Conoco Phillips Company v. Ramirez et al is a helpful reminder when preparing a document transferring title:

  • “Family vernacular” is a great way to communicate in wedding toasts and funeral eulogies, not so much in land conveyances.
  • Absent an express reservation, a conveyance of land includes both the surface and the underlying minerals.
  • When there is a claim of ambiguity, extrinsic evidence may not be used to create doubt as to the plain meaning of the words.

Continue Reading Informal Description Dooms Oil and Gas Leases

Co-author Chance Decker

You are selling properties. The buyer thinks you own the deep rights but you know your long-time partner owns them. You attend the closing. You don’t tell the buyer that he’s got the ownership wrong. You are protected by a contract. Do you fess up? What if it means $6.8 million?

In Freeman, et al v. Harleton Oil & Gas Chesapeake agreed to buy three-year term assignments of Buffco’s and Twin Eagle Resources’ interest in 14,000 acres in East Texas for $232 million. Continue Reading An Oil Patch Morality Play – Part 1

shysterAccording to Mr. Bumble, the law is an ass. I disagree (Know a lawyer who’s an ass? That’s another conversation). In Davis v. Mueller the law was not an ass, per se, but as applied by the Texas Supreme Court it showed little mercy.

A refresher on conveyances

  • According to the Statute of Frauds, a writing conveying real property must furnish within itself, or by reference to some other existing writing, the means or data by which the land to be conveyed may be identified with reasonable certainty.
  • A Mother Hubbard clause is a catchall in a deed to capture small, overlooked, or incorrectly described interests.
  • A Mother Hubbard clause is not effective to convey a significant property interest not adequately described in the deed.
  • In Texas a general conveyance of all of a grantor’s property in a geographic area is given effect.

Continue Reading Texas Mineral Deeds Survive the Statute of Frauds

railroadCo-author Chance Decker

BNSF v. Chevron Midcontinent LP et al. asked whether a 1903 deed granted BNSF’s predecessor a strip of land in fee simple absolute or only an easement. The result: BNSF holds only an easement. There’s more to the case than an analysis of particular language in one sui generis contract. What else did we learn?

The big picture

  • Is your assignment to determine the intent of the parties in a document? Consider it as a whole; don’t cherry pick phrases and read them in isolation. I doesn’t matter whether you are issuing checks based on ownership or convincing the court of your righteousness.
  • Beware of ancient title documents, in particular a “Right of Way Deed”. Railroads in the early part of the last century had a propensity to present documents that looked like easements but were really deeds in fee simple. Here, 115 years later, if that was the intent it didn’t work.
  • “Beware” translates to “read the document carefully and thoroughly”. Don’t skim the granting clause and call it a day.
  • In a face-off between the granting and habendum clauses, the granting clause prevails. But, as you will see, it’s not that simple.

Dueling deed language

The consideration: “… benefits which will accrue… by reason of the construction of a line of railroad over the land…”

The granting language: “… a right of way, that certain strip of land hereinafter described, …”. The deed then described a line traced by surveyors.

The habendum clause: “To have and to hold the said premises, together with all appurtenances thereto belonging, in fee simple, unto the said … its successors and assigns forever.”

BNSF’s losing arguments (contending the deed conveyed fee simple absolute)

  • “Right-of-way” is not a legal term of art with a set definitive meaning, but rather may be used in two senses: a right of passage, and also a strip of land which railroad take up one upon which to construct a roadbed. The court agreed, but that didn’t carry the day.
  • “For a right-of-way” is a precatory nonrestrictive clause that states a purpose but does not limit the nature of the estate being conveyed. (Don’t even try to say you already know what “precatory” is.)
  • The habendum clause refers to “fee simple”. That alone should  answer the question. But the granting clause controls, and the court wasn’t ready to recognize a Texas doctrine of “an easement in fee simple” as do some other states.

The court – it’s an easement

The granting clause straddled the line between two different types of deeds, making it ambiguous. The court then had to examine the entire deed and harmonize its conflicting provisions. The court followed the basic rule: Assume the parties intended every clause to have effect so that no clause is rendered meaningless. But the focus remained on the granting clause, which controls the disposition.

Chevron offered the only reasonable reading of the deed. The deed as a whole evinces a clear intent to convey only a surface easement. The court noted these factors:

  • The opening recitals show that the grantor would receive benefits if a railroad passed over the land.
  • “Right-of-way” appears in the granting clause directly in front of “that strip of land”. The placement of the statement of purpose means something.
  • The line shaped by the surveyors went “over to and across” various sections.
  • There was a separate grant of the right to use wood, stone and other resources. If the deed conveyed the land in fee simple the right to take and use the natural resources would have passed automatically.
  • The granting clause defines which bundle of rights was transferred; the habendum clause tells the recipients how long and under what conditions they can have and hold those rights.
  • The habendum clause allows the grantee to have and hold the “premises”, which suggests only an easement.

What is the effect of the reference to “fee simple” in the habendum clause? Fee simple is a “durational or conditional qualifier, rather than the expression of an estate’s size”. The operative question of what BNSF actually owns is answered by the granting clause and the “gloss put on that clause by the rest of the deed.”

What is it about trains and prison in country songs?  Know what I mean?

james-cottonHow to distinguish an oil and gas lease from a mineral deed? In Richardson v. Mills, it was a deed when the instrument uses words like “forever” and imposes no duty to explore for and develop minerals.

An instrument from 1906, when Teddy Roosevelt was busting trusts and creating national parks, was between Mills on the one hand and Lindsey and Harris on the other. The document referred to the parties’ “desire” for “development, tests and demonstrations” and for Lindsay and Harris to manage the property so it would be developed for oil and gas or be sold.

The granting language referred to “an undivided one half interest in the oil, gas and other minerals … “ to Harris and Lindsay, and further rights and privileges necessary and proper for the performance of the work of prospecting, testing, operating, etc.

A 1908 release referred to “said contract or lease the time for said development has expired rendering null and void said lease.” There was a relinquishment of any right or claim held by Nacogdoches Land Company.

Trial and the clairvoyant expert – it’s a lease

Mills offered the opinion of an attorney who reviewed the contract (over 100 years after it was executed) and opined about what the (deceased!) parties possibly intended. It’s unknown whether his conclusion was absorbed from the cosmos or the result of a séance with the spirits of the dead.

The trial court determined that the instruments were ambiguous and allowed extrinsic evidence to determine the parties’ intent. Alternatively the 1906 instrument was released when Lindsay and Harris did not perform their obligations.

On appeal – it’s a deed

Reversed and rendered. The 1906 instrument was not ambiguous. It was a deed:

  • Harris and Lindsay had the right but not the duty to develop the minerals.
  • There was no time within which actions must be taken.
  • The consideration was services rendered.
  • The granting clause said “grant, bargain, sell and convey … ”.
  • The habendum and warranty clauses specified “forever”.

This was language of an unconditional conveyance, not for exploitation of minerals.

What about the 1908 release?

The 1908 release referred to an instrument dated July 9, 1907, whereas the document in question was dated July 9, 1906. The 1908 release described the document as a “contract or lease” but not as a deed. There were other discrepancies. No recording information for the 1906 document was mentioned in the 1908 release. Mills argued that there was a latent ambiguity (an ambiguity appearing by reason of some collateral matter). Mills contended that reference to 1907 really meant 1906.

Mills’ efforts were rejected, including the testimony from the lawyer. The 1908 release was unambiguous and there was no connection between the two instruments.

In an odd twist, the parties stipulated that if Mills lost they would nevertheless own a small interest in the property. Thus, Mills took nothing from the court but ended up with four percent of the minerals from the stipulation.

RIP, harmonica great James Cotton. He could do it with Howlin’ Wolf, Muddy Waters or his own band.

maneiri-1A phrase currently in common usage begins with “‘cluster” and ends with a vulgarity that has been around for centuries. Saheid v. Kennedy presents facts that pretty much exemplify the meaning of the phrase:

  • While living in England, start out to buy a hotel in New Orleans,
  • have no experience in Louisiana mineral transactions,
  • when the hotel falls through, buy 1096 acres with 500 wells in northernmost Caddo Parish,
  • do zero title due-diligence,
  • memorialize the $4 million transaction with a one-page handwritten document,
  • close the deal three weeks later with an Act of Credit Sale,
  • pay royalties for four years and then dispute the obligation,
  • when disagreement ensues sign another “contract” that doesn’t really help,
  • sum it all up by testifying as to your “confusion” about the transaction.

The one-pager for the 1096 acres provided: “Seller [Gish] to give a best effort to deliver to Buyer [Saheid] the remaining 12 ½% Gish family oil and gas lease holding.” Saheid’s purchase price would be reduced by $400,000 if Gish couldn’t deliver the minerals within five years. Saheid paid royalty to the Gish relatives for almost four years. Saheid and Gish later entered into a “contract” in which they agreed that the Saheid payment would be reduced and Gish would continue to withhold the 12.5% royalty.

What legal points are at play?

Not much about titles, a lot about parol evidence, which is admissible when:

  • the terms of a contract are susceptible to more than one meaning,
  • there is ambiguity as to its provisions, or
  • the intent of the parties cannot be ascertained from the language used.

Four witnesses sorted out the mess. And as one might expect, the testimony was confusing and contradictory. Saheid had never purchased mineral interests before and said he was unaware of the 12.5% being claimed by the family. His title-examiner expert testified that the public records showed there was no written contract for the 12.5% mineral interest. But he agreed that it was Gish’s right to sell 87.5% and keep the rest if the agreement so specified.

The court concluded that Gish did not intend to sell and Saheid did not intend to buy the entire mineral interest. Gish was selling 100% of the tract and 87.5% of the minerals, which is a reasonable concession for accepting a partial payment and owner financing. The court referred to Saheid’s “imperfect understanding” of the transaction.

Takeaways

  • Due diligence = good business, sloppiness and haste = bad business.
  • Lame, one-page agreements are seldom sufficient for anything, much less a $4 million land and mineral trade.
  • Paying royalties for four years and then saying you thought you owned the minerals = not persuasive.
  • Entering into a contract before you understand it = bad business.

If Saheid had stopped in Opelousas instead of turning north to Shreveport, maybe he could have avoided this mess.

Good - Better - Best. On the black bacground
Good – Better – Best. On the black bacground

Co-author Katie English

McCabe Trust v. Ranger Energy LLC, is the consequence of failing to comply with the Texas Property Code when correcting real property conveyances.

The simplified facts

  • In 2008, Mark III executes a mortgage granting a bank a security interest in property described in an attached exhibit which included certain oil and gas leases.
  • In 2011, Mark III assigns overrides in the leases covered by the mortgage, plus two additional leases, the McShane Fee and Brice, to the McCabe Trust and the Rochford Trust.
  • In January 2013, a revised mortgage is recorded, replacing the original exhibit with one including the McShane Fee and Brice leases. It is not executed by the bank or Mark III.
  • The bank transfers the mortgage to Ranger Energy.
  • Ranger forecloses.

Ranger asserted that the Trusts’ overrides in the McShane Fee and Brice leases were extinguished by the foreclosure sale. The trial court granted judgment for Ranger.  The appellate court reversed and remanded.

Why the reversal? Blame the Texas Property Code

A correction instrument that complies with the Property Code is effective as of the date of the original conveyance. The statutory requirements for correction instruments differ based on whether the correction is a material change or nonmaterial correction.

A nonmaterial change

Section 5.028 allows a person with personal knowledge to execute a correction instrument making a nonmaterial change of an inadvertent error, including the addition of an inadverantly omitted legal description.

A material correction

Section 5.029 allows the original parties to the transaction or their successors to execute a correction instrument making a material correction, including “the addition of land to a conveyance that correctly conveys other land.”

The decision

The 2013 revisions added two additional leases to a mortgage which correctly conveyed interests in other leases.  The addition was a material correction. The corrective instruments were not retrospectively valid because they were not signed by the parties who originally executed the instruments. Thus, they were not notice to subsequent buyers of the facts stated therein. Foreclosure of the revised mortgage did not extinguish the Trusts’ overrides in the two leases.

The dissent

The dissent agreed with Ranger that adding the two leases was a nonmaterial change but argued that the Trusts were not bona fide purchasers.  The dissent would say the Trusts’ interests were extinguished.

Takeaways

There are several:

  • Statutory requirements for correcting a real property conveyance differ depending on the circumstances.
  • These provisions date from 2011. If you haven’t dusted off the Code since the Longhorns were successful on the gridiron, be warned.
  • The general rule is that first in time is first in right. There will be times when you will need the correction to relate back.
  • If there is a question whether a change is material or nonmaterial, have all original parties to the original transaction (or their successors) execute the correction.

Recall my desire to criminalize lame cover songs. Immunity should be granted for good ones. For example, we have the very outstanding Curtis Mayfield original, and the almost-as-good Huey Lewis cover.

speed limitToday’s “pay attention” edition begins with a quiz. What is the most important thing to read carefully:

a. Speed limit sign in small-town (insert name of Southern state).

b. Itinerary for that dream vacation, the one with multiple layovers of varying durations in airports and time zones far from your own.

c. Title documents to which you affix your John Hancock.

d. Prep instructions before the colonoscopy.

Scott v. Peters, et al. reminds us of the directive imposed by Oklahoma’s constructive notice doctrine:  Read and understand documents that you sign affecting your land. (Helpful hint: It’s no different in other states).

The events

  • 1997 – Warranty Deed filed with the county clerk, Scott conveys 120 acres to Peters; later says he only conveyed the surface.
  • 2000 – Warranty Deed filed, Scott conveys another 40 acres to Peters; retains no minerals
  • 2001 – Warranty Deed filed, Scott grants the same 120 acres to Russell; no reference to mineral reservation.
  • 2001 – Russell conveys the 120 acres to Wichert; no reference to mineral reservation.
  • 2002 – Peters discovers the Wichert deed; obtains a quitclaim from Wichert; leases the minerals under the entire 160 acres.
  • 2014 – Scott sues Peters to quiet title in the minerals under both tracts.

 The issue 

When did Oklahoma’s five-year statute of limitations for reformation of a deed begin to run? Resolved: When the document was filed of record, even if Scott didn’t understand what it said.

Scott argues: Limitations for reformation of the 1997 deed didn’t begin to accrue when the deed was filed. It did contain a mineral reservation, but the reservation was insufficient. A layman such as himself couldn’t be held to know the legal effect of such an insufficiency until the legal effect was questioned. He relied upon Oklahoma’s equitable 15-year limitation statute.

Peters responds: Constructive notice was imposed upon Scott by the filing of the deed in 1997; thus the suit was untimely.

Scott acknowledged that he was precluded from challenging the 2000 deed, but argued that the statute was tolled until he learned of an issue regarding the insufficiency of the reservation in the 1997 deed.

The court opines – Scott should have read his deed

Scott’s suit was untimely. He had an opportunity and obligation to read the 1997 deed and at least inquire as to what he was signing. He was required to be diligent in investigating the transaction. This, he did not do.

Even if the mineral reservation in the 1997 deed had been unartfully drafted and was insufficient, Scott attempted to convey the exact same property in 2001 with no reservation whatsoever. Thus, at least as of 2001 Scott was on notice as to what the deed expressed. Had he timely sought to reform the deed, his suit might have succeeded.

The statute began to accrue a least with Scott’s 2001 deed to Russell with no reservation. At that time Scott was on notice that he had no minerals.

Quiz answer

Its a trick question. All answers are correct sooner or later. In Mr. Scott’s case, it’s obvious.

A musical interlude for Mr. Scott.

burning moneyMEMORANDUM

From: Legal Department

To: Accounts Payable

Re: What we learned from Shell Western E&P, Inc. v. Pel-State Bulk Plant, LLC

________________________________________________________________________

Just received notice of a Texas subcontractor’s mineral lien? DO NOT continue to pay the contractor. He hasn’t paid the subcontractor. Think you owe nothing on the well on which the lien will be filed? Think what you owe the contractor is not related to the lien? Both good questions, but it might not matter.

If your contractor is insolvent you’ll pay twice, and your standing with the boss will take a major hit.

________________________________________________________________________

Under Chapter 56 of the Texas Property Code a property owner receiving a mineral subcontractor’s lien notice may withhold payment to the contractor in the amount claimed until the debt on which the claim is based is resolved.

Pel-State was a subcontractor for frac jobs in 11 Shell wells.  Pel-State sent Shell a notice that the contractor was not paying for the sub’s work and then perfected a mineral lien.

The dispute was whether the lien amount was $3.19 million or $713,000. The mineral property owner is not liable to the subcontractor for more than the amount the owner owes the original contractor when the notice of lien is received.

A lesson on the Master Service Agreement 

The source of Shell’s misery was its Master Service Agreement with the contractor. When Shell received Pel-State’s lien notice Shell owed the contractor $11 million and thereafter continued to make payments to the contractor.  Bad call.

Shell owed nothing to the contractor on what it considered to be the contract under which Pel-State claimed a lien. Shell owed only $713,000 for the wells on which Pel-State performed work.

Under the MSA no specific work or a price was agreed upon. Those were determined by separate work orders for each job.  The court concluded that the multiple work orders under the MSA comprised a single contract. Where several instruments executed contemporaneously or at different times pertain to the same transaction they will be read together although they did not expressly refer to each other.

What about the Property Code?

Under Section 56.006 the operator cannot be liable to a subcontractor for an amount greater than the amount agreed to be paid under the contract for furnishing material or labor.  Because the MSA was one contract, the court rejected Shell’s argument that a lien should only apply on the work orders for the wells upon which Pel-State provided work.

Pel-State was entitled to collect from Shell for all work performed under the Shell/contractor MSA, under which Shell owed $11 million. The court affirmed Pel-State’s $3.19 million recovery.

Section 56.043 – a safe harbor

This provision, if used properly, protects the operator from liability.  But he has to stop paying the contractor once he receives a notice. Under this opinion, any limitation on the amount of the subcontractor’s lien must be determined by the state of the account between the property owner and the operator, not by amounts that might be owed on a particular work order or field ticket.

Musical interlude – more Bob

Can’t get enough of Bob Dylan songs of loss, sadness and unrequited love, especially when he’s not singing?

Tomorrow is a Long Time

Boots of Spanish Leather

Farewell

Les urges the Tigers to read energyandthelaw.
Les urges the Tigers to read Energy and the Law.

Square Mile Energy LLC v. Pommier considered this language in a Louisiana partition agreement: “N.B: Included in this transfer are any and all mineral rights, when available, to Roxanne and all surface rights.” Did this language include an interest in a mineral servitude inherited by Paul as co-owner with his siblings?

To answer the question, a few facts are in order. Paul and his siblings inherited five tracts of land in Vermilion Parish. Paul and Roxanne acquired Tract 2 during their marriage, with Paul and the siblings reserving all minerals. Upon Paul and Roxanne’s divorce they executed the partition agreement, in which Roxanne was granted Tract 2.

Roxanne’s position

  • She and Paul owned Tract 2 as community property.
  • A fundamental rule of Louisiana law is that a conveyance of land carries with it all the incidents of ownership, including mineral rights, except such rights as may be expressly reserved.
  • The mineral rights were not expressly excepted in the transfer and therefore the agreement unambiguously transferred a portion of Paul’s mineral rights to Roxanne.

The court did not agree

  • “When available” rendered the clause ambiguous. Based on affidavits and the Judgment of Possession by which Paul and the siblings inherited the property, the court concluded that the parties did not intend to transfer ownership of Paul’s interest in the mineral servitude to Roxanne.
  • Paul was co-owner with his siblings and not the owner of the mineral servitude under Tract 2. Therefore, he could not have transferred the minerals.
  • The plain language of the document compelled the conclusion that the parties intended that the mineral rights would transfer to the owner of the surface after 10 years of nonuse.
  • The contract was a “Partition of Community Property”. The stated intent was to liquidate the community which formerly existed between them. Paul’s interest in the mineral rights was his separate property.
  • The agreement required Paul to transfer all of his right, title and interest in the tract. To interpret the document according to Roxanne would render the language in the N.B. clause superfluous.

Eventually, one of these days, at a time further in the future than Roxanne would like, after cessation of current production on the tract, plus 10 years of nonuse, Roxanne will get her ownership of the minerals.

And our musical interlude, appropriate for the season.