408 Philipello v. Taylor

Richard F. Brown

 
The following is not a legal opinion. You should consult your attorney if the case may be of significance to you.
 
Philipello v. Taylor, 10-11-00014-CV, 2012 WL 1435171 (Tex. App.—Waco Apr. 25, 2012, pet. denied) (mem. op.), held that the Duhig rule did not apply based on the intent of the parties as determined from evidence of the surrounding circumstances.  In 1991, a Farm and Ranch Earnest Money Contract provided that 1/2 of the minerals were owned by a third party, and seller agreed to sell 1/4 of the minerals and the surface to buyer, with seller retaining 1/4 of the minerals.  Nine days later, the property was conveyed by a deed prepared by the title company which did not expressly state that 1/2 of the minerals were outstanding in a third party.  The 1991 deed conveyed the land to the buyer, reserving 1/4 of the minerals to the seller, and it recited “that this conveyance is subject to all leases, easements, restrictions, covenants, . . . of record and actually affecting the property on the ground.”  The parties were aligned as successors in interest to the grantors (“Grantor”) and grantee (“Grantee”) under the 1991 deed.  The issue was whether the Duhig rule applied so as to convey all of Grantor’s minerals (1/2) to Grantee.
 
The Duhig rule provides that “a reservation in a deed is ineffective when, as a result of the grantor’s title shortage, the conveyance and the reservation cannot both be given effect.”  “Extrinsic evidence of intent is admissible only if the deed is ambiguous on its face.”  Neither party asserted that any of the governing documents were ambiguous.  Nevertheless, this “‘does not prohibit consideration of surrounding circumstances that inform, rather than vary from or contradict, the contract text.’”  The court then relied upon the “subject to” clause in the 1991 deed and its reference to “restrictions” and “covenants” to conclude that the deed “arguably supports the contention that the 1991 deed implicitly referenced the [outstanding 1/2 mineral interest] and, thus, does not support a Duhig finding that [Grantee] received more than the one-fourth interest that was bargained for.”  The word “arguably” is used multiple times in the opinion, because the court is obviously stretching to get to the extrinsic evidence.  The court concludes that the contract, the deposition testimony, and the “plain language of the deed” reveal the intent of the parties to be that Grantor reserved 1/4 of the minerals and Grantee received 1/4 of the minerals.  The extrinsic evidence “does not result in a variance or alteration of the terms of the 1991 deed, especially considering [the outstanding 1/2 mineral] interest arguably falls within the language of the ‘subject to’ clause of the deed.”  “In effect, we do not believe that the Duhig doctrine, being equitable in nature, operates in this case to vest the [Grantee] with a mineral interest that exceeds that which they bargained and paid for.”
 
The court disregarded the merger doctrine based on mutual mistake, considered multiple agreements as part of the same transaction, and also found it compelling that the remote Grantee bringing the claim was also a party to another contract and deed in 2001 that made it clear that there was a 1/2 outstanding mineral interest.  The significance of the case is that the Duhig rule is not much of a rule for title examiners if it is too easy to bring in extrinsic evidence to vary the apparent operation of the rule when based on the record title.