Caselaw Update: Echols Minerals, LLC et al. v. Green et al.

In Echols Minerals et al. v. Green, et al., the 11th Court of Appeals issued a ruling that narrows the Duhig principal when addressing an over conveyance by a mineral owner. The case involved a 33.25/278.5 non-participating royalty interest (“NPRI”) reserved in a general warranty deed. A NPRI gives the owner a right to the royalty associated with production, but does not allow the right to lease, receive a bonus, or delay rentals. Duhig established the principle that if a grantor conveys a greater interest in the property that he actually possesses, then the grantor will be estopped to assert title to the reserved minerals until the grantee is made whole.

Facts

In the initial deed (the “1944 deed”), Floyd Haynes and others conveyed an undivided 1/2 mineral interest to K.M. Regan in a 278.5-acre tract of land in Martin County, Texas. In the second deed (the “1952 NPRI deed”), Haynes conveyed an undivided 5/6 interest in the property to Lois Madison and reserved an undivided 33.25/278.5 NPRI in all minerals. Lastly, in the third deed (“the 1952 guardian deed”), Haynes, as guardian of Roselyn Haynes, conveyed to Madison a 1/6 interest in the land “subject to all outstanding royalty and mineral conveyances.”

Appellant, Echols Minerals, asserted in initial litigation that, as a successor-in-interest through the Haynes grantors, it owned 1/2 of the 33.25/278.5 NPRI retained by the Haynes grantors in the 1952 NPRI deed. Appellee Green, a successor-in-interest to Madison, conversely argued that the reservation of the NPRI in the 1952 NPRI deed was ineffective under Duhig because the Haynes grantors “failed to except the previously conveyed mineral interest” conveyed to Regan in 1944. Echols Minerals responded by asserting that the 1952 NPRI deed must be read together with the 1952 guardian deed. The trial court issued summary judgment in favor of Green, and Echols Minerals appealed.

Court’s Analysis

The Court referenced Rieder v. Woods in addressing the argument that the 1952 deeds must be read together. In Rieder, the Texas Supreme Court stated that similar parties’ instruments can be read together, unlike those between different parties. The court in Rieder found separate agreements due to distinct parties, signatories, and no incorporation of one to the other. Using this logic, the Court here similarly found the 1952 NPRI deed and the 1952 guardian deed “have different grantors and convey separate interests and have different terms.” Therefore, the two deeds are sperate instruments of conveyance, wholly independent of each other.

Turning to the issue of an over conveyance, the Echols Minerals Court addressed Green’s Duhig argument through Trial v. Dragon, a Texas Supreme Court case that thoroughly analyzed Duhig compared to similar cases. In Dragon, the Court specified that Duhig’s application is limited to a specific situation involving estoppel by deed. It emphasized immediate title passage if a grantor breaches a general warranty while reserving an interest during execution. Dragon highlighted interest possession during execution and restricted Duhig’s equitable remedy.

Here, the Court established a two-part test to determine if Duhig is applicable to the conveyances made. First, it must be determined whether there is a Duhig problem with the conveyance. This requires asking the question: did the grantor convey an interest greater than he possessed, such that there is an over-conveyance? When the Haynes grantors executed the 1952 NPRI deed, they owned 5/6 of the surface and 1/3 of the mineral estate of the 278.5-acre tract conveyed to Madison. The 1952 NPRI deed conveyed 5/6 of the mineral estate but did not contain any reference to the prior conveyance of 1/2 of the mineral estate to Regan. Thus, the 1952 NPRI deed has a “Duhig problem” because the Haynes grantors conveyed more interest in the mineral estate than they owned, while at the same time reserving an interest.

Second, if there is a Duhig problem, it must be determined whether Duhig provides the grantee and its successors a remedy. This requires asking the question: did the grantor own the very interest required to remedy the breach of warranty at the time of conveyance so as to reduce the grantor’s reservation? Initially, the Echols Minerals Court looked at whether there was a remedy available under Duhig after the holding in Dragon. Looking through the prism of Dragon, the Court identified a distinct result from the straightforward application of Duhig which in certain scenarios requires that an over-conveyance of an interest results in the grantor being prohibited from asserting title to its reserved interest until the grantee is whole. Here, the Court found that for Duhig’s remedy to apply post-Dragon, the over-conveying grantor must own “the exact interest to remedy the breach at the time of execution.”

To address their title failure, the Haynes grantors needed a 1/2 mineral interest in the 1952 NPRI deed. While they conveyed a 5/6 mineral interest to Madison, they only owned 1/3. However, the Haynes grantors neither reserved a 1/2 mineral interest nor owned a 1/2 mineral interest because it had previously been conveyed to Regan. Their reserved interest was an NPRI, not a mineral interest, which Dragon shows does not fit. The Court ruled that the reserved NPRI does not match what is required to remedy a title failure under Duhig, therefore estoppel does not apply to the Haynes’, or their successors’, retained 33.25/278.5 NPRI.

Discussion and Implications for Future Cases

This case exemplifies the constraint established by the Texas Supreme Court in Dragon. Despite Duhig’s renowned reputation in oil and gas title work, its application appears to be diminishing. The limitations observed here stem from a thorough examination of the specific facts of the case, suggesting further restrictions could emerge in cases with similar fact patterns to align with the Dragon precedent. Courts are likely to scrutinize presented scenarios more closely as Duhig’s applicability becomes confined to specific circumstances.

Additionally, the Dragon ruling and its application to the Echols Minerals case particularly highlights the importance of the “appropriate” remedy for breaches, specifically that if a grantor possesses the precise interest to address the breach, equity demands that remedy be given. Consequently, in future cases involving over-conveyance scenarios triggering Duhig, courts will likely base their discussion on a scrutinization of the necessary interest the grantor held.

Kuiper Law Firm, PLLC specializes in oil and gas title examination, acquisitions and divestitures, and all aspects of onshore operations. Additionally, we will continue to monitor any updates on this case law. If you have any questions about the information in this article, please do not hesitate to contact us.