McCormick v. Union Pacific Resources Co.

14 P.3d 346, 2000 WL 1742136

• Court: Supreme Court of Colorado
• Decided: December 14, 2000
• Docket: 99SC243
• Status: Published

Opinions

Justice HOBBS

delivered the Opinion of the Court.

The question we answer in this case is whether Colorado follows the majority rule that a deed reservation for "other minerals" reserves oil and gas. We conclude that it does. Accordingly, we affirm the judgment of the court of appeals. See McCormick v. Union Pac. R.R. Co., 983 P.2d 84 (Colo.App.1999).

I.

In this quiet title action filed in 1994, Plaintiffs ("Landowners") and Defendant, Union Pacific Resources Company ("UPRC"), are successors in interest to deeds executed between 1906 and 1909 involving grants of defendant Union Pacific Railroad Company ("Railroad"). The five properties at issue are located in Weld County. The deed reservations for three of the properties reserved "all coal and other minerals within or underlying said lands." The Landowners of these three properties alleged in their amended complaint that UPRC "improperly claimed the oil and gas in, under and associated with" these properties. The deed reservations for the other two properties reserved "all oil, coal and other minerals within or underlying said lands." The Landowners of these two properties alleged that UPRC has "improperly claimed the gas in, under and associated with" those properties.

In the context of UPRC's summary judgment motion, Landowners sought a trial to determine the meaning of these reservations, claiming that failure to specify the reservation of oil and gas, as to three of the properties, and gas, as to two of the properties, demonstrated intent by the Railroad not to include them. They further argued that oil and gas production was not generally occurring in this vicinity of Colorado at the time of the deeds; hence, the parties did not contemplate the reservation of these substances unless so specified. Finally, they pointed to the Railroad's various formulations of deed reservation language in other deeds at the close of the nineteenth century and early twentieth century-first reserving coal and other minerals, later coal, oil and other minerals, and still later, coal, oil, gas, and other minerals. They argued that this progressive insertion of particular substances in the deed reservation language indicated the Railroad's prior intent not to include them until specified.

Landowners characterized this evidence as "extrinsic" evidence warranting trial on the issue of the intent of the parties to the particular deeds. They argued that the term "other minerals" is inherently ambiguous, therefore requiring trial. UPRC contended that the issue was one of law, requiring no trial, because oil and gas are subsurface substances that are included in a deed reservation for "other minerals" as a matter of law.

In granting UPRC's summary judgment motion, the trial court ruled that the term "other minerals" is unambiguous and includes all subsurface valuable substances. On appeal, Landowners argued that the trial court erred in refusing to take extrinsic evidence. Based on its review of Colorado law and the precedent of other jurisdictions, the court of appeals held that the deed term "other minerals" unambiguously includes oil and gas and restricted the seope of the trial court's order to those substances.

We agree with the court of appeals that the term "other minerals" in a deed reservation in Colorado has the settled meaning of including oil and gas. We also agree with the court of appeals' judgment restricting the effect of the trial court's declaratory judgment to oil and gas. Despite the broad wording of the certiorari issue, oil and gas were the only substances actually in dispute between the parties regarding these five properties. The issue petitioners stated on certiorari is:

Whether, in a case of admitted first impression, the court of appeals erred in determining that () the term "minerals" used in a general deed reservation is unambiguous as a matter of law, thereby excluding any extrinsic evidence of the parties' intent; and (#) "minerals" includes, as a matter of law, all oil, gas and valuable subsurface substances.

We do not render advisory opinions on cer-tiorari; hence, we do not address whether the railroad deeds in this case reserve minerals other than oil and gas.

IL.

We hold that Colorado adheres to the majority rule that the deed reservation language "other minerals" reserves oil and gas.

A.

The Oil and Gas Mineral Reservation Majority Rule

We review the trial court's grant of the Railroad's and UPRC's motion for summary judgment under C.R.C.P. 56. Under this rule, a motion for summary judgment should be granted when there are no genuine issues as to any material fact and the moving party is entitled to a judgment as a matter of law. C.R.C.P. 56(c); Bebo Constr. Co. v. Mattox & O'Brien, P.C., 990 P.2d 78, 83 (Colo.1999). While the moving party has the initial burden to show that there is no genuine issue as to any material fact, once that initial burden is met, the burden shifts to the nonmoving party to establish that there is a triable issue of fact. Greenwood Trust v. Conley, 938 P.2d 1141, 1149 (Colo.1997).

A reservation is a vehicle by which a grantor creates and reserves to the grantor some right or interest in the estate conveyed, which interest had no previous existence. See Lincoln Sav. & Loan Ass'n v. State, 768 P.2d 733, 735 (Colo.App.1988). The grantor may reserve a wide variety of interests, such as easements, profits, timber, water rights, or mineral rights. As one commentator notes: "[The grantor conveys away an estate and receives back, in the classic metaphor of property law, one of the sticks in the bundle of ownership." 9 Thompson on Real Property Low § 82.09, at 596 (David A. Thomas ed., 1994).

The reservation of a mineral estate necessarily severs it from the surface estate, creating multiple estates in the same land. See Smith v. Moore, 172 Colo. 440, 441-43, 474 P.2d 794, 795 (1970) (holding that mineral estate owner owed a duty of surface support); Mitchell v. Espinosa, 125 Colo. 267, 273-74, 243 P.2d 412, 413 (1952) (holding that the habendum clause of the deed created a reservation for oil and gas); Calvat v. Juhan, 119 Colo. 561, 566, 206 P.2d 600, 603 (1949) (holding that a reservation of oil, gas, and mineral rights precluded possession of the severed mineral estate by the surface possessor) cf. Radke v. Union Pac. R.R. Co., 138 Colo. 189, 209, 334 P.2d 1077, 1087 (1958) (holding that language referring to prospecting did not reserve a mineral interest).

The word "mineral" can be used in different senses, depending upon the context. For example, "the scientific division of all matter into the animal, vegetable or mineral kingdom{s] would be absurd as applied to a grant of lands, since all lands belong to the mineral kingdom{[,]" and, thus, could not be excepted from the grant without being destructive of it. Watt v. Western Nuclear, Inc., 462 U.S. 36, 43, 103 S.Ct. 2218, 2223, 76 L.Ed.2d 400, 407 (1983). Thus, the term "minerals" "is not capable of a definition of universal application." Lin Patterson, A Survey of Problems Associated with Ascertaining the Ownership of "Other Minerals", 25 Rocky Mtn. Min. L. Inst. 21-1, 21-8 (1980).

We uphold the trial court's determination that summary judgment was appropriate in this case. Although the term "minerals" is not inherently unambiguous and extrinsic evidence may be required to ascertain the parties' intent in certain cireumstances, our study of Colorado legal precedent, custom, and usage convinces us that Colorado adheres to the majority rule that deed reservation language reserving "other minerals" reserves oil and gas. Leading Colorado commentators are in agreement:

Barring the unusual case where ambiguities exist in the language of [a] grant or reservation and parol evidence is allowed to prove what was really intended in a given conveyance, the law is basically settled.... Now, almost universally in mineral-producing jurisdictions, including Colorado, minerals. can be separated and severed from surface ownership. Barring other factors, most courts today will hold or have held that a general grant or reservation of "minerals" or of "all minerals" will be inclusive of oil and gas and all constituent hydrocarbons. Generally, too, a grant or reservation of "oil and gas" will include all associated hydrocarbons and probably at least some non-hydrocarbons that are normally produced as part of the oil and gas stream.

Phillip G. Dufford, "Conveying Oil and Gas Interests" in Cathy Stricklin Krendl, 1B Colorado Methods of Practice § 10.1 at 9-10 (1997).

An interesting question is presented under the Stock Raising Homestead Act, or other acts containing similar mineral reservation language, as to just what substances are to be classified as "minerals" under a reservation of "all the coal and other minerals." It appears to be settled law that those words are adequate to reserve oil, gas, and related hydrocarbons.

Willis V. Carpenter, "Severed Minerals as a Deterrent to Land Development" in John S. Lowe, Phillip G. Dufford, Clyde O. Martz, Colorado Oil & Gas Law and Land Practices 481 (1982); see also 1 Howard R. Williams & Charles J. Myers, Oil and Gas Law § 219.1 at 274.12 (1999); Richard W. Hemingway, The Law of Oil and Gas § 1.1 at 1 (2d ed.1983). Carpenter adds that the inclusion of substances other than oil and gas within the deed reservation language "other minerals" is not so settled:

There is no such settled law, however, with respect to sand and gravel, deposits of clay, and similar nonmetallic materials which, being neither animal nor vegetable, in layman's terms can only be classified as "mineral" in character.

Carpenter, supra, at 481.

These commentaries by distinguished professors and practitioners-written for the education and guidance of Colorado's legal profession, oil and gas industry, and landowners-accurately reflect our state's legal precedent, custom, and usage.

As to oil and gas, through an 1887 statute, the General Assembly recognized that oil and gas were valuable substances and classified both of them as "minerals" when it authorized the Board of Land Commissioners to enter into leases for their production.¹ The Assembly provided:

If stone, coal, coal oil, gas, or other mineral mot herein mentioned, be found upon the State land, such land may be leased for the purpose of obtaining therefrom the stone, coal, coal oil, gas, or other mineral, for such length of time, and conditioned upon the payment to the State Board of such royalty upon the product as the State Board of Land Commissioners may determine.

1887 Colo. Sess. Laws 328, 381 (H.B.107, Sec.8) (emphasis added).

At the time of this enactment, the state held title to sections sixteen and thirty-six of every township, or lands in lieu thereof, under the enabling act for statehood. See Enabling Act § 7, 1 C.R.S. (2000) at 27; Act of Congress March 8, 1875, ch. 189, 18 pt. 3 Stat. 474, 475 (1875). By 1887, Colorado's legislative branch expressed a policy of leasing the oil and gas resource under state-owned lands in return for royalty payments for the benefit of the school fund. The State Board of Land Commissioners had trust responsibility for realizing value from the state's landowner status in this regard. See Colo. Const. art. IX, § 9. The Assembly's action in authorizing the Land Board to lease oil and gas interests necessarily recognized both the exceptional nature of these substances and their status as "minerals." See 1903 Colo. Sess. Laws, ch. 151, $ 2 at 384 (assigning mineral superintendent the duty to inspect works producing "oil or other mineral product" under state leases); 1907 Colo. Sess.Laws, ch. 78, § 2(1) at 168 (assigning State Geological Survey the responsibility to study geologic formations for "economic mineral resources" including "oil and gas ... and other mineral substances").

Congress followed suit later in the nineteenth century. The Oil Placer Act of 1897 made oil and gas "unequivocally subject to the Mining Law." See John D. Leshy, The Mining Law 91 (1987). In Northern Pac. Ry. Co. v. Soderberg, 188 U.S. 526, 534, 536-37, 23 S.Ct. 365, 368-69, 47 L.Ed. 575, 583-84 (1903), the Supreme Court concluded that oil and gas are valuable minerals in the context of commercial production. See also Cherokee Nation v. Hitchcock, 187 U.S. 294, 302-804, 23 S.Ct. 115, 118, 47 L.Ed. 183, 188-89 (1902) (recognizing that as early as 1898, oil was considered a commercially important miner al); Ohio Oil Co. v. Indiana, 177 U.S. 190, 204, 20 S.Ct. 576, 44 L.Ed. 729, 737 (1900) (determining that oil and gas are "minerals ferae naturace"); United States v. Buffalo Natural Gas Fuel Co., 172 U.S. 339, 343, 19 S.Ct. 200, 201, 43 L.Ed. 469, 471 (1899) (stating that "natural gas would fairly come under the head of a crude mineral"). Ultimately, Congress made oil and gas subject to the 1920 Mineral Leasing Act. See Leshy, supra, at 91-92.

A leading treatise summarizes the precedent and states the ofl and gas mineral reservation majority rule as follows:

The courts are practically unanimous in holding that oil and gas are minerals in the broad and general sense in which that term is used. These decisions would seem to fix a common standard of meaning of the term, and it is a general rule, adhered to by a majority of the courts, that a conveyance or exception of minerals includes oil and gas, unless from the language of the instrument, or from the facts and circumstances surrounding the parties at the time of its execution, it is found that the term was used in a more restricted sense.

1A W.L. Summers, The Law of Oil and Gas § 135 at 268 (1954). "[TJoday only a few jurisdictions in the eastern United States take the position that oil and gas are not included within the term 'minerals' when used alone. The majority position is to construe a general reference to 'minerals' to include oil and gas unless there was a demonstrated intention to the contrary² Robert G. Pruitt, Ir., Mineral Terms-Some Problems in Their Use and Definition, 11 Rocky Mtn. Min.L.Inst. 1, 12 (1966).

B.

Other Minerals

As to other minerals, Carpenter points out in his comment that the inclusion of substances other than oil and gas in the deed reservation term "other minerals" is not so settled. See Carpenter, supra, at 481. This was the situation in Farrell v. Sayre, 129 Colo. 368, 270 P.2d 190 (1954), where we approved the use of two criteria for determining whether a substance is a "mineral" for purposes of a deed reservation, when ambiguity arises from the language of the deed itself or the surrounding cireumstances regarding that substance's inclusion within the term "minerals." In Farrell, we held that (1) the word "minerals" when found in a reservation out of a grant of land means substances exceptional in use, in value, and in character, and does not mean ordinary soil which if reserved would practically nullify the grant; and (2) in deciding whether exceptional substances are "minerals," the true test is what that word means in the vernacular of the mining world, the commercial world, and landowners at the time of the grant, and whether the particular substance was so regarded as a "mineral." See Farrell, 129 Colo. at 373, 270 P.2d at 192-93. See also United States v. Hess, 194 F.3d 1164, 1173 (10th Cir.1999) (applying Colorado law); United States v. 1,253.14 Acres of Land, 455 F.2d 1177, 1179 (10th Cir.1972) (applying Colorado law); Morrison v. Socolofsky, 43 Colo.App. 212, 213, 600 P.2d 121, 122 (1979).

In Farrell, we held the deed reservation language for "minerals" to be ambiguous. Farrell, 129 Colo. at 372, 270 P.2d at 192. Two years after the deed transfer, the grantee entered into a contract to sell the gravel covering the entire surface of the property and the grantor objected, claiming that he had reserved the gravel and was entitled to a royalty. We found the taking of extrinsic evidence appropriate in determining the intent of the parties and applied the rule construing reservations against the grantor and in favor of the grantee. See Lazy Dog Ranch v. Telluray Ranch Corp., 965 P.2d 1229, 1235 (Colo.1998) (holding that Colorado generally follows the "four corners" principle when construing deeds, but conditionally allows extrinsic evidence in some cireum-stances to determine whether the deed is ambiguous); Notch Mountain Corp. v. Elliott, 898 P.2d 550, 557 (Colo.1995) (holding that reservations are construed more strictly than grants, and ambiguities are construed against the grantor); Pepcol Mfg. Co. v. Denver Union Corp., 687 P.2d 1310, 1313-14 (Colo.1984) (stating that whether an ambiguity exists and extrinsic evidence must be considered is a question of law).

In contrast to the substances at issue in Farrell, oil and gas have the settled meaning of being included as "minerals" in Colorado deeds reserving "other minerals.³ We now proceed to discuss the Railroad grants and deed reservations at issue in this case.

C.

The Railroad Grants and Deed Reservations

1. The Public Domain and Federal Action

The use of mineral reservations in deeds has a rich history. The federal government, state governments, Indian tribes, and private entities own reserved mineral interests in our state and nation. The nature of those reservations, whether private. or governmental, is an outgrowth of the historical context in which they took place.

The United States originally possessed legal title to vast lands in thirty-one states. Those states are known as the public land states.⁴ In those states, including Colorado, the United States disposed of the lands over a number of years, under a variety of different laws and for a variety of purposes. Initially, the government distinguished between mineral lands and nonmineral lands. See 43 U.S.C. § 201 (1970) (repealed by the Federal Land Policy and Management Act of 1976, 90 Stat. 2743, 2789, § 7; codified at 43 U.S.C. §§ 1701-1782 (1976)).

As to mineral lands, the mining laws provided for discovery and development of the minerals, but the government retained title. As to nonmineral lands, the government encouraged nonmineral uses and provided for land grants. In the early 1900s, the federal government moved toward a system of land grants with mineral reservations. See generally 43 U.S.C. §§ 161-302 (1994). Under those Acts, the United States made grants to railroads, miners, homesteaders, and states. The patents to the grantees contained mineral reservations, consistent with the Act of Congress under which the conveyance took place. For example, the Stock Raising Homestead Act of 1916 encouraged the settlement of lands then thought to be valuable primarily, if not exclusively, for ranching. Bee id. §§ 291-801. Those grants reserved "all coal and other minerals" under the terms of the Act. Id. § 299. Other grants issued under other Acts used reservations such as those at issue in this case: "all coal and other minerals within or underlying said lands," or "all oil, coal and other minerals."

2. The Railroad Lands

The deeds at issue in this case originate from the Railroad as grantor. The Union Pacific Act of 1862, amended in 1864, granted odd-numbered sections of public land to the Railroad for every mile of track laid for the purpose of aiding the construction of a transcontinental railway. See Act of July 1, 1862, § 3, 12 Stat. 489, 492, amended by Act of July 2, 1864, ch. 216, § 4, 13 Stat. 356, 358; David Haward Bain, Empire Express, Building the First Transcontinental Railroad 115, 180 (1999). The original grant excluded "all mineral lands" from the conveyance, which gave rise to an assumption that the government did not intend to grant any minerals to the Railroad.

The Railroad's grant was twice mortgaged, in 1867 and again in 1873. In 1880, the Union Pacific Railway Company succeeded to the Railroad's interests. In 1898, the Railroad bought the railway's grants and interests. See Union Pac. Land Resources Corp. v. Moench Inv. Co., 696 F.2d 88, 90 (10th Cir.1982).

The Railroad obtained patents to the land in 1901 from the Land Department of the United States.⁵ While the original Union Pacific Act of 1862 excepted "all mineral lands" from the land grants, the Supreme Court held that the exception refers to the determination at the time of patenting of the lands' mineral or nonmineral character, and did not affect the fee simple interest that the Railroad received with the patent. See United States v. Union Pac. R.R., 353 U.S. 112, 116, 77 S.Ct. 685, 687, 1 L.Ed.2d 693, 696 (1957).

Accordingly, onee the Railroad received patents on the land, a presumption arose that the patent included a fee simple title and that the Railroad then had the right to reserve mineral interests in lands granted under the Union Pacific Act. See Moench, 696 F.2d at 92. Hence, although the original grants in this case came from the federal government, the Railroad is a private grantor for purposes of analysis of the reserved mineral interest.

The Railroad grants included every odd-numbered section of land between the southern and northern boundaries of Weld County for 20 miles on each side of the railroad track. See Union Pac. R.R. Co. v. Hanna, 73 Colo. 162, 163, 214 P. 550, 551 (1923)(up-holding Weld County tax assessments on Railroad mineral estates), overruled on other grounds by Radke, 138 Colo. at 209-10, 334 P.2d at 1087-88 (holding that words reserving the right to prospect and to remove minerals, if found, are not ambiguous and operate as a license and not a reservation). Carpenter makes the following commentary on the Railroad deed reservations:

In Colorado, so far as railroad lands are concerned, we are involved only with patents to the Union Pacific Railroad Company or its predecessors in title, and more importantly with deeds from the Union Pacific which purport to convey only the surface estate to various grantees. Although there is no consistency in the choice of words used in these deeds, normally they recite a reservation of (1) all coal, or all the coal and other minerals, or oil, coal and other minerals, (2) the right to prospect for, mine and remove the same, and (8) the right of ingress and egress, plus use of the surface for mining purposes.

Carpenter, supra, at 480 (emphasis in original); see also Hanna, 73 Colo. at 164, 214 P. at 551.

8. This Case

The grants and deed reservations at issue in this case, which date from 1906 to 1909, mirror Carpenter's description. Our sister jurisdictions of Wyoming, Utah, and Arizona have concluded that this language, particularly the term "other minerals" reserved from railroad conveyances, is conclusive in regard to the reservation of oil and gas. See Anschutz Land & Livestock Co. v. Union Pac. R.R. Co., 820 F.2d 338, 343 (10th Cir.1987) (applying Utah law); Moench, 696 F.2d at 93 (applying Wyoming law); Amoco Prod. Co. v. Guild Trust, 636 F.2d 261, 264 (10th Cir.1980) (applying Wyoming law); see also Spurlock v. Santa Fe Pac. R.R. Co., 143 Ariz. 469, 477-78, 694 P.2d 299, 308-09 (Ct. App.1984); Miller Land & Mineral Co. v. State Highway Comm'n, 757 P.2d 1001, 1002-03 (Wyo.1988).

We recognize these decisions for their adoption of the majority rule that a deed reservation for "other minerals" reserves oil and gas.⁶ These cases point out that an established rule of law is important for reliably ascertaining mineral ownership and securing capital investment for mineral production. Allowing the introduction of extrinsic evidence many decades after the deed conveyances, especially, as here, after many years of actual production of oil and gas from the properties invites uncertainty and litigation, as necessary evidence has long since disappeared or sheds no real light on the parties' individual intentions.⁷

Based on our study of Colorado precedent, custom, usage, and learned commentary thereon, we hold that a deed reservation for "other minerals" reserves oil and gas. Here, nearly a century after the conveyances and deed reservations in this case, Landowners ask us to send this case to trial to determine whether "other minerals" includes oil and gas. We decline to do so. This case presents a legal question: the interpretation of typical deed language that has a long history of derivation and use in regard to oil and gas. Colorado adheres to the majority rule that a general deed reservation of "other minerals" reserves oil and gas. We treat this matter as one of property law and determine that precedent forecloses the question plaintiffs pose for trial. See 13 Neil E. Harl, Agricultural Law § 126.03{7][gllii] at 126-123-24 (1992) (observing that adoption of the majority oil and gas rule has such effect). As postured before the trial court, despite Landowners' protestations, the issue on summary judgment was one of law.

IIL.

Accordingly, we affirm the court of appeals judgment that the deed reservations in this case reserve oil and gas, restricting the effect of the trial court's declaratory judgment in favor of UPRC to those substances, and upholding the trial court's order dismissing Landowners' complaint for quiet title, trespass, and damages.

Justice RICE concurs in the judgment only. Chief Justice MULLARKEY and Justice COATS join in concurring with the judgment only.

1 . In March 1862, the second oldest production of oil in the United States commenced at the Florence Field, near Florence, Colorado. See Blakely M. Murphy, Conservation of Oil and Gas 56-57 (1949). Oil and gas are closely associated in nature, production, and their treatment as "minerals." See Robert G. Pruitt, Jr., Mineral Terms-Some Problems In Their Use And Definition, 11 Rocky Mtn. Min. L. Inst. 1, 15 (1966).

2 . In their treatise, Williams and Meyers state:

Although scientifically thle) term [minerals] refers to a chemical element or compound occurring naturally as a product of inorganic processes, it has been broadened colloquially in the oil, gas and coal extractive industries to include these products of organic processes. In most of the producing states it is a rule of property that the term "minerals" includes oil and gas unless the instrument creating the mineral interest by grant or reservation reveals that the parties intended the term to have a more restrictive meaning. Extrinsic evidence of intent in this regard is generally admissible only where the language of the instrument is ambiguous.

Howard R. Williams & Charles J. Meyers, Oil and Gas Terms 427 (1981).

3 . Where a reservation for oil and gas exists, we have also recognized the rights of surface owners to prevent unreasonable interference with surface uses. See Gerrity Oil & Gas Corp. v. Magness, 946 P.2d 913, 926-27 (Colo.1997).

4 . See 13 Neil E. Harl, Agricultural Law § 126.02[1][b], at 126-8 (1992); Loren L. Mall, Public Land and Mining Law 6-8 (1981).

5 . Grants to Union Pacific comprised 665,998.34 acres in Colorado. See Report of the Public Lands Comm'n 146, S. Doc. No. 189, 58th Cong., 3d sess.

6 .We decline to hold that the "other mineral" language reserves the entire subsurface estate.

7 . In his treatise, Hemingway states:

It seems highly unrealistic to attempt to determine, at a later date, whether, in an early conveyance, the parties intended to include or to exclude oil and gas from their usage of the term "minerals," where such intent is purportedly determined by reference to "facts and circumstances then existing" and of which adequate proof has long since vanished. All too often this "intent," as determined, results from application of the rules of evidence concerning burden of proof and presumptions, which have little relevance to the actual intent of the parties.

Hemingway, supra, at 7.