I promise this will be the last post in a while on covenants running with the land. I think we all get it by now (This topic was discussed in my August 1 post).
A Joint Operating Agreement referenced in documents that is in a party’s chain of title and is, by its terms, binding on “ . . . the parties hereto and to their respective heirs, devisees, representatives, successors and assigns.” will bind that party, according to TransTexas Gas Corp. v. Forcenergy Onshore, Inc. That language establishes the agreement as a covenant running with the land.
What makes this rather mundane decision (mundane to you and me, probably not so to the parties) worthy of your attention is the focus on the JOA, letter agreements and a complicated series of assignments (of deep rights, shallow rights and other, deeper rights) at various times among a number of parties, most of which were entered into over 20 years ago.
Keep your land files and records complete, accurate and in good order. Sometimes those who follow behind the original players are going to be put to the task of recreating a transaction, or the history of the parties’ performance of a transaction. The party without good land records is at a serious disadvantage.
A more obvious lesson
Don’t ask for relief in one suit by relying on the existence of a contract to which you are a party and then in another suit, deny that the contract burdens your interest. You can seldom have it both ways.
Trans Texas and Forcenergy owned interests in the same lease, and disagreed over the applicability of a non-consent provision of a JOA entered into by their assignors. TransTexas did not consent to Forcenergy’s drilling proposals, resulting in relinquishment of the working interest until 400% of costs had been recovered by the consenting parties. Trans Texas sued to determine if the non-consent relinquishment provisions applied. TransTexas’ argument was that the JOA wasn’t in its chain of title and therefore its interest was not subject to the JOA. The JOA and the letter agreement by the parties’ predecessors were mentioned in earlier assignments that were recorded in the official public records, establishing constructive notice of their contents. Also, TransTexas judicially admitted that the agreement applied to its interest by suing for a TRO in an earlier case in reliance on the JOA.
And there is something for the bankruptcy clients and their lawyers: TransTexas’s rejection of the JOA in bankruptcy had no effect on Forcenergy’s ownership of relinquished interests because relinquished interests are excluded from the debtor’s estate under the Bankruptcy Code.