CHAPTER 16 NON-RECORD MATTERS AFFECTING TITLE TO UNPATENTED MINING CLAIMS

• Jurisdiction: United States

Mineral Title Examination
(Nov 1977)
CHAPTER 16
NON-RECORD MATTERS AFFECTING TITLE TO UNPATENTED MINING CLAIMS
Gerald J. Kitchen
Vice President and General Counsel Amax Exploration, Inc.
Denver, Colorado

INTRODUCTION

An attorney accustomed to commercial or residentail real property transactions, but unfamiliar with mining properties, may find his first encounter with unpatented mining claims a bit unsettling. In a title opinion on the claims, he will notice gaping caveats and the absence of such words of comfort as "fee simple absolute title in X." Instead the opinion likely will speak of record title, as opposed to validity of title, and will note that its author disclaims any knowledge of a discouragingly long list of other specified matters.

The author of the title opinion probably is being neither vexatious nor vacuous. He is simply acknowledging some of the limitations regarding record title which have resulted from the mineral disposition scheme created by the general mining laws.¹

It is this author's hope that the following materials will provide the attorney setting off to examine the title to unpatented mining claims with some useful — if rudimentary — guidance for that journey.

The General Mining Laws

A few comments about the origins of the mining laws may serve as a useful point of departure.

Gold was discovered at Sutter's mill in California in January of 1848.² Not only was there no federal mineral disposition program in existence at the time to handle this contingency, but it isn't altogether clear which federal government would have had jurisdiction over the matter if any federal government had thought of the problem. The Treaty of Guadalupe Hidalgo proclaiming California a territory of the United States was signed in February of 1848,³ and was two years away. Regulation or not, the gold rush was on. In the absence of state or federal mining legislation, the miners organized mining districts and made their own rules.

By 1866 more than one thousand mining districts had been organized in the western United States. The codes developed by these districts echoed a number of common themes. The equitable notion that priority in time was priority in right was widely recognized.⁴ So, too, was the concept that the basis for possessory title rested on the discovery of mineralization.⁵ And mining districts generally maintained records of claims.⁶

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Ultimately it became clear that a federal policy had to be implemented to provide for orderly development of the mineral resources on the public domain. The first result of that need was the Mining Law of 1866 dealing with lode claims.⁷ That act was followed by the Placer Act of 1870,⁸ and two years later the Mineral Location Law of 1872,⁹ combined the provisions of the two earlier laws into one statute.

Two aspects of the Law of 1872 are particularly important to the present discussion. First, the act sets up a mineral development scheme which is self-executing. The process is set in motion by the explorer who finds mineralization. And second, the act codifies and perpetuates rules which the miners themselves created through their mining districts for the solution of practical problems.¹⁰ These facts explain why the mining laws work in the manner they do even if they shed little light on now the laws work.

An Illustration

For purposes of the following discussion, a simple illustration might be useful. Assume Y has been offered a single, contiguous, group of unpatented lode mining claims. The seller, X, has had a title opinion prepared on the claims, and that title opinion concludes "we find record title to the claims is vested in X." The title opinion contains a number of exceptions.

ESTABLISHMENT AND MAINTENANCE OF CLAIMS

Discovery

This opinion does not cover whether the discovery of a valuable locatable mineral was made on the subject claims.

Discovery of a "valuable mineral deposit" is the foundation upon which the miner's title to his unpatented mining claim rests.¹¹ Absent discovery, the locator acquires no rights,¹² and the effect of such a location is merely to "cast a cloud upon the title of the United States to the lands...."¹³

The Mineral Location Law of 1872, in specifically requiring a discovery,¹⁴ codified the notion, deeply rooted in history,¹⁵ that society's interests are served by rewarding — not the looker — but the finder of valuable mineral deposits. This was the rule and custom in American mining districts before the enactment of any federal mining legislation,¹⁶ and it remains the sine qua non of a valid mineral location today.¹⁷

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The question of the adequacy of discovery in any given fact situation is accompanied by great uncertainty. Despite substantial amounts of litigation and numerous articles on the subject,¹⁸ defining valuable mineral deposits legally has proven almost as vexing as trying to find them geologically.

The threshhold question of whether minerals are present on X's claims readily lends itself to a "yes" or a "no" answer. In the case of a lode claim the issue is merely whether one has found locatable¹⁹ minerals in a lode or vein in rock in place. The locator of a placer claim must have found locatable minerals within the boundaries of his claim.

The difficult question is whether the locatable minerals are valuable.²⁰ The case of Castle v. Womble²¹ is the departure point for most discussions on this issue. In that case the Land Department defined the discovery requirement and created the "time-honored prudent man rule".²²

"[W]here minerals have been found and the evidence is of such a character that a person of ordinary prudence would be justified in the further expenditure of his labor and means, with a reasonable prospect of success in developing a valuable mine, the requirements of the statute have been met."²³

The Supreme Court approved the prudent man rule in Chrisman v. Miller.²⁴ And it added, quoting Lindley,²⁵ that the prudent man did not necessarily have to be a skilled miner.²⁶ Nor, apparently must he be an expert miner,²⁷ or even a miner.²⁸ The test is met if there are present facts sufficient to justify in the mind of any reasonable man the belief that the further expenditure of labor and means would produce a reasonable prospect of success in developing a valuable mine.

There are a number of technical factors which courts look to in determining the reasonableness of the prudent man's decision to make further expenditures on his claim. These include, in addition to the extent and nature of mineralization found on the claim, regional geology, the existence of other known ore bodies and mines in the area of the claim, and expert opinion.²⁹

In addition, and of great importance, the prudent man is entitled to "rely upon a reasonable expectation of future profitable exploitation."³⁰ He may consider different future economic conditions if his considerations are reasonably based upon presently-known facts.³¹

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The "time-honored" prudent man test survivied the test of time in the courts until 1968. In that year the Supreme Court decided United States v. Coleman³² and adopted the Department of Interior's "marketability rule."³³

Courts have described the effect of Coleman on the prudent man test as a significant tightening,³⁴ a logical complement,³⁵ and a refinement.³⁶ The mining bar sees it more as an evisceration.³⁷ For Coleman replaced the prudent man's reasonable expectation of a future prospect of success with the absolute requirement that he be able to show present marketability at a profit.

Despite the language in the case indicating that the marketability test is merely one more factor in determining prudence,³⁸ the effect of the Coleman decision was to create a presumption that without profitability — based on present markets, demand, prices and costs³⁹ — there can be no prudence.⁴⁰ It is only the profit which attracts the reasonable man.⁴¹ "The required showing...is that at the time of discovery there is a market sufficiently profitable to attract the efforts of a person of ordinary prudence."⁴²

Reeves⁴³ details in a manner not appropriate in this paper the various sorts of confusion that have followed upon the heels of Coleman. Decisions subsequent to Coleman are at odds, among other things, on questions of what constitutes "exploration" and "development,"⁴⁴ whether there is now one rule of discovery or two,⁴⁵ whether "marketability" really means only "saleability,"⁴⁶ or whether the claimant must show actual sales.⁴⁷ About all that can be said with confidence is that there is simply "no certainty...as to what constitutes discovery.⁴⁸

Furthermore, whatever the test for discovery, it must be met on each claim.⁴⁹ "[A] showing that all of the claims taken as a group satisfy the requirements of discovery is not sufficient,"⁵⁰ even if the claims are contiguous.⁵¹

One might reasonably conclude from the foregoing discussion that no prudent man would embark on a mining expedition if his security of title is as frail as the rules of discovery appear to make it. Before giving Y that opinion, however, counsel should be aware that while there may be but one rule of discovery, the courts apply two standards of strictness depending on the party adversing the mining locator's claim. There is one rule where the adverse party is a rival locator, and a second rule where the adverse party is not seeking the land for mineral purposes.

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In the case of contests between rival locators, the courts liberally construe⁵² and relax the application of rules of discovery, inasmuch as the dispute is not over whether the lands are valuable for minerals, but over which locator is entitled to priority with respect to the disputed lands.⁵³ In fact, use of the marketability test "in controversies between rival locators is unknown."⁵⁴ Thus, the Utah Supreme Court has said that what is required is the "discovery of mineralization in...