The Title Question
Harold Smith, the owner of Blackacre, and his wife, Wendy Smith, execute a deed covering all of their interest in Blackacre to Tiger Drilling. The deed reserves to Harold and Wendy a 50% mineral interest. Does the third party mineral reservation in the deed reserve an interest to Wendy?
We refer to the mineral reservation to Wendy as a “third party reservation” because Wendy did not own an interest in Blackacre and is considered a stranger (or third party) to the deed. Some states, like Texas, follow the common law rule that such third party reservations are invalid, while other states, like North Dakota and Montana, will look to the grantor’s intent.
Texas: No Third Party Mineral Reservations
In Texas, Wendy is out of luck. (For purposes of our Texas discussion, this was Harold’s separate property.) Texas courts hold that mineral reservations to third parties are ineffective. Even a mineral reservation to the grantor’s spouse will not pass title to that third-party spouse.
North Dakota: Look to Intent and Possibly the Spousal Relationship to Grantor
In North Dakota, Wendy gets the mineral interest since it was Harold’s intent to reserve it to her. However, if Harold made the reservation to Ned the neighbor instead of Wendy, the answer would not be as clear. In addition to the grantor’s intent, whether a third party will receive the reserved mineral interest might also depend on whether or not the third party is the grantor’s spouse. In Stetson v. Nelson, 118 N.W.2d 685 (N.D. 1962), the North Dakota Supreme Court followed the common law rule that an attempted third party reservation was inoperative as to the third party. However, in Malloy v. Boettcher, 334 N.W.2d 8 (N.D. 1983), the Court did not apply Stetson where the third party reservation was to the grantor’s wife. Instead, it looked to the grantor’s intent to determine that the reservation was effective. However, there is some question as to whether Stetson or Malloy would apply where the reservation is made to third party who is not the grantor’s spouse (such as Ned the neighbor), and for all cases of third party reservations, North Dakota Mineral Title Standard 3-06 requires clarification of the intent of the parties by stipulation of interest or quiet title action.
Montana: Only Look to Intent
In Montana, like North Dakota, Wendy gets the mineral interest since it was Harold’s intent. Also, if Harold reserved the interest to Ned the neighbor instead of Wendy, Ned would acquire the mineral interest. In Montana, the effectiveness of third party mineral reservations is purely a question of the grantor’s intent.