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Paulden Indus. LLC v. Big Chino Materials LLC - 7/14/2020

Arizona Court of Appeals Division One holds that when a deed reserves an estate in all minerals for the grantor, and separately allows the grantor to remove sand, stone, rock, and clay as necessary to remove minerals, then sand, stone, rock, and clay are not minerals under the deed.

A company holds an interest in a mineral estate expressly reserved by a 1941 deed, while various parties now hold the surface estate conveyed in the deed.  Under the deed’s reservation of rights  in paragraph four, the original grantors reserved for themselves, their successors, and assigns forever, a fee interest in “all minerals, including coal, oil, petroleum, naptha, asphaltum, brea, bitumen, natural gas and all other hydrocarbon substances, which now exist, or at any time hereafter may exist” in the deeded land.  The deed separately provided in paragraph seven that the holders of the reserved interest had the perpetual right to remove “stone, rock, sand and clay as may be necessary or convenient in carrying out” the business of removing the mineral interests.  The mineral estate was also deeded to owe royalties for minerals removed to the surface estate.  Recently, one of the surface owners began mining and removing sand, stone, rock, and clay, causing the mineral estate to protest that these were minerals within the meaning of the deed.  A series of quiet title, declaratory judgment, and tort claims were filed and consolidated, and all parties moved for summary judgment.  The superior court found in favor of the surface owners, and against the mineral estate, and held that sand, stone, rock and clay were not minerals under the deed.  The mineral estate owner appealed.

The Court of Appeals affirmed.  The Court recognized that the reservation in paragraph four would generally be sufficient to cover all inorganic material with economic value, including stone, rock, sand, and clay.  However, that reading would render paragraph seven superfluous as there would then be no need to separately allow the mineral estate holder to remove sand, stone, rock, and clay.  Like other contracts, deeds should not be interpreted in a way that renders any part superfluous.  When reading the two deed provisions together, stone, rock, sand, and clay are not minerals, and can only be removed as necessary by the mineral estate owner to remove minerals.  Likewise, the mineral estate owner need not pay royalties on stone, rock, sand, or clay removed.

Judge Winthrop delivered the unanimous opinion of the court.  Judge Cruz and Judge Gass joined.

Posted by: Emma J. Cone-Roddy

Posted On: 7/29/2020