In Peppertree Farms, L.L.C. v. Thonen, 2022-Ohio-395, and Peppertree Farms, L.L.C. v. Thonen, 2022-Ohio-396, the Supreme Court of Ohio was faced with two major issues. The first issue dealt with the necessity of words of inheritance in a mineral reservation. The second issue considered whether the recording of a decedent’s will which does not distribute the decedent’s oil and gas rights constitutes a “title transaction,” such that it will prevent said interests from being extinguished under the Marketable Title Act (the “MTA”).[1]
In considering the first question, the Court analyzed two deeds. The first deed, recorded in 1916, stated that “the 3/4 of oil royalty and one half of the gas is hereby reserved and not made a part of this transfer.” The second deed, recorded in 1921, provided “[a]ll the oil and gas underlying the above-described premises is hereby reserved and is not made a part of this transfer.” The Ohio legislature did not abrogate the common law rule that property grants must contain words of inheritance, until 1925. Thus, if the deed did not include words of inheritance, then the grantee received, or the grantor retained, only a life estate in the land.[2]
The common law courts therefore recognized a distinction between a “reservation” of a property interest and an “exception” to the conveyance of property.[3] A reservation created a new property right in the grantor, whereas an exception to the conveyance withheld an existing property right owned by the grantor.[4] The Court determined that the language in both deeds created an exception rather than a reservation.[5] The Court reasoned that the retained interests, being natural resources, were in existence at the time of the conveyance and, as such, were owned in fee simple by the grantors.[6] Thus, words of inheritance were not necessary to create more than a life estate in such interests.
The Court acknowledged that there is a recognizable difference between royalties that have accrued, which is considered personal property, and unaccrued royalties, which is considered real property.[7] The Court held that the right to receive a royalty in the future is one of the separately alienable incidents of ownership of the full mineral interest.[8] Therefore, language in a deed which specifically recognizes the right to accrued royalties is unnecessary due to it already existing.[9] Accordingly, if the grantor owns an existing real property interest in unaccrued royalties from the production of oil and gas at the time they convey the property, the grantor retains an exception, not a reservation.
As to the second question, the Court held that the recorded will in this case did not constitute a “title transaction” under the MTA because the will did not specifically devise the mineral interest, and it did not contain a residuary clause through which the mineral interest could be alternatively disposed of. The Court agreed with the lower court that both the recording of a will devising a decedent’s oil and gas rights, and the passage of oil and gas rights through intestacy, constitute “title transactions” sufficient to prevent extinguishment under the MTA. Thus, here, the decedent’s will did not classify as a “title transaction” under the MTA.
Finally, the Court affirmed its decision in West v. Bode, 2020-Ohio-5473, holding that the Marketable Title Act and the Dormant Mineral Act provide independent, alternative mechanisms that may be used to reunite severed mineral interests with the surface estate.[10]
This article was authored by Ryan Stewart and Tanner Cremeans.
[1] Peppertree Farms, L.L.C. v. Thonen, 2022-Ohio-396.
[2] Peppertree Farms, L.L.C. v. Thonen, 2022-Ohio-395.
[3] Id. at ¶2.
[4] Id.
[5] Id. at ¶19.
[6] Id.
[7] Id. at ¶26.
[8] Id. at ¶27.
[9] Id. at ¶28.
[10] Id. at ¶30.
Ryan represents clients in connection with transactional matters, due diligence, complex mineral titles, lease analysis, surface use issues and title curative. In addition, Ryan has extensive experience in the drafting and review of original drilling title opinions, as well as supplemental drilling title opinions and limited acquisition title opinions. He also assists in litigation and regulatory matters, including unitizations.