Introduction
“No one has a vested interest in any rule of common law.” Meech v. Hillhaven W., 776 P.2d 488, 494 (Mont. 1989). Luckily the Montana legislature has codified the common law rule of after-acquired title as a remedy for a grantor’s breach of warranty in a deed for failure to deliver a complete title.1The full text of Section 70-20-302, MCA: After-acquired title to pass by operation of law. “When a person purports by proper instrument to grant real property in fee simple and subsequently acquires any title or claim of title to the real property, the real property passes by operation of law to the grantee or the grantee’s successors.” However, this rule continues to remain a caged-bird after the Montana Supreme Court’s ruling in Dellit v. Schleder, 2022 MT 196, 518 P.3d 830. Consequently, the court missed an incredible opportunity to bring clarity to the enforcement of title covenants in a deed and thereby greatly simplify land titles for all Montanans.
Dellit is a case of two competing statutes. Where one statute is given almost infallible reverence—while the other is kicked to the curb like yesterday’s trash. The first one for whom we speak is Section 70-1-516, MCA stating that the general rule of deed interpretation is that “[a] grant is to be interpreted in favor of the grantee, except that a reservation . . . is to be interpreted in favor of the grantor” (emphasis added). Indeed, the Montana Supreme Court has even gone so far as to declare “[t]he court must liberally construe express reservations in grants of real property in favor of the grantor.” Ash v. Merlette, 2017 MT 305, 407 P.3d 304, 310 (emphasis added). However, it must be emphasized that this statute does not expressly preempt, repeal, or abrogate other statutory rights and remedies.
The second statute passes after-acquired title by operation of law as a remedy for a breach of title warranty in a deed. Section 70-20-302, MCA. The after-acquired title statute (based on estoppel by deed) applies where the grantor’s title at the time of the conveyance is defective or lacking, and the grantor later obtains title or a portion thereof. Rowell v. Rowell, 174 P2d 223, 226 (Mont. 1946). The doctrine of after-acquired title helps to give certainty to the enforcement of title covenants and greatly simplifies title examinations—since a title examiner who encounters this situation can simply assume that a grantee got the after-acquired title without being concerned with whether any judicial action was taken to obtain it (i.e., title passes automatically by operation of law).
Intertwined with after-acquired title are other legal concepts, which taken together, form the framework for the legal principle that a title warranty is a distinct and separate contract from the conveyance itself. Therefore, a determination that a reservation is to be interpreted in favor of the grantor should not operate to limit the scope and enforcement of a separate contractual warranty where such title warranties are required by law to be construed against the grantor. However, the court’s ruling in Dellit relied on a legal fiction to literally turn a general warranty deed into a quitclaim deed—all for sake of maintaining an inexplicable allegiance to one statute.
Facts of the Case
For purposes of this discussion, the abbreviated facts in Dellit are as follows: Leonard (2/3) and his sister Irene (1/3) were the record owners of a certain tract of land inherited from their parents (the “Property”).
Thereafter, by a Warranty Deed dated March 10, 1950 (herein: “Warranty Deed” or “Deed”) Leonard conveyed to his sister Irene all the Property subject to the following reservation:
Excepting and reserving unto the party of the first part, himself, his heirs, and assigns, an undivided two thirds [2/3] of all oil, gas and minerals in, upon or under said lands. . . . (brackets added)
Dellit, 518 P.3d 830 at 833.2Furthermore, the Deed contained a “Subject to” clause, stating that: (t)his conveyance is also subject to all easements and reservations in the chain of title.” Dellit, 518 P.3d 830 at 833. The fact that the Warranty Deed contained language stating that it was “subject to” prior reservations of record does not render inoperative the presumption that Leonard intended to convey all of the Property, less the express reservations. Romain v. Earl Schwartz Co., 779 P.2d 54, 56 (Mont. 1989). The words “subject to” are a limitation upon the warranty of title and are not an exception to the grant. Id.
The Montana Supreme Court has explained:
The words “subject to” used in their ordinary sense, mean subordinate to, subservient to or limited by. There is nothing in the use of the words “subject to”, in their ordinary use, which would even hint at the creation of affirmative rights or connote a reservation or retention of property rights. “Subject to” wording is commonly used in a deed to refer to existing easements, liens, and real covenants that the grantor wishes to exclude from warranties of title.
Mary Ellen Duke Trust v. Lee Lou, LLC, 2023 MT 177, P18, 535 P.3d 1133.
Montana law requires a reservation to be interpreted in favor of the grantor. Section 70-1-516, MCA Therefore, would it not be “favorable” to the grantor for the court to interpret a reservation in a manner that does not require the grantor to breach his warranty?
It is submitted, therefore, that the scope of the reserved 2/3 mineral interest should be made up of (1) the prior out-standing 1/3 mineral interest—which Leonard did not own and clearly did not wish to warrant as per the “Subject to” clause and (2) an additional 1/3 mineral interest that Leonard did own. Fi-nally, title to the remaining 1/3 mineral interest that Leonard owned should then pass to the grantee under warranty. However, the court in Dellit, never considered the relationship between the “Subject to” clause and the warranty clause in its analysis for determining the nature and make-up of the intended reserved 2/3 mineral interest. The Deed also included a warranty clause. Id.
Through a series of conveyances Dellit later became successor to Irene. Leonard sought a decree stating that he reserved all his mineral interest in the Property under the Warranty Deed. Dellit defended, contending that the Warranty Deed transferred to Irene an undivided 1/3 mineral interest in the Property (i.e., all the minerals less 2/3 = 1/3 of the minerals conveyed).
The equities in the case are as follows: (1) Leonard and Irene derived their interest in the Property from their parents (i.e., they were co-tenants.); (2) through a series of conveyances Dellit (a family member) succeeded to Irene’s interest; (3) the parties agreed the Warranty Deed is unambiguous (i.e., it grants the Property and then reserves a 2/3 mineral interest); and, (4) at the time of the Warranty Deed Irene knew what Leonard owned because she owned the other outstanding interest not encompassed by Warranty Deed.
The court found in favor of Leonard because Irene, as a co-owner with Leonard in the surface and minerals in the Property, was not misled by the Warranty Deed’s reservation clause (i.e., equitable estoppel). Dellit, 518 P.3d 830 at 839.
Discussion:
Now, before going any further let us be very clear—there are to two completely different and distinct affirmative defenses at play in this case: Estoppel by Deed (the focus of this article) and Equitable Estoppel (which was ultimately used to decide the case based on the “equities” cited in the Facts above).
Estoppel by Deed: “Estoppel by deed enforces the plain language of a deed, preventing the other party from denying the meaning and effect of that language.” Id. at 838. In other words, courts should first attempt to glean the intent of the parties from the “four corners” of the deed without looking at outside facts and circumstances surrounding the execution of the deed (i.e., extrinsic evidence). The four-corners test is codified under Section 70-20-202, MCA (explaining extrinsic evidence is not to be considered in construction of a deed).
Equitable Estoppel: Thereafter, a court may decline to enforce certain provisions of a deed if the equities between the parties (i.e., equitable estoppel analysis) are so required due to specific facts and circumstances surrounding the deed. Equitable estoppel is codified under Section 1-04-102, MCA (consideration of circumstances surrounding execution of a deed permitted if needed to determine parties’ intent).
Now, let us consider the scenario in Dellit, but this time under a true Estoppel by Deed analysis, where Leonard owns 2/3 of the surface and minerals in the Property; and thereafter, gives a Warranty Deed in favor of Irene purporting to “grant and convey” the Property but reserving to himself 2/3 of the minerals. Under a four-corners test (i.e., estoppel by deed, Section 70-20-202, MCA) and the application of Section 70-1-516, MCA (reservations are interpreted in favor of the grantor) it is determined that Leonard fairly and truly intended and thereby did reserve to himself all his 2/3 mineral interest.
Okay fair enough, Leonard reserved his 2/3 mineral interest. But what then did Leonard purport to convey and thereby warrant? Again, applying a four-corners test to the grant/warranty (i.e., estoppel by deed)—which the Dellit court did not do in its case—it can be fairly deduced that the purported grant (in combination with the 2/3 mineral reservation) is to convey the surface and 1/3 of the minerals to Irene. However, because Leonard cannot convey what he does not own—Irene only received title to the surface and no minerals. As a result, according to our analysis, Leonard breached his warranty to deliver 1/3 of the minerals.
In such a case, what then is the remedy for Leonard’s breach of warranty? Irene certainly had a cause of action against Leonard for money damages (i.e., remedy at law)—however, this is not very satisfying. Irene also had the remedy of after-acquired title available (i.e., equitable remedy)—but only if Leonard should ever acquire an outstanding 1/3 mineral intertest. Most notably, however, this remedy does not provide an immediate solution.
Even to the casual observer it would seem absurd to make Irene wait for Leonard to later acquire, if ever, an outstanding mineral interest, when in fact Leonard holds by virtue of his reservation the very interest, 1/3 of the minerals, required to remedy the breach. As such, Leonard should be estopped to assert any title to the reserved minerals until his grantee is made whole. In this regard a logical application of the after-acquired statute would dictate that Leonard’s reservation of a 2/3 mineral interest has the legal effect of warranting the remaining 1/3 interest to Irene thus leaving Leonard with a 1/3 mineral interest.3In fact, the grantee in Dellit specifically asked the court to extend the “doctrine of estoppel by deed by adopting the Texas Supreme Court’s rule in Duhig v. Peavy-Moore Lumber Co., 135 Tex. 503, 144 S.W.2d 878, 880 (Tex. 1940), which favors the grant when a grant and a reservation conflict.” Dellit, 518 P.3d at 836. For context, the Dellit court described the Duhig doctrine as follows:
The Duhig rule states that when full effect cannot be given to both the reserved interest and the granted interest, the court will fulfill the granted interest first. Duhig, 144 S.W.2d at 880. In other words, if the grantor over-conveys through a warranty deed, the over-conveyance will be taken from the grantor’s reserved interest. In Duhig, a grantor ac-quired a parcel of land, except for a reservation of 1/2 of the mineral interests by the previous owner. Duhig, 144 S.W.2d at 878. The grantor subsequently conveyed the property to another party but reserved a 1/2 interest in the minerals for himself. The Tex-as Supreme Court determined that the grantee reasonably believed that the deed granted all the surface estate and all but 1/2 of the minerals. The court applied the rule preferring the grant over the reservation—based on the doctrine of estoppel by deed—to prevent the grantor from keeping the 1/2 of the minerals he attempted to reserve. Duhig, 144 S.W.2d at 880.
Dellit, 518 P.3d at 838 (emphasis added).
The Dellit Court, however, declined to apply the Duhig rule to the Warranty Deed (under an equi-table estoppel analysis) because Leonard and grantees were co-owners. Dellit, 518 P.3d at 838. Unlike in Duhig—where “the grantee was unaware that the grantor did not own the entire mineral estate and could not both convey 1/2 of the minerals and reserve that same amount.” Id.
Consequently, the Dellit court ignored the Montana “after-acquired title” statute that prohibits the assertion of title in contradiction or breach of the warranty. If enforcement of title covenants is a fair and “equitable” remedy in the case of after-acquired title, it should also be equally appropriate here—where Leonard holds the very 1/3 mineral interest required to remedy the breach. See, Duhig v. Peavy-Moore Lumber Co., 135 Tex. 503, 144 S.W.2d 878, 880 (Tex. 1940) (adopting this argument).
Therefore, it is submitted that Duhig and after acquired title are not two different legal theories; but rather, the Duhig doctrine is a logical extension of after-acquired title—where the reservation acts as an “after-acquired” title. In the Deed, the grant itself conveys all of the Property and that by reservation, Leonard clawed-back 2/3 of the minerals, thereby re-acquiring title to the warranted minerals—even if the conveyance and reservation occurred almost instantaneously.
The question then becomes: Is there room under Montana law for such a logical extension of Section 70-20-302, MCA (after-acquired title to pass by operation of law)? Unfortunately, the court declined to answer this very question—even though Dellit practically begged the court to do so. Nonetheless, such an extension is indeed a logical and just application of after-acquired title when examined under the rubric that statutes are to “be liberally construed with a view to effect their objects and to promote justice.” Section 1-2-103, MCA.
As previously stated, the rule of after-acquired title is a remedy for a grantor’s breach of warranty in a deed for failure to deliver a complete title. It is also commonly recognized that a warranty is not an essential component of a proper transfer of ownership, and it neither enhances nor restricts the conveyed title (i.e., you do not need a warranty to transfer title under a quitclaim deed). Instead, a warranty stands as a distinct and separate agreement, wherein the grantor commits to compensating the grantee for any title defects. Wagner v. Cutler, 757 P.2d 779 (Mont. 1988) (addressing the scope of a covenant of warranty contained in a special warranty deed under contract rules of interpretation).
More importantly, the Montana Supreme Court has already declared that under Section 28-3-206, MCA “[a]ny uncertainty over ‘what was warranted’ in the deed should be interpreted most strongly against the party who drafted it.” Wagner, 757 P.2d at 782. Very clearly then, the law requires a reservation in a deed to be interpreted in favor of the grantor under Section 70-1-516, MCA; while at the same time, the law also demands title warranties be construed against the grantor under Section 28-3-206, MCA.
In this context, it is argued that the after-acquired title rule serves to prevent the assertion of title in conflict with a warranty breach—regardless of when or how that title is acquired. Put differently, if enforcing the warranty proves to be a fair and effective recourse for cases involving after-acquired title, it is similarly fair, effective, and suitable in this scenario—where, by virtue of the reservation, title is “acquired” the moment the Deed is executed. See en [3]. See also, Rowell, 174 P.2d 223 at 227 (Citing a Pennsylvania case for the proposition that when grantors convey land which they do not own, and afterwards obtain the title thereto, they “will not be permitted to set up this after-acquired title to defeat [their] previous grant … for this would be to permit [them] to perpetrate a fraud on [their] grantee.”). So of course, there is room under Montana law to support such an expanded scope of the after-acquired title rule. In fact, Montana law may demand it under Wagner v. Cutler, 757 P.2d 779 (Mont. 1988) (title warranties to be construed against the grantor).
Nevertheless, the next question then becomes: Is there room under Montana law to harmonize such an extended interpretation of the after-acquired title statute without being repugnant to the other statute—interpreting reservations in favor of the grantor? Indeed, when it comes to harmonizing two statutes, Montana law is clear:
“When ascertaining the Legislature’s intent, we presume the Legislature does not pass meaningless legislation, and we harmonize statutes relating to the same subject to give as much effect as possible to each.”
Miske v. Mont. Dep’t of Nat. Res. & Conservation, 2023 MT 241, ¶ 25.
To be clear, the difference between a warranty deed and a quitclaim deed is monumental because the former passes after-acquired title as a matter of law and the latter does not. The distinction between the two is very simple. A warranty deed purports to grant the property itself. Whereas a quitclaim deed merely conveys only the grantor’s right, title and interest—if any—in the property. “A fee simple title is presumed to be intended to pass by a grant of real property, unless it appears from the grant that a lesser estate was intended.” Section 70-20-301, MCA. A deed conveying the “following described premises” (or similar language), expresses an intention to grant the fee, or the entire estate, in whatever is described. Henningsen, 221 P.2d 438 at 443.
As such, the Warranty Deed in question here is more than a quitclaim deed. It conveyed the Property itself (less Leonard’s reserved 2/3 mineral interest) and is therefore sufficient to pass after-acquired title. However, the court in Dellit (seemingly fixated on the reservation to the exclusion of the separate warranty contract) rejected this construction because:
. . . it favors the Grantees by placing an implied grant above an explicit reservation. This interpretation devalues the reservation of ‘an undivided two-thirds of all’ mineral rights by holding the explicit fractional interest retains only as much meaning as remains after the implicit 1/3rd grant is satisfied.
Dellit, 518 P.3d at 835.
The Dellit court’s analysis would be spot-on if it were a quitclaim deed rather than a GENERAL WARRANTY DEED! In the Dellit case (after giving effect to Leonard’s reserved 2/3 mineral interest)—Leonard is in no way simply purporting to convey only his remaining right, title and interest, if any, in the Property (this is what a quitclaim deed would accomplish). Here, it is apparent that the Deed conveyed the land itself and not just Leonard’s interest in the Property, and therefore passes after-acquired title. Consequently, the analysis as used in Dellit is wholly misplaced LEGAL FICTION. A court cannot unilaterally change a warranty deed into a quitclaim deed—no matter how badly it wishes to give exclusive effect to the reservation. Montana law disfavors such an interpretation. Henningsen, 221 P.2d 438 at 443.
The two statutes are, however, easily harmonized so that both may co-exist. For example, a court could easily find:
- that without question Leonard by the four-corners of the Deed did in fact reserve his 2/3 mineral interest: thus, staying faithful to Section 70-1-516, MCA—regarding reservations in favor of the grantor;
- that the separate warranty contract does not diminish or impair the title so reserved—i.e., the reservation is effective: again, staying faithful to Section 70-1-516, MCA; and finally,
- that the breach of the warranty contract only operates as an estoppel denying Leonard the right to claim the full 2/3 mineral interest he had reserved for himself, and instead allowing Irean to receive 1/3 out of that interest as a remedy for Leonard’s breach of the Deed’s warranty: thereby, also staying faithful to Section 70-20-302 MCA—as to after-acquired title.
This construction is a very simple and logical extension of the after-acquired title rule—while also avoiding an implicit repeal of Section 70-1-516, MCA (reservations favor of the grantor). Such an analysis provides a framework for allowing a court to remain faithful to its duty to harmonize two statutory schemes where it is clearly possible to do so. See e.g., Alkire v. Mun. Court, City of Missoula, 2008 MT 223, 186 P.3d 1288 (a court must reconcile two statutory schemes where it is possible to do so).
Conclusion
It is submitted that an equitable estoppel analysis (while needed in this case) is no basis for the court’s expressed rejection of the after-acquired title rule. The court could have very easily recognized a breach of the separate warranty contract and then, after weighing the equities, chose not to enforce the after-acquired title rule under a separate equitable estoppel analysis. The court could have reached the same result—while also defining the scope of after-acquired title as relates to reservations—thereby bringing more certainty to the enforcement of title covenants.
In conclusion, the Dellit case highlights the complexities inherent in Montana’s property laws and the challenges of reconciling competing statutory frameworks. This is particularly true when the court employes the use of a legal fiction (treating a warranty deed as a quitclaim deed) to completely rewrite the Deed so as to shoehorn it into some narrowly constrained statute.
However, by adopting a pragmatic and balanced approach to statutory interpretation, future courts can clarify the enforceability of title covenants and simplify the process of land title examinations. It is time to untangle the knots and provide a clear path forward for after-acquired title in Montana. In short, it may be high-time to open the cage and give after-acquired title some room to fly!
With over two decades of experience advising companies active in the oil and gas industry across multiple states, Lance brings valuable knowledge and efficiency to upstream energy title and transactional matters. He primarily handles matters involving assets and investments in Oklahoma, New Mexico, North Dakota, and Texas.
Prior to moving to Oklahoma City, Lance practiced with a law firm in Midland, Texas. He also has significant litigation experience and while that is no longer his area of focus, he still advises clients regarding oil and gas contract disputes and has an eye for reducing risk in title and transactional matters.