The Nevada Supreme Court recently decided that the rule against perpetuities does not apply to area-of-interest provisions in commercial mining agreements. While you should not expect this case to become a summer blockbuster starring George Clooney, it nonetheless provides certainty for area-of-interest provisions in older mining agreements in Nevada (and lends insights into how other states might address this issue).

In Bullion Monarch Mining, Inc. v. Barrick Goldstrike Mines, Inc., Bullion Monarch Mining (“Bullion”) claimed that Barrick Goldstrike Mines (“Barrick”) owed Bullion royalty payments under an area-of-interest provision in a commercial agreement between Bullion and Barrick’s predecessor-in-interest.  (Case No. 61059, filed Mar. 26, 2015.)  An area-of-interest royalty agreement is one in which a “party agrees to pay a portion of not-yet-acquired mineral interest’s output” to another party within a certain area of interest.  (Id. at p. 9.)

Barrick argued that the area-of-interest provision in the agreement was void because it violated the rule against perpetuities, which requires an interest in real property to “vest, if at all, not later than twenty-one years after some life in being at the creation of the interest.” (Id. at p. 3.) Nevada’s statutory rule against perpetuities exempts nondonative transfers from the rule; however, the statutory rule did not apply here because Nevada’s statute (adopted in 1987) was not in effect at the time of the agreement. Therefore, Barrick argued that the common law rule against perpetuities would apply, even to a nondonative transfer such as a commercial mining agreement.

In rejecting Barrick’s position, the Court based its decision largely on policy: “applying the rule to area-of-interest royalty agreements does not further public policy.”  (Id. at p. 2.)  The court stated that “there is no human decedent exercising dead-hand control over still-living descendants,” thus the purposes of rule against perpetuities would not be served by applying it to this agreement.  Finally, the Nevada Legislature exempted commercial, nondonative transfers from the statutory rule and other courts have not applied the rule to commercial agreements, which show the common law rule has evolved since 1864 (Nevada’s statehood) to exempt commercial agreements.

By Michael Sherman and Shannon Morrissey. Ms. Morrissey is a Law Clerk with Stoel Rives LLP and is not currently licensed to practice law in California.