Beware, The Stealthy Duhig Rule

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Johnson v. Finkle, from North Dakota, centers around the long-standing but oft-forgotten headache that is the Duhig doctrine. If you aren’t familiar, you should be. Here it is:

The Rule

“Where a grantor conveys land in such a manner as to include 100% of the minerals, and then reserves to himself 50% of the minerals, the reservation is not operative where the grantor owns only 50% of the minerals. The deed is construed as undertaking the transfer of 50% of the minerals to the grantee. Both this grant and the reservation cannot be given effect.  The grantor loses because the risk of title loss is on him.”

The facts in this case aren’t novel. So, first we have …

A Practice Tip

Duhig is important in at least two situations: The first, it seems, is when the grantor doesn’t know or doesn’t care how much of the minerals he owns and doesn’t realize that reserving half, let’s say, will leave him with none if all he owns is half.

The second is where the scrivener hasn’t considered the rule and hence doesn’t comprehend the effect of prior reservations. This can be addressed is by making the reservation and conveyance subject to prior reservations and restrictions.  Non-lawyers:  Please don’t try this at home.  Get good legal advice.

The Facts Of Finkle

The Andersons owned 100% of the minerals.  In 1949 they sold a 1/2 mineral interest to the Youngbloods. In 1957, the Andersons entered into a Contract for Deed with the Johnsons that included a 1/4 mineral reservation. (In a contract for deed the seller retains title and finances the sale until the buyer pays in full, at which point title is transferred to the buyer.) In 1962 the Andersons gave a Warranty Deed to the Johnsons with this provision: “The grantor reserves a 1/4 mineral interest, including gas and oil, in the … premises, as of the date of this contract.”

Based on the language of the reservations alone, it appears that the parties intended the mineral ownership to be 1/2 to Youngbloods, 1/4 reserved by Andersons, and the remaining 1/4 conveyed to Johnsons.  (Finkle is the heir of the Andersons.)

Finkle argued that because the Johnsons owned the property under the 1957 Contract for Deed, they owned an outstanding mineral interest and Duhig shouldn’t govern. Not so fast, Mr. Finkle!  Nothing in the 1962 Warranty Deed indicated that the Andersons didn’t own all of the minerals at the time of the conveyance. And therein is the problem – the Johnsons had no notice that the Andersons didn’t own 100% of the minerals.  Based on the Warranty Deed, they intended to take 3/4 of the minerals.

The Ruling

Johnson didn’t have legal title to the property until the 1962 Warranty Deed. Recall that the grantor keeps legal title to the property until the grantor complies with the conditions of the contract. Thus, the Duhig rule applied, and the Andersons didn’t have a “large enough interest to satisfy both their grant to [the Johnsons] and reserve a 1/4 interest.” Thus, the Andersons weren’t able to reserve any of the minerals. This ultimately gave the Johnsons a 1/2 mineral interest in the property.

Next post: Which states apply Duhig?

This musical interlude portrays the heartache of those, like Mr. Finkle’s predecessors, who ignore the doctrine.