Kunkel v. Meridian Oil, Inc.

• Court: Washington Supreme Court
• Writing for the Court: SMITH; CALLOW
• Citation: Kunkel v. Meridian Oil, Inc., 792 P.2d 1254, 114 Wn.2d 896 (Wash. 1990)
• Decision Date: 14 June 1990
• Docket Number: No. 56388-3
• Parties: Ray H. KUNKEL and Lola M. Kunkel, a/k/a Lola Mae Kunkel, husband and wife, and Sharon M. Kunkel, unmarried, and Larry R. Kunkel, unmarried, Petitioners, v. MERIDIAN OIL, INC., a foreign corporation, and Delaware Coastal Oil & Gas Corporation, a foreign corporation, and Elf Aquitaine, Inc., a foreign corporation, Respondents. En Banc

Page 896

114 Wn.2d 896

792 P.2d 1254

Ray H. KUNKEL and Lola M. Kunkel, a/k/a Lola Mae Kunkel husband and wife, and Sharon M. Kunkel, unmarried and Larry R. Kunkel, unmarried, Petitioners, v. MERIDIAN OIL, INC., a foreign corporation, and Delaware Coastal Oil & Gas Corporation, a foreign corporation, and Elf Aquitaine, Inc., a foreign corporation, Respondents.

No. 56388-3.

Supreme Court of Washington,

En Banc.

June 14, 1990.

The Dano Law Firm, Harrison K. Dano, Jill Irene Lunn, Moses Lake, for petitioners.

Foreman & Arch, Dale M. Foreman, Thomas E. Janisch, Wenatchee, for respondents Meridian Oil, et al.

Perkins & Coie, David E. Wagoner, Michael Rosenberger, Seattle, for respondent Delaware Coastal Oil.

SMITH, Justice.

Petitioners seek reinstatement of a declaratory judgment of the Grant County Superior Court holding that a deed reservation of "all minerals of any nature whatsoever upon or in [the] land, including coal and iron" did not include oil and natural gas because oil and natural gas are not unambiguously "minerals" under Washington law. The Court of Appeals, Division Three, reversed the trial court and concluded that the deed reservation clause unambiguously includes oil and natural gas and awarded to respondents the rights to "any material which could be extracted for profit."

We reverse the Court of Appeals and reinstate the decision of the trial court which reformed the deed to reserve only iron and coal.

On March 1, 1902, Tacoma attorney John A. Parker entered into a contract to purchase real estate from the Northern Pacific Railway Company. The railroad was to convey the land

reserving and excepting from said lands however, such as are now known, or shall hereafter be ascertained, to contain coal or iron and also the use of such surface ground as may be necessary for mining operations; and the right to access to such reserved and excepted coal and iron lands, for the purpose of exploring, developing and working the same....

On or about March 15, 1902, Northern Pacific's sales agent unilaterally interlineated the contract in red script, modifying the first reference to coal and iron to state "coal or iron or other mineral." The agent modified the access provision to state "such reserved and excepted coal and iron or mineral lands." Mr. Parker never learned of the interlineation, which was made without his assent and without additional consideration.

On May 3, 1907, the railroad issued a fulfillment deed to Francis A. Ogden, successor in interest to Mr. Parker. The deed contained this reservation:

[E]xcepting and reserving unto the party of the first part, its successors and assigns, forever, all minerals of any nature whatsoever upon or in said land, including coal and iron, and also the use of such surface ground as may be necessary for exploring for and mining or otherwise extracting and carrying away the same....

(Italics ours.) Subsequent deeds conveying the land referred only to reservations of record.

By intervening conveyances, the land ¹ was ultimately purchased in 1974 and is now owned by Petitioners Ray H. Kunkel, his spouse, Lola M. Kunkel, and their children, Sharon M. Kunkel and Larry R. Kunkel, plaintiffs in the trial court (the Kunkels). The mineral reservation is now held by Burlington Northern, Inc., and Milestone Petroleum, Inc. The oil and natural gas rights, if the reservation clause is effective, are now held by Respondent Meridian Oil, Inc., defendant ² in the trial court (Meridian).

The Kunkels filed a declaratory judgment action in the Grant County Superior Court to determine their interest in the property. They claimed title to oil and natural gas rights in the land, arguing that the unmodified 1902 contract reserved only coal and iron, the contract did not merge into the 1907 fulfillment deed, and even if it did, the phrase "all minerals of any nature whatsoever upon or in said land" did not include oil and natural gas within the contemplation of the parties.

Meridian defended, asserting that the interlineation by the sales agent accurately reflected the bargain entered into by Northern Pacific and Parker, that the contract reservation merged into the deed, and that the phrase "all minerals ..." includes oil and natural gas as a matter of law and policy.

The trial court agreed with the Kunkels. In his memorandum opinion dated April 18, 1988, the Honorable Clinton J. Merritt, Grant County Superior Court, stated:

After hearing testimony from some of the foremost experts on the subject the Court can only conclude that there exists a division of opinions among the authorities at this time as to whether gas and oil were considered minerals by the experts in 1902. Certainly, it is difficult to contemplate whether Parker and the railroad thought gas and oil were considered a mineral in 1902.

....

Certainly the evidence does not establish the necessary objective manifestation of mutual assent between the parties to the reservation in question that the reservation included the right to extract gas or oil.

The court concluded that the interlineations did not become part of the 1902 real estate contract, that the contract reservation of coal and iron did not merge into the 1907 deed, and that the reservation of "all minerals" was void. The court then reformed the reservation and limited it to coal and iron.

Meridian appealed.

The Court of Appeals, Division Three, reversed the trial court, holding that the contract had merged into the deed. ³ But in reaching its determination, the Court of Appeals concluded that the phrase "all minerals of any nature whatsoever upon or in [the] land ..." unambiguously includes oil and natural gas. The Court of Appeals awarded to Meridian the rights to "any material which could be extracted for profit." ⁴

The Kunkels petitioned this court for review, which we granted. ⁵

Petitioners raise the single question whether, as a matter of law, oil and natural gas are unambiguously included in a 1907 deed reservation of "all minerals of any nature whatsoever upon or in [the] land."

In Washington, the term "minerals" is susceptible of different constructions. ⁶ It is therefore ambiguous. ⁷ In construing ambiguous language in a deed, any doubt is resolved against the grantor. ⁸

The Court of Appeals relied upon State ex rel. Atkinson v. Evans, 46 Wash. 219, 89 P. 565 (1907), for its determination in this case that in a reservation clause "all minerals" is defined as "any material which could be extracted for profit." The Court of Appeals found the rule in Atkinson "more appropriate" than this court's superseding rule announced in Puget Mill Co. v. Duecy, 1 Wash.2d 421, 96 P.2d 571 (1939).

Puget Mill construed a deed reservation which provided:

The Seller hereby reserves unto itself, and unto its successors and assigns, the full, complete and absolute rights to all oils, gases, coal, minerals, metals and fossils of every name and nature which may be in or upon said land, or any part thereof, with the right of entry upon said land to prospect and explore for oils, gases, coal, minerals, metals, and fossils of every name and nature, and also to take, mine and remove the same.... ⁹

The holder of the reservation sought title to sand and gravel under the clause. The court stated:

The word "minerals," standing alone, might by itself, under a broad, general, popular definition, embrace the soil, hence include sand and gravel, and all that is to be found beneath the surface.

Y(4)27

... [I]f it did, it would include the soil itself. The better rule is that each case must be decided on the language of the grant or reservation, the surrounding circumstances, and the intention of the grantor if it can be ascertained. ¹⁰

As noted by the Court of Appeals, Puget Mill specifically rejected the rationale of Atkinson ¹¹ as too liberal and stated that "the better rule is that each case must be decided on its own facts." ¹² Yet the Court of Appeals nevertheless relied upon Atkinson as its authority for reversing the trial court's determination that a reservation of "all minerals" does not unambiguously include oil and natural gas. This reliance is apparently based upon a conclusion that the rule in Puget Mill is limited to cases involving surface minerals. ¹³ However, Puget Mill is not so limited. It states:

[I]t is clear that the term "minerals" does not include everything embraced in the mineral kingdom as distinguished from what belongs to the animal and vegetable kingdoms.... The better rule is that each case must be decided on the language of the grant or reservation, the surrounding circumstances, and the intention of the grantor if it can be ascertained.

....

... The term "minerals" is susceptible of different constructions.... ¹⁴

The Court of Appeals, Division One, in analyzing Puget Mill, has stated that "[o]ne interpretation of [Puget Mill ] is that the term 'minerals' is ambiguous as a matter of [Washington] law." ¹⁵

In Puget Mill this court emphasized that "the real point is: What was the intention of the parties? " ¹⁶ The rule for interpretation of language in mineral reservations in Washington is that what is reserved is what the parties intended to be reserved, and nothing more. "[E]ach case must be decided on the language of the grant or reservation, the surrounding circumstances, and the intention of the grantor if it can be ascertained." ¹⁷ Thus, upon occasion, resort to extrinsic evidence will be necessary.

Here, the trial court was unable to interpret the reservation clause without resort to parol evidence. After evaluation of considerable extrinsic evidence, the court found that in this case the phrase "all minerals ..." did not include oil and natural gas.

An appellate court cannot substitute its judgment for that of the trial court in resolving factual issues. ¹⁸ Statements of fact included within conclusions of law will be treated as findings of fact. ¹⁹ The Court of Appeals in this case erred in relying upon...