CHAPTER 3 REMAINDERMEN AND OTHER INTEREST(ED)(ING) PEOPLE
| Jurisdiction | United States |
(May 1981)
REMAINDERMEN AND OTHER INTEREST(ED)(ING) PEOPLE
and Timothy R. Smock
Lewis and Roca
Phoenix, Arizona
1. INTRODUCTION.
How should a mineral developer acquire lands subject to unvested or unknown ownership? Our topic includes problems posed by properties subject to future interests as well as the distinct difficulties which arise where ownership rests in unprobated estates. Although we will discuss various aspects of both general issues, our principal focus will be on the two thorniest problems: (1) the application of the Open Mine Rule where life estates are found; and (2) the problems posed by state laws of escheat. Both are topics appropriate for a second tier course in mining agreements. Neither problem occurs frequently, but when either does, it presents an unusually difficult situation.
As with any residue of English real property law, our subjects lend themselves to theoretical discussion, hair-line distinctions, and improbable hypotheticals. We will not go far down that road. Our emphasis will be on practical solutions. As a matter of habit, our perspective will be that of the mineral developer, but our discussion will also be pertinent to the concerns of the property owner.
The Open Mine Rule will be the subject of our most detailed discussion.
2. LIFE TENANTS AND REMAINDERMEN.
Serious potential problems confront the mineral developer attempting to acquire property held in life tenancy, trust, tenancy for years, or tenancy pour autre vie. Most of these problems result from the law's failure to provide clearly how revenue from mineral production should be split between owners of such limited term estates and the remaindermen holding future interests in mineral property where the issue is not resolved by the language of the grant to the tenant. The Open Mine Rule is the common law's doctrine which deals with this question. We will trace its evolution, the resulting areas of confusion and the incomplete solutions provided by statutory reform. With this as background, we will then address the practical problems the mineral developer encounters when he tries to acquire property subject to such future interests.
[Page 3-2]
For simplicity, we will refer to life tenancy examples throughout our discussion. The principles involved apply equally to limited term tenancies and trusts.
2.1 The Open Mine Rule.
2.1.1 The Classic Formulation of the Open Mine Doctrine.
Since the Fourteenth Century, the Open Mine Rule has been a recognized exception to the proscription against waste by life tenants. By long tradition, a life tenant is permitted to enjoy the rents issues and income from renewable uses of his estate, but is restricted from engaging in activities which impair the long-term value of the property. The common law terms permissible uses "profits" and impermissible uses "waste." Revenues from farming operations are an example of profits. Since it depletes a non-renewable resource, mining is classified as waste. Unless the express terms of the grant permit a use which would otherwise be considered waste, the life tenant who engages in waste is guilty of conversion, and is accountable to the remaindermen who will obtain possession of the fee when the life tenant dies.
Lord Coke,1 presented the Open Mine exception as a mechanism for reflecting a presumed intent of the grantor; in his formulation, the question of whether the life tenant should receive the proceeds of mining depended solely upon whether there was an open mine on the property at the time of the grant. If a mine was present on the land when the life estate was created, the Open Mine Rule conclusively presumes that the grantor intended the life tenant to enjoy revenues from the mine as though they were profits, even to the point of exhausting the mineral resources.2
2.1.2 The Corollary: The Unopened Mine Rule.
If at the time of the grant of the life estate, there is no open mine, a corollary, the Unopened Mine Rule, applies. Under its classic formulation, revenue derived from mineral production during the life tenancy is principal ultimately payable to the remaindermen, but the life tenant is entitled to interest on that sum as a profit of the land.3
[Page 3-3]
2.1.3 The Development of The Doctrine.
The Open and Unopened Mine Rule are rooted in a legal fiction, the conclusively presumed intent of the grantor. Though likely correct in the majority of cases, there can be no guarantee that these rules accurately reflect the intention of a specific grantor. For example: A wife's life estate is created when her husband dies in 1980 through his will written in 1968. There was no open mine on the property until 1979. The possibility of mineral royalties, much less their disposition, did not cross the husband's mind when he signed his will in 1968; when mining began, he may have either presumed that the prohibition against waste would have applied to the life tenancy, or (more realistically) given the subject no thought at all.
Regardless of accuracy in the specific situation, a generally well-grounded conclusive presumption is often preferable to permitting dispute over an issue, such as the undocumented intent of a grantor, about which objective evidence is rarely available. Once created, the presumption assumes a life of its own, and comes to play an independent role in the shaping of legal obligations and duties. Thus, the Open Mine Rule in the hands of some courts has become a mechanism to provide for the needs of the most common group of life tenants, surviving spouses.
Not only has the customary tension developed between the desire for stability provided by stare decisis and the need to adopt changing mores, but the cases reflect another tension between the Rule's original purpose, to mimic grantor's intent, and the social purposes the Rule has come to serve. Due to these tensions and the relative paucity of recent decisions, it is wise to consider the current Open Mine law in a frame of mind which seeks issue awareness, rather than black letter certainty. Familiarity with evolving doctrines may be helpful in supplying negotiating points, if not always definitive guidance.
2.1.4 Extensions of the Open Mine Rule.
The one clear trend has been the extension of the Open Mine Rule to include mineral produced under mining leases which were in existence but not production at the time of the grant.4 The rationale for this extension is that, as with an operating mine, the grantor presumedly contemplated the possibility of mineral production at the time of the grant. Under the same rationale, an option to lease should trigger the Open Mine Rule as well.
[Page 3-4]
Since an unpatented mining claim is a right to possession predicated on mineral discovery, the annual performance of assessment work, and the expectation of mineral development, the rationale of the lease cases strongly suggests that life estates in undeveloped unpatented claims fall under the Open Mine Rule. Although the issue was not raised by the parties, the court did compute dower on an Open Mine basis in Clark v. Clark, 126 Mont. 9, 242 P.2d 992 (1952).
The same reasoning, it would seem, should apply to severed grants of minerals. Mineral production, after all, is the only possible use of a reserved mineral right. But in at least one modern case, the court fixed upon the absence of any open mine or lease for mineral exploration at the time of the grant as a rationale for concluding that the life tenant's interest was subject to Unopened Mine treatment.5 The decision may be explained as a triumph of stare decisis over the intention reconstruction reasoning prevalent in many Open Mine cases.
The prime example of the Open Mine Doctrine being applied for a social purpose even against the expressed intention of the grantor arises in the homestead cases. In Texas, widows have been awarded oil and gas royalties on an open mine basis where they have taken advantage of a statutory option to renounce their husband's wills in exchange for a homestead life estate in petroleum producing property.6 A final irony goes to the core of the rationale for a homestead life estate. Since the basic notion is to give the surviving spouse a place to live, the estate is deemed abandoned when it is no longer occupied as a principal residence. By twist of law, then, if the widow wishes to receive the royalties, she will have to continue to live on the home place, despite the presence of heavy equipment, gaping holes, and the sounds and smells accompanying mineral production.7 Perhaps for this reason, Kentucky casts a dissenting vote. In Brandenburg v. Petroleum Exploration, 218 Ky. 557, 291 S.W. 757 (1927), the Kentucky Supreme Court held that a homestead life estate does not extend to mineral deposits below the earth's surface.
[Page 3-5]
Confusion also ensues where, after the testator's death, a testamentary trustee holding the power to lease or sell trust property enters into mineral leases. The cases contain subtle and conflicting analyses of grantors' intent and reach disparate conclusions.8 Whether the Open Mine Rule applies here is a problem for the trustee rather than the mineral developer. The mineral developer will take title or acquire a lease secure in the knowledge that the trustee is empowered to enter into the transaction. It is for the trustee to refer to the most persuasive law in his jurisdiction to determine whether proceeds are to be divided pursuant to the Open or Unopened Mine Rule.
The conceptual muddle becomes more acute when there is later mineral development of the type perhaps not contemplated in the grant. In such circumstances, Texas courts have taken a restrictive view of the grantor's bounty to the life tenant. If oil leases signed before the grantor's death expire without production, a later productive lease on the same property will be governed by the Unopened Mine Rule.9 In...
To continue reading
Request your trial