Co-author Chance Decker

Gloria’s Ranch v. Tauren et al – the Louisiana lenders’ bad dream

Anyone seeking stability in the law governing E&P activities in Louisiana will view the lower court decision as a grave error that must be corrected. Virtually every mortgage provides safeguards to protect collateral and manage lenders’ risk. The court of appeal reasoned that because of those provisions, the lender controlled the ability of the borrower to execute a release of a mineral lease, resulting in solidary liability when the borrower-lessee failed to release its lease.

Amicus curiae for Wells Fargo stresses the importance of lending to the exploration industry and the need for stability and certainty in commercial lending transactions. They argue that the ruling fundamentally and drastically altered the traditional understanding of the relationships between mortgagors and mortgagees and also between mineral lessors and lessees. And it ignored fundamental principles of the law of mortgages.

Cubit complains that the court’s interpretation of Mineral Code Art. 140 amounted to an award of treble damages instead of damages of twice the amount of royalties due.

Tauren asserts that it could not be solidarily liable as owner of the shallow rights with the the deep rights owner who failed to release the deep rights, espeicially under the wording in the lease.

Gloria’s Ranch, in response, asserts that Wells Fargo:

  • Refused to release the expired lease,
  • Is not a bank or a traditional lender,
  • Controlled operations,
  • Admits that it owned a leasehold interest.
  • Had its own independent duty to remove the cloud on the title and was not merely solidarily liable for its borrowers’ refusal to do so.

Spartan Texas Six Capital Partners, Ltd. v. Perryman

This case may further define Texas’ nearly 80-year-old Duhig Doctrine, which holds that when full effect cannot be given to the granted and reserved interest in a warranty deed because the grantor fails to except a prior reservation, priority will be given to the granted interest at the expense of the reserved interest.  Stated simply, if you try to sell more than you own and warrant you own it, your reservations are ineffective.

The grantor conveyed land to the grantee via warranty deed, reserving a one-half royalty interest. The deed did not disclose or except a prior reservation of the tract’s other one-half royalty interest by the predecessor in title.  Was the grantor’s reservation effective?  Or, under Duhig, did the one-half royalty interest the grantor tried to reserve for itself instead pass to the grantee?

The court of appeals applied the Duhig Doctrine and held the reservation ineffective.  At the Supreme Court, the grantor argues his deed only purported to convey half of what he owned.  Thus, he did not try to convey more than he owned, and Duhig should not apply.  The grantee argues the deed only purported to reserve one half of what the grantor owned, while conveying and warranting title to everything else.  And, because the deed did not except the prior one-half royalty reservation, the grantor’s reservation of one-half of what he owned was ineffective under Duhig.

See the briefs here.

What do these cases mean?

Supreme courts are policy-making bodies (They tell you they’re “just calling balls and strikes”, but it’s their strike zone.) In these cases, along with the two from last week, the courts Will set important policies that they know will dictate behavior in the marketplace. The Louisiana Supreme Court should keep that in mind when deciding Gloria’s Ranch.

 A musical interlude