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Interpreting the Scope of Mineral Rights Reservations | Money and Dirt

California real estate and deed of trust disputes | courtroom war stories and lessons learned

Interpreting the Scope of Mineral Rights Reservations

One of the first lessons in every first-year real property law class is that property rights are commonly referred to as a “bundle of sticks” that can be sold or acquired as individual parts or a whole. In a case recently published by California’s Fourth Appellate District — Vulcan Lands, Inc. v. Currie — the Court considered the scope of a property owner’s deeded reservation of mineral rights in connection with a property in San Bernardino County. Specifically, the Court considered whether sand and gravel qualified as minerals under the umbrella of the reservation of mineral rights.

In concluding that the mineral rights reservation did include rights to sand and gravel at the property, the Court surveyed and unified the historical approaches taken by California courts in interpreting the scope of similar types of mineral rights reservations—what otherwise might be referred to as one of the bundled sticks comprising the various rights related to a piece of property.

Facts of Vulcan Lands, Inc. v. Currie

In the 1950s and 1960s, landowners in San Bernardino County transferred 19 parcels of land to various individuals by grant deed, reserving a one-half interest in “all oil, gas, and other hydrocarbons and minerals” beneath the surface. Once separated, the owners of the surface rights and mineral rights changed hands multiple times over the years. During the relevant time, the surface estate was owned by several mining companies that planned to extract sand and gravel from the property.

The owners of the reserved mineral rights sued for declaratory relief confirming their interests and claimed a one-half interest in the mining proceeds based on the theory that the sand and gravel qualified as “mineral rights” under the deeded reserved interests. The mining companies holding the surface rights argued that the reservation of mineral rights could not have intended to be read so broadly; otherwise, the surface rights would be worthless on account of the planned open-pit mining rendering the surface unusable for decades.

Faced with cross-motions for summary judgment, the trial court granted the motion of the holders of the mineral rights and concluded that the reservation of mineral rights included sand and gravel at the property.

The mining companies holding the surface rights appealed.

Court of Appeal: affirmed; “mineral rights” includes sand and gravel

The appellate court first determined whether the specific intent of the original reservation grantor could be determined. As was the case here, where the specific intent cannot be determined or is not dispositive, the court seeks to determine “the most reasonable intent of the grantor in severing the mineral estate from the surface estate.”

Pulling principles from California cases dating back 60 years, which otherwise had not yet been harmonized into a unified approach, the court distilled the various tests and reasoned that for sand and gravel to qualify as a mineral, “they would need to: (1) be commercially valuable; (2) involve a substance or resource distinct from the surface soil; and (3) be able to be extracted without rendering the land useless or destroying the surface.”

In this case, the parties did not dispute that sand and gravel possess commercial value. In fact, the mining companies were in the business of excavating sand and gravel for construction materials. Turning to the second prong, the only submitted evidence showed that the sand and gravel was distinct from the topsoil. Among other points, the ratio of soil to sand to gravel clearly fluctuated at various depths, suggesting that the sand and gravel were distinct from the topsoil itself. As to the third prong, which went to the heart of the mining companies’ argument that the surface rights would be useless if sand and gravel qualified as mineral rights, the court focused on the fact that the mineral rights holder had only reserved a one-half interest in the mineral rights. In other words, the surface rights holder also still held a one-half interest in the mineral rights. Thus, it could not be said that excavating sand and gravel would render the surface rights valueless. Indeed, the surface rights holder would be entitled to one-half of the profits stemming from any sand and gravel excavation.

Accordingly, based on the three-prong test, the appellate court agreed with the trial court’s determination that sand and gravel qualified as minerals.

Lessons

Although presented in the context of mineral rights, the Vulcan Lands opinion provides valuable lessons applicable to a large array of property rights and grant deed disputes. First, it is important for property owners and potential buyers to explore and fully understand the scope of any grant deed reservations impacting title. Generally, the concept that property rights are a bundle of sticks which can be separated is important to always bear in mind. Moreover, California courts have consistently recognized that property rights can be severed vertically just as well as horizontally. Second, the Vulcan Lands opinion provides insight into the approach that courts take in interpreting the scope of such deed reservations. Of particular importance in this case was the question of whether the proposed scope of rights reserved would render the separate interest economically valueless.