Dep't of Natural Res. v. Waide (IL)


Summary: Reformation of a warranty deed is possible upon the finding of a mutual mistake.


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Dep't of Natural Res. v. Waide, 2013 IL App (5th) 120340 (2013).


Facts: Plaintiff, the Department of Natural Resources of the State of Illinois (“Department”), sought a reformation of a warranty deed or a declaration that the warranty deed conveyed to it by the previous owners did not reserve an undivided one-fourth interest in the mineral rights of a certain property. Defendants, the heirs of the estate of the previous property owner, asserted collective ownership of the same one-fourth interest in the mineral rights.

In January 1939, by mineral deed, Charles and Edith Warren conveyed an undivided one-fourth interest in the mineral rights of the real estate to the Pawnee Royalty Company (“Pawnee”). In 1961, the Department acquired that one-fourth interest.

In June 1958, after Charles’s death, Edith executed an option contract with the Department. The contract specifically set forth that the sale was for the property and a three-fourths interest in the oil and gas under the surface. The contract also included a handwritten note stating: “1/4 Royalty sold. Just a notation.” The Department exercised its option to purchase within the specified time, but Edith died before conveying her interest in the real estate by warranty deed. Margaret Shufeldt, executor of the Warren Estate, was granted authority by the circuit court to complete the sale and execute and deliver to the Department “a good and sufficient deed covering the title to the real estate.” Shufeldt executed the warranty deed, which described the property and included the following language; “…except an undivided 1/4 of the oil and gas ....” In June of 1965, Shufeldt filed a final settlement report for the state that did not include any information showing that the estate retained any an ownership interest in the mineral rights.

In 2000 and 2001, Deep Rock Energy Corporation (“Deep Rock”) executed numerous oil and gas leases with the heirs of the Warrens. Deep Rock assumed the heirs of the Warrens were the owners of the undivided one-fourth interest in the mineral rights referenced in the 1960 warranty deed. In 2001, Deep Rock also filed petitions to form special drilling units with the Department and sent notice of its petitions to the defendants as owners of the mineral rights at issue. In a consolidation hearing, the Department granted Deep Rock’s petitions. In June 2005 and again in 2006, Deep Rock filed a petition with the Department for unitization of certain parcels of land that included the property at issue. Attached to the petition was a list of “all persons owning or having an interest in the oil and gas rights” on the date of filing. The Department granted the petition for unitization.

In 2006, the Department became aware that it was not receiving 100% of the mineral rights for the property at issue. In 2007, royalty payments by Deep Rock to the defendants were suspended. In 2008, the Department sought reformation of the warranty deed claiming that the language contained in the warranty deed reserving a 1/4 undivided interest in mineral rights was a mutual mistake.

Defendants claimed that the language referenced in the warranty deed executed by Shufeldt reserved an undivided one-fourth interest in the mineral rights of the property they inherited from Edith’s estate. They further argued that the Department's requested relief is barred by the doctrine of laches because the Department waited 47 years to bring the action. Defendants also raised the affirmative defenses of res judicata and estoppel by verdict.

The circuit court interpreted the handwritten notation in the option contract as Edith's intent to clarify that she and her husband had previously conveyed one-fourth interest of the mineral rights to Pawnee. The circuit court concluded there was “a mutual mistake of both parties” and reformed the warranty deed in favor of the Department. The circuit court also rejected the defendants' claim for laches, res judicata, and estoppel by verdict.


Holding: Affirmed. On appeal, the appellate court affirmed the lower court's decision to reform the warranty deed. First, the court reasoned that in order to be entitled to equitable relief of reformation of a deed, a plaintiff must prove both a mutual mistake and the existence of an alternate agreement. The court concluded that Edith had previously conveyed the 1/4 interest in mineral rights to Pawnee prior to her conveying the remaining 3/4 interest to the Department through the option contract. As such, the defendants could not have received a 1/4 interest from Edith’s estate because she could not convey more than what she owned. Thus, the court agreed with the lower court’s interpretation of the handwritten notation and concluded there was a mutual mistake in the execution of the warranty deed by Shufeldt.

The court then concluded that neither the passage of time nor a loss of income from royalty payments was enough of a factor for the doctrine of laches to apply. The court reasoned that defendants presented no evidence to show that the Department was on notice of defendants’ ownership interest in the mineral rights in the 40 years between the execution of the warranty deed and the signing of the leases. The court found that the petitions that were filed for the unitization proceeding did not individually identify the owners to their respective parcel, so it could not provide notice to the Department. The court concluded that the Department believed it owned 100% of the mineral and had no reason to believe it had to do anything more to protect its interest. In addition, the court concluded that the loss of royalty payments was not sufficient justification for laches to apply even though taxes were paid on the royalty payments. The court reasoned that because tax payments made were less than the royalty received, there would be no prejudice to the defendants.

Finally, the court concluded that the lower correctly denied defendants’ request for summary judgment on the grounds of res judicata and estoppel by verdict as “there [was] no judgment on the merits as to defendants’ ownership interests in the property.” The court reasoned that the unitization hearings did not specifically and separately identify the owners of the 1/4 mineral interest in dispute as the purpose of the hearings was to ensure that the allocation of unit production was reasonable and equitable for all owners and not to establish ownership.

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By: ATG Underwriting Department | Posted on: Thu, 08/08/2013 - 3:47pm