THE

TITLE OPINION

Bi, Terry E. Hogwood

'Nuring title opinions, as the subject for a concise article, is far too broad a topic to give each aspect of the actions taken by landmen or attorneys

✓to present oil and gas clients with a "cured" title opinion. The author chose rrr on the underpinnings of the title curative process:

• The Original Title Opinion Risk decisions made by the client company as well as the examining attorney and abstractor preparatory to and during the Ming of the original title opinion.

• The Supplemental Title Opinion - Types of curative materials that will -sab " a title requirement as well as the risk decisions made by the client com-

should one or more title requirements not be satisfied.

• Two Nonwaivable Title Requirements Securing a copy of the patent the General Land Office and obtaining an affidavit of use and occupancy.

• Affidavits - Why, at the heart of curing a title requirement, affidavits do not r+a to a marketable title.

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CURED TITLE OPINION

THE ORIGINAL TITLE OPINIONDefinition

An original title opinion is a legal document, usually addressing fee simpleownership (it may be limited to surface or mineral estate depending on the wishes of the client) of a given tract of land,which can only be prepared by a duly licensed attorney. An original title opin-ion is the first title opinion rendered for a given tract of land. It can be written for drilling or division order purposes. It is an interrelated document usually consistingof five distinct parts:

• Property description• Documents examined• Certification date of abstract/opinion • Ownership schedule• Comments and requirements

The significant interrelationship of an original title opinion is between the ownership schedule and the list of com-ments and requirements. The ownership schedule may not be relied on until all of the title requirements have been deemed satisfied by the examining attorney.Stated differently, the examining attorney will not (and cannot) declare that mar-ketable title to the fee simple interest has been achieved if even one outstandingtitle requirement remains.

The author has never seen a 100 percent cured title opinion except for offshore tracts (state and federal) andsome Indian tribal lands. Meaning? The majority of title opinions rendered for the oil and gas industry require that the oil companies rely on less than mar-ketable title for drilling and royalty pay-ment purposes (defensible title). That a title is not a marketable title is not in and of itself a problem. Almost all titles have one or more facts outside of the record that must be relied on to support the ownership schedule (heirship affi-davit, adverse possession, etc.).

The purpose of the original title opin-ion is to provide assurance to the client company that the mineral estate is proper-ly leased and that no outstanding mineral interests in third parties remain unleased or leased to another company. Every time a title requirement is waived by a client

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November / December 2011

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CURED TITLE OPINION

A title opinion (either original or sup-plemental) rendered for a client is owned by the client, not the rendering attorney. The right to rely on the contents andconclusions of the title opinion belongs to the original client and to whomever else the rendering attorney (with the client's permission) will allow to utilize same. Stated another way, possession ofa title opinion will not entitle the posses-sor of same to rely on its statement ofownership (backed by the malpractice insurance of the rendering attorney)unless the rendering attorney has granted his or her permission to the possessoryparty to use and rely on same.

PRELIMINARY DECISIONSMADE BY CLIENTS

Client companies face numerous decisions that, in the end, become initial risk decisions and form the framework for the original title opinion. The client company must first choose, prior to initi-aring the title examination process:

(1)Between using a title abstractor from a local title company, anattorney or a Landman to preparethe run sheets from which the examining attorney will examinethe identified documents and pre-pare the original title opinion.The author's preference has always been to use Indmen for run sheet preparation. Abstractors typically focus only on surface titles in their primary employ-ment capacity at a title company.More importantly, mineral titles are based on many different docu-ments never encountered in a sur-face ownership search. Attorneys are not usually as familiar withcourthouses and their records as are landmen and/or abstractors. Landmen possess full-time knowl-edge both of the courthouses (and their records location) as well as title chain preparation.

(2) What records to use, i.e., only abstract plant records, only court-house records or a combination of both. In the author's opinion, thebest run sheet preparation processis to utilize the records of both

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CURED TITLE OPINION

the abstract plant and courthouse. Practically speaking, where time is of the essence, initially building the chain of title in an abstract plant and then confirming same via the indices found in the coun-ty courthouse is the usual exami-nation process employed by manyabstractors.

Many times documents are misin-dexed or not indexed at all in the court-house. By starting the run sheet prepara-tion process in the abstract plant, many if not all of such instruments may be located early on in the run sheet prepa-ration process, thus saving considerable time and effort later in the courthouse portion of the examination process. A geographically based filing system (where each survey has all documents associated with that survey summarized in the abstract plant records) will usually catch most improperly filed documents. (Example: When searching "Branch Springs" in the Harris County Computer Index Records, the author found that the creative data inputrers could spell "Branch Springs" as one word or two words, abbreviate "Spring" to "SP," abbreviate "Branch" to "BR" and there-after combine all permutations into numerous "spellings." The only sure way to catch all documents is to use the records of an abstract plant coupled with the indices in the county records.)

From a risk standpoint, the only offi-cial records for lands located in a specific county are those found in the countyclerk's office. If a document affecting title to a tract of land is filed in theoffice of the county clerk, there is con-structive notice of its existence and the facts exhibited therein. (Miles v. Martin,321 S. W. 2d. 62 (Tex 1959).) Thisrule of construction is limited to those instruments in a grantee's chain of title. (Ford v. ExxonMobil Chemical Co., 235S. W. 3d. 615 (Tex 2007), includingall recitals, references and reservations contained in or fairly disclosed by any instrument forming an essential link in the grantee's chain of title (Westland Oil Development Corp. v. Gulf Oil Corp., 637S. W. 2d. 903 (Tex 1982).)

What public records are to be reviewed - i.e., only the deed/official

26

records of the pertinent county and/or district court records and/or tax records. The fewer records reviewed, the greater the increased risk of missing a pertinent document. What comprises the totality of "public records" in a county court-house is a subject for another paper.Attached as Exhibit "A" is a checklist of many of the potential public docu-ments and indexes that may reside in aTexas county courthouse. The abstractor should always check with the countyclerk to be sure that he or she knows where all indexes are so they can beexamined in the process of building the title chain. Perhaps the most stunning example of nonindexed documents, at one time on file with the Harris County clerk, is the old set of books of earlyjudgments affecting title to real propertyin Harris County. These books (more than 100) resided in what was once known as the "Teapot Room" and satbehind the counter. The author person-ally examined some 20 of the hooks and found that they appeared to hold judg-ments rendered in Harris County (for an indeterminate period of time) affecting title to Harris County real property.Those judgments did not appear to be indexed in the Deed Records Index nor resident in the Deed Record books. No judgment affecting title to real property is binding on third parties until it isproperly filed of record in the pertinent county deed records. (Woodward v. Ortiz, 237 S. W. 2d. 286 (Tex 1951).) Moresignificantly, those judgment books have been moved to an undisclosed location. Are the judgments still binding on third parties even though the books cannot be located presently or are "stored" for his-torical purposes' Yes, the judgments are binding on all third parties even if they cannot presently be located.

The disclaimer attached to any run sheet by an abstractor or landman must be carefully read and understood. Many times, in addition to limiting the amount of money (usually limited to the cost of the run sheet), a dis-claimer will virtually take away all of the abstractor or landman's liability for any missed document for any rea-son, thus transferring all risk to the client company for any such failure in the examination process.

Title problems cannot be analyzed, cured or waived without an understand-ing of the title standard utilized by the examining attorney in the rendering of the original title opinion and/or supple-mental title opinion. In Texas, fee sim-ple title opinions - and specifically the underlying title requirements found in such opinions are written so that sat-isfaction of all title requirements willyield a "fee simple marketable title" for the tract of land under examination.

Marketable title has been a defined legal term in Texas jurisprudence since the 1920s. (Lund v. Emerson, 204 S. W. 2d. 639 (Tex. Civ. App. - 1947, no writ hist.); Owens v. Jackson, 35 S. W. 2d.186 (Tex. Civ. App. - 1931, writ dis-m'd w.o.j.); Texas Auto Co. v. Arbetter, 1S. W. 2d. 334 (Tex. Civ. App. - 1927, writ dism'd w.o.j.); Austin v. Carter, 296S. W. 649 (Tex. Civ. App. - 1927, writdism'd); and Ailing v. Vander Stucken, 194 S. W. 443 (Tex. Civ. App. - 1917, writ ref'd).) A "marketable title" is atitle based solely on instruments of con-veyance properly filed of record and is defined as that title which is reasonably free from such doubt that a prudentman, with knowledge of all of the salient facts and circumstances surrounding the title and their legal significance, would be willing to accept. An objection (read title requirement) to a marketable title is based on serious and reasonable doubts by the title examiner concerning thetitle that would induce a prudent man to hesitate in accepting a title affected by them. (Lund v. Emerson, 204 S. W. 2d. 639 (Tex. Civ. App. - 1947, nowrit hist.); Owens v. Jackson, 35 S. W. 2d. 186 (Tex. Civ. App. - 1931, writ dism'd w.o.j.); Texas Auto Co. v.Arbetter, 1 S. W. 2d. 334 (Tex. Civ.App. - 1927, writ dism'd w.o.j.); Austinv. Carter, 296 S. W. 649 (Tex. Civ. App.- 1927, writ dism'd); and Ailing v. Vander Stucken, 194 S. W. 443 (Tex. Civ. App. - 1917, writ ref'd).)"(A Realistic Approach to Identifying and Curing Ancient Title Problems, Terry E. Hogwood 18th Advanced Oil, Gas and Mineral Law Course.)

A title is not marketable if: (1) there is a reasonable chance that a third party could raise an issue concerning thevalidity of the title to the estate against

November / December 2011

Landinan

CURED TITLE OPINION

Exhibit "A"

INDEXES LOCATED IN THE COUNTY CLERK'S OFFICE

If Discontinued, Name of Index No. Volumes Dates in Use Reverse Index

Deed Records

Deed of Trust

Contracts

Map Records

Abstract of Judgment

Federal Lien

Attachment

Lis pendens

U CC

M & M Liens

Marriage Records

Assumed Name

Oil and Gas Records

Probate Records

Powers of Attorney

Patents

Town & Subdiv. Plats

Cemetery Plats

Death Certificates

Official Records

`.ember /December 201127

L an d man

CURED TITLE OPINION

the apparent owner (for instance, a claim of adverse possession), or (2) parol evi-dence is necessary to remove any doubt as to the validity and/or sufficiency of the owner's title (for instance, an affi-davit of heirship to reflect a deceased's owners heirs-at-law) or (3) title restsupon a presumption of fact which, in the event of a suit contesting title, would probably become an issue of fact to be decided by a jury (for instance, whether additions to a tract of land occurred by accretion or avulsion) or (4) the record discloses outstanding interests in other parties that could reasonably subject the owner to litigation or compel suchowner to resort to parol evidence to defend the title against the outstanding claims (for instance, a fee simple title with an outstanding, unreleased oil and gas lease is not a marketable title). (Lundv. Emerson, 204 S. W. 2d. 639 (Tex. Civ.App. 1947, no writ hist.); Owens v. Jackson, 35 S. W. 2d. 186 (Tex. Civ.App. - 1931, writ dism'd w.o.j.); Texas Auto Co. v. Arbetter, 1 S. W. 2d. 334

(Tex. Civ. App. - 1927, writ dism'd w.o.j.); Austin v. Carter, 296 S. W. 649 (Tex. Civ. App. - 1927, writ dism'd); and Ailing v. Vander Stucken, 194 S. W. 443 (Tex. Civ. App. 1917, writref'd).) All title opinions in Texas should be written in accordance with this legal standard. (A Realistic Approach to Identifying and Curing Ancient Title Problems, Terry E. Hopwood 18th Advanced Oil, Gas and Mineral Law Course.)

As stated above, most onshore titles that are approved for drilling areapproved on the basis of defensible title, not marketable title. A defensible title is one where the client, with advice and consultation from the title attorney,decides to waive the satisfaction of oneor more title requirement(s) or to acceptless than absolute proof that an out-standing title requirement has been sat-isfied. The client usually decides that, if sued on the waived title issue, it can win in a subsequent court case, i.e., a defen-sible title. The call of marketable title is

to point out those title defects that, in the opinion of the title attorney, are such that a prudent man, with knowl-edge of all of the salient facts and cir-cumstances surrounding the title and their legal significance, would not be willing to accept.

Each title examiner, and indeed, each client oil company, develops a risk toler-ance level depending on the expertise of the title attorney and the relativecost of the well and value of the anticipat-ed reserves. The author was trained tonote every title defect in the title opinion that impacted or could impact marketable title. If there was a title defect, it had to he pointed out. Thereafter, management, in consultation with the examining attor-ney, could decide which title requirements it felt comfortable in waiving and which it would attempt to cure.

Other examining attorneys make a preliminary risk assessment of a potential title defect and oftentimes elect to waive same either with or without a title corn-ment. For instance, the typical title

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L an d inan

CURED TITLE OPINION

comment is as follows: "I note several early breaks in the chain of title to Examined Lands. Due to their earlyappearance in the chain of title, there appears to be little risk that any title claim could be made today as a result of said title breaks. However, in an abun-dance of caution, you should secure an affidavit of adverse possession for........."Often, the last sentence is omitted andthe early title defects are merely noted asan advisory comment of their existencewith no curative action prescribed toresolve the breaks. If an advisory com-ment only is made (which is much pre-ferred by most clients), the examiningattorney has accepted all of the atten-dant risk should one of the early breaksin the chain of title later assert itself(usually if production is established)via a claim to production as an unleasedcotenant.

Equally important is the issue ofwhich party is the examiner attemptingto confirm title in, i.e., the first fee sim-ple owner immediately after the breaksin the chain of title or the presentowner. Many of the title opinionsreviewed by the author over the last25-plus years do not state the exact date=tom which the affidavit of adverse pos-session is to track the adverse nature of:he possession of a record title owner.Other title opinions specifically only ask_or confirmation of adverse possessionor the immediate past 25 years of the_wnership of the lands under examina--on. As stated previously, no title byadverse possession is a marketable title.

und v. Emerson, 204 S. W. 2d. 639,Tex. Civ. App. - 1947, no writ hist.);Owens v. Jackson, 35 S. W. 2d. 186 (Tex.Cis-. App. - 1931, writ dism'd w.o.j.);.etas Auto Co. v. Arbetter, 1 S. W. 2d.34 (Tex. Civ. App. 1927, writ dis-

n J w.o.j.); Austin v. Carter, 296 S. W.649 (Tex. Civ. App. - 1927, writ diss-

d) and Ailing v. Vander Stucken, 194 S.

'L- 443 (Tex. Civ. App. - 1917, writwi'd).) That is, there is always the possi-

t<- that a third party could raise aissue concerning ownership and

ect the owner to probable litigation.L: not that the claimant would be suc-

Tul, which deems the title unmar--JEEable. Rather, it is the probability of

tion (to prove the facts and circum-

stances constituting adverse possession)that causes the title to be unmarketable. Does this mean if there is even onebreak in the chain of title, no matter where in the chain of title it occurs, and reliance on an affidavit of adverse pos-session to "cure" same is required, then the client will have to rely on defensible title rather than marketable title? Yes.

Lately, there has arisen a middle ground in large resource plays wheremany of the same title requirements are seen in multiple title opinions. More sig-nificantly, the client companies know that they will not be satisfying thoseredundant title requirements (old, out-standing deeds of trust, unreleased oiland ,as leases, etc.). To reduce the length of the title opinions, as well as costs,client companies are allowing the exam-ining attorney to list those title defects that may occur in the chains of title and to point out that the client companydeems those requirements waived.

How the ownership of the mineral estate is set out in a title opinion is asimportant as the outstanding title require-ments that need to be satisfied. That is, did the title examiner set forth the own-ership schedule as it appears as of theclose of the abstract/run sheet, or was the ownership schedule presented as if alltitle requirements had been or would be satisfied? This question is especiallyimportant if the client company initially attempts to verify that all of its lessors own a mineral interest in the subjectproperty. If the attorney does not alert the client that, although it appears all miner-al owners are leased, the record title does not confirm same and that only if alltitle requirements are satisfied will the ownership schedule be correct. In the author's experience, most client compa-nies insist that the ownership schedule reflect all of the client company's lessors with title requirements to confirm same. The result is the same ultimately, butundue confidence can be imparted to the client company concerning whether or not the outstanding requirements were reviewed at the same time as the owner-ship schedule was reviewed. How theownership schedule is set forth should be discussed with the client company or, in the opinion of the author, if not dis-cussed, set forth as it appears of record subject to curative actions.

DEFINITION OF CURATIVE

Who Has the Risk?The owner of the original title opin-

ion has the ultimate decision whether to accept the schedule of ownership aswritten (with no satisfaction of any title requirements), to satisfy all title require-ments or to satisfy some and not others. That decision is solely one for the client with advice from the rendering attorney. The rendering attorney does not waive title requirements unless he or she wish-es to accept all attendant risk associated with such waiver (including monetary loss if the title fails in whole or in part). If the attorney did not expect the title requirement to be satisfied, it should not have been placed in the title opinion.Once apprised of the risks of waiving the title requirement, the client must advise the rendering attorney of its decision to waive a title requirement. Thereafter,the attorney should note in a subsequent supplemental title opinion that one or more specific title requirements havebeen waived by the client company. Such notice thus qualifies the ownership schedule and its accuracy and correctly allocates the risk to the client company.

Types of Curative Actions There are actually three different

types of curative actions a title require-ment may contemplate being carried out by the field Landman/attorney. These are searching for documents that were entered into and have not been found in the initial search of the public records, creating documents to satisfy the title requirement or performing legal actions such as litigation to satisfy a titlerequirement.

The author has noted a significant increase in the submission of title runsheets that have significant breaks in the chain of title (failure to find one or more documents whereby a predecessor in title conveys its interest in the subject lands) or where the abstractor fails to read the pertinent document and obtain and fur-nish a referenced document found in the reviewed instrument.

Specifically, most landmen today refuse to classify their abstracting duties as title research. Many refuse to even

29

Landman

CURED TITLE OPINION

furnish a statement of ownership as determined by them based on their ini-tial title research. This position is curi-ous since many times this same landman was responsible for leasing the potential mineral owners of the tract. How can a statement of potential ownership not be made for title examination purposes when it is expected that the examining Landman lease the correct parties? Theanswer most given is in two parts: mal-practice exposure and the fact that the abstractor does not run title; he or she runs names.

The misstatement of mineral owner-ship by an abstracting landman, where the ownership statement is not properly qualified, could certainly result inpotential liability if the ownership statement is incorrect. However, since most run sheets have lengthy and com-prehensive restrictions on the reliance and use of the run sheet as well as limi-tations on legal liability written into each such run sheet, the author can find no reason not to include the land-man's best expert opinion on mineral ownership. It is not given for reliancepurposes but to assist the examiningattorney in understanding how the run sheet was constructed and what interpre-tations the landman placed on different instruments in reaching a title conclu-sion. Let's be honest: The landman has already stated who he or she believesowns the mineral estate by leasing the parties appearing in the oil and gas leas-es covering the subject tract.

Many abstractors admit to only run-ning names. They do not even read the instruments that they furnish the examin-ing attorney. If they had, they would have found contained in those instrumentsadditional documents identified by vol-ume or page which would further define the mineral ownership of the tract. The abstractors retained by the author were required to read each document with a highlighter identifying the grantor,grantee, property description, exceptionsor reservations and the date of the instru-ment. The highlighting of these provi-sions ensured that the abstractor wasaware of any mineral reservations as well as any documents referred to in the instrument of which the abstractor might not have been aware.

30

The other significant error made in abstracting title is the use of the reverse index only. It has come to the author's attention in several significant buststhat the run sheet furnished appeared to be premised on locating the present owners via the tax rolls and building the chain of title back in time using the reverse indexes. Certainly one canobtain a chain of title with no apparent title breaks using such a methodology. However, between the time that theearlier grantor conveyed the tract to the later grantee, it could have con-veyed all or part of the mineral estateto a third party. Such a conveyance will not be picked up in the reverse indexes. Only if the complete chain of title isrerun from sovereignty in the direct indexes will all potential conveyances be located.

In summary, the client company should specify that all abstractors pre-pare a schedule of mineral ownership,properly limited; that all instruments be read by the abstractor; and that all actu-al title research be based in part on the running of the mineral title from sover-eignty using the direct indexes.

Many title requirements call for the creation, execution and deliveryof legal documents that, in the opinion of the examining attorney, will satisfy the outstanding title requirement. Itis usually left up to the client company to determine who will prepare the doc-ument. Simply stated, if it is important enough that the examining attorney called for the preparation of a specific legal document to satisfy a titlerequirement, it makes no sense to let a third party prepare that document when the examining attorney knows exactly what information will satisfy his or her title requirement. This is especially true of affidavits as will be detailed later in the article.

Can All Title RequirementsEver be Cured?

Yes! Though rarely used today (and discussed in greater detail in the follow-ing paragraphs), the trespass to try title action, properly plead and with the cor-rect attendant documentary evidence, will cut off all potential adverse owners of the mineral estate in a given tract of

land and will confirm title in the plain-tiff(s) bringing the litigation. However,prior planning and timing are requiredto make the trespass to try title suit an effective title curative option.

Liability for Not Determining the Correct Mineral Ownership

If a mineral owner is not identified, and not leased, what effect does that have on the client company or lessee? It depends on whether the lands are pooled and/or if the missing unleased interest in under the drillsite tract.

An unleased mineral owner under a lease well or a pooled well (drillsite tract only) becomes a cotenant withthe other leased mineral owners and the lessee in that tract. (Wilson v. SuperiorOil Co., 274 S. W. 2d. 947 (Tex. Civ.App. - writ ref'd n.r.e.) and (Wooley v.West, 391 S. W. 2d. 157 (Tex. Civ. App. - 1965, writ ref'd n.r.e.).) Onecotenant may lease its interest in a tract of land without the consent of its other cotenant(s). Any cotenant or its lessee may commence drilling for oil and gas on the leased premises without the con-sent of the other cotenant(s). (Powell v. Johnson, 170 S. W. 2d. 273 (Tex. Civ. App. - 1943, aff'd).) More importantly, the entry by either cotenant onto the tract for drilling and production purpos-es is not deemed trespass since eachcotenant has a co-equal right of posses-sion (Byrom v. Pendley, 717 S. W. 2d. 602 (Tex 1986).)

The failure to identify and lease an undivided mineral owner under a lease well or under the drillsite tract for a unit well will result in the payment of monies to the unleased cotenant (afterrecoupment of all drilling and producing expenses) (Byrom v. Pendley, 717 S. W.2d. 602 (Tex 1986)) based on itsundivided interest in the tract (in the case of a pooled unit, the unleasedcotenant under the drillsite tract will be entitled to its ownership interest on an unpooled basis).

Nondrillsite tract - An unleased mineral in a nondrillsire unit is not enti-tled to any share of production unless and until:

It grants an oil and gas lease to one of the lessees who ownsa working interest in the unit, and

November !December 201]

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CURED TITLE OPINION

the unit designation is amended to include the additional lease cover-ing its interest with a pooling pro-vision. The parties to the unit can agree that the participation of the now leased mineral owner will be retroactive to the date of first pro-duction. In the absence of suchagreement, the now leased mineralowner's participation in unit pro-duction will be from the effective date of the pooling designation amendment. (Union Gas Corp. v.

Gisler, 129 S. W. 3d. 145 (Tex. Civ. App. 2003).)

It grants an oil and gas lease to an oil and gas lessee and, if not vol-untarily admitted into the unit, has the lease force pooled into theunit. Its right to participate is only effective from the date of theorder of force pooling. (Railroad Com'n of Texas v. Pend Preille Oil & Gas Co. Inc., 817 S.W.2d..366(Tex 1991).)

THE SUPPLEMENTALTITLE OPINION (CURING THE ORIGINAL TITLE OPINION)

DefinitionA supplemental title opinion is written after an original title opinion has been rendered and may consist of either or both (1) a review of outstanding titlerequirements in light of curative materials submitted to the examining attorney or(2) an update of the ownership schedule from the last title opinion rendered based on all records filed from the closing date of the last title opinion. A supplemental title opinion may also be rendered foreither drilling or division order purposes. Only after all title requirements havebeen deemed satisfied by the examining attorney may the client company rely fully on the ownership schedule with allattendant risk on the examining attorney and be assured of marketable title to the mineral estate. Any outstanding titlerequirement, or the requirement of reliance on facts outside of the chain of

title to deem a title requirement satisfied, will leave the title potentially defensible but not marketable.

There are three possible actions that can be taken by the examining attorney with respect to an outstanding titlerequirement in an original title opinionand for which curative materials have been submitted to the client company (examining attorney) for review:

Waiver of title requirement -Whether a client is justified in waiving a title requirement is a function of man-agement's evaluation of the problem and whether it is willing to accept all atten-dant risks associated with the waiver. An attorney does not waive title require-ments. If a waiver was appropriate by theexamining attorney, the title require-ment should never have been placed in the title opinion in the first place. If a title requirement is waived, definitional-ly the title cannot thereafter be deemed marketable. At best, it would be classi-fied as a defensible title. The examining

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CURED TITLE OPINION

attorney can adjust the ownership sched-ule based on the client company's waiver and protect himself or herself from lia-bility with the appropriate limiting lan-guage and assumptions made based on the waiver. For instance, if the titlerequirement was to furnish the probate materials for one of the potential miner-al owners who died more than 80 years ago, and the client believes that allpotential devisees have been located and leased, it may elect to waive the title requirement. The examining attorney can then choose one of the following:

Satisfaction of title requirement The examining attorney, after

a review of the curative materials submitted in connection with a title requirement, may deem that title requirement satisfied and, if necessary, adjust the ownership schedule accordingly.

Conditional satisfaction of title requirement - The examining attorney may have called for a curative document involving an affidavit such as an affidavit of heirship. Definitionally, if an affi-davit is involved in the curative process, the quality of title isdiluted from marketable to at best defensible.

It is up to the client company to accept the risk that the facts contained in the affidavit areaccurate and correct. The author prefers to note such risk accep-tance in the supplemental title opinion. The examining attorneymay then note the appropriatechange(s) in the ownership schedule assuming the risk deci-sion by the client company was an accurate one. The author has personally made such title requirements and was furnished

affidavits of heirship. The clie--company made the decision tc accept the facts contained inaffidavits. Unfortunately, in ms-, than one instance, the heirshir affidavits were wrong. Properly identified risk decisions by th, client company - and theresultant incorrect assumpti, the examining attorney basedthose risk assumptions - relieves the examining attorney from lia-bility due to a poor management decision to waive the titlerequirement with the resultant possibility of whole or partial title failure.

How does the title attorney render a supplemental title opinion (withchanges in ownership) where one or more title requirements have beenwaived? As previously discussed briefly, with properly identified assumptions of

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Land in an I

fact flowing from the waiver by theclient company, the examining attorneycan thereafter change the ownership schedule to reflect such risk assumptions.

Risk Decisions by the Client Company

What are the bases upon which a client company may be justified in waiving a title requirement? The author has been able to classify four distinct foundations upon whicha title requirement waiver may be initially justified although ultimately incorrectly made in hindsight.

Factual risk A title requirement can be waived where the facts are unknown and can never be estab-lished. Example: Who were the heirs of a party who died in 1850? No one is alive today who can state with certain-ty who those heirs were. At best, the records and family can only guess. The risk assumed by the client company is that the facts assumed by the clientcompany to be correct are ultimately determined to be incorrect and one or more mineral interests are unleased.

Legal risk - A title requirement can he waived where the salientfacts surrounding a title requirement are known, but the law on the sub-ject matter is unclear. Example: The application of the Duhig principle to a factual situation, especially inlight of the numerous potential exceptions to the rule. (See "Ding Dong Duhig is Dead" by the author.)

Apparent risk - A title require-ment can be waived where thesalient facts and/or law are known and are against the waiver of the title requirement. That is, if everdiscovered, title would fail. However, the client company does not believe that either the pertinent facts and/or the application of the law againstit will ever take place - i.e., the client company will never getcaught. An example is old title problems such as heirship where it is known that certain family members did not participate in a partition of the lands at issue.

CURED TITLE OPINION

Money/Time - A title requirement can be waived where its satisfaction simply costs more than curing same would yield. Closely associated with the costs of curing is the time ofcuring a title requirement. Where, in the opinion of the client company, the cost of curing a title requirement exceeds the value of the loss or the time associated with such curative acts far exceed the yield to theclient company for curing same, a client company may be justified in waiving that title requirement.Example: A small nonparticipating royalty interest owner under a non-drillsite tract in a pooled unit can-not be found. If the costs of finding such person far exceed what thelessee believes will be the risk if the owner were found and ratified the unit, then the requirement could reasonably be waived. The lessee'sliability would only be from the date of ratification, not the date of first production.

Nonwaivable Requirements

PatentsPatents, as distinguished from early

land grants, were instruments issued by the Republic or state of Texas whereby land was granted or conveyed by the Republic or state to a grantee. Patents are subject to the same rules as all writ-ten conveyances. That is, they mustcomply with the Statute of Frauds and adequately identify the grantor, grantee, the estate being conveyed and properly describe the lands made the basis of thepatent for them to be valid. Compliance with the Statute of Frauds can bedeemed, even as a matter of law, where a considerable period of time haspassed and the State and all surrounding landowners have acquiesced in the title as located on the ground. (Harris v.O'Connor, 185 S. W. 2d. 993 (Tex. Civ.App. - 1944, no writ hist).) Exactness was difficult of attainment and should not be insisted upon, to the destruction of right......This answer is justified byover 100 years acquiescence by theGovernments of Coahuila and Texas,the Republic of Texas and the state ofTexas; not only by acquiescence, but by

numerous other particular acts, particu-larly by the state of Texas, attesting that the aforesaid line is as before stated, thus is such line established as a matter oflaw. Any other holding would impugn the fidelity and integrity of eachAttorney General holding office in the state of Texas, and so as to the Land Commissioners. (Harris v. O'Connor, 185 S. W. 2d. 993 at page 1014 (Tex.Civ. App. - 1944, no writ hist.).)

After the patent is drafted but before it is delivered to the patentee, it must be registered in the land office's patent book. (Natural Resources Code §51.001 (Vernon 1985).)

If a patent is not issued according to law and was not authorized by law nor made under color of law, it is void and those claiming under it acquire no titleor right. (State v. Sneed, 181 S. W. 2d. 983 (Tex. Civ. App. -1944).)

Patents are only required to be recorded in the General Land Office. Once recorded in the General Land Office, their recordation is notice to the world of the patent's existence.(Mathews v. Caldwell, 258 S. W. 2d. 810 (Comm. Of App. - 1924).) Anyattendant documents that may assist in the interpretation of a patent (or early land grant) may not be filed for record in the General Land Office unless such deposition has been authorized by law. (Landry v. Robinson, 219 S. W. 2d. 819(Tex. - 1920).)

The Fort Bend County Problem Early one morning, the residents

owing land and homes in a survey located in Fort Bend County, Texas, woke up to find that they only owned two-thirds of their surface estate and two-thirds oftheir mineral estate. Since no case was filed nor legal decision reached, the author has only the following informa-tion furnished to him by the Fort Bend County clerk. An oil company wanted to drill on Blackacre. It commissioned a fee simple title opinion for Blackacre. One of the title requirements was toobtain a copy of the Mexican land grant on file with the General Land Officedespite the fact that a handwritten copy of same was of record in the Fort Bend County Deed Records. The copy of the land grant obtained from the General

33

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Land Office did, in fact, have noted in the margin that one of the originalgrantees had not performed his work and residence requirements (condition subsequent) and had in fact returned to Tennessee. This marginal notation was not found on the copy of the patentfound in the Fort Bend County Deed Records. The marginal notation was evi-dently construed by the General Land Office as an affirmative action, on thepart of the sovereign (Mexico), negatingthe title of the noncomplying party (undivided one-third interest).

After discovery of the marginal nota-tion, the state of Texas, as successor-in-interest to Mexico, declared that anundivided one-third interest in the entire survey was and had always been owned by the state of Texas. A constitu-tional amendment was passed allowing the revesting of the title to the surface estate. However, title today to the min-eral estate (one-third) remains in the state of Texas.

Curative Action - There is no curative action that can be taken!The original settler had an obligation to remain on the land for a specific period of time. Once he failed to per-form that requirement, the sovereign (state of Texas) had no choice but todeclare that title to the undivided one-third interest was forfeited and remained vested in the sovereign. It cannot beemphasized enough adverse posses-sion does not lie against the state of Texas. (Harris v. O'Connor, 185 S. W. 2d. 993 (Tex. Civ. App. - 1944).)

In the author's opinion, each fee sim-ple title opinion issued should require that a copy of the complete patent or land grant file in the General LandOffice be obtained and reviewed to con-firm that all of the sovereign's title to the survey in question has been properly con-veyed. It must be remembered that the copy of the patent found in the county clerk's office, depending on its age, isprobably a handwritten copy of the patent furnished to the patentee and is not a copy of the patent that is filed in the General Land Office. Since the filing of the patent in the General Land Office, as well as what marginal notes or other materials are found in the patent

34

file, are notice to the world of their con-tents (Mathews v. Caldwell, 258 S. W. 2d. 810 (Comm. Of App. - 1924)), how can any responsible client company electto waive a requirement that a copy of the patent and any other pertinent docu-ments found in the General Land Office be obtained and reviewed? How can any examining attorney fail to place such arequirement in an original title opinion?The author has no answers to the forego-ing questions but can state that, evenwhere such a requirement is found in a title opinion, it is inevitably waived.

Marketable title cannot be assured until the requirement set out is put forth in an original title opinion and has been satisfied? In the author's opinion, unless the requirement is satisfied, there remains a possibility that there is/are one or more facts located in the records of the General Land Office which, as with the survey located in Fort Bend County, Texas, could cause the title to fail in whole or in part. Result - the examin-ing attorney cannot assure the client company that marketable title exists with the outstanding title requirement remaining unsatisfied. Any problems with the survey file, such as marginal notations or other communications found in the file, should be noted by the title examiner. Where such title prob-lems exist, marketable title cannot be assured without additional acts of the General Land Office or, in the worst case, confirmatory litigation.

Use and Occupancy AffidavitAs a general proposition, an oil and

gas lessee is charged with notice of con-ditions on the ground that are readily visible from an inspection of the surface of the land at issue. (Madison v. Gordon,39 S. W. 3d. 604 (Tex 2001).) Forinstance, the existence of rivers, lakes, streams, cemeteries, buildings, railroads, roads, etc. can easily be found based on an on-the-ground inspection. Equally as important, parties in possession other than the record title owner can onlybe ascertained from an on-the-ground inspection. Last, and most important, confirmation that there are no produc-ing oil and gas wells on the property at issue can only be confirmed by an inspection on the ground.

Two Examples1. Company A decided to drill a

well in Montana. In fact, it did drill awell and made a significant oil discov-ery. Later, after the well was completed, the state of Montana called and con-gratulated Company A on its discovery. It also asked Company A why it didnot get an oil and gas lease from the state on the riverbed of theYellowstone River. The river had moved avulsively (and thus titles did not change), and the well was drilled exactly in the middle of the abandoned bed. A surface inspection of the drill-site tract would clearly have yielded evidence of the former existence of a river where the well was to be drilled.

2. Company A decided to drill a well on Blackacre. Its geologist wentout on the wellsite when the well loca-tion was surveyed. He noted a produc-ing well some 10 feet from the antici-pated location that was separated by a barb wire fence. He believed that the well was on the same lease his well was to be drilled on, and thus he said noth-ing to the company. The well came in successfully. Unfortunately, the wellwas on a different lease, and no Rule37 had been obtained. The well wasshut in until appropriate damages werepaid to the adjacent operator.

This title requirement is uniformly waived. Even if the client company does not want to know any of the facts identified above, it is certainly interest-ed in keeping damages due to drilling down to a minimum. It cannot do that if it does not have photographic evi-dence of the condition of the land before, during and after the drilling of the well. This can only be obtained by an actual visual and photographic record of the drillsite tract.

Ask Company A if it wished it had done a surface inspection. With mil-lions of dollars in drilling costs andeven more millions in anticipated rev-enues, it only makes sense to eliminate as many risks as possible. The require-ment of an affidavit of use and occu-pancy based on an actual surfaceinspection of the lands at issue should never be waived.

Xovernber / December 2011

Landman

CURED TITLE OPINION

AFFIDAVITS

General PrinciplesAs alluded to previously in this article,

affidavits are governed by several impor-tant principles. Failure to follow theseprinciples leaves the party relying on samewith the possibility that the affidavit, although containing significant and important information, may not beadmissible in a future court proceeding. The single most important decision that must be made by the examining attorney and company representative is he purpose(s) for which the affidavit isbeing taken. If it is never to be introduced mto evidence for any title purpose, why =o to the trouble to take the affidavit in the first place? Why nor reduce the facts to writing and submit them to the exam-ining attorney for review with the caveat htat the client will have to assume all risk that the facts, as submitted, are correct?

The validity or invalidity of a particu-_ r affidavit, depending on the circum-stances under which the relying party is attempting to use same (admission into evidence; basis for summary judgment; erliance upon for title purposes, etc.),_ften turns on the use of "magic words," =e absence of which can lead to less

_an a desirable result. The following is discussion of a sampling of Texas case

on various clauses and phrases as _Il as the legal issues that arise from

-.e use or lack of use of certain "magic_Js" in affidavits. The rules of evi-

__-Ce and admissibility of affidavits are-serous and varied. What the author

tried to do is summarize the majors in affidavit drafting that could lead

..rectly to the inadmissibility of any affi-

.iavit in a subsequent title suit. Stated zother way, why take what will be an =admissible affidavit when, with a little

ck and forethought, a "title curative affidavit" can stand in futuro as ana rissible affidavit in a litigation setting if anLi when needed? If an affidavit is called

by the examining attorney for cura-purposes, the client company is well

iced to consult with the examiningey to confirm that the facts neces-

for review have to be contained in affidavit form. If so, why not have the

ining attorney draft the affidavit to e that it can be used for the purpos-

ior which the attorney intends?g is more disappointing than

b n-e an affidavit, and its important�be deemed inadmissible in a case ing title where the affiants are now

br / December 2011

deceased. Where to get those facts now? With the foregoing in mind, the author offers the most significant problems with the admissibility of affidavits after their execution in a brief summary format.

"Personal knowledge," "True and correct" ("magic words") - The failure to use the term "personally within knowl-edge of affiant" properly in an affidavit is, in a trial setting, a defect in form thatmust be objected to and the objection preserved for appeal if the affidavit sought to be admitted into evidence is objected to by the opposing side. Failure to object to the affidavit's admission for use of the words "on information and belief," "verily believes," etc. and the admission of the affidavit into evidence without such objection will cause the objection to be waived. (Choctaw Properties LLC v. Aledo ISD, 127 S.W.3d 235 (Tex.App. -Waco 2003). See also Rizkallah v. Conner,952 S.W.2d 580, 585 (Tex.App. -Houston [1 Dist.] 1997).)

"The affiant must positively and unqualifiedly represent the `facts' ... dis-closed in the affidavit to be true and with-in his personal knowledge." (Brownlee,665 S.W.2d at 112.[2]). Even though Tex.R. Civ. P 145 contains specific language to be used in affidavits, the cases cited above have not held that those magicwords are the keystone of this review, but instead appraise whether the affirmation is such as to show that the statements are based on the affiant's personal knowledge and whether the statement is so positive as to allow perjury to lie. (Teixeira v. Hall, 107 S.W.3d 805, 809 (Tex.App.Texarkana 2003).)

In the context of a summary judg-ment affidavit, courts have uniformly held that affidavits which are based on the affiant's best knowledge and belief do not meet the strict requirements of Rule 166a - they must state facts, not belief. Thus, such affidavits are held toconstitute no evidence. (Teixeira v. Hall,107 S.W.3d 805, 809 (Tex.App.Texarkana 2003).)

An affidavit which does not positively and unqualifiedly represent the facts as disclosed in the affidavit to be true and within the affiant's personal knowledge is legally insufficient. (Brownlee v.Brownlee, 665 S.W2d 111, 112 (Tex. 1984); Burke v. Satterfield, 525 S.W2d 950, 955 (Tex. 1975).) The affidavits before us state that the affiant's state-ments are based on his "own personal knowledge and/or knowledge which he

has been able to acquire upon inquiry" and, hence, fail to unequivocally show that they are based on personal knowl-edge. Additionally, the affidavits provide no representation whatsoever that the facts disclosed therein are true. Because of these defects, the affidavits are legally invalid and cannot serve as evidence in support of State Farm's claims of privi-lege. (Humphreys v. Caldwell, 888 S.W2d 469, 470 (Tex. 1994).)

It is well settled law in this state that a controverting affidavit containing such words as "on information and belief,""knowledge and belief," "verily believes," "good reason to believe" and "believes to be true" are fatally defective. However, no court has ever condemned the useof the term "to his best knowledge." The term "within my knowledge" was approved in Coker v. Audas Inc., 385 S.W.2d 862 (Tex.Civ.App., Texarkana,1964, no writ). (See also Knipe v. Rector,463 S.W2d 769 (Tex.Civ.App., FortWorth, 1971, no writ) and Rice v. Tucson Credit Union, 413 S.W.2d 833 (Tex.Civ.App., Texarkana, 1967, no writ).) It is the use of the word "believe" which is found to be objectionable by our appellate courts. The words "believe" and "knowledge" or "best knowledge" do not have the same meaning. (industrial State Bank of Houston v. Wylie, 493 S.W2d 293, 295 (Tex.Civ.App. Beaumont 1973).)

Apparently, for an affidavit to be admitted into evidence, the test for itsadmissibility is whether it is based on the personal knowledge of the affiant such that, if the facts have been deliberatelymisrepresented, the affiant could be liable for perjury.

Competency of the affiant: How the affiant came to know the facts - It is not enough that an affidavit shows that the facts are within the personal knowl-edge of the affiant. In addition, the affi-ant must demonstrate how and underwhat circumstances he or she obtained knowledge of the facts and why he or she is qualified to make such an affi-davit. For instance, many affidavits of use and occupancy reviewed by theauthor for curative purposes contain a metes and bounds description of the property under examination and/or a plat of same. Nowhere in the affidavitis it stated that the affiant surveyed the property, caused the plat to be made nor how the affiant can state that both oreither is accurate. Only the surveyor could

37

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CURED TITLE OPINION

swear or testify as to the accuracy of a metes and bounds description or survey plat, thus raising a substantive issue of admissibility of the entire affidavit into evidence. It should be noted that failure to object to the admissibility of an affi-davit due to a lack of competency on the part of the affiant results in the waiver of the defect.

Many affidavits reviewed by the author contain the following statement: "Statements of fact and conclusions based on those facts personally within knowledge of affiant." Almost all of the affidavits whose admissibility was con-troverted and were reviewed by the author contained an identical or similarprovision. The provision is an attempt toestablish competency of the affiant as to the facts and conclusions recited in the affidavit by the affiant. Such a state-ment, standing alone, will not establish competency of the affiant.

An affidavit must affirmatively show how the affiant became personally familiar with the facts so as to testify as a witness, and a self-serving recitation of such does not satisfy the requirement. (Villacana v.Campbell, 929 S.W.2d 69, 74 (Tex.App.- Corpus Christi 1996, writ denied). Goggin v. Grimes, 969 S.W2d 135, 138 (Tex.App. - Houston [14 Dist.] 1998).)

Who is the affiant? How did he or she come into possession of the "facts" found in the affidavit? If an affidavit is to berelied on for title purposes, it simply must be based on facts personally ascer-tained by the affiant. Otherwise, the affi-davit will not be admitted into evidence for the purposes for which it was taken.

Conclusive statements - "One of the most often raised (and granted) objections to the introduction of anaffidavit into evidence is that the affiant stated conclusions of law or fact anddid not state or premise any such con-clusions on the actual facts at issue. A conclusory statement, either of the facts or the law, where there are no underly-ing facts to support the conclusion, is a defect of substance and may be raised for the first time on appeal. This is to be distinguished from a defect in form where the objection is deemed waivedif it is not raised at the time the affidavit is sought to be admitted into evidence."(Churchill v. Mayo, 224 S.W3d 340, 347(Tex.App. - Houston [1st Dist.] 2006).)

The rationale for such a rule ispremised on the theory that, if an actu-al trial was being held and the affiant

38

testified with conclusions only, wholly omitting from his/her testimony anyfacts upon which the conclusion(s) were based, a court would have no choice but to disallow such testimony. The law is clear conclusions are permitted byaffiants. However, they must be premised on full and complete facts that lead logically to the conclusion, espe-cially if the conclusion is one of law.

The objection that a statement is "conclusory" is an objection that is fre-quently made to challenge affidavits in summary judgment cases. (Johnson v. Bethesda Lutheran Homes & Servs., 935S.W2d 235, 239 (Tex.App. - Houston[1st Dist.] 1996, no writ.) (Hedges, J., concurring).) There is much confusionabout what this objection means. It does not mean that logical conclusions based on stated underlying facts are improper. That type of conclusion is proper inboth lay and expert testimony. What is objectionable is testimony that is noth-ing more than a legal conclusion.(Anderson v. Snider, 808 S.W.2d 54, 55 (Tex.1991); Brownlee v. Brownlee, 665 S.W2d 111, 112 (Tex.1984).) To allow such testimony is to reduce to a legalissue a matter that should be resolved by relying on facts. Statements of legal con-clusions amount to little more than the witness choosing sides on the outcome of the case. (Mowbray v. State, 788S.W.2d 658, 668 (Tex.App. - Corpus Christi 1990, pet. ref'd). 952 S.W.2d 580 (Tex.App. - Houston [1 Dist.] 1997).) (Rizlallah v. Conner, 952 S.W.2d 580,587 (Tex.App. - Houston [1 Dist.]1997).)

Interested Person The first instruction the author received from his mentors in writing title opinionsand requesting curative documents was to never, never allow a family member or interested party give the affidavit in the absence of a corroborating affidavit by a disinterested third party. The why had a two-part answer. First, and foremost, in the absence of a corroborating affidavit, the family member or affiant, especially in heirship and family history affidavits, is probably an interested party. As such, the affidavit, and its contents, may very well be inadmissible in later cases where the heirship or family history is an issue. Second, family members tend to see"heirship" in a less than legal fashion. For example, in one case, the familymember only listed three children in the heirship affidavit as being the intestate

heirs-at-law of the deceased fee si-_- -mineral owner of the drillsite tract -course, after the well was drilled a-._ completed, making 2 million cubic -a day, the fourth "child" came for.: When confronted, the affiant state-he just knew his mother would nc-wanted his sibling to have any in- -in the "old homestead." Thus, n, --tion was made in the affidavit of _:-undivided one-fourth unleasedunder the drillsite tract. Ultimate -issue becomes whether the affiant interested party in the subject mar the affidavit. If so, a self-serving a, is inadmissible on a trial of the ma--for which it was issued under therule. (Fenley v. Ogletree, 277 S.W.=_ 144 (Tex.Civ.App. - Beaumont

Many corroborating affidavits a--often flawed as well in that they,-,--. deliver conclusory statements. Tha-the affidavit issued by the corrobo-: affiant usually states that the affiar-- -sonally knows the facts and conclu -made in the main affidavit to be t-.-and correct. Without a full renditi_the facts and circumstances of wh'. -how the affiant knows the facts cc tained in the main affidavit to be --the corroborating affidavit is of n �import and will not serve to makeadmissible the affidavit of the inte-_ -party. More importantly, if the parring the corroborating affidavit is fa-with the facts such that he can co-.- -the main affidavit, why shouldn't -_. party give the main affidavit to th,exclusion of the interested party'

TRESPASS TO TRY TITLE

Making the Unmarketable Title Marketable

If a title to a tract of land is de--unmarketable due to outstanding, unsatisfied title requirements, can -title be made marketable via the • cial process? Yes, a marketable tit' be reached and reached in every ti---opinion rendered. It was not too lc- _ ago, at the beginning of the author--legal career, that all wells were drill -under titles found by the examinin_ attorney to be marketable titles. H,By the utilization of the Trespass T.--Title lawsuit (TTT Lawsuit) (ProperCode §22.001 et seq. (Vernon 1985

Jr was, in the past, more than r: _ tine, where outstanding title requ-_ ments called for information which

November / Decembc-

Lan d in an CURED TITLE OPINION

could never be completely verified, and thus would continually expose the client company to potential liability(leasing the wrong party or not leasingenough of the correct parties) to have the law department bring a TTT Lawsuit. Invariably, in less than 5 percent of the cases (the author's estimate), one of the problematic parties responded to the litigation. Such response affirmed the validity of the filing of the litiga-tion as well as provided the opportuni-ty for the client company to lease suchparties' interests via protection leases.

After the litigation was affirmatively concluded, usually with no opposition, the client company was assured that its leasehold title to the oil and gas lease-hold estate was good as against theworld. Is this kind of assurance expen-sive? No, not where the litigation was unopposed. Where opposed, the ratio-nale was that the litigation would have taken place anyway but after the drilling of a successful well.

Was the litigation time consuming? No, not unless opposed. It did require advance contingency planning and the

II

rendering of title opinions well in advance of spud date (at least sixmonths). However, the term "business risk" had little meaning where a judg-ment confirming the marketable title to the oil and gas mineral estate in theclient company's lessor(s) was confirmed via judicial decision.

At some point in time, oil and gas companies dropped the TTT Lawsuit as a method of title assurance and turned to management title risk decisions tospeed up the title opinion process. There is no doubt that such a decision process allows the client company to delay title examination until the last moment with whatever resultant title examinationsavings may occur where a title opinionis rendered but not needed. Thus, appar-ently a balancing decision has beenmade: sacrificing a marketable title for a cost savings in unused title opinions.

Given that hundreds of thousands of dollars are already committed and spent developing an oil and gas prospect and that up to several million dollars will bespent in drilling and developing same, the potential loss of 55,000 to $10,000 per

am

unused opinion does not, in the author's opinion, appear to be warranted. How much is it worth to know, with absolute certainty, that the correct party has beenleased and that no past ancient title prob-lems can come back, after the discovery of oil and gas, to haunt the client company' Be assured, ancient title problems are still being litigated today. Problems that noone thought could or would ever see the light of day are, when large deposits of oil and/or gas are found, being brought and, at the least, subjecting the client company to uncertainty in its title, and in somecases, loss of lease and revenue.

All of the curative actions above described require the obtaining of infor-mation and review of same by the exam-ining attorney. The information obtained is subject to being challenged by any interested party and is not con-clusive nor binding on any third party without judicial intervention. Even with the delivery of the called for informa-tion, the examining attorney cannotrender a final supplemental title opinion which recites that marketable title isvested in the parties enumerated in the

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CURED TITLE OPINION

ownership section of the title opinion. That is, as long as the factual informa-tion remains judicially unconfirmed, there still remains a risk of litigationbased on (1) a reasonable chance that a third party could raise an issue concern-ing the validity of the title to the estate against the apparent owner; (2) the qual-ity of the parol evidence necessary toremove any doubt as to the validity and/or sufficiency of the owner's titlecould be contested; (3) the presumption of fact which, in the event of a suit con-testing title, would probably become an issue of fact to be decided by a jury would still remain; or (4) the record disclosesoutstanding interests in other parties that could reasonably subject the owner to liti-gation or compel such owner to resort to parol evidence to defend the title against the outstanding claims. In Texas, the only judicial method of confirming marketable title in and to a tract of land, where there are outstanding title problems that render the title unmarketable, is to utilize thetrespass to try title statute (Property Code §22.001 et seq (Vernon 1985).)

THE JUDICIAL PROCESSThe purpose of the TTT Lawsuit is to

provide the exclusive method of confirm-ing and vesting title to real property. (Hillv. Preston, 34 S. W. 2d. 780 (Sup. Ct. 1931).) The cause of action provides a pro-cedure whereby all claimants to the title may be adjudicated and possession vested ("title as against the world"). (El Paso v. Long, 209 S. W. 2d. 950 (Tex. Civ. App. -1947, writ ref'd n.r.e.) and Slattery v.Adams, 279 S. W 2d. 445 (Tex. Civ. App.- 1955, no writ hist.).) Any final judg-ment rendered in such an action is conclu-sive as to the title and right of possession against all persons claiming from, through or under the person(s) against whom the judgment is rendered. That is, the judg-ment is conclusive of all adjudicated claims to the land or claims that could have been set up by the losing party. (Zapeda v. Rahn,48 S. W. 212 (Tex. Civ. App. 1898, writ ref'd.) and Pennington v. Pennington, 145 S.W. 2d. 688 (Tex. Civ. App. 1940, nowrit hist.).)

TTT Lawsuit is a procedure by which rival claims to title or right of possession may be adjudicated. (King Ranch Inc. v.Chapman, 118 S.W.3d 742, 755 (Tex.2003).) To recover in a TTT Lawsuit, the plaintiff must recover upon the strength of his own title. (Rogers v. Ricane Enter. Inc., 884 S.W2d 763, 768 (Tex. 1994).)The plaintiff may recover (1) by proving

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a regular chain of conveyances from thesovereign, (2) by proving a superior titleout of a common source, (3) by proving title by limitations or (4) by proving prior possession and that the possession has not been abandoned. (Ruiz v. Stewart Mineral Corp., 042806 TXCA12, 120500160.)

When the pleadings and evidence show that the dispute between the partiesinvolves a question of title, the trespass to try title statute governs the substantive claims. See Martin v. Amerman, 133S.W.3d 262, 267 (Tex. 2004); see also Elyv. Briley, 959 S.W.2d 723, 727 (Tex. App.- Austin 1998, no pet.) (Trespass to try title is the exclusive remedy by which to resolve competing title claims to proper-ty). (Ruiz v. Stewart Mineral Corp., 202 S.W. 3d. 242 (Tex. Civ. App. 2006).)

The case of Martin v. Amerman, 133 S.W.3d 262, 267 (Tex. 2004) is one of thedefinitive, modem Texas cases that outlines the general characteristics of the TTTLawsuit. As a title curative tool, it is the ultimate methodology of assuring the client company that the title to the mineral estate, which it leased, is vested in its lessors and is a title that is good as against the world. The following quotes will explain the general tenets of the TIT Lawsuit such that the reader can readily recognize when the filing of same is appropriate.

In this case we must decide whether a trespass-to-try-title action is the exclusive means to resolve a dispute between neigh-bors over the proper location of a bound-ary line separating their properties, orwhether a declaratory judgment action is also an appropriate way. We hold that the Texas trespass-to-try-title statute governs the parties' substantive rights in thisboundary dispute and that they may not proceed under the Texas DeclaratoryJudgments Act to recover attorney's fees.(Martin v. Amerman, 133 S.W3d 262, 267 (Tex. 2004).)

The Declaratory Judgments Act pro-vides an efficient vehicle for parties to seek a declaration of rights under certain instru-ments, while trespass-to-try-title actions involve detailed pleading and proof requirements. (See Tex.R. Civ. P. 783-809.) To prevail in a trespass-to-try-title action, a plaintiff must usually (1) prove a regular chain of conveyances from the sov-ereign, (2) establish superior title out of a common source, (3) prove title by limita-tions or (4) prove title by prior possession coupled with proof that possession was notabandoned. (Plumb, 617 S.W.2d at 668 citing Land v. Turner, 377 S.W2d 181, 183 (Tex.1964).) The pleading rules are

detailed and formal, and require a plaintiff to prevail on the superiority of his title,not on the weakness of a defendant's title. (Land, 377 S.W2d at 183.) (Martin v.Amerman, 133 S.W.3d 262, 267 (Tex. 2004).)

For the foregoing reasons, we againdecline to recognize a substantive distinc-tion between title and boundary issues,this time for the purpose of allowing alter-native relief under the DeclaratoryJudgments Act. We conclude, as did the court of appeals, that the trespass-to-try-title statute governs the parties' substan-tive claims in this case. The statuteexpressly provides that it is "the method for determining title to ... real property." (Tex. Prop. Code 22.001(a); see Ely v.Briley, 959 S.W.2d 723, 727 (Tex. App. Austin 1998, no pet.); Kennesaw Life & Accid. Ins. Co. v. Goss, 694 S.W.2d 115, 118 (Tex.App. Houston [14th Dist.] 1985,writ ref'd n.r.e.).) Accordingly, the Martins may not proceed alternatively under the Declaratory Judgments Act to recovertheir attorney's fees. (Martin v. Amerman, 133 S.W.3d 262, 267 (Tex. 2004).)

Title examination attorneys do not make the risk decisions underlying curing or waiving title requirements. However, it is not an excuse that management cannot plan ahead such that drillsite tract title examination cannot be concluded with enough time prior to lease expiration to file a TTT Lawsuit. Severe and potentially large title losses do not have to take place. They can be judicially prevented via the use of the TTT Lawsuit.

About the Author:Terry E. Hogwood, an attorney,

runs a solo oil, gas and title-related practice in Houston, providing legal advice for oil andgas clients covering both onshore and offshore legal matters. He also renders day-to-daylegal advice on lease maintenance problems,

operating agreements, farm-ins and farm-outs and drilling agreements with heavy emphasis

on Texas title matters including the rendering of stand-up title opinions. He is a memberof the Houston Association of Petroleum Landmen and AAPL, receiving AAPL's Education Award in 1993. A member of the Texas Bar Association, he served as founder and first chairman of the Oil, Gasand Mineral Law Section of the Houston Bar Association. Hogwood received his bachelor's degree from Texas A&M and his J.D. from Baylor Law School.

November/December 2011