Some Quirks and Pitfalls in Dealing With North Dakota Mineral Interests. Bill Pearce. Fredrikson & Byron, P.A.

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1 Some Quirks and Pitfalls in Dealing With North Dakota Mineral Interests Bill Pearce Fredrikson & Byron, P.A. The Quagmire of Mineral Interest vs. Royalty Interest An issue in conveyancing that has created considerable confusion over the years is the difference between a mineral interest and a royalty interests. A mineral interest, for example a one-half mineral interest in a tract of land, conceptually means ownership of one-half of the minerals underlying the tract. The interest is real property, although mineral interest are frequently severed from the surface, meaning that some portion of the mineral interest, or perhaps 100% of it, is owned by someone other than the owner of the surface. Mineral interests are freely transferable just like surface interests. Whenever a mineral interest has been severed from the surface, it includes, as a necessary element, the right to access the land to develop the minerals and realize their value. This is an easement, implied as a matter of law, that is part of the ownership of the mineral interest the right of access to the minerals, for the purpose of exploring, mining, drilling, extracting, etc. The mineral owner may do this himself, or, as is of course much more common, he may grant a mineral lease to another to do the exploration and production, for which the developer pays all of the costs and receives a much larger share of the minerals produced ( working interest ) than the mineral owner granting the lease, who retains a portion, his so-called royalty, being the right to a fractional ownership of future minerals, or the proceeds realized from the sale of the minerals, extracted from the tract under the lease. Royalty Interest The term royalty, is really used in two related, but somewhat different and perhaps confusing ways: (1) Royalty is the mineral owner s (the lessor s) interest in the minerals, for example oil and gas, when and if produced at the surface, at which point the produced minerals themselves have become what the law considers personal property natural gas in a pipeline or oil in a tank truck, for example. It has been severed from the ground by being produced by drilling, mining, etc. (2) A royalty interest, however is an interest in minerals, but is not a mineral interest as such. It is real property while it is in the ground, and is freely transferable just as a mineral interest is, as witnessed by the thousands of assignments of royalty that we see in the North Dakota county land records. This can be a little confusing, but a royalty interest is in effect, part 1

2 of the mineral interest, without some of the attributes of the mineral interest: the right to explore, develop or extract the minerals in particular. A royalty interest alone carries no right of access to the land. It entitles the owner to the right to a fraction of production, but carries no right to do the producing. Commentators are fond of calling a mineral interest a bundle of sticks, each stick representing an interest or right of some kind in the minerals, and a royalty interest can be thought of as a mineral interest that is missing some of the sticks, for example the right of access to the land and the right to drill for or mine the mineral. The Label on the Deed: Is it a Mineral Deed or a Royalty Deed? The conveyancing problem that has plagued these concepts over the years stems from the fact that instruments conveying mineral interests or royalty interests may not actually be what they are called in the title at the top of the document. An instrument that is termed a Mineral Deed may in fact be conveying a royalty interest, depending on the precise nature of the interest that it actually conveys by its terms. Conversely a document entitled royalty deed may actually convey a mineral interest. The courts have often reiterated that the name of the document ( Mineral Deed, Royalty Deed, Assignment of Royalty ) alone is insufficient to determine what it really is. The crucial point is what does the document actually convey and how does it do this? Some of the commonly accepted attributes that distinguish one from the other are as follows: Mineral deed: right to access the tract, right to develop, right to grant an interest in and to oil and gas and related hydrocarbons. The interest being granted is normally described as the minerals in and under and that may be produced from the described tract, and the right to ingress and egress by the mineral owner for access to the tract to explore, develop and market the minerals Royalty Deed: conveys the right to a specified fraction if and when the mineral is produced; typically the instrument will convey an interest in and to the minerals produced and saved from the tract, as opposed to the mineral interest language of in and under and that may be produced from Problems arise, of course, in construing what a given instrument does when there is a mixture of these concepts in a single instrument. Sometimes the label on a printed mineral deed form, for example, will be crossed and replaced with the words royalty deed, or vice-versa. The courts have frequently pointed out that the label on the document does not control what it actually is. The issue, as the courts always tell us, is what was the parties intent at the time? This is a rather slippery quest in the law, however: By the time the question has arisen, the parties may be all long gone and no one is available to say what they meant. Beyond this, the idea of ascertaining the initial parties real intent is, to some degree, a fiction. Sometimes, even the original parties to the conveyance themselves didn t know what they were doing, and by the time the question has arisen perhaps many years later there may well be two diametrically opposed positions, particularly if the issue is in litigation two opposite views of what the parties meant, depending on which result would favor a given party. This makes the 2

3 determination of the intent of the original parties, always a subjective matter at best, a very difficult and perhaps artificial, process. Dealing With Fractions It may be asked, why is this distinction so important if it is just a matter of whether the holder of the interest has development rights or not? A major problem is the difference in what the two kinds of interest mean in terms of what the owner receives. Suppose I own a 1/16 mineral interest in a tract which I have leased at a 1/6 royalty rate, meaning I will receive 1/16 x 1/6 of the oil and gas produced, free of any cost of exploration and development, or we might say equivalently I am entitled to one out of every ninety-six barrels of oil produced from the well. Now suppose that instead of a 1/16 mineral interest, what I own is a 1/16 royalty interest. In this case, someone else owns the mineral interest (since the owner of a only a royalty interest has no power to grant a lease of the minerals). Assuming that oil is produced, this is a much better deal for me, because I am entitled to 1/16 of all of the oil and gas as and when it is produced, that is one out of every sixteen barrels. An unusually high fractional interest, for example 25%, in an instrument termed royalty deed has been one factor is assisting courts to find that the instrument must have been intended as a mineral deed. A royalty interest of even 1/8 would actually be quite high (12.5%) and they are usually more like 1/4%, 1/2%; you see a lot of old royalty conveyances in much smaller amounts, such as 1/32%, 1/64%, etc. If there actually were a royalty deed that had carved out a 25% royalty interest, this would mean that only 75% was left, so that the mineral owner would need to lease at a higher lease royalty than 25% in order to receive anything, and most developers would not undertake to drill under a lease with a royalty that high if it covered any significant fraction of the mineral interest in the tract. Going Deeper into the Quagmire: What Exactly Constitutes a Mineral? We have been talking about minerals as though we knew what they were, but what are we in fact talking about? It seems as though it should be a simple matter, but the question plagued North Dakota for some years until it was finally, more or less, settled by statute. The issue is what is included in a phrase like oil, gas and related hydrocarbons and all other minerals of any kind whatsoever. Language like this has frequently been used in both mineral deeds and mineral reservation clauses, so we are faced with the question, in looking at title records, of just what is included by this kind of language. The issue does not arise often with respect to oil and gas for two reasons: (1) because they are normally specifically mentioned, and (2) historically, there has never been any real contention that oil, gas and related hydrocarbons are not minerals. In recent times, however, the issue of the status of so-called CBM (coal-bed methane, that is methane produced with coal mining) has arisen, and more esoterically, there have been questions about helium, since it a gas that is not a hydrocarbon. 3

4 Is Coal One of the Other Minerals? The principal area in which there has been an issue in North Dakota is whether coal is included in other minerals, but the issue has also arisen with respect to uranium, gravel and scoria. Unfortunately, with respect to coal the answer depends on the date of the conveyance and also whether it was done by deed or by reservation. The problems have arisen not only from the lack of a definition of minerals in the earlier statutes but also from the piecemeal approach that was taken by the statutes attempting to resolve the question. Prior to July 1, 1955, a deed or reservation of minerals covered oil and gas and related hydrocarbons, coal sulphur, iron, uranium and any other unnamed substance that was arguably a mineral insofar as its physical characteristics were concerned. The inclusion of coal in the catchall category other minerals was the principal question then, and this was resolved by several North Dakota Supreme Court decisions holding that coal is a mineral. On the other hand, gravel, clay and scoria, which are substances that are extracted by surface mining, just as lignite coal is, have been held by the Court not to constitute minerals. The disruption of the surface by surface mining has, to some extent, driven the Court s analysis of whether a substance other than coal is a mineral. In a decision holding that sulphur is a mineral, the Court observed that while it is not possible to specify all the substances that are minerals, generally the term is limited to those substances which are valuable, are not part of the soil and may be mined without destroying the surface. This may be said to beg the question, since it requires us to define the soil, but at least is provides some basis for analysis. At any rate, this is where matters stood for documents created prior to July 1, 1955, when a new statute came into effect, providing that no lease or conveyance of minerals separate from the surface conveyed any interest in gravel, coal, clay or uranium, unless the intent to convey such substances was specifically and separately set forth in the instrument. Reiss v. Rummel, 232 N.W.2d 40 (N.D. 1975) This meant, as a practical matter, that those substances must be mentioned by name and would not be covered simply by a general designation of other minerals. This seems to suggest that coal is not a mineral, but the statute did not really define mineral, merely specified that a conveyance of coal must refer to it by name. This statute, however, did not apply to reservations of minerals, so that coal would still be included as a mineral, even if not mentioned by name in a reservation. This rather bizarre distinction that coal was a mineral, if you reserved it but was not a mineral if you conveyed it lasted until 1975, when the statute was amended to provide that a reservation of minerals covered oil, gas and related hydrocarbons, coal, sulphur, iron, uranium and any other mineral but did not include gravel, clay or scoria. The next change was made in the statute in 1983, which essentially turned the earlier standard upside down by providing that a mineral deed or reservation covering minerals includes all minerals of any nature whatsoever, including their compounds and byproducts), except those which are specifically excluded by name in the instrument, but does not grant or reserve gravel, clay or scoria unless they are specifically mentioned. The exclusion of gravel, clay and scoria is probably superfluous, since they have been held not to be minerals, so that the phrase other minerals would not include them in any case. So, finally from July 1, 1983, 4

5 forward, the situation is quite simple: a mineral deed or reservation includes all substances that actually are minerals, except those that are specifically excluded from the instrument by name. This necessarily rather length narrative of the history of this issue in North Dakota, which seemed to become curiouser and curiouser, to use Alice in Wonderland s description, may seem a little confusing, and here is a summary: Time Period Deed of Minerals Reservation of Minerals Prior to 7/1/55 All minerals All minerals From 7/1/55 to 6/30/75 All minerals except coal and ` All minerals uranium, unless they were specifically mentioned by name 7/1/75 to 6/30/83 All minerals except coal and uranium, unless they are specifically mentioned by name From 7/1/83 to present All minerals, and their byproducts and compounds, except those specifically excluded by name Only the minerals specifically named in the reservation clause All minerals, and their byproducts and compounds, except those specifically excluded by name Minerals Means Minerals The progression from inclusion of all minerals to inclusion only of those named, and then eventually back to inclusion of all minerals except those specifically excluded, either in deeds or reservations, can be seen from this chart. We are now in a rational phase, where other minerals means exactly what it ought to all minerals that have not been specifically excluded. Those substances which are not actually minerals, of course, for example gravel, clay and scoria, are never included. What might be called some wiggle room is still left, of course, since none of these statutory provisions actually defines the term mineral. The Court has told us that certain substances are not minerals, but of course has not been able to provide a list of all known minerals. All of this statutory history, with its flip-flop over the 28 years from 1955 to 1983, has led to mineral conveyances and reservations which in some cases, in an excess of caution on the part of the drafter will name long, long lists of specific minerals. General Comment on the Other Minerals Issue From a title examiner s perspective, the flip-flop, if you will, over the nearly three decades between 1955 and 1983 serves as an interesting example of the Court and the Legislature wrestling with a problem that doesn t seem to be a problem on its face. Why would minerals not mean exactly what it says: every substance that is physically a mineral? Then, all we need to do is to establish what is the definition of mineral. This is where we were 5

6 before 1955 and where we have been again since The legislative response to the North Dakota Supreme Court s view of minerals, which was based on presumed intent reflects public-policy concerns about the severance of minerals from the surface estate. In contrast, the Oklahoma Supreme Court has long held that minerals must be construed in light of the express substance names applying the doctrine of ejusdem generis instead of the notion of ordinary and natural meaning. The current law eliminates the need to expressly name each of the minerals that are intended to be included, as was the case for a period of time, as described above. This fluctuating standard in North Dakota in these years led to some absurd examples of instruments in the record that seemed to be trying to name every mineral known to man. One of the most elaborate that I have seen in recent years expressly named nearly 60 separate substances as minerals, including such exotic ones as rutile, cinnabar, monazite, thorium and molybdenum, which probably cannot be found within 1,000 miles or more of North Dakota, except perhaps in museums of geology. DEALING WITH SOME COMMON MINERAL TITLE ISSUES There are, of course, many, many title mineral issues that can arise, and it would take hours to try to cover them all, if that were even possible. What I am going to do in the limited time we have is to discuss some common issues, some of which you might call quirks, and ways to handle them. The Duhig Doctrine: But I Thought I Had Reserved a Mineral Interest for Myself! One of the quirks that may catch a title examiner by surprise the first few times it shows up is the so-called Duhig Doctrine, which takes its name from a Texas case with the rather unlikely sounding name of Duhig v. Peavey-Moore Lumber Co. (144 S.W.2d 878 (Tex. 1940). The classic scenario in which this arises is the situation where there has been a previous reservation of a fractional mineral interest in a tract of land, and the tract is then conveyed by the current owner, by a deed in which he or she reserves a fractional mineral interest. For example suppose that owner A, who owned 100% of the mineral and surface interest in a tract, conveyed the tract to B, reserving a 1/2 mineral interest. B now owns the surface and a 1/2 interest in the underlying minerals, and A owns the other 1/2 mineral interest which he reserved. Now suppose that B sells the tract to C, by a deed in which B also reserves 1/2 of the mineral interest. At first blush you might think that now C owns the surface but no mineral interest, because A owns 1/2 and B has also reserved the other 1/2 for himself. Under the Duhig Doctrine, however, which is in effect in North Dakota by virtue of a number of North Dakota Supreme Court decisions, and is also recognized in most of the other Rocky Mountain states, C now owns 1/2 of the mineral interest. A, of course, still owns his 1/2, but B owns nothing. This may come as quite a surprise to B, since he had included language like reserving unto the grantor [i.e. himself] a one-half interest in oil, gas, and all other minerals in his deed to C. The basis for the Duhig Doctrine, however, is that by virtue of the conveyance in the deed from B to C, B has undertaken to deliver to C the surface and 1/2 of the minerals because the 6

7 only part of the entire interest which he has reserved, or held back, from the grant is the 1/2 mineral interest. It turns out that the 1/2 reserved by B is actually not reserved to him at all but is the 1/2 already reserved and owned by A. That is, the grant to C includes everything not held back and all that was held back was a 1/2 mineral interest, which happens to be owned by A. This may strike the casual reader (or even the careful reader) as odd, since the language in B s deed to C speaks of reserving to the grantor, i.e. to B himself. The view of the courts which have adopted the Duhig Doctrine, and there many in quite a number of states, is that C is to be favored over B in view of what the deed purports on its face to convey. As the North Dakota Supreme Court states in Gawryluk v, Poynter, 654 NW2d 400 (2002). The effect of Duhig is that a grantor cannot grant and reserve the same mineral interest, and if a grantor does not own a large enough mineral interest to satisfy both the grant and the reservation, the grant must be satisfied first because the obligation incurred by the grant is superior to the reservation. No, It Does Not Depend on a Warranty The rationale for the Duhig Doctrine has been stated by some courts to be the warranty provision in the usual deed, so that grantor is warranting everything that is not held back, and this seems to have been a least part of the underpinning in the original Duhig opinion in the Texas case, but the North Dakota Supreme Court has stated that it is not necessary that the conveyance be made by a warranty deed in order for the doctrine to be applicable, so the absence of a warranty provision in the deed in a given case should not be taken to mean that it is not applicable. The Duhig Doctrine is sometimes said to have arisen to take care of the problem of over-conveyances, and it can be thought of in this way. That is, in our example, there have been over-conveyances, in that A has acquired 1/2, B has reserved another 1/2 and C has acquired 1/2 under the deed from B, so there is a net over-conveyance to the extent of 1/2 and the loss is deemed to fall on B. What happens if, for example, A had reserved a 60% mineral interest and then B conveys, as before, to C, with a reservation of 1/2 of the minerals. Now C obtains only 40%, of course, because B has no more than that to give, with A holding the other 60%. Conceptually, if B gave C a warranty deed, he has breached his warranty to the extent of a 10% mineral interest, since the deed and hence the warranty, is viewed as having covered 50% of the minerals. B is left even farther out in the cold in this case, as not only does he receive no mineral interest, but he owes C the value of a 10% mineral interest under his warranty. I guess you could call this a negative reservation on B s part. Conversely, if A had reserved only 30%, then C receives 50% under his deed from B and B now will have 20%, that is, the amount he had left over after satisfying his deed to C. B is, in a sense, like the runt of the litter : after the food meal is over he gets what is left over. The wisdom of the Duhig doctrine can be debated forever, but at least it provides what lawyers call a bright-line rule, so that the result is predictable. 1 1 But not always: For an exception to the Duhig rule, see the North Dakota Supreme Court decision in Gilbertson v. Charlson, 301 N.W.2d 144 (ND 1981), where C in my example did not receive everything because he was the person who already owned a part of the interest. 7

8 In my view, even though I have successfully argued for the Duhig Doctrine in several cases in the North Supreme Court, it is a counter-intuitive rule and in most cases probably does not reflect the intention, at least of the grantor. When he/she executes a deed reserving unto the grantor a 50% mineral interest, the grantor most likely expects to end up with 50% of the minerals, or at least with some mineral interest. In a classic Duhig case, if there is 50% outstanding in a third party the grantor ends up with no mineral interest, and this is probably surprising and even dismaying to the grantor in most cases. Of course, a Duhig result may be avoided by careful drafting of the reservation, expressing the 50% mineral reservation as 50% of the mineral interest now owned of record by the grantor, in which case the grantor is purporting to convey only one-half of what he/she actually owns. With this clause, the grantor will end up with 25% of the mineral interest in our example, because the grantee cannot argue that the grantor was purporting to convey more than one-half of the 50% which he/she owned, i.e. 25%. The Plot Thickens: Duhig and Royalty Reservations The Duhig Doctrine also comes into play when there have been royalty reservations. Royalty interests can be freely carved out of mineral interests. Suppose that back in 1937, A, who owned the surface and minerals in a tract, conveyed a 1/16 (i.e %) royalty interest, carved out of his 100% mineral interest, to B. This means that A s mineral interest is now burdened with a 1/16 royalty interest. That is, if and when minerals are produced from the tract, as by an oil well, for example, then B is entitled to receive, free of cost, 1/16 of the proceeds. If A has leased his mineral interest to Venture Oil Co., by an oil and gas leases with a 1/6 royalty, then A s 100% mineral interest is entitled to 1/6 of all of the oil and gas produced. His previously conveyed royalty interest, however, is a burden on A s mineral interest, so A actually receives 1/6 less 1/16, and B receives the 1/16 attributed to his royalty interest. Venture Oil Co., the lessee, of course receives 5/6. This is the simple case. Now suppose that before he grants his lease to Venture, A has sold a 1/2 mineral interest to C. We are assuming that the royalty interest that A granted to B, prior to the conveyance to C, is still in effect. Now since A only owns 50% of the total mineral interest, he is entitled to 50% x 1/6, or 1/12 of the oil produced, subject to the carved-out royalty interest of B, as his (A s) royalty. You might think that the outstanding 1/16 royalty interest should burden the whole 100% mineral interest, which it did before A conveyed half of his mineral interest to C. In other words, the 1937 royalty burden would be something like the lien of a mortgage burdening the whole interest. This is not the case in North Dakota, however, as the North Dakota Supreme Court held in Acoma v. Wilson, recently reaffirmed in Wenco v. EOG Resources, Inc., 822 N.W.2d 701 (ND 2012) that the Duhig Doctrine applies to such carved-out royalty interests. In other words A s deed to C purports to convey a full 1/2 mineral interest and so it must not bear any of the pre-existing royalty burden (even though the 1/16 carved-out royalty owned by B appears in the record, so that C has constructive notice of its existence). The entire 1/16 royalty burden falls upon A s remaining interest, so that A is entitled to only 1/12 1/16 = 1/48. If C also leases his 1/2 mineral interest at a 1/6 royalty rate, he will 8

9 be entitled to 50% x 1/6 = 1/12. B is still entitled to 1/16 and A is entitled to his 1/48, for a total, between A and B, of 1/6 and of course the two lessees share the remaining 5/6: A: 50% x 1/6-1/16 = 1/48 B: 1/16 C: 50% x 1/6 = 1/12 1/48 + 1/16 + 1/12 = 8/48 = 1/6 The doctrine can substantially increase the complexity of doing mineral title opinions, when various royalty interests may have been carved out of the mineral interest over a period of years. This is a simple example, but you can visualize that the Court s decision can substantially increase the complexity of doing mineral title opinions, where there sometimes are 100 or more of these carved-out royalty interests in a tract. The result of the Acoma and Wenco decisions, casting the entire burden of the outstanding carved-out royalty interest on less than 100% of the mineral interest, seems even less intuitive to me even than applying the Duhig rule to mineral interest cases, given that the grantee is deemed to be fully aware (from the record) of the outstanding royalty burden. Conveying by Both Fractional Mineral Interest and Mineral Acre Specification of the Amount: Which Method Controls? Whether a mineral interest is conveyed by a mineral deed or retained under a reservation clause, it is necessary, of course, to specify what portion of the total mineral interest we are talking about. The widespread use of mineral acres as a means of describing the quantum of mineral interest being conveyed can result in to ambiguities in descriptions. Conceptually, one mineral acre is defined to be the full mineral interest underlying, or contained in the ground beneath, one surface acre of land. A 100% mineral interest in a 160-acre tract, therefore, is 160 mineral acres. This seems simple enough, but the use of this terminology can create problems in various situations, and my own preference would be never to use mineral acres in specifying the amount of interest being conveyed or reserved. If you have anything to do with drafting conveyances, I urge you to avoid using mineral; acres as a means of describing fractional mineral interests, although I know that petroleum landmen and others traditionally seem to like the term. The particular problem I will discuss arises when both a fractional amount and a specification by mineral acres are used in the same instrument, but I believe that the use of mineral acres at all should be discouraged. There is never any ambiguity in simply specifying the quantum of interest by using a fraction. For example, suppose A owns 100% of the mineral interest in a tract containing 160 acres and wishes to convey one-half of his interest to his son B. This is easy; all he needs to do is execute a deed conveying a 1/2 mineral interest in the tract. This is commonly described as an undivided 1/2 mineral interest, which of course simply means that the amount of the interest being conveyed one-half is the same in every morsel of the tract. This would be in contrast to A conveying 1/2 of his interest by specifying that 3/4 of 9

10 the 1/2 comes from one portion of the tract and 1/4 of the 1/2 comes from the rest of the tract. That would be possible, but it is rarely, if ever, done that way. In my example, there would be no problem if A also stated in the deed that his intent was to convey an undivided 80 mineral acres. Given the definition of mineral acre as the full mineral interest underlying one acre of the surface, A s initial mineral interest could equivalently be described as 160 mineral acres, and so a conveyance of 80 mineral acres covers one-half of his total interest. The specifications by fractional interest and by mineral acres are equivalent in this case, so the simultaneous use of both creates no problem. The problems arise when the two methods of specifying the interest in a tract do not agree with each other. This commonly happens in tracts which include fractional acres. As you know the public lands in the western states were surveyed by the federal government in the 19th century and laid out in a rectangular grid system of square sections one mile long and one mile wide, in numbered townships running north and south and ranges running east and west. This system is referred to as the GLO (General Land Office) Survey. The Earth s surface, however, is not flat, so that periodic corrections need to be made to accommodate a two-dimensional rectangular grid system that overlies a more or less spherical surface. The solution was to make periodic adjustments in the layout, with the result that generally along the top and left side of each township there are numbered lots, running from east to west as Lots 1 through 4 and then north to south as Lots 4 through 7, which have acreages that contain somewhat less or somewhat more than 40 acres each. Irregular lots may also occur when there is a river or other body of water located in the tract. Therefore, instead of a 160-acre tract as in the above example, A may own, for example Lots 1, 2, 3, 4, containing, respectively, 39.84, 39.96, and acres each, for a total of acres, which can also be designated as the N½N½ of the Section. Without keeping this in mind, suppose A simply considers that he owns 160 acres (as opposed to ) and signs the same deed as above:--conveying a 1/2 mineral interest in this tract, stating an intent to convey 80 mineral acres. Now we have a direct conflict between the fractional specification and the mineral acre specification: a 1/2 interest would constitute 1/2 x , or mineral acres, so that B comes out a little short in terms of mineral acres if we give effect to the fraction only. He has 1/2 of A s interest, but not quite 80 mineral acres. In order to convey 80 mineral acres, A would need to state the fractional interest as 80/159.57, which, of course, is slightly larger than 1/2, which is 80/160. Whichever description of the interest we follow, it will not agree with the other description. If the total of the four lots contained more than 160 acres, for example , the fraction 1/2 will convey slightly more than 80 mineral acres. So what do we do with this ambiguous deed? Ambiguities are to be resolved, as the courts are fond of telling us, by looking at the intent of the parties. But what was A s intent? Did he wish B to have a 1/2 interest in the minerals, or did he wish him to have a full 80 mineral acres (leaving A with mineral acres)? He thought it was equivalent, because he did not take into account that he was dealing with a section that contained less than 160 acres, so we cannot say which one was his intent: 1/2 of his interest or exactly 80 mineral acres. This is the classic illustration of the problem that can arise from using a fractional interest with a statement of intent in mineral acres. My personal reason for wishing that the mineral acre concept had never arisen is that there is never any ambiguity if we use only the fractional specification. 10

11 There is some support in the commentators for using the specification of intent in mineral acres, but a decision of the North Dakota Supreme Court several years ago is authority for preferring the fractional interest specification. Hild v. Johnson, 723 N.W.2d 389 (ND 2006) Based on that case, my own practice in title opinions now is to give effect to the fractional interest specification, but to include a typical comment and requirement in the opinion, pointing out the ambiguity and suggesting that a stipulation and cross-conveyance between the parties be obtained if possible. Problem With Combining Both Methods The lack of agreement between the fractional interest specification and the intent clause as to the number of mineral acres covered occasionally arises in a slightly different situation. In working on title opinions, I have come across mineral deeds which grant, for example, an undivided 5/160 mineral acre interest and then also specify, either in the description of the 160-acre tract itself or in a subsequent intent clause, an undivided five mineral acres. I submit that the intent here in most cases is probably to convey a 5/160 mineral interest, which would of course be five mineral acres in the 160-acre tract. If we construe the fractional clause literally as it is written, however, the two specifications are very different, since 5/160 mineral acres is not only not 5 mineral acres but it is very much smaller than 1 mineral acre, since 5/160 is 1/32, so that read literally this language means 1/32 of one mineral acre, that is mineral acres. Again, the ambiguity demonstrates the inherent danger of using mineral acres at all. The insertion of the single word acre in the instrument has created a substantial ambiguity. In this kind of situation, in preparing a title opinion, I construe the conveyance to have been intended as a 5/160 mineral interest, but normally include a requirement for a stipulation or amended conveyance to clarify the record title. Those Nasty Fractions. or Lack Thereof While we are talking about fractional interests, it is worthwhile to mention another issue that occasionally arises, which I think must derive from a failure on the part of the drafter of the document to fully understand the difference between fractions and fractional percentages. I recall a recent instance where the interest conveyed was described as an interest of 1/8 per cent ( %). The two numbers are, of course, not the same, as the factor in parentheses is 100 times smaller than 1/8 per cent. This may arise from simple carelessness i.e. leaving the percent sign in place after already incorporating the conversion to a decimal, but I think sometimes that there has been a failure to fully understand fractions and percentages, and what fractional percentages mean. This is also an appropriate place to point out that if you are using a computer spreadsheet, like Microsoft Excel, as we all do these days, you need to be careful when setting up fractional percentages. If you write a number as 1/8% Excel, because it always performs mathematical operations in a specific sequence, will compute this as 1 divided by 8%, which is very different from a one-eighth per cent. Inserting a pair of parentheses will solve this: (1/8)%, or equivalently you could write the number as 1%/8. 11

12 This brings up an unrelated problem that I see from time to time: a mineral deed conveying a undivided interest in a specified tract. This deed is not conveying any specified amount and therefore, traditionally at common law, would be void and would convey nothing. It usually appears that the intent was to convey 100% of the grantor s interest. I am guessing that that what happens here is that a landowner has not consulted an attorney and has simply used a form printed mineral deed and has assumed that undivided interest means 100% - after all, undivided seems to suggest, to a non-lawyer, that there has been no dividing up of the whole 100% mineral interest. Third Party Reservations: Don t Speak to Strangers You are probably familiar with what is referred to as a stranger to the title. The individual so characterized may not be a stranger at all, in fact might be a person who is very familiar with the land in question, but it is a person who has no interest of record. This may be because he or she suddenly appears in the chain of title with no basis for an interest, or it may be someone who appears as a grantee but whose grantor had no interest of record, so that the conveyance to him or her is what we sometimes call a rogue deed. In any case he or she has no basis in the record for owning any interest, and the North Dakota Title Standards 2-01 say that we may ignore such persons. This, again, is another nice, clear bright line rule. But such rules sometimes have a way of becoming fuzzy with time, and this is the case with reservations to third-party strangers to the title in North Dakota. Prior to 1983, it was clear in this state, based on a North Dakota Supreme Court decision, and the old common law doctrine, that a purported reservation to a stranger to the title was void. Stetson v. Nelson, 118 N.W.2d 685 (N.D. 1962). The theory was that a reservation could not be made by someone who had no interest in the first place; in other words, a reservation (or exception) could not be made to serve the function of a deed, that is no interest could be transferred by a reservation to a third party who did not already own an interest. In 1983, however, in the Court s decision in Malloy v. Boettcher, 334 N.W.2d 8 (N.D. 1983), overruling Stetson, it was held that a reservation to a spouse who had no previous interest could be valid if the parties intended an interest to pass to the spouse by the reservation. The case involved the reservation of a life estate rather than a severed mineral interest, but the holding would be equally applicable to mineral interests. Thus a reservation to the grantors, when they are spouses but when only one of them owns an interest may be effective as to both spouses if that was the intent. Spouses normally join in deeds of any interest in North Dakota, even for severed mineral interests, due to the homestead laws, and so this issue comes up relatively frequently, but the intent of the spouses is usually not clear as to whether the joinder by the non-owning spouse was made merely to satisfy any homestead requirement or was actually intended as a conveyance of an interest to the non-owner spouse to the owner spouse by means of reservation. This leaves the question open in each case, so the issue must be resolved by a stipulation or affidavit of some kind, if the intent of the spouses is not stated in the instrument. The Court s 12

13 decision left open the question of whether a reservation to a true stranger, i.e. a non-spouse, can be valid, but this issue does not often arise. The solution to the problem, of course, is to provide a clear statement of the parties intent when drafting the instrument containing the reservation, but this is not as often done as it should be, in fact quite rarely. Conflict between a mineral reservation in a contract for deed and the subsequent deed. itself In some cases, a contract for deed for the sale of real property may contain a mineral reservation but which is then entirely missing, or different in amount, in the subsequently issued deed upon completion of the contract, or vice-versa. This creates an ambiguity, which must be resolved by agreement between the parties or by a reformation action. Way back when I started practicing law we used to think that this was no problem because the contract for deed was simply merged into the subsequent deed, and the language of the deed itself was controlling. In Wehner v. Schroeder, however, 354 N.W.2d 674 (N.D. 1984), the Court held that the doctrine of merger of the contract into the deed did not apply, due to mutual mistake of the parties, and allowed reformation of the subsequent deed to conform with the mineral reservation that appeared in the contract for deed but which was omitted from the deed itself. This may make sense, in that the parties apparently intended at some point, back when the contract was being drafted, that there should be a mineral reservation. On the other hand, it might also make sense that they changed their minds and that the failure to include the mineral reservation in the deed was intentional. The courts are of course always trying to infer the intent, and this is conceptually reasonable, but in practice often somewhat nebulous. The interest of successors on both sides are of course again diametrically opposed: The seller s successors argue that their grandfather s intent was to retain all of his minerals, whereas the buyer s successors contend, with equal vigor, that their grandfather told them many times that he had been careful to acquire at least part of the mineral interest as well as the surface. In the eastern part of North Dakota this would perhaps not matter much, where the mineral interest is a minor consideration, but it makes an enormous difference in Williams, McKenzie and Mountrail Counties, for example, who now owns the oil and gas in a tract. Yes, It Does Matter Where You Insert a Mineral Reservation The typical mineral reservation appears in the granting clause of the deed or other conveyance, and operates to withhold the specified fraction of minerals from the grant. A purported reservation elsewhere in the deed, however, may create an ambiguity and require a judicial interpretation. In Stracka v. Peterson, 377 N.W.2d 580 (N.D. 1985), the Court held that the language subject to reservation of 50% of all oil or minerals appearing in the deed but not in the granting clause, did not operate to reserve 50% of the minerals to the grantor but was rather a limitation on the warranty and referred to the fact that the grantor only owned 50% of the mineral interest, due to a prior reservation of a 50% interest when the grantor acquired his interest. The decision was based on the fact that this language created an ambiguity and therefore allowed extrinsic evidence to be admitted. It appears, however, that this case would 13

14 have been governed by the Duhig Doctrine. In Mueller v. Stangeland, 340 N.W.2d 450 (N.D. 1983), the Court held that the phrase excepts from this contract all minerals, including oil and gas, and all mineral rights not now owned by the Vendor, which was contained in the warranty clause rather than in the granting clause, did not reserve or except any mineral interest to the grantor. See also Monson v. Dwyer, 378 N.W.2d 865 (N.D. 1985). Distinction between fractional royalty interest and fraction of royalty. Care must be taken in dealing with fractional royalty conveyances, as the precise specification of the quantum of interest being conveyed may make a large difference. 1. Suppose, for example, that A owns a 1/2 mineral interest, which is leased at a royalty of 15%. His royalty interest, therefore under this lease is 1/2 x 15% = 7.5%. 2. Now suppose that A assigns 5% of my royalty to B. This is 5% x 7.5% = 0.375%. But if instead of this, A conveys a 5% royalty interest to B, this is a full 5% of production, so that A s royalty under his lease is reduced to 2.5% (7.5% - 5%). It is no longer a fraction of A s royalty, i.e. the royalty to which A is entitled under his lease, but rather a fraction of the entire 100% royalty interest inherent in the 100% mineral interest. B has 5% rather than 5% of 7.5%, which is a considerable difference. 3. The critical difference is between a fractional royalty and a fraction of royalty. With the lease in place, A can convey either a fraction of his royalty, i.e. his royalty under the lease, or a fractional royalty taken out of his mineral interest. Because fractional royalty interests are subtractive from the mineral interest, fractional royalty interests larger than 10% are rarely seen, since a burden of that size would make it difficult to lease the tract (as the lessor would also expect to have a decent amount of royalty and if 10% is already outstanding this would have reduced the effective lease royalty to 2.5% in earlier times, when 1/8 royalty was the standard rate). 4. This difference was noted in opinion in Knox v. Krueger, 145 N.W.2d (N.D. 1966), pointing out the distinction between 1¼% royalty and 1¼% of royalty. The latter, as the Court states, would convey a much lesser interest. Describing the lands as a fractional interest: The double-fraction issue. Suppose that A owns a 50% mineral interest in a tract. He executed a mineral deed conveying to B an undivided 10% interest in and to the following lands: A 50% interest in the E½ of Section 32 in T151N-R95W In most cases, the intent was probably to convey a full 10%, taken out of A s 50%, the reference to 50% simply referring to his total original interest, so that A would now own a 40% interest. 14

15 Literally, however, what he has conveyed is 10% of his 50% interest, which is only 5%, rather than the 10% B was probably anticipating. This has created an ambiguity, which is usually referred to as the double fraction problem. The parties mistake, if it was a mistake of course, was to describe the land as a 50% interest in a specified tract, rather than simply to state the legal description of the land. I have seen this in examining titles, though not often, so that it is not simply a theoretical issue. DORMANT MINERALS: NORTH DAKOTA TERMINATION OF MINERAL INTEREST ACT (N.D.C.C. CH ) The intent of the act, as evidence in the original North Dakota Legislature hearings on this statute was to provide a mechanism for eliminating old unused mineral and royalty interests from the record to simplify leasing of minerals and eliminate title problems arising from unlocatable heirs and successors by allowing for a procedure by which the mineral or royalty interest passes to the current surface owner. Such statutes (often referred to as Dormant Minerals Acts) have survived constitutional due process challenges relating to notice requirements and the taking of property without due process of law. See Texaco v. Short, 454 U.S.516 (1982), validating the Indiana dormant mineral statute, on which the North Dakota Act is largely based. Under the Act, if a record mineral or royalty interest has not been used for the previous 20 years or more, it may be deemed to have been abandoned. Mere non-use for the 20-year statutory period is deemed to be sufficient to constitute abandonment. N.D.C.C This contradicts the old common law two-part doctrine that real property could not be abandoned without both (1) non-use and (2) evidence of the intent to abandon. Notice must be given to all owners of record interests whose addresses can be determined upon reasonable inquiry. They may then file statements of claim and thereby prevent the loss of their interests. N.D.C.C (2). In Spring Creek Ranch, LLC v. Svenberg, 595 N.W.2d 323 (N.D. 1999), the North Dakota Supreme Court that this means more than merely searching the record for the last known address, but exactly what is required was not specified by the Court. This means that there is a factual issue in each case as to whether a reasonable inquiry has been made. In an amendment to the Act, discussed below, a more specific was. The question of used is the central issue and of course is also a factual issue. The following eight types of activities constitute use of a mineral interest, any of which would take the interest out of the purview of the Act: N.D.C.C Production of minerals from the tract 2. Operations being conducted for injection, withdrawal, storage or disposal of water, gas, or other fluid substances 15

16 3. In the case of solid minerals, production from a common vein or seam by the owners of the interest 4. A lease, mortgage, assignment or conveyance of the interest appearing in the record within the previous 20 years 5. The interest is subject to a recorded order for pooling or unitization 6. Taxes are paid on the interest [This will not have happened in any case, as severed mineral interests are not subject to North Dakota property tax.] 7. A proper statement of claim has been recorded under the Act Due to the uncertainties inherent in the meaning of used, the North Dakota Mineral Title Standards, and the statute itself as amended, require a quiet title judgment to establish that title to an unused severed mineral interest has actually passed to the surface owner (as was also suggested by the U.S. Supreme Court in the Texaco v. Short case). That fact and the requirement pertaining to reasonable inquiry as construed in the Spring Creek case, have resulted in the North Dakota Termination of Mineral Interest Act being infrequently used in the past. The surface owner seeking to acquire the unused interest under this statute must show that reasonable inquiry has been made to locate the actual owner. Under the current version of the statute, as amended after the Spring Creek decision, reasonable inquiry means a search of the county recorder s records, clerk of court s records, social security index and one or more public internet databases to locate or identify the owner of the mineral interest or any known heirs of the owner. The requirement of searching a public internet database, added by the amendment to the statute, appears to be a very minimal standard and to have considerably relaxed the test under the Spring Creek standards. In the past this statute has not been much used, but there appear to be more of such cases now, not surprisingly in view of the greatly increased value of the mineral interests in Western North Dakota. It is a somewhat curious concept, in all of these dormant minerals acts, that the abandoned mineral interests pass to the current surface owner. It does appear as a gift to the surface owner, since his or her ancestors presumably freely conveyed the mineral interest to others. Abandoned property normally passes to the State, and this would perhaps be a better solution, although the State would probably by unlikely to be interested in pursuing the litigation involved in confirming title to the abandoned interest. Probate and Heirship Issues: Who Owns That Interest Now? We all constantly run into the question of what to do about the fact that the ownership of severed mineral interests fairly often cannot be ascertained from the records due to the passage of time and the lack of any record evidence as to who succeeded to the interests on the death of the record owner. In an ideal world, every mineral interest owned by now-deceased person would have passed through a North Dakota probate or heirship proceeding and there would be a record of who the current successors are. This is much more often the case with surface 16

17 ownership, because the surface traditionally had a more readily obvious value and it was important for the record to reflect who owned it, partly for purposes of keeping track of property taxes, granting mortgages, etc. With severed mineral interests, the succession is sometimes documented in the record but often it is not. Partly due to the nature of severed mineral interest: their value may be questionable and it is frequently an economic decision not to bother with them upon a death, or, as often occurs, the record owner may have resided thousands of miles away and, if the mineral interests have not been producing, they may well have been forgotten about over the years. If a mineral interest has gone through probate, it means that the deceased owner left a will, which was confirmed as valid in a judicial probate proceeding, that is probated, meaning proved, and there will normally be a personal representative s deed in the record showing who succeeded to the interest under the will. The terminology is unfortunately often used quite loosely, but if there is a probated will the heirs of the deceased owner do not succeed to the interest. Those who take under a will are devisees, whereas heirs means only persons who would take under the relevant state intestacy statute if the owner had no will, or if his will is not probated, as discussed below. Occasionally one sees an actual will in the record, rather than a personal representative s deed. A probated will can be used as evidence of title to property, but it is critical to remember that this means a probated will that has been probated in the states where the mineral interest is located. The jurisdiction of probate courts over real property, is in rem, meaning that it is tied to the physical location of the land and not to the person of the decedent, so it does not extend beyond the boundaries of the state where the land is located. A will probated in Minnesota, for example, has no effect in and of itself on a mineral interest located in North Dakota. A North Dakota court must probate a will before it can have any effect on mineral interests located in this state. It is fairly common to see that someone has placed in the record in North Dakota a probate decree from another state, but this does not accomplish anything. Only a probate proceeding carried out in North Dakota can serve to determine that title to North Dakota real property, including interests in minerals, has passed to the devisees under the will. This is subject, however, to the statute allowing a personal representative appointed in the domiciliary state to act in North Dakota, discussed below (N.D.C.C ) Normally, there will be a personal representative s deed of distribution, distributing the property to the devisees under a probated will, which shows that title has passed to them. This is not a crucial document for the passage of title, however, even though the typical personal representative s deed of distribution reads like a conveyance. The title to property actually passes upon death, subject to administration, N.D.C.C ), not upon distribution, so that it is the fact of death itself, not the distribution of property by a personal representative, that creates ownership in the successors. Title to the property passes immediately to the decedent's devisees (assuming a valid will) or heirs, not to the personal representative, but the successors ownership of the decedent's assets is subject to creditors' claims, homestead, family allowance, spouse s elective share, exemptions, and all of the costs of administration: The personal representative s deed of distribution is simply a ministerial act, which serves to show on the record that the property is not needed for expenses or claims of the estate 17

18 and that the personal representative is relinquishing his statutory rights of control over the property. Conceptually, the deed of distribution is more analogous to a release of a lien than it is to a conveyance. The ownership of the decedent's property will pass to the devisee or heir in any case, whether there is a deed of distribution or not, although the personal representative is required by statute to execute the deed when distribution is made in kind: The statutory language expressly recognizes that the deed does not normally create the title but merely serves as evidence of title. Some might say this is an over-subtle lawyer s distinction, but it can be important if there is no deed of distribution. As a practical matter, the deed of distribution is important and should be used because in its absence there could be a question whether the property is free and clear from the control of the personal representative or whether it might be subject to creditors' claims or be burdened with estate administration expenses: To be sure, I am not advocating that we do away with deeds of distribution but simply pointing out that title passes without them, and this may be important. One example is the case where there is a deed of distribution in which certain property of the deceased person has been omitted. Suppose the will provides that the entire residue of the estate passes to A, but some of the property has not been included in the personal representative s deed of distribution, and mineral interest are often overlooked in deed of distribution. Upon checking the estate file, which has been closed for years, we find that all debts and administration costs have been paid without the need to sell any estate property. Is it necessary to open the proceeding, reappoint the personal representative or appoint a new one and prepare a new or supplemental deed? Strictly speaking, no title passed under the residue clause of the will at the time of death and the personal representative no longer has any claim or power over the property. It s preferable to have a deed of distribution in the record including all of the decedent s mineral interests, of course, for a nice clean title, and the personal representative is required to execute a deed, as stated above, for a distribution in kind, that is involving an interest in land, but if he/she has not done that it doesn t mean that title has not passed, since it not actually the deed that passes title: Proof that a distributee has received an instrument or deed of distribution from a personal representative is conclusive evidence that the distributee has succeeded to the interest of the estate in the distributed assets, as against all persons interested in the estate... Intestacy The discussion so far has been in terms of probated wills. It the deceased person does not leave a will, or if the will for some reason is invalid, then he/she was intestate and the successors are those persons specified in the intestacy statute of the state where the property is located. These are the heirs, and there are no heirs if there is a probated will. The term is widely used very loosely to include all successors to property, but the distinction in the law is very clear, and has been since medieval times. In effect, the intestacy statutes presumably represent the collective judgment of the people as to how the decedent would have wished the property to pass 18

19 if he/she had intended to make a will but for some reason never did so, or if the will is for some reason found to be invalid. Identification of Heirs At common law, the term "heir," or "heir at law," referred only to a person who acquired land by intestate succession, that is by operation of the intestacy statutes immediately upon the death of the owner. If the decedent left a valid will devising the property to specific persons, then he left no "heirs." Heirs took only by descent, that is by the law of intestate succession. Under the terms of a probated will, on the other hand, the named devisees succeed to the interests in real property and, whether they were related to the deceased owner by blood or by law, or not related to him at all, they were not his heirs, since they were not taking by descent. The practical question then, in the context of searching mineral titles, and it comes up fairly often, is where has the title gone when there is no evidence in the record that a will has been probated in North Dakota. A deceased person may have been testate in California, of course, that is the will was probated there, but intestate in North Dakota, where the will has not been probated. The California probate is irrelevant as far as the North Dakota mineral interest, which will pass by intestacy. In principle, the determination of the heirs under North Dakota law seems as though it should be simple, but it reality it is often not so, since it depends on the date of death and the value of the North Dakota estate. The intestacy laws have been tinkered with and adjusted frequently over the years, so that it is necessary in each individual case to look at the statute in effect on the date of death. Even the so-called Uniform Probate Code (UPC), adopted in North Dakota in 1975, is not totally uniform throughout the states, so that if you are familiar with the intestacy laws in one UPC state, it does not mean that you will automatically be familiar with them in other UPC states. North Dakota does follow in a general way the traditional concept in intestacy that property, on some kind of fractional basis, passes partly to a spouse and partly descends down through the bloodline (including adopted children as blood relatives on the same footing as natural children). Originally, prior to the UPC, a surviving spouse would be entitled to one-half or one-third of the intestate property and the surviving descendants, that is children, grandchildren, great grandchildren, etc. would share the other one-half or two-thirds. This is quite a traditional scheme. North Dakota was traditionally a little less generous to the surviving spouse, however, if there were no descendants. For example, in North Dakota from 1945 to 1951, the spouse received the first $25,000 and 1/2 of the balance over that amount, brothers and sisters or nieces and nephews received the other 1/2 of the balance, except that if a parent or parents were living the threshold amount went down to $15,000 and the surviving parent or parents received 1/2 of the balance over $15,000. If there were surviving descendants, then the statute specified a very traditional 1/3 of everything to the spouse and 2/3 shared among the descendants. If there were no surviving spouse, then everything passed to the descendants, or if there were none, to the parents. In succeeding years (1951, 1953, 1961, 1963) changes were made, generally to gradually increase the threshold amounts below which the surviving spouse received everything, arriving as $100,000 in

20 The Uniform Probate Code added some complications in 1975 and again, with amendments to the Code, subsequent years. The surviving spouse may now be entitled to as much as the first $300,000 plus one-half of the balance over that amount. The reason for going into this detail is to illustrate why the forms of affidavits of heirship, which are discussed below and which are used widely in North Dakota and other states, often contain insufficient information to allow the heirs and their shares to be readily determined. Since 1996, in North Dakota the surviving spouse receives 100% if there are no surviving descendants or parents. This is quite sensible, preferring the spouse over siblings of the decedent, or his or her nieces and nephews. If a parent does survive (and no descendants), then the spouse receives the first $200,000 plus 3/4 of the balance over $200,000 and the parent receives the other 1/4 of the excess over $200,000. This is not so unusual, as parents were often included as heirs under prior law, in the absence of descendants. What is very unusual, however, compared to pre-upc intestacy law, is that if there are surviving descendants, all of whom are descendants of both spouses and the surviving spouse has no others descendants (i.e. children from a different parent than the deceased person, or their descendants), then the descendants take nothing and the spouse receives 100%, no matter how large the estate is. Was this a scheme to punish the surviving spouse for having children by a person other than the deceased? I think not. The rationale is presumably that if all of the descendants of the surviving spouse are also descendants of the decedent, then the property will normally stay in the decedent's bloodline at the death of the surviving spouse, by passing to their joint descendants, so it is appropriate to have the surviving spouse take everything The descendants will receive it eventually. This assumes, of course, that the decedent and the surviving spouse do not leave wills, so that the intestacy statutes will apply in both cases. What happens, then, if the surviving spouse has descendants who are not descendants of the deceased person, for example children of a prior marriage, which is a very common situation today? Now the surviving spouse s share is cut down to the first $150,000 and 1/2 of the excess over that and the descendants of the deceased share the other 1/2 of the excess. Notice in this case that the spouses' descendants who are not descendants of the deceased do not take anything themselves; their existence simply decreases the amount that the spouse receives, and the fact that they do exist means that the deceased s descendants do take a share. The idea behind this is that a non-descendant of the deceased will normally inherit from the surviving spouse, whose descendant he or she is, and so it is desirable to decrease that spouse s share because otherwise such inheritance would ultimately divert property away from the deceased s own descendants when the surviving spouse dies. A somewhat parallel change occurs when it is the deceased spouse who has descendants who are not also descendants of the surviving spouse. Then the surviving spouse receives the first $100,000 and 1/2 of the balance over that and the descendants of the deceased spouse share the other half. The rationale here, of course, is that the descendant of the deceased spouse who is not a descendant of the surviving spouse will not inherit from the surviving spouse, so that some prevision needs to be made for him or her. The threshold cut-offs may seem somewhat arbitrary, but it is possible to understand the general thinking behind these variations. Like so many statutes that are enacted over the years, their ultimate form is the result of compromise. 20