663 Great Northern Energy, Inc. v. Circle Ridge Production, Inc., 528 S.W.3d 644 (Tex. App.—Texarkana 2017, pet. denied)
Wednesday, August 1st, 2018
The following is not a legal opinion. You should consult your attorney if the case may be of significance to you.
Great Northern Energy, Inc. v. Circle Ridge Production, Inc., 528 S.W.3d 644 (Tex. App.—Texarkana 2017, pet. denied) held that superior title out of a common source could be proved in trespass to try title by showing title under a trustee’s deed of foreclosure. Circle Ridge and Stephens acquired interests in the “O’Benco leases,” and then Circle Ridge and Stephens, as “Seller,” assigned those interests to Great Northern, as “Buyer.” Seller took a note as consideration, retained a vendor’s lien in the deed, and secured the transaction with a deed of trust. Buyer defaulted, Seller foreclosed, Circle Ridge reacquired the O’Benco leases at the public auction, and Buyer refused to give up possession. There were multiple complicated fact issues and evidentiary questions in the case, which were generally resolved in favor of Seller. For example, Buyer contended that the trustee under the deed of trust did not have the authority of the “Seller” (only Circle Ridge) to foreclose, and that the trustee had authority to sell, and was only selling, Circle Ridge’s interest. However, Stephens testified that he gave the trustee permission to foreclose. After the foreclosure, Stephens assigned his interest in the note to Circle Ridge. Circle Ridge and Great Northern filed competing claims in trespass to try title.
As a preliminary matter, the court held that the note was not a “negotiable instrument” under the U.C.C. because it incorporated the deed of trust and was collateralized. Therefore, the provision of the U.C.C. that a note could only be enforced by both payees was not applicable. The dispute was governed by contract law.
The court examined the note, which provided that the entire debt could be accelerated in the event of default, and that the trustee could sell “all or any part of the Mortgaged Property . . . as an entirety.” The deed of trust provided that the “Mortgaged Property” was all the oil and gas interests described on Exhibit A, and Exhibit A identified the O’Benco leases.
With the ancillary factual and evidentiary issues all resolved against Great Northern, the only remaining issue of interest was whether Circle Ridge failed to meet its burden of proof in trespass to try title. As plaintiff on its claim in trespass to try title, Circle Ridge was required to prove its own title by (a) a regular chain of conveyances from the sovereign, (b) superior title out of a common source, (c) limitations, or (d) unabandoned prior possession. To prove superior title out of a common source in this case, Great Northern itself claimed that it derived title from a common source (Circle Ridge and Stephens), so that Circle Ridge must only prove that its title was “superior.” The court held that Circle Ridge’s title was superior based on the terms of the deed with vendor’s lien and the deed of trust. The issue of the authority of the trustee to act was resolved as a fact issue by the jury against Great Northern. The note was not negotiable, and therefore the case was governed by contract law through construing the note and the deed of trust. “Because Circle Ridge’s title to those leases was acquired via foreclosure, resolution of Great Northern’s wrongful foreclosure claim also resolved the issue of whether Circle Ridge’s title was superior to Great Northern’s title.”
The case illustrates the meaning of “superior” title out of a common source in proving title in trespass to try title.