432 Richmond v. Wells

Richard F. Brown

 
The following is not a legal opinion.  You should consult your attorney if the case may be of significance to you.
 
Richmond v. Wells, 395 S.W.3d 262 (Tex. App.—Eastland 2012, pet. denied), held that the rights to ownership of the non-possessory interests of a lessor under an oil and gas lease (royalty and the possibility of reverter) should be determined in a declaratory judgment action rather than in trespass to try title.  Simplified, Richmond owned the minerals in a tract which Richmond leased to Endeavor under a typical oil and gas lease.  Endeavor completed and placed the Richmond No. 43 into production on the leased tract.  Richmond contracted with Zugg to sell the tract to Zugg, but Richmond would keep his mineral rights.  The Richmond-to-Zugg warranty deed was made subject to oil and gas leases of record and excepted “all oil, gas and other minerals in, on or under said land reserved by prior grantors . . . .”  Zugg sold to Wells, and the Zugg-to-Wells warranty deed contained the same language.  Endeavor suspended royalty payments to Richmond when Wells notified Endeavor that royalty payments should be made to Wells.  Richmond and Wells filed competing motions for summary judgment.
 
Wells’ motion was for declaratory relief under Chapter 37 of the Texas Civil Practice and Remedies code.  The trial court granted the motion, holding that both deeds conveyed the mineral estate, that Richmond reserved no interest in the mineral estate, that Richmond was not entitled to any proceeds from the mineral estate, and that Richmond was not entitled to a reformation of the Richmond-to-Zugg deed.
 
Richmond contended that Wells should have brought his claim in trespass to try title under Chapter 22 of the Texas Property Code and that Wells failed to meet his burden under that cause of action.  Richmond relied on Martin v. Amerman, 133 S.W.3d 262 (Tex. 2004), in which the Texas Supreme Court held generally that trespass to try title is the method for determining title to real property.  The Richmond court distinguished Martin v. Amerman because the facts in that case involved a possessory interest.  Under the lease to Endeavor, the lessor retained only a royalty interest and a possibility of reverter, which are non-possessory interests.  Claims to a royalty interest and the possibility of reverter are not properly the subject of a trespass-to-try title cause of action.  Even though the construction of the two deeds could ultimately impact title and possessory rights to the interests involved, the court held that the legislature did not intend for the trespass-to-try title statute to displace the declaratory judgment statute in this case.  The declaratory judgment statute expressly provides that any person interested under a deed may have determined any question of construction arising under the deed and obtain a declaration of rights.
 
Richmond’s motion for summary judgment for reformation of the Richmond-to-Zugg deed presumably would have been granted as to Zugg, but the issue in the case was whether Wells was a bona fide purchaser for value without notice of Richmond’s claim.  Reformation is a claim for equitable relief which will not be granted if there is a bona fide purchaser.  The issue was notice.
 
Richmond argued that Wells had constructive notice based on the pump jack and batteries on the tract.  The court held that this would be notice of Endeavor’s rights of possession and Endeavor’s fee simple determinable ownership interest.  “At the time of the Zugg-to-Wells deed, the interests claimed by [Richmond] were non-possessory ones, and Endeavor’s possession did not put [Wells] on notice of any interest claimed by [Richmond].”  However, there was some evidence that Wells had actual knowledge of Richmond’s interest, there were genuine issues of material fact on whether Wells had actual knowledge, and the burden of proof was on Richmond.  The court reversed the trial court’s judgment granting Wells’ motion for summary judgment and remanded for trial.
 
The opinion appears to hold that the non-possessory interests of a lessor under an oil and gas lease cannot be determined in trespass to try title and must be resolved in a declaratory judgment action.  This is probably too broad, but the petition was denied in this case.  It is also interesting that the oil and gas operations on the property were apparently held to be insufficient to give constructive notice of the rights of any party, except as to the interests of the lessee conducting the operations.