A Different Lesson in Property Stipulations

Originally published by Charles Sartain.

Co-author Brittany Blakey

The Texas Supreme Court in Concho Resources, Inc. v. Ellison enforced a boundary stipulation involving an unambiguous deed about which there had been no dispute. You can refer to our earlier post to understand the facts, the boundary, and the Court of Appeals decison.

More facts

The Boundary Stipulation of Ownership of Mineral Interests between the owners of the Northwest Tract and Southeast Tract mineral estates declared the boundary of the mineral estate to be different from the public road and was recorded in the Irion County public records. In 2008 Sampson sent a letter to Ellison, operator of leases on one tract, enclosing the stipulation and requesting that Ellison “signify your acceptance of the description of the [Northwest Tract] as set out in the Stipulation… [.]” Ellison signed and several wells were drilled. His wife Marsha succeded to his interest after his death and sued alleging trespass to try title and other claims.

The Court of Appeals

Concho contended that by signing the 2008 letter Ellison ratified the stipulation as a matter of law, which bound Marsha as his successor. The trial court agreed but the appellate court deemed the boundary stipulation to be void. Specifically, that court held that the stipulation was not itself a “conveyance” of the disputed acreage.  The 2008 letter could not have ratified the stipulation because it was not capable of being ratified. The 1927 deed was “objectively unambiguous” as to the “true” boundary line location (i.e., the public road), and the mineral owners’ agreement to establish the line elsewhere did not pass muster.

The Supreme Court

The Court disagreed and ruled that imposing an “objective uncertainty” requirement would “scuttle boundary agreements as a mechanism to avoid litigation” because parties will never know whether their informal settlement of a boundary dispute is effective until it is declared so by a court. The opinion emphasizes a public policy favoring settlements of disputes outside the courtroom, even if those informal settlements do not technically cross every legal “T” and dot every formal “I”.

The court qualified the ruling to declare that such informal boundary stipulations cannot retroactively bind others with an interest in the tracts who were not parties to the agreement. That qualification did not apply here because Ellison was the party who “[signified] [his] acceptance of” the boundary stipulation.

Ellison’s several equitable arguments and affirmative defenses were briefly discussed and disregarded.

WHAT OTHERS SAY

The result lays waste to Texas title law.                    

So predicted by the Texas Land Title Association in an amicus brief:

• The result ultimately reached by the court would upend long-standing and well-established Texas law on real property descriptions and conveyancing solely to benefit (greedy? … they didn’t say that but you can read between the lines) oilfield operators’ attempt to gain an additional 154 acres of leasehold.
• There was never ambiguity or uncertainty in the 1927 deed’s legal description.
• Any title examiner reviewing the deed would readily conclude that the public road was the southern boundary of the Northwest tract.
• The 2008 boundary stipulation retroactively changed boundaries without evidence of error or dispute.
• Reversing the lower court would (did) inject unnecessary uncertainty into deed records and call into question the standard interpretation of legal descriptions.
• The 2008 boundary stipulation was not a valid legal conveyance:  There was no grantor and grantee, there were no operative words of grant, it was not signed by the original grantors, it was not agreed by all parties with an interest in the mineral estate, and Ellison’s ratification was never recorded.
• A void boundary agreement cannot be ratified and thus affect the record chain of title by an unrecorded letter agreement. That two tenant/lessees should be able to reallocate leased property denies the rights of other parties in interest, including the lessors, and creates ambiguity and uncertainty in deed records.
• Petitioners’ position (and now, the result) flies in the face of the recently adopted Correction Instrument Statute.

The Court of Appeals laid waste to Texas title law.

So said Granador Operating (successor-in-interest to Concho and thus having a dog in the fight) who whispered the soothing words that make our Supreme Court swoon: Freedom of contract and public policy encouraging mineral production. According to the amicus brief:

• The Court of Appeals ruling was extraordinary and unprecedented and destabilizes property rights.
• The ruling removed the power of Texans to resolve their disputes without resort to judicial intervention and discouraged the development of oil and gas resources by punishing operators who rely on arms-length agreements when determining title to land.
• Unambiguous, arms-length contracts should be enforced under their plain terms and private resolution of disagreements should be embraced by the judicial system.
• Development of oil and gas resources is beneficial to the State and should be encouraged.
• The result of the Court of Appeals opinion is that an arms-length boundary agreement can never be relied upon.

TXOGA offered aguments similar to Granador’s.

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