As a Petroleum Landman, have you ever run across an issue regarding mineral conveyances where it appears that two parties are claiming the same interest in the minerals? Do you know how to retrace the conveyances and spot the problem and then be able to determine who owns the minerals?
Many new Petroleum Landmen have not experienced this scenario, but many have but couldn’t explain what happened and will put a note in their title report as either: 1) one being a stranger in title, or 2) no explanation but mentions there are two people claiming the interest without any explanation as to their efforts to explain what happened.
What is the ‘Duhig Rule?’
The Duhig Rule of interpreting mineral reservations is applied to conveyances 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 (prevent) the Grantor, by his Warranty, from claiming the total fractional share of the minerals he reserved in the Deed.
Alabama, Colorado, Louisiana, Oklahoma, Mississippi, North Dakota, Texas and Wyoming are the states that have adopted the Duhig Rule.
Duhig Rule Explanation
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.
The Granting Clause contains the 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's contention was that Duhig’s Deed conveyed the surface and 1/2 of the minerals leaving Duhig with nothing.
There are several components to a Mineral Deed that must be described in order to create a clear picture as to the intent of the transfer and what is being transferred. For example, if I said to you: “I will sell you all of the surface in a 160-acre Tract of land and I am reserving a ½ interest in all of the minerals”, what would be purchasing?
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 affect, the Covenant of Warranty operated to stop Duhig from claiming the 1/2 Mineral Interest. A basic premise in understanding the Duhig Rule is that the court first looks to make the Grantee whole before allowing the Grantor to reserve what is left.
Duhig Rule Examples
Example 1: In 1985 A conveys Section 30 to B, with A retaining an undivided 1/2 Mineral Interest; B records the conveyance. In 1986 B conveys, by Warranty Deed Section 30 to C "retaining an undivided 1/2 interest in the minerals." B, immediately prior to the conveyance to C, has only an undivided 1/2 interest in the minerals. Will C receive:
No interest in the minerals
A’s 1/2 interest; or
A’s 1/4th (1/2 of B’s 1/2) interest; or
All of B’s 1/2 Mineral Interest
Under the Duhig Rule, C would retain all of B’s ½ Mineral Interest.
Example 2: A Third Party owns 2/8 of the minerals. Grantor owns the remaining (6/8) conveys to B by Mineral Deed all right, Title, and interest. In the Deed, Grantor reserves 3/8 of the minerals to himself but makes no mention in the Deed of the outstanding 2/8 interest.
Result: The Grantee gets 5/8 of the minerals, the Third party owns 2/8 of the minerals and Grantor is left with 1/8.
Example 3: A Third Party owns 3/8 of the minerals. Grantor owns the balance. Grantor conveys to Grantee all right, Title and interest by Warranty Deed and makes no mention of the outstanding 3/8 Mineral Interest. Grantor reserves 1/4 of the minerals.
Result: Third Party still has 3/8 of the Mineral Interest, Grantee receives 5/8 and the Grantor ends up with nothing.
Rationale: Attempted to reserve 1/4 of the minerals but there was already 3/8 which was not excepted. Since the Grantee was to receive 3/4 of the minerals, there has been a breach of Warranty. The result of Duhig is making Grantee whole to the extent possible.
Rationale: The Grantor warranted Title to all the minerals and attempted to convey 3/8 of the minerals to Grantee and reserve 3/8 to himself. Since there was no language in the Deed excepting the outstanding 2/8 Mineral Interest, this portion was taken out of the Grantor's share.
Duhig Rule Summary
A Duhig-type Deed can arise (and confound) any Petroleum Landman. The Landman faces the problem in record checking and leasing. The Landman faces the problem when a Drilling or Division Order Title Opinion notes the problem as a Title requirement. The Lease or Division Order Analyst may encounter the problem in processing changes of ownership. Another critical issue is when a Non-Participating Royalty Interest has been conveyed or the minerals are being distributed via a Probate, or Intestate Succession, after the Duhig-type deed was conveyed.
Another complicating factor is that, in the absence of a dispute, the intention of the parties is controlling. In order to harmonize both Rules, you should contact the parties involved, if possible, to understand their intent.
Should that intent be contrary to the Duhig Rule, it would be advisable to secure a Stipulation of Interest and Cross-Conveyance and have the document recorded to give third parties Notice of the intention of the parties.
You will, of course, also need to obtain a Rental Division Order or Transfer Order depending on whether the Lease is undeveloped or producing. Do not hesitate to contact an Attorney or In-house Counsel if you have any questions.
Duhig Rule Recap
The Duhig Rule allows the Grantee in a Warranty Deed to rely on the face of the Deed, which in this case was determined to warrant the surface and 1/2 of the minerals (since only 1/2 of the minerals was reserved).
Remember, if a conveyance had also said “subject to prior reservations” the Grantor would have kept 1/2 of the minerals. All Landmen need to maintain a diligent awareness of Duhig and its applications to mineral Titles.
Since recognition of the problem is often half the battle, be alert when examining Title to the following circumstances in which the Duhig Rule applies:
- The instrument is a Warranty or Mineral Deed (not a Quitclaim with no Warranty of Title); and
- Less than the entire Mineral Ownership is being transferred (i.e., Grantor is reserving part of the Mineral Interest); and
- The Grantor owns less than the entire Mineral Interest at the time of conveyance; and
- Nowhere in the Deed does the Grantor indicate that he is excepting from the Warranty any prior reservations or conveyances of record.
The Petroleum Landman School, Professional Landman Schools, and the Institute of Energy Management’s courses deal with many other critical issues to help a Petroleum Landman become more aware of things which could become critical issues.
Please visit www.instituteofenergymanagement.com for a complete list of the most comprehensive and applicable Petroleum Landman training courses available.