A New California Appellate Decision Broadly Interprets Mineral Rights Reservations In Grant Deeds To Include Sand And Gravel.
By Mhare O. Mouradian, MaryBeth Heydt and Destinee Burrell
As goes California, so goes the nation? When interpreting general mineral reservations in grants or deeds, California courts have not, until recently, considered sand and gravel – aggregate – a “mineral.” That changed with a decision by a California Court of Appeal in Vulcan Lands Inc., et al. v. Currier that the term “mineral” in a reservation of interest in “all oil, gas and other hydrocarbons and minerals” included sand and gravel.
For the aggregate industry and others (in California), this means that courts may consider the intent of the original parties to the deed and the historical use of the land when interpreting mineral rights reservations in grant deeds that aren’t clear and unambiguous.
The facts in Vulcan Lands are relatively straightforward:
In the 1950s and 1960s, landowners . . . transferred 19 parcels of land to various individuals by grant deed, reserving a partial interest in “all oil, gas and other hydrocarbons and minerals” beneath the surface. Once severed, the surface and mineral estates changed hands over the years.
The current owners of the surface estate are mining companies that wish to extract sand and gravel from the combined 196-acre tract called Area Q through open-pit excavation. Mineral rights holders (descendants of the original grantors) claim a one-half interest in their mining proceeds.
The mining companies filed suit to quiet title and obtain declaratory relief, arguing that the “mineral interests reserved to private parties through grant deeds [did] not include ordinary surface and subsurface materials” like sand and gravel “because those materials lacked a definite chemical composition, and their removal would significantly impair the surface estate.”
Response
The current mineral rightsholders responded with a complaint of their own, claiming that mineral reservations covered sand and gravel.
Both parties filed motions for summary judgment. The current rightsholders offered some evidence of the grantors’ intent when they created the mineral reservations. The mining companies admitted they didn’t have any evidence of grantors’ intent. Instead, they argued that “‘anyone with a backyard and a shovel’ would know that sand and gravel are mixed with the earth.” The lower court ruled against the mining companies.
On appeal, the Court relied on traditional rules of contract interpretation “to determine the mutual intent of the parties to the original deeds at the time of conveyance.” The Court found that the plain language of the deed was ambiguous as to the term “minerals.”
It further determined that relying on dictionary, statutory, or case law definitions would be unhelpful because the word “mineral” has no fixed meaning. Instead, the Court focused on discerning the original parties’ intent, allowing for the consideration of extrinsic evidence to interpret the contractual language.
Three-Factor Test
The Court recognized that the California Civil Code required it to resolve or interpret ambiguous reservations in favor of the grantor. With that in mind, the Court considered three factors in assessing the general intent of the original grantors’ intent to determine whether gravel and sand should be considered a “mineral”: (1) whether the substance has a distinct chemical composition; (2) whether the substance has commercial value; and (3) whether the extraction would cause surface destruction.
First, the Court differentiated sand and gravel from topsoil and subsoil, highlighting that sand predominates in upper layers while gravel becomes more prevalent at greater depths. Secondly, both parties acknowledged the commercial value of sand and gravel as extractable resources. Lastly, the Court determined that despite potential disruption to the surface estate, the surface owner’s entitlement to 50% of proceeds ensures compensation, even if the mineral estate owner conducts the mining operation.
Additionally, the Court gave weight to the rightsholders’ evidence of historical mining in San Bernardino County during the early 1900s. It acknowledged the prevalence of family-owned and locally operated mining operations in the region during that era.
From this historical context, the Court inferred that “when the deeds were drafted in the 1950s and 1960s, sand and gravel mining operations in the region were longstanding and of common knowledge.” Given “[t]he undisputed evidence that sand and gravel have commercial value, can be mined, and in fact [had] been mined in the area since the 1920s,” coupled with § 1069’s requirement that “where ambiguity persists,” reservations be construed in the grantors’ favor, the Court agreed with the lower court’s finding that gravel and sand were indeed “minerals” under the mineral reservation provision of the grant deed.
Generally speaking, some evidence is almost always better than none. Had the mining companies produced documentary or testimonial evidence of the original parties’ intent that contradicted the current mineral rightsholders’ position and presented an issue of material fact, the outcome may have been different.
What Does This Decision Mean?
The lesson of Vulcan Lands is that, in California, the interpretation of terms such as “minerals” in grant deeds can have broad implications. As a result, owners and operators engaged in real estate transactions should be mindful of the potential expansive nature of mineral rights reservations.
Further, this case highlights the importance of clear and specific language in grant deeds. Owners and operators of aggregate mines should review their grant deeds and assess whether reservations or rights are sufficiently articulated to mitigate the risk of future litigation. Finally, the Court’s consideration of historical mining practices underscores the importance of evaluating the history of the land when assessing mineral rights and anticipating potential disputes.
Ultimately, Vulcan Lands puts California landowners engaged in mining operations on notice that, depending on the circumstances, materials beyond those traditionally considered “minerals” may be included in a mineral rights reservation contained in grant deeds.
Mhare O. Mouradian is a partner in the Los Angeles office of Husch Blackwell LLP who focuses on resolving complex commercial disputes. MaryBeth Heydt is senior counsel at the firm and has more than 25 years of experience handling both real estate-related litigation and transactions. Destinee Burrell is a Chicago-based associate at the firm and a member of the firm’s commercial litigation group.