The Colorado Court of Appeals recently decided a case involving an apparent over-conveyance of mineral interest. Moeller v. Ferrari Energy, LLC, 2020 COA 113. Over-conveyances are not uncommon, and Colorado has addressed this issue by its adoption of the “Duhig Rule.” See O’Brien v. Village Land Company, 794 P.2d 246 (Colo. 1990). Under the Duhig Rule, an over-conveyance of mineral interests is resolved in favor of the grantee by giving effect to the reservation only to the extent that an interest remains after giving full effect to the grant. Stated otherwise, where a grantor only owns one-half of the minerals and purports to reserve one-half of the minerals in a subsequent conveyance, “the reservation clause merely withdraws one-half of the minerals, which the grantor did not own, from the operation of the deed.” H. Williams and C. Meyers, Oil and Gas Law § 311 (3d ed. 2007). Although the Moeller Court held in favor of the grantee, its analysis is different from the reasoning of the Duhig Rule. We are concerned that this analysis could have a much larger impact on the interpretation of standard mineral reservation language, discussed below.
The facts in Moeller are as follows. In 1954, Russell and Velma Burns owned 100% of the surface and minerals in question. They executed a deed, conveying the property to Ruth Todd and reserving an undivided 1/2 of the mineral estate. The reservation by Russell and Velma Burns is not at issue here. Thereafter, Ruth Todd conveyed all of her interest in the property to the Wilsons, being all of the surface and an undivided 1/2 interest in the minerals. In 1964, the Wilsons executed a Warranty Deed (the “1964 Deed”) and sold the property to Mary Katzdorn. The 1964 Deed conveyed the land “excepting and reserving to the Grantors herein an undivided 1/2 interest in and to all the oil, gas and minerals in, upon, and under said land.”
Both Ferrari Energy, LLC, successor to the Wilsons, and the Moellers, successor to Mary Katzdorn, asserted ownership of the undivided 1/2 mineral interest described in the 1964 Deed’s reservation clause. Because the record shows that the Wilsons owned 1/2 of the minerals at the time of the 1964 Deed, Ferrari Energy, LLC claimed that the Wilsons intended to keep their undivided 1/2 interest by the reservation. The District Court concluded that the 1964 Deed was unambiguous, clearly reserving the undivided 1/2 minerals in the Wilsons. On appeal, the Colorado Court of Appeals remanded in favor of the Moellers. It held that the 1964 Deed was ambiguous and that extrinsic evidence should be considered.
In its analysis, the Colorado Court of Appeals sought to give effect to each word and provision in the 1964 Deed. See O’Brien, 794 P.2d at 249. In doing so, the Court reasoned that the wording “to the Grantors” evidenced an intention by the Wilsons to retain their outstanding 1/2 interest. The Court noted that because the grantors only owned an undivided 1/2 mineral interest, the 1964 reservation could be interpreted two different ways, namely that the grantors reserved a 1/2 mineral interest and conveyed the other half to Mary Katzdorn, or that the grantors reserved a 1/2 mineral interest for themselves, conveying no mineral interest to Mary Katzdorn because of the 1954 reservation. In light of this alleged ambiguity, the Court applied “the longstanding rule of construction that ambiguities in a deed are construed in favor of the grantee.” See Clevenger v. Continental Oil Co., 369 P.2d 550 (Colo. 1962).
We agree that the rules of construction require each provision of the document to be given effect. On its face, the 1964 Deed implies that the grantors are conveying an undivided 1/2 mineral interest and reserving the other half. Moreover, the language “excepting and reserving to the Grantors herein an undivided 1/2 interest in and to all the oil, gas and minerals in, upon, and under said land,” is standard language that appears in thousands of mineral deeds. Based on the reservation language alone, the grantees would have reasonably thought that they were receiving an undivided 1/2 mineral interest in the property. Judge Grove’s concurrence states that “the district court erred by allowing what it concluded was the grantors’ intent to override the grantees’ expectation based on the plain language of the deed.” Moeller, 2020 COA 113, ¶ 38. Rather, the plain language of the 1964 Deed “conveyed the property by general description (reserving one-half of the minerals)” and further represented that “those premises were ‘free and clear from all former and other grants, bargains, sales, liens, taxes, assessments and incumbrances of whatever kind or nature soever, except taxes for the year 1964.’” Id. at ¶ 38. The plain language of the 1964 Deed only appears ambiguous if extrinsic evidence, namely the previous 1954 reservation, is admitted. Because the 1964 Deed is not ambiguous on its face, “the intention of the parties thereto must be determined from the deed itself, and extrinsic evidence to alter, vary, explain or change the deed by any such evidence is not permissible.” Brown v. Kirk, 257 P.2d 1045 (Colo. 1953). Despite the holding of the Colorado Supreme Court in Brown, the Moeller Court erroneously relied upon the previous 1954 reservation as evidence of ambiguity.
We are concerned that the analysis above, despite its outcome, will lead to confusion amongst title examiners and will create unnecessary issues. The reservation language in the 1964 Deed is not new. Instead, it is commonly used amongst hundreds, if not thousands, of conveyances. While the Moeller Court ultimately held in favor of the grantees, it did so under the premise that the 1964 Deed was ambiguous. The analysis of the Duhig Rule is much simpler than the reasoning presented in the Moeller decision. Rather than focusing on the grantor’s intention, title examiners should look to the four corners of the document alone. There is no legal basis to consider extrinsic evidence if a deed is unambiguous on its face. See O’Brien, 794 P.2d at 250. Most importantly, the conveyance should be considered from the perspective of the grantee, and any over-conveyances of mineral interest should be resolved in favor of the grantee.
Tjornehoj & Hack LLC, 2020