Scenes from the trial lawyer’s conference room:
Client: “Lookee here! This paragraph says we win!”
Lawyer: Yes, but what about all the other paragraphs?”
“Those don’t matter.”
Why is that?”
“Because they don’t help us. Did you graduate from law school?”
“But the court will harmonize all the provisions in the document.”
“If I want harmony I’ll go with the Everlys. If you’re afraid of a fight, I’ll find me a lawyer with a backbone. I’m thinking the tough, smart lawyer. That one that’s always on TV.”
Client: “@*^& the words. I’ll tell ’em what the deal really was.”
(Repeat client disappointment)
In XTO Energy v. EOG Resources, a title dispute over the mineral estate in 1,653 acres in Atascosa and McMullen counties, Texas, the loser tried both, to no avail.
The deed of trust, the debt, the foreclosure
Wofford conveyed the property to Hetherington and retained a vendor’s lien. Hetherington also executed promissory notes and a deed of trust.
A “Disposition Clause” allowed Hetherington to dispose of 7/8ths of the mineral rights as he saw fit “… but the usual 1/8th royalty will be retained against the land for protection of the holder of the notes …”
Hetherington conveyed the 7/8ths to XTO’s predecessor Magnolia, then defaulted on the notes. Wofford foreclosed and bought back the property. None of the documents at issue excluded the minerals. Wofford’s successor McNeel leased to EOG, who drilled two producing wells. This trespass to try title suit ensued.
Did the Disposition Clause authorize Hetherington to convey title to the 7/8ths mineral interest free of the vendor’s lien and deed of trust, leaving only the 1/8th as Wofford’s security? No.
XTO argued that according to the contract language, Wofford’s purchase at the foreclosure sale was limited only to the surface estate. The 1/8th royalty was extinguished by the foreclosure.
McNeel argued that the function of the Disposition Clause was to add the 1/8th royalty as a third layer of security for Wofford in the event of a mineral interest transfer. The clause limited Heatherton’s ability to convey the 7/8ths. When Heatherton defaulted on the notes and the trustee foreclosed Magnolia’s equitable interest in the 7/8ths was extinguished.
The court’s job was to harmonize all provisions in the related documents. A conveyance of land includes the minerals unless they are excluded. Using the Disposition Clause to carve out the mineral interest from the liens and substituting the 1/8th interest as security would give that clause controlling effect over the other provisions and negate the effect of the liens against the entire mineral and surface estates.
The deed of trust was additional security retained by Wofford to protect against the mineral interest transfer rather than a replacement of the liens on the mineral estate. This harmonizes all provisions of the Wofford deed and the deed of trust.
Hear my story!
XTO asked the court to look outside the four corners of the instruments and consider that Wofford was aware of Hetherington’s plan to sell the 7/8ths mineral interest and knew that Magnolia contributed the cash that Hetherington used for the down payment. This knowledge showed her intent that the Disposition Clause would carve out the 7/8ths mineral interest from the liens so that Hetherington could convey clear title to Magnolia.
Also to no avail. Extrinsic evidence of surrounding circumstances may not be used to create doubt where the language of the document is not ambiguous. The Disposition Clause was not ambiguous.
Wofford’s vendor’s lien was further secured by the deed of trust. The conveyance became absolute only on full payment of the notes.
Hetherington had only an equitable right to acquire title by paying the debt. Until the notes were paid in full, a sale by Hetherington was only a transfer of equitable interests susceptible to rescission. With the foreclosure, Wofford re-acquired all of the minerals and thus title was vested in the McNeels.
Today’s musical interlude: its about harmonizing.
And of course, Barbara Bush, RIP.