-
obtained ajuris doctorate degree in la v Syr; Okla n                          tions. Louisiana adopted the Duhig Rule in the case of Dillon v. Moran
University in 1975. Howard passed ti Pj r? ;;fT11 �' 1                        (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 oil and gas law, other states adopting the Duhig Rule are: Alabama,
for Post Petroleum Co., Inc. in Oklahoma City for rig C yeas (19)9            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-
                                                                              veyances of mineral ownership by warranty or mineral deed (but not quit-
Unocal Corp., Houston, Texas.                                                 claim 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 prop-
                                                                              erty 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 min-
                                                                              erals to him and that since 1/2 of the minerals were previously outstand-
                                                                              ing, 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.

                                                                                                (1) the field landman faces the

          J. FRED HAMBRIGHT, CPL                                                                    problem in record checking
                                                                                                    and leasing;
                          Kansas' only Aggie Landman                                            (2) the in-house landman faces
                                AAPL WAPL                                                           the problem when a drilling
                                                                                                    or division order title opinion
                       Oil & Gas Lease Acquisitions                                                 notes the problem as a title
E                         KANSAS - NEBRASKA - COLORADO                                              requirement;
    L125 N. Market #1415 Wichita, Kansas 67202                       (316) 265-8541
                                                                                                (3) the lease or division order
                                                                                                    analyst may encounter the
                                                                                                    problem in processing changes
                                                                                                    of ownership.

                                                                                               Competing Rule
                                                                                                 Another complicating factor is that,
                      Aworkforce on-demand                                                     in the absence of a dispute, the inten-
                                                                                               tion of the parties is controlling. In
                       with the skills you need                                                order to harmonize both rules, you
                            right now.:                                                        should contact the parties involved,
                                                                                               if possible, to understand their intent.
                                                                                               Should that intent be contrary to the
              Outsourcing...                         Contract Work...                          Duhig rule, it would be advisable to
              ' Land & Property Management              Title Research & Curative              secure a Stipulation of Interest and
                Lease & Division Order                " Abstracts of Title                     Cross-Conveyance and have the
                Maintenance & Disbursements           * Oil & Gas Leasing                      document recorded to give third
                Payrolling                              Seismic Permitting
                                                                                               parties notice of the intention of
                Payroll Administration                  Right of Way Acquisitions
              `Temporary & Permanent                  " Due Diligence                          the parties.
                Placement                                                                       You will, of course, also need to
                                                   7rgmP                                       obtain a rental division order or
         Michael H. Mann, CPL                                            LandTemp, Inc.        transfer order depending on whether
          President                                             2650 Fountainview, Suite 235   the lease is undeveloped or producing.
                                                                       Houston, Texas 77057
         Sandra G. Allen, CPL                                               (713 974-LAND        Do not hesitate to contact an attor-
          Due Diligence                                                  Fax (713) 974-2053
                                                                                               ney or in-house counsel if you have any

     A basic premise in understanding the            Example #2: Third Party owns 3/8 of        Since recognition of the problem
    Duhig rule is that the court first looks to    the minerals. Grantor owns the bal-         is often half the battle, be alert
    make the grantee whole before allowing         ance. Grantor conveys to Grantee all        when examining title to the following
    the grantor to reserve what is left.           right, title and interest by Warranty       circumstances in which the Duhig
                                                   Deed and makes no mention of the            rule applies:
      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.        (1) the instrument is a warranty or
    Mineral Deed all right, title, and interest.                                                    mineral deed (not a quitclaim
    In the deed, Grantor reserves 3/8 of the        Result: Third Party still has 3/8 of            with no warranty of title);
    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             (2) less than the entire mineral
                                                   nothing.                                          ownership is being transferred
     Result: The Grantee gets 5/8 of the                                                             (i.e., grantor is reserving part
    minerals. Third party owns 2/8 of the            Rationale: Grantor attempted to                 of the mineral interest);
    minerals, and Grantor is left with 1/8.        reserve 1/4 of the minerals but there was
                                                   already 3/8 which was not excepted.          (3) the Grantor owns less than
      Rationale: The Grantor warranted             Since the Grantee was to receive 3/4 of          the entire mineral interest at
                                                   the minerals, there has been a breach            the time of conveyance;
    title to all of the minerals and attempt-
                                                   of warranty with the Grantee being
    ed to convey 5/8 of the minerals to
    Grantee and reserve 3/8 to himself.
                                                   made whole to the extent possible.           (4) nowhere in the deed does the
    Since there was no language in the                                                               Grantor indicate that he is
    deed excepting the outstanding 2/8             How Does This Rule Apply to Me?                   excepting from the warranty
    mineral interest, this portion was taken        A Duhig-type deed can arise (and                 any prior reservations or
    out of the Grantor's share.                    confound) any type of land professional:         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
  of Civil Appeals which rendered judg-                                                        conveyance of the land to Miller-Link
                                               Opinion by Smedley                              Lumber Company the remaining undi-
  ment in favor of the lumber company
                                                Through conveyance from the executor           vided one-half interest in the minerals.
  for the entire fee including the minerals,
                                               of the estate of Alexander Gilmer,              Defendant in error, Peavy-Moore Lumber
  119 S.W. (2d) 688, and the defendants
                                               deceased, W. J. Duhig became the                Company, takes the position that the
  have brought error to the Supreme Court.
                                               owner of the Josiah Jordan Survey in            deed last referred to did not reserve
                                               Orange County, subject, however, to             to or for the grantor such remaining
  The case was submitted to the court
                                               reservation by the grantor of an undivided      one-half interest in the minerals, but
sitting with the Commission of Appeals
                                               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        half interest that had theretofore been
Smedley of the Commission was adopted
                                               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
Appeals was affirmed.                                                                          in the minerals.
                                               in all of the mineral rights or 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
                                               Duhig in 574 3/8 acres of the said survey.      of land in Orange County, Texas, known
                                                 The suit is by defendant in error,            as the Josiah Jordan Survey, further
   Where a deed reserved to the grantor
                                               Peavy-Moore Lumber Company,                     identifying [*5061 the land by survey
  a one-half interest in the minerals in
                                               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
                                               Company, recover the title and possession          land formerly owned by the Talbot-
  the term "all that certain tract or parcel
                                               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                                                       After the habendum and the clause of
                                               by Peavy-Moore Lumber Company, the
  be construed as an exception and as                                                          general warranty and constituting the
                                               Court of Civil Appeals reversed 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
     r oppotiny   0   pt   wl                 our opinion that the statement in the         of 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,
                                              conveyed to Duhig by Talbot, is not           the surface estate and all of the mineral
                tar; rest be
                                              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
                                              the tract or parcel of land known as the      of 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          means to hold or keep what one already
     Steve M. Dillard
                                              convey both the surface estate and            owns. 54 C.J. p. 738; Words & Phrases,
        Wichita, KS
                                              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

24                                                                                                 Landman / September/October 1996
  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.
                                            assistance of the courts in breaking
  p. 614, Sec. 16. See also Robinson                                                  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
following clear statement of the rule     ted to set up and maintain that title
                                                                                       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.

                                               Petroleum Corporation

   Anadarko Petroleum Corporation is one of the nation's largest independent oil and gas
   exploration and production companies. At year-end 1995, Anadarko had proved reserves equal to 3.16 Tcf
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                                                  AREA CONTACTS

   Reverdy H. Jones                                                                                  Glen McPhail
   Land Supervisor North American Exploration                         Land Supervisor North American Development
   ph: (713) 874 8832                                                                          ph: (713) 874 8846
   fax: (713) 874 3571                                                                                 fax:    (713) 874 1687

   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

:-tendman [September/October 1996                                                                                               2

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