Energy & Natural Resources Alert: The Ohio Seventh District Court of Appeals Becomes the First Ohio Court to Formally Adopt the Duhig Rule

In the final weeks of 2017, the Ohio Seventh District Court of Appeals in Talbot v. Ward, 7th Dist. Monroe No. 15-MO-0001, 2017-Ohio-9213 (December 18, 2017), became the first court in the State of Ohio to adopt the Duhig rule, which derives from a 1940 Texas Supreme Court case and applies to the interpretation of repeated oil and gas reservation clauses in warranty deeds.  In doing so, Ohio joined a select group of states, including Texas, Alabama, Arkansas, Colorado, Louisiana, Mississippi, North Dakota, Oklahoma, and Wyoming.

There were a myriad of issues addressed by the Court of Appeals in Talbot.  Ultimately, the outcome of the case hinged on whether a provision in a 1943 warranty deed reserved an undivided one-half (1/2) interest in the oil and gas royalty, rentals, and bonuses to the grantor.

The 1943 warranty deed contained an oil and gas reservation clause that was repeated verbatim from the preceding 1936 warranty deed, wherein the prior owner of the property reserved an undivided one-half (1/2) interest in the oil and gas royalty, rentals, and bonuses.  However, the 1943 warranty deed failed to specifically mention the prior reservation or the 1936 conveyance.

Because of the prior reservation in the 1936 warranty deed, the grantor of the 1943 warranty deed could only convey the surface and an undivided one-half (1/2) interest in the oil and gas royalty, rentals, and bonuses.  If the provisions of the 1943 warranty deed were read without the proper context from the chain of title, one would expect that the grantor was conveying unto the grantee the surface and an undivided one-half (1/2) oil and gas interest.  Yet, if the oil and gas reservation clause within the 1943 warranty deed were to be given full force and effect, then the deed would only convey the surface of the property, in spite of the plain and unambiguous reading of the language within the four-corners of the deed.

This presented a classic Duhig scenario.  The Seventh District Court of Appeals explained the Duhig rule as follows:

The Duhig rule is a Texas rule that was created in 1940.  It is a rule of estoppel; under the Duhig rule a grantor and his successors are estopped from claiming title in a reserved fractional mineral interest when to do so would, in effect, breach the grantor’s warranty as to the title and interest purportedly conveyed to the grantee.  Duhig, 135 Tex. 503, 144 S.W.2d 878.  Recently, a Texas Appellate Court explained Duhig:

In Duhig, the granting clause purported to convey all of the land and minerals, and the reservation clause reserved a one-half mineral interest in the grantor, Duhig.  Id. at 880.  The warranty deed failed to mention that Duhig did not own all of the minerals and that a prior owner had also reserved a one-half interest.  See id.  Thus, because the warranty deed did not mention the third-party interest in the minerals, the grantee expected that the conveyance included a one-half mineral interest.  The Duhig court explained that in this situation, the grantor breaches his warranty in the warranty deed by appearing to convey more than he actually did.  See id.  The court reasoned that because the grantor holds ‘the very interest, one-half of the minerals, required to remedy the breach’, Duhig, 144 S.W.2d at 880, the grantor should be ‘estopped from asserting a claim to that ½ mineral interest because of the prior outstanding reservation and the deed’s purported conveyance of all of the minerals less only a ½ interest”.  Gore Oil Co. v. Roosth, 158 S.W.3d 596, 601 (Tex.App. – Eastland 2005, no pet.) (discussing Duhig).

Talbot v. Ward, 7th Dist. Monroe No. 15-MO-0001, 2017-Ohio-9213, at ¶69 (December 18, 2017) (quoting Combest v. Mustang Minerals, LLC, 502 S.W.3d 173, 184 (Tex.App. 2016).

The Court of Appeals acknowledged that “[a]lthough Duhig is not precedent in Ohio and has not been applied or discussed by any Ohio Appellate Courts or the Ohio Supreme Court, we find its […] reasoning persuasive”.  Id. at ¶73.  Accordingly, “[i]f both the grant and reservation cannot thereby be given effect, the reservation must fail and the risk of title loss is on the grantor.”  Id. at ¶72 (quoting Peterson v. Simpson, 286 Ark. 177, 690 S.W.2d 720, 723 (1985)).

In formally adopting the Duhig rule in Ohio for the first time, the Court of Appeals concluded that the 1943 warranty deed could not reserve the interest it claimed to reserve unto the grantor therein because: (i) the provisions of the deed warranted that the grantee shall receive the surface and an undivided one-half (1/2) oil and gas interest; and (ii) the deed failed to indicate that the other one-half (1/2) oil and gas interest had previously been reserved.  To hold otherwise would result in a breach of the grantor’s warranties to the grantee.

The Seventh Appellate District covers Belmont, Carroll, Columbiana, Harrison, Jefferson, Mahoning, Monroe, and Noble counties.

For Additional Information 

A complete copy of the Talbot v. Ward Opinion can be found here.

If you have any questions about this Alert, please contact David Hall, Brian Boyer, or any of the attorneys in our Energy and Natural Resources Services Group.

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