OBA/CLE Presents:
An In-depth View of Oil and Gas Title Examination
Tulsa DATE & April 9, 2015 LOCATION: OSU – Tulsa 700 N.Greenwood Ave.
CLE CREDIT: This course has been approved by the Oklahoma Bar Association Mandatory Continuing Legal Education Commission for 6 hours of mandatory CLE credit, including 0 hours of ethics.
TUITION: $150 for early-bird registrations with payment received at least four full business days prior to the seminar date; $175 for registrations with payment received within four full business days of the seminar date. To receive a $10 discount for the live onsite program, register online at http://www.okbar.org/members/CLE.aspx
Program Planner/Moderator Jereme Cowan, Cowan & Fleischer, PLLC, Oklahoma City Kraettli Q. Epperson, Mee Mee Hoge & Epperson, PC, Oklahoma City
8:30 a.m. Registration and Continental Breakfast
9:00 Using Curative Acts and Title Examination Standards: Sweeping Away Ancient Title Gaps, Defects and Liens Kraettli Q. Epperson, Mee Mee Hoge & Epperson, PC, Oklahoma City
9:50 Break
10:00 The Oil and Gas Lease: The Core Legal Document of Oil and Gas Development Gabe Bass, Bass Law, Oklahoma City
10:50 Assignments of the Leasehold: The Oil and Gas Industry’s Bundle of Sticks Jereme Cowan, Cowan & Fleischer, PLLC, Oklahoma City
11:40 Networking lunch (included in registration)
12:10 p.m. The Purpose and Common Issues with Title Requirements: A Detailed Look at Something No One Fully Understands, Not Even Me Melissa R. Gardner, Phillips Murrah, PC, Oklahoma City
1:00 Interpretive Problems in the Mineral Estate Joshua C. Greenhaw, Mee Mee Hoge & Epperson, PC, Oklahoma City
1:50 Break
2:00 Landman and Attorney Relationship: What Do You Want From Me? Laura Bennett Schwarz, Attorney at Law, Edmond
An In-Depth View of Oil and Gas Title Examination
Tulsa DATE & April 9, 2015 OSU - TULSA LOCATION: 700 N. Greenwood Ave.
OBA/CLE DEPARTMENT
Susan Damron Krug, Esq., Director of Educational Programs Marley Harris, Program Manager Mark Schneidewent, Online Manager Renee Montgomery, Registrar Gary Berger, Production Specialist
Spring 2015
Publication No. 108
6 Hours of Mandatory CLE Credit Including 0 Hours Ethics Credit
Table of Contents
An In-Depth View of Oil and Gas Title Examination
A. Bar Ad
B. General Seminar Information
C. Biographies
D. Using Curative Acts and Title Examination Standards: Sweeping Away Ancient Title Gaps, Defects and Liens by Kraettli Q. Epperson
E. The Oil and Gas Lease: The Core Legal Document of Oil and Gas Development by Gabe Bass
F. Assignments of the Leasehold: The Oil and Gas Industry’s Bundle of Sticks by Jereme Cowan
G. The Purpose and Common Issues with Title Requirements: A Detailed Look at Something No One Fully Understands, Not Even Me by Melissa R. Gardner
H. Interpretive Problems in the Mineral Estate by Joshua C. Greenhaw
I. Landman and Attorney Relationship: What Do You Want From Me? by Laura Bennett Schwarz
Copyright © 2015
All Rights Reserved
Oklahoma Bar Association
DISCLAIMER
These materials, including the legal research, are the product of individual contributors, not the Oklahoma Bar Association. Accordingly, any statement, citation of authority, philosophy or opinion expressed is that of the individual contributor, and the reader is admonished to check original citations of authority and to use these materials as a starting point for individual research. The Oklahoma Bar Association makes no warranty, express or implied, relating to the accuracy or content of these materials.
2015 OKLAHOMA BAR ASSOCIATION OFFICERS AND BOARD OF GOVERNORS
OFFICERS
David A. Poarch Jr. President - Norman
Garvin IssacsJr. President-Elect – Oklahoma City
Glen A. Devoll Vice President - Enid
John Morris Williams Executive Director - Treasurer - Oklahoma City
Renée DeMoss Past President - Tulsa
BOARD OF GOVERNORS District 1 District 8 John M. Weedn James R. Marshall Miami Shawnee
District 2 District 9 Kevin T. Sain John W. Kinslow Idabel Lawton
District 3 Member-at-Large Robert D. Gifford, II James Hicks Oklahoma City Tulsa
District 4 Member-at-Large Douglas L. Jackson Sonja R. Porter Enid Oklahoma City
District 5 Member-at-Large Rick Knighton Richard D. Stevens Norman Norman
District 6 Chairperson James R. Gotwals OBA/Young Lawyers Division Tulsa LeAnne McGill Edmond District 7 Roy D. Tucker Muskogee
FELLOW ENROLLMENT FORM Attorney Non-Attorney Name: (your name, as it should appear on your OBF Fellow Plaque) County Firm or other affiliation:
Mailing & delivery address:
City/State/Zip:
Phone: E-Mail Address: The Oklahoma Bar Foundation was able to assist 38 different programs or projects this year with the help and generosity of Oklahoma Fellows – providing free legal assistance for the poor and elderly; safe haven for the abused; protection and legal assistance to children; law-related education programs; court technology projects; other activities that improve the quality of justice for all Oklahomans. These programs affected more than 85,000 lives last year alone. Legal services were multiplied through more than 3,000 pro bono volunteers. The Oklahoma Bar legend of help continues with YOU.
I want to be an OBF Fellow now – Bill Me Later! LAWYERS $100 enclosed & bill annually TRANSFORMING LIVES Total amount enclosed, $1,000 through education, New Lawyer 1st Year, $25 enclosed & bill citizenship and Annually as stated justice for all. New Lawyer within 3 Years, $50 enclosed & bill annually as stated 2011 is the year for You to I want to be recognized at the higher level of make a difference – Sustaining Fellow & will continue my annual gift Join the OBF Fellows of at least $100 – (initial pledge should be complete) today! I want to be recognized at the highest leadership level of Benefactor Fellow & annually contribute at least $300 – (initial pledge should be complete)
To become a Fellow, the pledge is $1,000 payable within a ten year period at $100 each year; however, some may choose to pay the full amount or in greater increments over a shorter period of time. The OBF offers lesser payments for newer Oklahoma Bar Association members: • — First Year Lawyers: lawyers who pledge to become OBF Fellows on or before January 2, of the year immediately following their admission may pay only $25 per year for 2 years, then only $50 for 3 years, and then at least $100 each year thereafter until the $1,000 pledge is fulfilled. • — Within Three Years: lawyers admitted 3 years or less at the time of their OBF Fellow pledge may pay only $50 per year for 4 years and then at least $100 each year thereafter until the $1,000 pledge is fulfilled. Sustaining Fellows are those who have completed the initial $1,000 pledge and continue their $100 annual contribution to help sustain grant programs. Benefactor Fellows is the highest leadership giving level and are those who have completed the initial $1,000 pledge and pledge to pay at least $300 annually to help fund important grant programs. Benefactors lead by example.
Your Signature & Date: OBA Bar# OBF Sponsor:
PLEASE KINDLY MAKE CHECKS PAYABLE TO: Oklahoma Bar Foundation • P O Box 53036 • Oklahoma City OK 73152-3036 • (405) 416-7070 Many thanks for your support & generosity! CLE-2011Grants
You are not alone.
Free 24-hour confidential assistance
• depression/anxiety • substance abuse • stress • relationship challenges
800.364.7886 www.okbar.org/lhl
Counseling and peer support are available. Some services free as a member benefit.
L AW YERS HELPING L AW YERS
ASSISTANCE PROGR AM
A. GABRIEL “GABE” BASS
Gabe Bass is a shareholder at Bass Law Firm, P.C., a five-attorney firm with offices in El
Reno and downtown Oklahoma City, where his practice is focused on transactions and litigation involving commercial issues, estates and trusts, oil and gas, and real estate. Mr. Bass received a
Bachelor’s degree with Academic Distinction, in Business Administration/Finance and Accounting and a Master’s degree in Information Systems from the University of Oklahoma and a Juris Doctor degree, with Honors, from the University of Oklahoma College of Law. He also completed graduate work in law and real estate development at the University of Southern California and undergraduate work in financial markets and corporate governance at Harvard University.
Prior to entering private practice, Mr. Bass served for five years in the United States Marine
Corps, attaining the rank of captain. Following his initial training as an infantry rifle platoon commander, he served as a litigator in the military justice system, where he was lead counsel in a number of felony criminal trials. Mr. Bass currently serves as a judge advocate in the United States
Marine Corps Reserve, providing administrative law and military justice support to active duty and reserve units throughout the country.
Mr. Bass is active in both the ABA and the OBA. He is a former member of the OBA Young
Lawyers Division board of directors, is past-chair of the OBA Law Office Management and
Technology Section, has been a member of both the ABA and OBA Leadership Academies, and has served on numerous committees in both organizations. He is the current president of the Canadian
County Bar Association and a member of the board of trustees of the Oklahoma Bar Foundation. Mr.
Bass holds an AV® Preeminent™ peer rating from Martindale Hubbell, a designation given to those attorneys demonstrating the highest ethical standards and legal ability. JEREME COWAN
After graduating from Duke University School of Law with a Juris Doctor degree, Jereme
Cowan came back to Oklahoma to work at Chesapeake Energy Corporation. There, he spent 1.5 years as a landman and then became an attorney in their legal department. As an attorney at
Chesapeake, he spent the next 5 years primarily rendering oil and gas title opinions. On
February 1, 2013, he officially left Chesapeake to create his own law firm with a friend, John
Harrington. Together, they formed Harrington & Cowan, PLLC, where Mr. Cowan focuses on oil and gas law. KRAETTLI Q. EPPERSON
Kraettli Q. Epperson received his Juris Doctor degree from the Oklahoma City University
School of Law in 1978. He is a Partner with Mee Mee Hoge & Epperson in Oklahoma City, and he focuses on litigation and title opinions on oil/gas and real property matters (arbitration, title curative, receiverships, lien priorities, ownership, restrictions, and condemnation issues), oil and gas and surface title expert testimony, and homeowners/condominium association representation.
Mr. Epperson is Chairman of the OBA Title Examination Standards Committee, teaches
"Oklahoma Land Titles" at the Oklahoma City University School of Law, and is the editor for the Vernons 2d: Oklahoma Real Estate Forms. Mr. Epperson publishes and presents papers frequently on title issues (see: www.eppersonlaw.com). MELISSA R. GARDNER
Melissa Gardner is an attorney in the Energy & Natural Resources Practice Group whose expertise is the preparation of both drilling title opinions and division order title opinions, including town sites, multi-section units, and producing lands for oil and gas industry clients.
Prior to joining Phillips Murrah, Melissa was employed by Chesapeake Energy, where she reviewed properties targeted for oil and natural gas exploration. Her experience at Cheseapeake
Energy puts her in a unique position to recognize many of the unique issues that are not immediately apparent to those not as familiar with the oil and gas industry. Melissa’s clients are primarily oil and gas exploration and production companies in Oklahoma with concerns about title issues that could potentially compromise production opportunities. Her work positions her oil and gas clients to legally conduct their operations with confidence.
Born in Empire, Oklahoma, Melissa is a huge sports fan and has been on a local rowing team for the past 5 years. JOSHUA C. GREENHAW
Joshua Greenhaw is an attorneypracticing with the law firm of Mee, Mee, Hoge & Epperson,
P.L.L.P. in Oklahoma City, where he practices in the areas of real estate, commercial litigation, and oil and gas law. He received a Bachelor’s degree in Architecture from the University of Oklahoma and a Juris Doctor degree from the University of Oklahoma College of Law.
Mr. Greenhaw is admitted to practice in Oklahoma, as well as before the U. S. District Courts for the Western and Northern Districts of Oklahoma. He is a member of the Oklahoma County and the Oklahoma Bar Associations. LAURA BENNETT SCHWARZ
Mrs. Schwarz worked as a landman for 9 years with multiple companies including XTO Energy,
Chesapeake Energy and Continental Resources with various areas of responsibilities including
Oklahoma, Arkansas and Texas. Since May 2013 Mrs. Schwarz has worked in private law practice focusing primarily in oil and gas matters. She also serves as counsel for Bennett
Mineral Company.
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
USING CURATIVE ACTS AND TITLE EXAMINATION STANDARDS: SWEEPING AWAY ANCIENT TITLE GAPS, DEFECTS AND LIENS
by Kraettli Q. Epperson
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
OKLAHOMA REAL PROPERTY TITLE CURATIVE ACTS AS REFLECTED IN SELECTED TITLE EXAMINATION STANDARDS
BY:
KRAETTLI Q. EPPERSON, PLLC MEE MEE HOGE & EPPERSON, PLLP 50 PENN PLACE 1900 N.W. EXPRESSWAY, SUITE 1400 OKLAHOMA CITY, OKLAHOMA 73118
PHONE: (405) 848-9100 FAX: (405) 848-9101
E-mail: [email protected] Webpages: www.meehoge.com www.eppersonlaw.com
Presented For: Oil And Gas Title Examination In Oklahoma (for Oklahoma Bar Association CLE)
At Tulsa, OK – April 9, 2015
(c:/WP/KQE/KQE Papers//Papers/279TitleCurativeThroughTES (OBA CLE)
1 Table of Contents
I. Introduction ...... 5 A. Quality of Title ...... 5 1. Examining for Marketable Title ...... 5 2. Examining for Surface Title ...... 5 3. Examining for Mineral Title ...... 6 B. Liability of Title Examiners to Non-Clients ...... 7 C. Statute of Limitations on Title Opinions ...... 9 II. Understanding Standards ...... 11
A. Background and Authority of Standards ...... 11 B. Impetus for Standards: Problems with Seeking Perfect Title ...... 13 C. Title Examination Expectations ...... 14 1. 1.1 Marketable Title Defined ...... 15 2. 1.3 Reference to Title Standards ...... 15 3. 1.4 Remedial Effect of curative Legislation ...... 15 III. Curative Title Examination Standards ...... 16 A. Curative Act: Marketable Record Title Act ...... 16 30.1 Remedial Effect...... 16 30.2 Requisites of Marketable Record Title ...... 17 30.3 Unbroken Chain of Title of Record ...... 17 30.4 Matters Purporting to Divest ...... 18 30.6 Filing of Notice ...... 20 30.7 Thirty-year Possession in Lieu of Filing Notice ...... 20 30.8 Effect of Adverse Possession ...... 21 30.9 Effect of Recording Title Transaction During Thirty-Year Period ...... 21 30.10 Quitclaim Deed or Testamentary Residuary Clause in Thirty-Year Chain ...... 23 30.11 Thirty-Year Abstract ...... 23 30.12 Effective Date of the Act ...... 23 30.13 Abstracting ...... 24 30.14 Federal Court Proceedings ...... 26 B. Simplification of Land Titles Act - Title Examination Standard: Chapter 29 ...... 26 29.1 Remedial Effect...... 27 29.2 Protection Afforded By the Act ...... 28 29.2.1 Reliance on Certificate Tax Deed or Resale Tax Deed...... 29 29.3 Purchaser for Value ...... 29 29.4 Conveyance of Record ...... 29 29.5 Effective Date of the Act ...... 30 29.6 Abstracting ...... 30
2 C. Marital Status Waiver ...... 31 7.1 Marital Interests: Definition; Applicability of Standards; Bar or Presumption of Their Non-Existence ...... 31 7.2 Marital Interests and Marketable Title ...... 31 D. Acknowledgements Waiver ...... 32 6.1 Defects in or Omission of Acknowledgments in Instruments of Record ...... 32 E. Power of Attorney Waiver ...... 33 6.7 Validity of Instruments Executed by Attorneys-in-Fact ...... 33 F. Mortgage Release Waiver ...... 34 24.8 Unenforceable Mortgages and Marketable Title ...... 34 G. Affidavits and Recitals ...... 35 3.2 Affidavits and Recitals ...... 35 H. Abbreviations and Idem Sonans ...... 35 5.1 Abbreviations and Idem Sonans ...... 35 I. Variance In Names ...... 36 5.2 Variance Between Signature of Body of Deed and Acknowledgment ...... 36 J. Recital of Identity ...... 37 5.3 Recital of Identity ...... 37 K. Omissions and Inconsistencies ...... 37 6.2 Omissions and Inconsistencies in Instruments and Acknowledgments ...... 37 L. Delivery ...... 38 6.4 Delivery; Delay in Recording ...... 38 M. Rebuttable Presumptions ...... 39 12.2 Rebuttable Presumptions Concerning Corporate Instruments Executed in Proper Form ...... 39 N. Conclusive Presumptions ...... 40 12.3 Conclusive Presumptions Concerning Instruments Recorded for More Than Five Years ...... 40 O. Recital of Successorship ...... 40 12.4 Recital of Identity, Successorship, or Conversion ...... 40 P. Powers of Trustee ...... 41 15.1 Power of Trustee ...... 41 IV. Oklahoma Severed Minerals Affidavit of Heirship ...... 41 A. Statute: 16 O.S. Section 67 ...... 41 B. Title Examination Standard ...... 43 3.2 Affidavits and Recitals ...... 43 V. Author’s Selected Oil and Gas Articles ...... 46
3 KRAETTLI Q. EPPERSON, PLLC ATTORNEY AT LAW
POSITION: Partner: Mee Mee Hoge & Epperson, PLLP 1900 N.W. Expressway, Suite 1400, Oklahoma City, OK 73118 Voice: (405) 848-9100; Fax: (405) 848-9101 E- mail: [email protected]; website: www.EppersonLaw.com
COURTS: Okla. Sup. Ct. (May 1979); U.S. Dist. Ct., West. Dist of Okla. (Dec. 1984)
EDUCATION: University of Oklahoma [B.A. (PoliSci-Urban Admin.) 1971]; State Univ. of N.Y. at Stony Brook [M.S. (Urban and Policy Sciences) 1974]; & Oklahoma City University [J.D. (Law) 1978].
PRACTICE: Oil/Gas & Surface Title Examination Opinions (& Expert Work) Oil/Gas & Real Property Litigation (Expert Work, Mediation/Arbitration, Surface Use, Title Curative, Condemnation, & Restrictions); Condo/Home Owners Association Creation & Representation; and Commercial Real Estate Acquisition & Development.
MEMBERSHIPS: OBA Title Examination Standards Committee (Chairperson: 1992-Present); OBA Nat’l T.E.S. Resource Center (Director: 1989 - Present); OBA Real Property Law Section (current member, former Chairperson); OKC Real Property Lawyers Assn. (current member, former President); OKC Mineral Law Society (current member); Kiwanis (Downtown OKC Club--member and former President); and BSA: Vice Chair & Chair, Baden-Powell Dist., Last Frontier Council (2000-2007); former Cubmaster, Pack 5, & Asst SM, Troop 193, All Souls Episcopal Church
SPECIAL EXPERIENCE: Court-appointed Receiver for 5 Abstract Companies in Oklahoma Oklahoma City University School of Law adjunct professor: "Oklahoma Land Titles" course (1982 - Present); Vernons 2d: Oklahoma Real Estate Forms and Practice, (2000 - Present) General Editor and Contributing Author; Basye on Clearing Land Titles, Author : Pocket Part Update (1998 – 2000); Contributing Author: Pocket Part Update (2001-Present) Oklahoma Bar Review faculty: “Real Property” (1998 - 2003); Chairman: OBA/OLTA Uniform Abstract Certif. Committee (1982); In-House Counsel: LTOC & AFLTICO/AGT/Old Republic (1979-1981); Urban Planner: OCAP, DECA & ODOT (1974-1979).
SELECTED PUBLICATIONS: "Marketable Record Title: A Deed Which Conveys Only the Grantor's 'Right, Title and Interest' Can Be A 'Root of Title'",85 OBJ 1104 (May 17, 2014) "The Need for a Federal District Court Certificate in All Title Examinations: A Reconsideration", 83 OBJ 2367 (Nov. 3, 2012) "The Real Estate Mortgage Follows the Promissory Note Automatically Without an Assignment: The Lesson of BAC Home Loans", 82 OBJ 2938 (Dec.10, 2011)
SPECIAL HONORS: Okla. Bar Assn. 1997 Maurice Merrill Golden Quill Award; Okla. Bar Assn. 1990 Earl Sneed Continuing Legal Education Award; Okla. Bar Assn. 1990 Golden Gavel Award: Title Exam. Standards Committee
4 I. INTRODUCTION
A. QUALITY OF TITLE
1. EXAMINING FOR MARKETABLE TITLE
Whether providing an opinion of title covering either surface or mineral title, the standard for the quality of title that the title examiner is typically seeking is "marketable title". According to the Oklahoma Title Examination Standards, which apply equally to surface and mineral title, with limited exceptions, marketable title is:
1.1 MARKETABLE TITLE DEFINED "A marketable title is one free from apparent defects, grave doubts and litigious uncertainty, and consists of both legal and equitable title fairly deducible of record.
2. EXAMINING FOR SURFACE TITLE According to the Oklahoma Attorney General, only a licensed attorney can issue an
“opinion on the marketability of title” regarding title to real estate. This issue arose during the process of interpreting the Oklahoma Statute requiring the examination of a duly-certified abstract of title before a title insurance policy can be issued. 36 O.S. § 5001 (C) provides:
Every policy of title insurance or certificate of title issued by any company authorized to do business in this state shall be countersigned by some person, partnership, corporation or agency actively engaged in the abstract of title business in Oklahoma as defined and provided in Title 1 or by an attorney licensed to practice in the State of Oklahoma duly appointed as agent of a title insurance company, provided that no policy of title insurance shall be issued in the State of Oklahoma except after examination of a duly-certified abstract of title prepared by a bonded and licensed abstractor as defined herein. (underlining added).
The Attorney General opined (1983 OK AG 281, ¶6-7) as follows:
5 Your second question raises the issue of whether the title examination for purposes of issuing a title policy must be done by a licensed attorney. A previous opinion of the Attorney General held:
"All such examinations of abstract .. . shall be conducted by a licensed attorney prior to issuance of the policy of title insurance." A.G. Opin. No. 78-151 (June 6, 1978).
This opinion was based on the assertion that a title insurance policy "expresses an opinion as to the marketability of title." A.G. Opin. No. 78-151, supra. In reality, title insurance simply insures the policyholder against defects in the title. It does not express an opinion that the title is marketable. Land Title Company of Alabama v. State ex rel. Porter, 299 So.2d 289,295 (Ala.1974). While the rationale of the previous opinion is incorrect, we adhere to the conclusion expressed in that opinion that the examination of the abstract pursuant to 36 O.S. 5001(C) (1981) must be done by a licensed attorney. We reach this conclusion because the examination required by statute would only be useful if the examiner expressed an opinion on the marketability of the title. This constitutes the practice of law by the examiner. Land Title Company of Alabama v. State ex rel . Porter, supra at 295; Kentucky State Bar Association v. First Federal Savings & Loan, 342 S.W.2d 397 (Ky.App. 1961). The theory that the corporation is actually examining the title for itself through an agent or employee and thus not engaged in the practice of law is invalid since laypersons or nonprofessionals cannot perform legal services for their employers. Kentucky State Bar Association v. Tussey, 476 S.W.2d 177 (Ky.App. 1972). There is no prohibition, however, against licensed staff attorneys furnishing title opinions for the company as long as these opinions are not sold or given to third parties. The Florida Bar v. McPhee, 195 So.2d 552 (Fla. 1967); Steer v. Land Title Guarantee & Trust Co., 113 N.E.2d 763 (Ohio Com.Pl. 1953). (underlining added)
36 O.S. § 5001 was amended, effective July 2007, to specifically require the examination
described in that Section to be conducted by a licensed Oklahoma attorney, thereby prohibiting
laymen and non-Oklahoma licensed attorneys from undertaking title exams for title insurance
purposes.
3. EXAMINING FOR MINERAL TITLE
If proceeds from the sale of oil or gas production are being held up due to an allegedly unmarketable title the Production Revenue Standards Act (52 O.S. §§570.1 to 570.15) is applicable and provides:
6 D. 1. Except as otherwise provided in paragraph 2 of this subsection, where proceeds from the sale of oil or gas production or some portion of such proceeds are not paid prior to the end of the applicable time periods provided in this section, that portion not timely paid shall earn interest at the rate of twelve percent (12%) per annum to be compounded annually, calculated from the end of the month in which such production is sold until the day paid.
2. a. Where such proceeds are not paid because the title thereto is not marketable, such proceeds shall earn interest at the rate of six percent (6%) per annum to be compounded annually, calculated from the end of the month in which such production was sold until such time as the title to such interest becomes marketable. Marketability of title shall be determined in accordance with the then current title examination standards of the Oklahoma Bar Association.
b. Where marketability has remained uncured for a period of one hundred twenty (120) days from the date payment is due under this section, any person claiming to own the right to receive proceeds which have not been paid because of unmarketable title may require the holder of such proceeds to interplead the proceeds and all accrued interest into court for a determination of the persons legally entitled thereto. Upon payment into court the holder of such proceeds shall be relieved of any further liability for the proper payment of such proceeds and interest thereon.
Also see: Hull, et al. v. Sun Refining, 789 P.2d 1272 (Okla. 1990) ("Marketable title is determined under §540 [now §570.10] pursuant to the Oklahoma Bar Association's title examination standards.").
Consequently, in order to help determine whether there will be a double penalty on withheld proceeds, the examiner will have the duty to evaluate title based on whether there is
"marketable title".
[See: Article #274 at www.eppersonlaw.com: “'Defensible Title' When Examining Oil and Gas
Interests: An Overview of the Law In Oklahoma, AND Oklahoma Severed Mineral Minerals
Affidavit of Heirship"]
B. LIABILITY OF TITLE EXAMINERS TO NON-CLIENTS
While there is no foolproof way to avoid liability to non-clients, it is usually a good
7 practice to have both the inside address of the title opinion (i.e., the addressee) and some clear limiting language, elsewhere in the opinion, expressly designate the sole person or company expected to rely on the opinion.
However, even where the opinion is addressed to a specific person or entity, it is possible that, due to the particular circumstances surrounding the transaction, the attorney who is representing one party, such as the lender -- and rendering an opinion directed solely to that lender -- might be held to be liable to the opposing party, such as the borrower, as well.
As noted in an Oklahoma case considered by the 10th Circuit U.S. Court of Appeals,
Vanguard Production, Inc. v. Martin, 894 F.2d 375 (10th Cir. 1990):
The Oklahoma Supreme Court replied that the pledgee's complaints stated a cause of action under Oklahoma law. Privity of contract does not apply to tort actions under Oklahoma law. See Keel v. Titan Constr. Corp., 639 P.2d 1228, 1232 (Okla. 1981). The Bradford court stated that to determine an attorney's negligence the jury must determine whether the attorney's conduct was "the conduct of an ordinarily prudent man based upon the dangers he should reasonably foresee TO THE PLAINTIFF OR ONE IN HIS POSITION in view of all the circumstances of the case such as to bring the plaintiff within the orbit of defendant's liability." Id. at 191 (emphasis in original).
*** In our view a contract for legal services is a contract for services giving rise to the duty of workmanlike performance. The record in this case reveals extensive communications between the attorneys [for the lender], Martin and Morgan, and the purchaser, Vanguard [the borrower], concerning the [lender’s] title opinion. The record also shows that all parties, including Martin, Morgan, [the borrower] Vanguard, and [the lender] Glenfed, were concerned about the Texas Rose Petroleum suit. Thus, we find that an ordinarily prudent attorney in the position of the defendants would reasonably have apprehended that[the borrower] Vanguard was among the class of nonclients which, as a natural and probable consequence of the attorneys' actions in preparing the title opinion for Glenfed, could be injured. Thus, we hold that the defendants owed a duty of ordinary care, Bradford, 653 P.2d at 190, and workmanlike performance, Keel, 639 P.2d at 1231, to Vanguard in the performance of their contract for legal services with
8 Glenfed. We stress that our holding only addresses the question of the duty of the defendants owed to Vanguard and not the question of whether Martin's, Morgan's and Ames, Ashabranner's acts were the proximate cause of Vanguard's injuries. See Bradford, 653 P.2d at 190-91; Keel, 639 P.2d at 1232. (underlining added)
An interesting Oklahoma Court of Appeals case was decided in 1991, American Title Ins. v. M-H Enterprises, 815 P.2d 1219 (Okl. App. 1991). Therein it was held that a buyer of real property can sue (i.e., via counter claim) the title insurer for negligence in the preparation of a title policy, even if the title insurance policy was issued only in favor of the buyer's lender. This rule was applied where: (1) no abstract was prepared, (2) an attorney's title examination was not undertaken, and (3) the insurer/abstractor missed a recorded first mortgage. The facts of the case showed that, after the buyer/borrower lost the house through a foreclosure of the missed first mortgage, the insurer paid the insured second mortgage holder to settle under the terms of the title insurance policy and had such lender assign the worthless second note and mortgage to the insurer. The insurer then sued the buyer/borrower under the warranty of title in the second mortgage. The appellate court held that while the buyer/borrower was not a named insured, the insurer’s own negligence (i.e., no abstract and no examination) caused the loss, and that the insurer did not buy the note and mortgage as a holder in due course, because (1) no value was paid for the acquisition of the note and mortgage (i.e., the payment was to settle its obligations under the policy) and (2) the note and mortgage were already in default when the insurer took an assignment of them.
The message in these two cases appears to be that a party that conducts either the examination or insures the title, can be held liable for an error in such effort to a third party. This is true even where the title examiner and title insurer had not expressly entered into any contractual relationship with such third party. Based upon these two cases, it appears that this
9 liability might arise even where the attorney or insurer specifically directed his opinion or policy to only one of the multiple participants in the transaction.
C. STATUTE OF LIMITATIONS ON TITLE OPINIONS
In terms of the nature of (i.e., tort vs. contract), and the statute of limitations on, attorneys' errors in examination of title, it should be noted that in 1985 the Oklahoma Supreme
Court held:
In Oklahoma, an action for malpractice, whether medical or legal, though based on a contract of employment, is an action in tort and is governed by the two-year statute of limitations at 12 O.S.A. 1981, § 95 Third. (Seanor v. Browne, 154 Okl. 222, 7 P.2d 627 (1932)). This limitation period begins to run from the date the negligent act occurred or from the date the plaintiff should have known of the act complained of. (McCarroll v. Doctors General Hospital, 664 P.2d 382 (Okl. 1983)). The period may be tolled, however, by concealment by the attorney of the negligent acts which injured the client. This Court has previously held, in Kansas City Life Insurance Co. v. Nipper, 174 Okl. 634, 51 P.2d 741 (1935) that:
One relying on fraudulent concealment to toll the statute of limitation must not only show that he did not know facts constituting a cause of action, but that he exercised reasonable diligence to ascertain such facts.
(underlining added)
(Funnell v. Jones, 1985 OK 73, 737 P.2d 105
However, in 1993 the Oklahoma Supreme Court "clarified" its holding in Funnell by declaring:
Appellees argue the instant case should be controlled by Funnell v. Jones, 737 P.2d 105 (Okla. 1985), cert. denied, 484 U.S. 853, 108 S.Ct. 158, 98 L.Ed.2d 113 (1987), a case where we applied the two year tort limitation period to a legal malpractice case. Appellees' reliance on Funnell is misplaced. The opinion in Funnell gives no indication a separate contract theory was alleged there or that the plaintiffs there attempted to rely on the three year limitation period for oral contracts. Thus, our statement in Funnell to the effect an action for malpractice,
10 whether legal or medical, though based on a contract of employment, is an action in tort, must be taken in the context it was made, to wit: determining whether the two year limitation for torts was tolled based on allegations of fraudulent concealment on the part of defendant attorneys and that no acts alleged against defendants occurred within the two years immediately preceding filing of the lawsuit. Id. at 107-108. We did not decide in Funnell a proceeding against a lawyer or law firm is limited only to a proceeding based in tort no matter what the allegations of a petition brought against the lawyer or law firm. We have never so held and, in fact, to so rule would be tantamount to treating lawyers differently than we have treated other professions, something we refuse to do.
We have held a party may bring a claim based in both tort and contract against a professional and that such action may arise from the same set of facts. Flint Ridge Development Company, Inc. v. Benham-Blair and Affiliates, Inc., 775 P.2d 797, 799-801 (Okla. 1989) (architectural, engineering and construction supervision services). In essence, the holding of Flint Ridge is if the alleged contract of employment merely incorporates by reference or by implication a general standard of skill or care which a defendant would be bound independent of the contract a tort case is presented governed by the tort limitation period. Id. at 799-801. However, where the parties have spelled out the performance promised by defendant and defendant commits to the performance without reference to and irrespective of any general standard, a contract theory would be viable, regardless of any negligence on the part of a professional defendant. Id. As pertinent here, the specific promise alleged or reasonably inferred from the petition and documents attached thereto was to search the records of the County Clerk for an approximate nine (9) year period and report those records on file affecting the title for loan purposes. Simply, if this was the promised obligation a contractual theory of liability is appropriate which is governed by the three year limitation period applicable to oral contracts. (underlining added)
(Great Plains Federal Savings & Loan v. Dabney, 1993 OK 4, 846 P.2d 1088)
[See: Article #227 at www.eppersonlaw.com: “The Elusive Legal Malpractice Statute of Limitations for Attorney Title Opinions.”]
II. UNDERSTANDING STANDARDS
A. BACKGROUND AND AUTHORITY OF STANDARDS The first set of Statewide Standards was adopted in 1938 by the Connecticut Bar
Association. On November 16, 1946 the General Assembly and House of Delegates of the
11 Oklahoma Bar Association ("OBA") approved 21 Title Examination Standards ("Standards") for the first time in state history. 17 O.B.J. 1751. Of these 21, there were 10 without any specific citation of authority expressly listed. There are currently over 100 Standards in Oklahoma, and about 13 of these have no specific citation of authority (i.e., no citation of supporting Oklahoma statutes or case law).
In Oklahoma, new and revised Standards are developed and considered each year at 9 monthly Title Examination Standards Committee ("Standards Committee") meetings held from
January to September. These proposals are then presented annually by the Standards Committee to the OBA Real Property Law Section ("Section") at the Section's annual meeting, usually held in November of each year. Immediately thereafter, the Section forwards to the OBA House of
Delegates ("House"), for the House's consideration and approval, on the day following the
Section meeting, any new or revised Standards which were approved at the Section's meeting.
All Oklahoma Supreme Court opinions are binding and must be followed by all trial court judges, meaning that such decisions are “precedential”. However, an opinion of one of the multiple intermediate 3-judge panels of Courts of Civil Appeals is only “persuasive” on future trial judge’s decisions, and not binding.
Oklahoma’s set of Standards have received acceptance from the Oklahoma Supreme
Court which has held:
While [the Oklahoma] Title Examination Standards are not binding upon this Court, by reason of the research and careful study prior to their adoption and by reason of their general acceptance among members of the bar of this state since their adoption, we deem such Title Examination Standards and the annotations cited in support thereof to be persuasive. (underlining added)
Knowles v. Freeman, 1982 OK 89, 649 P.2d 532
12 However, it should be noted that "It is, therefore, the opinion of the Attorney General that where there is a conflict between a title examination standard promulgated by the Oklahoma Bar
Association and the Oklahoma Statutes, the statutory provisions set out by the Legislature shall prevail." Okl. A.G. Opin. No. 79-230.
B. IMPETUS FOR STANDARDS: PROBLEMS WITH SEEKING PERFECT TITLE
In the title examination process the necessary negative approach of looking for a defect, whether substantive or merely a technical one, can cause the system to bog down. If there is more than a single title examiner within a community, there is also the possibility of there being a wide range of examination attitudes resulting in differing conclusions as to the adequacy of the title.
The problems resulting from this quest for perfect title can impact the examiner and his clients in several ways:
1. The legal fees charged to the public are higher because each examination for a parcel must always go back all the way to sovereignty (or, in some states, back to the root of title);
2. The costs to cure minor defects are often relatively large compared to the risk being extinguished;
3. The unexpected costs to remedy problems already existing when the vendor came into title, which were waived by the vendor's attorney, are certainly not welcomed by the public; and
4. The prior examiner looks inept and/or the subsequent examiner looks unreasonable, when a preexisting defect is waived by one attorney and "caught" by the next.
(John C. Payne, "The Why, What and How of Uniform Title Standards", 7
Ala.L.Rev. 25 (1954) (herein "The Why of Standards")).
13 In addition, friction and lowering of professional cooperation increase between the title examining members of the bar as they take shots at each other’s work. This process of adopting an increasingly conservative and cautious approach to examination of titles creates a downward spiral. As noted in Bayse:
Examiners themselves are human and will react in different ways to the same factual situation. Some are more conservative than others. Even though one examiner feels that a given irregularity will not affect the marketability of a title as a practical matter, he is hesitant to express his opinion of marketability when he knows that another examiner in the same community may have occasion to pass upon the title at a later time and would undoubtedly be more conservative and hold it to be unmarketable. Under these circumstances he is inclined to be more conservative himself and declare the title to be unmarketable. People do not like to be required to incur expense and effort to correct defects which do not in a practical sense jeopardize a title when they have already been advised that their title is marketable. The public becomes impatient with a system that permits such conservative attitudes.
If the same examiner passed judgment upon all title transactions, this situation would remain dormant. Unfortunately such is not the case. Or if all examiners would hold the same opinion as to specific irregularities in titles, this complication would not arise. But this also is not the case. The result in many communities has been greatly depressive, sometimes tragic. (underlining added)
(Bayse: §7. Real Estate Standards)
Over the years, since 1938, a total of 31 States have adopted statewide sets of Standards.
Of these, there are currently 19 States which have sets of Standards which have been updated in the last 5 years. In the not too distant past, 4 States have adopted their first sets of Standards including: Vermont (1995), Arkansas (1995), Texas (1997) and Louisiana (2001).
[See the National Title Examination Standards Resource Center Report, and my web site at www.eppersonlaw.com for more details on the status of Standards in other States.]
C. TITLE EXAMINATION EXPECTATIONS
14 The following Oklahoma title examination standards show the expected attitudes and goals of an attorney examining titles to real property.
1. 1.1 MARKETABLE TITLE DEFINED
A marketable title is one free from apparent defects, grave doubts and litigious uncertainty, and consists of both legal and equitable title fairly deducible of record.
Cross Reference: See Standard 30.1.
Authority: Pearce v. Freeman, 122 Okla. 285, 254 P. 719 (1927); Campbell v. Harsh, 31 Okla. 436, 122 P. 127 (1912); Empire Gas & Fuel Co. v. Stern, 15 F.2d 323 (8th Cir. 1926); Sipe v. Greenfield, 116 Okla. 241, 244 P. 424 (1926); McCubbins v. Simpson, 186 Okla. 417, 98 P.2d 49 (1939); Hawkins v. Wright, 204 Okla. 955, 226 P.2d 957 (1951).
Comment: Marketable title is a title free of adverse claims, liens and defects that are apparent from the record. Any objections should be reasonable and not based on speculation. For purposes of this definition, words describing the quality of title such as perfect, merchantable, marketable and good, mean one and the same thing.
2. 1.3 REFERENCE TO TITLE STANDARDS
It is often practicable and highly desirable that, in substance, the following language be included in contracts for a sale of real estate: ”It is mutually understood and agreed that no matter shall be construed as an encumbrance or defect in title so long as the same is not so construed under the real estate title examination standards of the Oklahoma Bar Association where applicable.”
3. 1.4 REMEDIAL EFFECT OF CURATIVE LEGISLATION
Statutes enacted for the purpose of curing irregularities or defects in titles are valid and effective from the effective date of each statute; and in particular:
A. Every statute is presumed to be valid and constitutional and binding on all parties as of the effective date of each statute. This presumption continues until there is a judicial determination to the contrary.
Authority: 16 C.J.S. Constitutional Law § 99; Tate v. Logan, 362 P.2d 670 (Okla. 1961); Swanda v. Swanda, 207 Okla. 186, 248 P.2d 575 (1952).
B. Curative statutes that complete imperfect transactions, and statutes of limitation and adverse possession that bar stale demands or ancient rights, are also presumed to be
15 constitutional.
Authority: 53 C.J.S. Limitation of Actions § 2; Shanks v. Sullivan, 202 Okla. 71, 210 P.2d 361 (1949).
C. The presumption of constitutionality extends to and includes the Simplification of Land Titles Act, the Marketable Record Title Act, the Limitations on Power of Foreclosure Act and legislation of like purpose.
Authority: 16 O.S. §§ 61-63, 66, 71-80; 46 O.S. § 301; Okla. Atty. Gen. Op., No. 67- 444 (March 21, 1968), reprinted 39 O.B.A.J. 593 (1968); L. Simes, The Improvement of Conveyancing: Recent Developments, 34 O.B.A.J. 2357 (1963)
III. CURATIVE TITLE EXAMINATION STANDARDS
A. CURATIVE ACT: MARKETABLE RECORD TITLE ACT
TITLE EXAMINATION STANDARD: CHAPTER 30. MARKETABLE RECORD TITLE ACT
30.1 REMEDIAL EFFECT
The Marketable Record Title Act is remedial in character and should be relied upon as a cure or remedy for such imperfections of title as fall within its scope.
Authority: Marketable Record Title Act, 16 O.S. §§ 71-80; L. Simes & C. Taylor, Model Title Standards, Standard 4.1 at 24 (1960); P. Basye, Clearing Land Titles §§ 186 & 574 (2d ed. 1970); J. Palomar, Patton & Palomar on Land Titles § 563 (3d ed. 2003); L. Simes & C. Taylor, The Improvement of Conveyancing by Legislation 253 (1960); L. Simes, The Improvement of Conveyancing: Recent Developments, 34 O.B.A.J. 2357 (1963); “Comment,” Oklahoma Title Standard, 29.1. The following cases sustain the constitutionality of marketable title acts: Bennett v. Whitehouse, 690 F. Supp. 955 (W.D. Okla.1988) (MRTA is constitutional and self executing; rejecting Anderson v. Pickering, 541 P.2d 1361 (Okla. App. 1975)); Presbytery of Southeast Iowa v. Harris, 226 N.W. 2d 232 (Iowa 1975), certiorari denied 423 U.S. 830, 96 S. Ct. 50, 46 L.Ed.2d 48 (1975) (statute does not unconstitutionally deprive vested rights); Wichelman v. Messner, 250 Minn. 88, 83 N.W.2d 800 (1957) (Marketable Title Act constitutional; notice and quiet title action not required to invoke the statute); Lane v. Travelers Ins. Co., 230 Iowa 973, 299 N.W. 553 (1941); Annot., “Marketable Title Statutes”, 71 A.L.R.2d 846 (1960); Opinion No. 67-444 of the Attorney General of Oklahoma, dated March 21, 1968, 39 O.B.A.J. 593; 595 (1968).
Similar standards: Ill., 22; Iowa, 10.1; Mich., 1.1; Minn., 61; Nebr., 42; N.D. 1.13; S.D., 34; Wis., 4.
16 Caveat: A previous caveat to this standard expressed the possibility that the federal courts might consider the Marketable Record Title Act to be a statute of limitations within the meaning of § 2 of the Act of April 12, 1926, 44 Stat. 239. If those courts should so hold, then the Marketable Record Title Act's provisions could be relied upon to have barred remedies to protect interests held by restricted Indians of the Five Civilized Tribes.
The Oklahoma Supreme Court held in Mobbs v. City of Lehigh, 655 P.2d 547, 551 (Okla. 1982) that the Marketable Record Title Act was not a statute of limitations. The Court said that, unlike a statute of limitations which barred the remedy, the Marketable Record Title Act had as its target the right itself.
30.2 REQUISITES OF MARKETABLE RECORD TITLE
A Marketable Record Title under the Marketable Record Title Act exists only where
(1) a person has an unbroken chain of title of record extending back at least thirty (30) years; and
(2) nothing appears of record purporting to divest such person of title.
Note: See next two standards for a further statement regarding these two requirements
Authority: 16 O.S. §§ 71 & 72; L. Simes & C. Taylor, Model Title Standards, Standard 4.2, at 24 (1960). See 16 O.S. §§ 71, 72, 74 & 78 as to law which became effective on July 1, 1972.
Similar Standard: Mich., 1.2.
30.3 UNBROKEN CHAIN OF TITLE OF RECORD
“An unbroken chain of title of record”, within the meaning of the Marketable Record Title Act, may consist of (1) A single conveyance or other title transaction which purports to create an interest and which has been a matter of public record for at least thirty (30) years; or (2) A connected series of conveyances or other title transactions of public record in which the root of title has been a matter of public record for at least thirty (30) years.
Authority: 16 O.S. § 71(a) & (b); L. Simes & C. Taylor, Model Title Standards, Standard 4.3, at 25 (1960).
Similar Standard: Mich., 1.3.
Comment: Assume A is the grantee in a deed recorded in 1975 and that nothing affecting the described land has been recorded since then. In 2005 A has an “unbroken
17 chain of title of record.” Instead of a conveyance, the title transaction may be a decree of a district court or court of general jurisdiction, which was entered in the court records in 1975. Likewise, in 2005, A has an “unbroken chain of title of record.”
Instead of having only a single link, A's chain of title may contain two or more links. Thus, suppose X is the grantee in a deed recorded in 1975; and X conveyed to Y by deed recorded in 1985; Y conveyed to A by deed recorded in 2000. In 2005 A has an “unbroken chain of title of record.” Any or all of these links may consist of decrees of a district court or court of general jurisdiction instead of deeds of conveyance.
The significant time from which the thirty-year record title begins is not the delivery of the instrument, but the date of its recording. Suppose the deed to A is delivered in 1975 but recorded in 1985. A will not have an “unbroken chain of title of record” until 2015. Decrees of a court in a county other than where the land lies do not constitute a root of title until recorded in the county in which the land lies.
For a definition of “root of title” see Marketable Record Title Act, 16 O.S. § 78(e).
30.4 MATTERS PURPORTING TO DIVEST
Matters “purporting to divest” within the meaning of the Marketable Record Title Act are those matters appearing of record which, if taken at face value, warrant the inference that the interest has been divested.
Authority: 16 O.S. § 72(d); L. Simes & C. Taylor, Model Title Standards, Standard 4.4, at 26-27 (1960).
Similar Standard: Mich., 1.4.
Comment: The obvious case of a recorded instrument purporting to divest is a conveyance to another person. A is the grantee in a deed recorded in 1965. The record shows a conveyance of the same tract by A to B in 1975. Then B deeds to X in 2007. Although B had a thirty-year record chain of title in 1995, the deed to X purports to divest it, and B, thereafter, does not have a title.
A recorded instrument may also purport to divest even though there is not a complete chain of record title connecting the grantee in the divesting instrument with the thirty-year chain. Suppose A is the last grantee in a recorded chain of title, the last deed of which was recorded in 1975. A deed of the same land was recorded in 1985, from X to Y, which recites that A died intestate in 1981 and that X is A's only heir. There is nothing else on record indicating that X is A's heir. The deed recorded in 1985 is one “purporting to divest” within the terms of the Act. This is the conclusion to be reached whether the recital of heirship is true or not. Or suppose, again, that A is the last grantee in a chain of title, the last deed of which was recorded in 1965. A deed to the same land from X to Y was recorded in 1975,
18 which contains the following recital: “being the same land heretofore conveyed to me by A.” There is no instrument on record from A to X. This instrument is nevertheless one “purporting to divest” within the terms of the Act.
Suppose that in 1975, A was the last grantee in a recorded chain of title, the deed to A being recorded in that year. A deed of the same land was recorded in 1985, signed: “A by B, attorney-in-fact.” Even though there is no power of attorney on record, and even though the recital is untrue, the instrument is one “purporting to divest” within the terms of the Act.
Suppose that A is the last grantee in a recorded chain of title, the last deed of which was recorded in 1935. In 1975 there was recorded a deed to Y from X, a stranger to the title, which recited that X and X's predecessors have been “in continuous, open, notorious and adverse possession of said land as against all the world for the preceding thirty years.” This is an instrument “purporting to divest” A of A's interest, within the terms of the Act.
On the other hand, an inconsistent deed on record, is not one “purporting to divest” within the terms of the Act, if nothing on the record purports to connect it with the thirty-year chain of title. The following fact situations illustrate this.
A is the last grantee in a recorded chain of title, the last deed of which was recorded in 1965. A warranty deed of the same land from X to Y was recorded in 1975. The latter deed is not one “purporting to divest” within the terms of the Act.
A is the last grantee in a recorded chain of title, the last deed of which was recorded in 1965. A mortgage from X to Y of the same land, containing covenants of warranty, is recorded in 1975. The mortgage is not an instrument “purporting to divest” within the terms of the Act.
Although the recorded instruments in the last two illustrations are not instruments “purporting to divest” the thirty-year title, they are not necessarily nullities. The marketable record title can be subject to interests, if any, arising from such instruments, 16 O.S. § 72(d).
Authority: 16 O.S. § 72(a) & (d); L. Simes & C. Taylor, Model Title Standards, Standard 4.6, at 28-29 (1960).
Similar Standard: Mich., 1.8.
Comment: This standard is explainable by the following illustrations: 1. In 1975, a deed was recorded conveying land from A, the owner in fee simple absolute, to “B and B's heirs so long as the land is used for residence purposes,” thus creating a determinable fee in B and reserving a possibility of reverter in A. In 1985, a deed was recorded from B to C and C's heirs “so long as the land is used for residence purposes, this conveyance being subject to a possibility of reverter in A.” In 2005, C has
19 a marketable record title to a determinable fee which is subject to A's possibility of reverter. 2. Suppose, however, that, in 1975, a deed was recorded conveying a certain tract of land from A, the owner in fee simple absolute, to “B and B's heirs so long as the land is used for residence purposes”; and suppose, also, that in 1978 a deed was recorded by B to C and C's heirs, conveying the same tract in fee simple absolute, in which no mention was made of any special limitation or of A's possibility of reverter. There being no other instruments of record in 2008, C has a marketable record title in fee simple absolute. C's root of title is the deed from B to C and not the deed from A to B; and there are no interests in third parties or defects created by the “muniments of which such chain of record title is formed.”
A general reference to interests prior to the root of title is not sufficient unless specific identification is made to a recorded title transaction, 16 O.S. § 72(a).
30.6 FILING OF NOTICE
A marketable record title is subject to any interest preserved by filing a notice of claim in accordance with the terms of Sections 74 and 75 of the Marketable Record Title Act.
Authority: 16 O.S. §§ 74 & 75; L. Simes & C. Taylor, Model Title Standards, Standard 4.7 at 29-30 (1960).
Comment: Suppose A was the grantee in a chain of record title of a tract of land, a deed to which was recorded in 1960. In 1962, a mortgage of the same land from A to X was recorded. In 1966, a mortgage of the same land from A to Y was recorded. In 1978, a deed of the same land from A to B in fee simple absolute was recorded, which made no mention of the mortgages. In 2007, Y recorded a notice of Y's mortgage, as provided in Sections 74 and 75 of the Act. X did not record any notice. In 2008, B had a marketable record title, which is subject to Y's mortgage, but not to X's mortgage. B's root of title is the 1978 deed. Therefore, X and Y had until 2008 to record a notice for the purpose of preserving their interests. If X had filed a notice after 2008, it would have been a nullity, since X's interest was already extinguished.
The filing of a notice may be a nullity not only because it comes too late, but also because it concerns a subject matter not within the scope of the statute. Thus, recorded notices of real estate commissions claimed or other charges which do not constitute liens on the property have no effect under the Act, 16 O.S. § 72(b).
30.7 THIRTY-YEAR POSSESSION IN LIEU OF FILING NOTICE
If an owner of a possessory interest in land under a recorded title transaction (1) has been in possession of such land for a period of thirty (30) years or more after the recording of such instrument, and (2) such owner is still in possession of the land, any
20 Marketable Record Title, based upon an independent chain of title, is subject to the title of such possessory owner, even though such possessory owner has failed to record any notice of such possessory owner's claim.
Authority: 16 O.S. §§ 72(d) & 74(b); L. Simes & C. Taylor, Model Title Standards, Standard 4.8, at 30-31 (1960).
Comment: The kind of situation which gives rise to this standard is suggested by the following illustration. A was the last grantee in a chain of record title to a tract of land, by a deed recorded in 1975. There were no subsequent instruments of record in this chain of title. A has been in possession of the land since 1975 and continues in possession, but has never filed any notice as provided in Section 74 of the Marketable Record Title Act. A deed of the same land, unconnected with A's chain of title, from X to Y, was recorded in 1976; no other instruments with respect to this land appearing of title. On the other hand, A had a marketable record title in 2005, but in 2006, according to Section 72(d), it is subject to Y's marketable record title. Thus, the relative rights of A and of Y are determined independently of the Act, since the interest of each is subject to the other's deed. A's interest being prior in time, and Y's deed being merely a “wild deed,” under common law principles A's title should prevail.
Under 16 O.S. § 74(b), possession cannot be “tacked” to eliminate the necessity of recording a notice of claim.
30.8 EFFECT OF ADVERSE POSSESSION
A marketable record title is subject to any title by adverse possession which accrues at any time subsequent to the effective date of the root of title, but not to any title by adverse possession which accrued prior to the effective date of the root of title.
Authority: 16 O.S. §§ 72(c) & 73; L. Simes & C. Taylor, Model Title Standards, Standard 4.9, at 31 (1960).
Comment: (Assume the period for title by adverse possession is 15 years.) 1. A is the grantee of a tract of land in a deed which was recorded in 1950. In the same year, X entered into possession claiming adversely to all the world and continued such adverse possession until 1966. In 1967, a deed conveying the same land from A to B was recorded. No other instruments concerning the land appearing of record, B has a marketable record title in 1997, which extinguished X's title by adverse possession acquired in 1965. 2. Suppose A is the grantee of a tract of land in a deed which was recorded in 1965. In 1991, X entered into possession claiming adversely to all the world and continued such adverse possession until the present time. No other instruments concerning the land appearing of record in 1995, A had a marketable record title, but it was subject to X's adverse possession and when X's period for title by adverse possession
21 was completed in 2006, A's title was subject to X's title by adverse possession.
30.9 EFFECT OF RECORDING TITLE TRANSACTION DURING THIRTY-YEAR PERIOD
The recording of a title transaction subsequent to the effective date of the root of title has the same effect in preserving any interest conveyed as the filing of the notice provided for in Section 74 of the Act.
Authority: 16 O.S. § 72(d); L. Simes & C. Taylor, Model Title Standards, Standard 4.10, at 32-33 (1960).
Comment: This standard is operative both where there are claims under a single chain of title and where there are two or more independent chains of title. The following illustrations show how it operates . 1. Suppose A is the grantee of a tract of land in a deed which was recorded in 1960. A mortgage of this land executed by A to X was recorded in 1965. In 1970, a deed conveying the land from A to B was recorded, this deed making no reference to the mortgage to X. In 1999, an instrument assigning X's mortgage to Y was recorded. In 2000, B had a marketable record title. But it was subject to the mortgage held by Y because the assignment of the mortgage was recorded less than thirty years after the effective date of B's root of title. If, however, Y had recorded the assignment in 2001 the mortgage would already have been extinguished in 2000 by B's marketable title; and recording the assignment in 2001 would not revive it.
2. Suppose a tract of land was conveyed to A, B and C as tenants in common, the deed being recorded in 1960. Then in 1965, A and B conveyed the entire tract in fee simple to D and the deed was at once recorded. In 1985, D conveyed to E in fee simple, and the deed was at once recorded. No mention of C's interest was made in either the 1965 or 1985 deeds. Nothing further appearing of record, E had a marketable record title to the entire tract in 1995. This extinguished C's undivided one-third interest. 3. Suppose the same facts, but assume also that, in 1996, C conveyed C's one- third interest to X in fee simple, the deed being at once recorded. This does not help C any. C's interest, having been extinguished in 1995, is not revived by this conveyance. 4. Suppose A, being the grantee in a regular chain of record title, conveyed to B in fee simple in 1960, the deed being at once recorded. Then, in 1965, X, a stranger to the title, conveyed to Y in fee simple, and the deed was at once recorded. In 1985, Y conveyed to Z in fee simple, and the deed was at once recorded. Then suppose in 1987 B conveyed to C in fee simple, the deed being at once recorded In 1995, Z and C each has a marketable record title, but each is subject to the other. Hence, neither extinguishes the other, and the relative rights of the parties are determined independently of the Act. C's title, therefore, should prevail.
22 5. Suppose, however, that the facts were the same except that B conveyed to C in 1997 instead of 1987. In that case, Z's marketable record title extinguished B's title in 1995, thirty years after the effective date of Z's root of title, and B's title is not revived by the conveyance in 1997.
30.10 QUITCLAIM DEED OR TESTAMENTARY RESIDUARY CLAUSE IN THIRTY-YEAR CHAIN
A recorded quitclaim deed or residuary clause in a probated will can be a root of title or a link in a chain of title, for purposes of a thirty-year record title under the Marketable Record Title Act.
Authority: 16 O.S. §§ 71 & 78(e) & (f); L. Simes & C. Taylor, Model Title Standards, Standard 4.11, at 33-34 (1960).
Related Standards: Mich., 1.3; Neb., 52.
Comment: The Marketable Record Title Act defines “root of title” as a title transaction “purporting to create the interest claimed.” See section 78(e). ”Title transaction” is defined to include a variety of transactions, among which are title by quitclaim deed, by will and by descent See Section 78(f). A quitclaim deed can be a root of title to the interest it purports to create. Suppose there is a break in the chain of title, and the first instrument after the break is a quitclaim deed. Assume that the first recorded instrument in the chain of title is a patent from the United States to A, recorded in 1890, and that the next is a warranty deed from A to B in fee simple, recorded in 1940. Then, in 1975, there is a quitclaim deed from C to D purporting to convey “the above described land” to D in fee simple. Further assume that there are no other recorded title transactions or notices after this deed and that D is in possession, claiming to be the owner in fee simple. Under the Marketable Record Title Act, the 1975 deed is the root of title and purports to create a fee simple in D. Therefore, in 2005, D has a good title in fee simple.
Clearly the quitclaim deed can be a link in a chain of record title under the provisions of the Act. See sections 71 and 78(f). If it can be an effective link, it must necessarily follow that it can be an effective “root” to the interest it purports to create.
30.11 THIRTY-YEAR ABSTRACT
The Marketable Record Title Act has not eliminated the necessity of furnishing an abstract of title for a period in excess of thirty (30) years.
Authority: 16 O.S. § 76; L. Simes & C. Taylor, Model Title Standards, Standard 4.12, at 35 (1960). Similar Standard: Neb., 44.
23
Comment: Section 76 of the Act names several interests which are not barred by the Act, to-wit: the interest of a lessor as a reversioner; mineral or royalty interests; easements created by a written instrument; subdivision agreements; interests of the U.S., etc. These record interests may not be determined by an examination of the abstract for a period of no more than thirty (30) years. Furthermore, in all cases, the abstract must go back to the conveyance or other title transaction which is the “root of title”; and it will rarely occur that this instrument was recorded precisely thirty years prior to the present time. In nearly every case the period, from the recording of the “root of title” to the present, will be somewhat more than thirty (30) years.
30.12 EFFECTIVE DATE OF THE ACT
The Marketable Record Title Act became effective September 13, 1963. The two year period for filing notices of claim under Section 74 expired September 13, 1965. The Act was amended March 27, 1970, by reducing the forty (40) year period to thirty (30) years, effective July 1, 1972. If the thirty (30) year period expired prior to March 27, 1970, such period was extended to July 1, 1972, and notices of claim could be filed to and including that date.
Authority: As to the original “forty years” statute, 1963 Okla. Sess. Laws, ch. 31, §§ 4, 5 & 11. As to the present “thirty years” statute, 16 O.S. §§ 74 & 75 and 1970 Okla. Sess. Laws, ch. 92, § 7.
Comment: Remainders, long term mortgages and other non-possessory interests prior to the root of title should be reviewed to see if a notice of claim is required. Also, if the owner is out of possession and the owner has recorded no instruments or other title transactions during the preceding thirty (30) years, consideration should be given to filing a notice of claim.
Prior non-possessory interests may be preserved by reference in an instrument or other title transaction recorded subsequent to the root of title. But the reference must specifically identify a recorded transaction. A general reference is not sufficient, 16 O.S. § 72(a).
30.13 ABSTRACTING
Abstracting under the Marketable Record Title Act shall be sufficient when the following is shown in the abstract:
A. The patent, grant or other conveyance from the government.
B. The following title transactions occurring prior to the first conveyance or other title transaction in “C.” below: easements or interests in the nature of an easement; unreleased leases with indefinite terms such as oil and gas leases; unreleased leases with
24 terms which have not expired; instruments or proceedings pertaining to bankruptcies; use restrictions or area agreements which are part of a plan for subdivision development; any right, title or interest of the United States.
C. The conveyance or other title transaction constituting the root of title to the interest claimed, together with all conveyances and other title transactions of any character subsequent to said conveyance or other title transaction; or if there be a mineral severance prior to said conveyance or other title transaction, then the first conveyance or other title transaction prior to said mineral severance, together with all conveyances and other title transactions of any character subsequent to said conveyance or other title transaction.
D. Conveyances, title transactions and other instruments recorded prior to the conveyance or other title transaction in “C.” which are specifically identified in said conveyance or other title transaction or any subsequent instrument shown in the abstract.
E. Any deed imposing restrictions upon alienation without prior consent of the Secretary of the Interior or a federal agency, for example, a Carny Lacher deed.
F. Where title stems from a tribe of Indians or from a patent where the United States holds title in trust for an Indian, the abstract shall contain all recorded instruments from inception of title other than treaties except (1) where there is an unallotted land deed or where a patent is to a freedman or inter-married white member of the Five Civilized Tribes, in which event only the patent and the material under “B.”, “C.”, “D.” and “E.” need be shown, and (2) where a patent is from the Osage Nation to an individual and there is of record a conveyance from the allottee and a Certificate of Competency, only the patent, the conveyance from the allottee, the Certificate of Competency, certificate as to degree of blood of the allottee and the material under “B.”, “C.”, “D.” and “E.” need be shown. The abstractor shall state on the caption page and in the certificate of an abstract compiled under this standard: “This abstract is compiled in accordance with Oklahoma Title Standard No. 30.13 under 16 O.S. §§ 71-80.”
G. On September 18, 1996 the State Auditor and Inspector issued Declaratory Ruling 96-1, which prohibits abstractors from preparing abstracts under this standard after May 1, 1996. Abstracts, compiled and certified on or before May 1, 1996, may still be used as a base abstract when a separate supplemental abstract has been prepared.
Authority: 16 O.S. §§ 71-80, 46 O.S. § 203, and Oklahoma Title Examination Standard 24.7.
Comment: 1. The purpose of this standard is to simplify title examination and reduce the size of abstracts. 2. Deeds, mortgages, affidavits, caveats, notices, estoppel agreements, powers of attorney, tax liens, mechanic liens, judgments and foreign executions recorded prior to
25 the first conveyance or other title transaction in “C.” and not referred to therein or subsequent thereto and also probate, divorce, foreclosure, partition and quiet title actions concluded prior to the first conveyance or other title transaction in “C.” are to be omitted from the abstract. 3. Interests and defects prior to the first conveyance or other title transaction in “C.” are not to be shown unless specifically identified. The book and page of the recording of a prior mortgage is required to be in any subsequent deed or mortgage to give notice of such prior mortgage, 46 O.S. § 203 and Title Standard 24.7. Specific identification of other instruments requires either the book and page of recording or the date and place of recording or such other information as will enable the abstractor to locate the instrument of record. 4. Abstracting under this standard should also be in conformity with Title Standard 29.6.
30.14 FEDERAL COURT PROCEEDINGS
A. Pre-1958: For lands under examination which are located in any of the counties located in the multicounty jurisdiction of a federal district court, there must be a federal district court certificate covering from inception of title (i.e., Sovereignty) to August 19, 1958.
B. 1958-1977: For lands under examination which are located in the same county where the federal district court is located, there must be a federal district court certificate covering from August 20, 1958 to September 30, 1977.
C. Post-1977: For any lands under examination, there is no need for a separate federal district court certification for the period after September 30, 1977.
Comment: Although the 30-year Marketable Record Title Act (16 O.S. §§ 71 to 79) may eliminate the impact of some of the matters in the federal district court arising in the earlier period of time (i.e., pre-1977), the express exceptions to the extinguishing effect of the MRTA (e.g., “easements,” and “any right, title or interest of the United States”) cause such matters (such as judgments) to continue to impact the title in the present.
Authority: 12 O.S. §2004.2: (A); 16 O.S. §76(A); 28 U.S.C.A. §1964; Guaranty State Bank of Okmulgee v. Pratt, 1919 OK 120, 180 P. 376; Orton v. Citizens State Bank, 1929 OK 332, 291 P.15; Bowman v. Bowman, 1949 OK 70, 206 P.2d 582; Hart v. Pharoh, 1961 OK 45, 359 P.2d 1074; Mobbs v. City of Lehigh, 1982 OK 149, 655 P.2d 547; McClaskey v. Barr, 48 F. 130, 7 Ohio F. Dec. 55, (November 10, 1891); Stewart v. Wheeling & Lake Erie Ry., 53 Ohio St. 151, 41 N.E. 247 (1895); City of Mankato v. Barber Asphalt Paving Co., 142 F. 329 (Eighth Cir. 1905); United States v. Calcasieu Timber Co., 236 F. 196 (5th Cir. 1916); Wilkin v. Shell Oil Company, 197 F. 2d 42 (10 Cir. 1951); Tilton v. Cofield, 93 U.S. 163 (1876); Erie R.R. v. Thompkins, 304 U.S. 64 (1938); Astle, Dale L., 32 Oklahoma Law Review 812 (1979), “An Analysis of the
26 Evolution of Oklahoma Real Property Law Relating to Lis Pendens and Judgment Liens.”
B. SIMPLIFICATION OF LAND TITLES ACT
TITLE EXAMINATION STANDARD: CHAPTER 29. SIMPLIFICATION OF LAND TITLES ACT
29.1 REMEDIAL EFFECT
The Simplification of Land Titles Act, 16 O.S. §§ 61-63, 66 (§§ 64-65 repealed effective April 10, 1980), is remedial in character and should be relied upon with respect to such claims or imperfections of title as fall within its scope.
Authority: Lane v. Travelers Ins. Co., 230 Iowa 973, 299 N.W. 553 (1941); Wichelman v. Messner, 250 Minn. 88, 83 N.W.2d 800, 71 A.L.R.2d 816 (1957); L. Simes & C. Taylor, The Improvement of Conveyancing by Legislation 271 (1960); P. Basye, Clearing Land Titles § 374 (1953), & § 182 (1962 Pock. Part); Patton & Palomar on Titles § 563 (3d ed. 2003); Ashabranner, An Introduction to Oklahoma's First Comprehensive Land Title Simplification Law, 14 Okla. L. Rev. 516 (1961).
Comment: 1. The Simplification of Land Titles Act is similar to a recording statute. It is similar to the marketable title acts adopted in Michigan, Minnesota, Iowa and other states, which have been held constitutional on the grounds that the legislature, which has the power to pass recording statutes originally, can amend or alter those statutes and require recording or the filing of a notice of claim to give notice of existing interests, and can extinguish claims of those who fail to re-record, Lane v. Travelers Ins. Co., 230 Iowa 973, 299 N.W. 553 (1941); Wichelman v. Messner, 250 Minn. 88, 83 N.W.2d 800, 71 A.L.R.2d 816 (1957); L. Simes & C. Taylor, The Improvement of Conveyancing by Legislation, 271 (1960); P. Basye, Clearing Land Titles, § 374 (1953), & § 186 (2d ed. 1970); J. Palomar, Patton & Palomar on Titles § 563 (3d ed. 2002). In many situations the Simplification Act operates against defects made in the past by parties trying to complete the transaction correctly but who failed to do so in every detail. It will give effect to the intentions of the parties which were bona fide. Usually a full consideration was paid. To this extent the results will be those of a curative statute. A similar curative statute in Oklahoma, 16 O.S. § 4, has been held constitutional, Saak v. Hicks, 321 P.2d 425 (Okla. 1958). In a few situations the Act will operate against defects considered jurisdictional. In the past, a statute of limitations, with its requirements of adverse possession, followed by a suit to quiet title was considered necessary to eliminate jurisdictional defects. The Simplification Act provides a new and additional method by invalidating the claim and creating marketable title unless claimant files notice of claim within the time provided in the act (or is in actual possession of the land). Since the Act protects the rights of claimants in actual possession as against a purchaser, the reasoning
27 in Williams v. Bailey 268 P.2d 868 (Okla. 1954), reading a requirement for adverse possession into the tax recording statute, is not applicable. 2. Where a seller does not have a marketable title due to defects for which the Act affords protection to a “purchaser for value,” and no notice has been filed as required by the Act, the attorney for the purchaser may advise the purchaser that a purchase for value will afford protection of the Act and that such a purchaser will acquire a valid and marketable title, provided no one is in possession claiming adversely to the seller.
29.2 PROTECTION AFFORDED BY THE ACT
The Simplification of Land Titles Act, 16 O.S. §§ 61-63, 66 (§§ 64-65 repealed effective April 10, 1980), protects any purchaser for value, with or without actual or constructive notice, from one claiming under a conveyance or decree recorded or entered for ten (10) years or more in the county, as against adverse claims arising out of:
A. (1) Conveyances of incompetent persons unless the county or court records reflect a determination of incompetency or the appointment of a guardian, (2) corporate conveyances to an officer without authority, (3) conveyances executed under recorded power of attorney which has terminated for reasons not shown in the county records, (4) nondelivery of a conveyance. B. Guardian's or personal representative's conveyances approved or confirmed by the court as against (1) named wards, (2) the State of Oklahoma or any other person claiming under the estate of a named decedent, the heirs, devisees, representatives, successors, assigns or creditors. C. Decrees of distribution or partition of a decedent's estate as against the estates of decedents, the heirs, devisees, successors, assigns or creditors. For decrees of distribution or partition which cover land in a county other than the county in which such decrees are entered and recorded, 16 O.S. § 62(c) (2) does not require that they also be recorded in the county in which the land is located. D. (1) Sheriff's or marshal's deeds executed pursuant to an order of court having jurisdiction over the land, (2) final judgments of courts determining and adjudicating ownership of land or partitioning same, (3) receiver's conveyances executed pursuant to an order of any court having jurisdiction, (4) trustee's conveyances referring to a trust agreement or named beneficiaries or indicating a trust where the agreement is not of record, (5) certificate tax deeds or resale tax deeds executed by the county treasurer, as against any person, or the heirs, devisees, personal representatives, successors or assigns of such person, who was named as a defendant in the judgment preceding the sheriff's or marshal's deed, or determining and adjudicating ownership of or partitioning land, or settlor, trustee or beneficiary of a trust, and owners or claimants of land subject to tax deeds, unless claimant is in possession of the land, either personally or by a tenant, or files a notice of claim prior to such purchase, or within “one year from October 27, 1961, the effective date of 16 O.S. §§ 61-66 or from October 1, 1973, the effective date of 16 O.S. § 62 as amended in 1973.” The State of Oklahoma and its political subdivisions or a public service corporation or transmission company with
28 facilities installed on, over, across or under the land are deemed to be in possession.
Authority: 16 O.S. §§ 62 & 66.
29.2.1 RELIANCE ON CERTIFICATE TAX DEED OR RESALE TAX DEED
A title examiner may rely, without further requirement, on a certificate tax deed or resale tax deed as a conveyance of the real property described in such deed, provided;
A. title to such real property is, or has been, held of record by a purchaser for value who acquired such title form or through the grantee in such tax deed; and, B. such certificate tax deed or resale tax deed has been of record in the county in which the land is situated for a period of not less than ten years.
Caveat: The title acquired via a certificate tax deed or resale tax deed may be subject to the interest of any person in possession of the land claiming title adversely to the title acquired through such deed. 16 O.S. Section 62(d). Also see the following unpublished case: Johnson v. August, 2005 OK CIV APP 97.
Caveat: See Davis V. Mayberry, 2010 OK CIV APP 94, which applies to tax deeds affecting restricted members of the Five Civilized Tribes.
Authority: 16 O.S. § 62(d).
Caveat: The title acquired via a certificate tax deed or resale tax deed may be subject to the interest of any person in possession of the land claiming title adversely to the title acquired through such deed. 16 O.S. Section 62(d). Also see the following unpublished case: Johnson v. August, 2005 OK CIV APP 97.
29.3 PURCHASER FOR VALUE
“Purchaser for value” within the meaning of the Simplification of Land Titles Act, 16 O.S. §§ 61-63, 66 (§§ 64-65 repealed effective April 10, 1980), refers to one who has paid value in money or money's worth. It does not refer to a gift or transfer involving a nominal consideration.
Authority: Noe v. Smith, 67 Okla. 211, 169 P. 1108, L.R.A. 1918C, 435 (1917); Exchange Bank of Perry v. Nichols, 196 Okla. 283, 164 P.2d 867 (1945).
Comment: The title acquired by a “purchaser for value”, within the meaning of the Simplification of Land Titles Act, will descend or may be devised or transferred without involving “value” and without loss of the benefits of the act.
29 History: The 1962 Real Property Committee Report recommended the adoption of this standard, see Recommendation (2), 33 O.B.A.J. 2157 (1962) and Exhibit B, id. at 2164. Approved by Real Property Section and House of Delegates, id. at 2469, November 29, 1962.
29.4 CONVEYANCE OF RECORD
“Conveyance of record” within the meaning of the Simplification of Land Titles Act, 16 O.S. §§ 61-63, 66 §§ 64-65 repealed effective April 10, 1980), includes a recorded warranty deed, deed, quitclaim deed, mineral deed, mortgage, lease, oil and gas lease, contract of sale, easement or right-of-way deed or agreement.
Authority: 16 O.S. § 61(a).
Comment: The definition of a conveyance of record should not be less than the definition of an interest in real estate in 16 O.S. § 61(a).
29.5 EFFECTIVE DATE OF THE ACT
The Simplification of Land Titles Act became effective October 27, 1961. Notices under the Act required to be filed within one (1) year from the effective date of the act must be filed for record in the county clerk's office in the county or counties where the land is situated on or before October 26, 1962.
Authority: 16 O.S. §§ 62 & 63.
Comment: An adverse claimant may avoid the effects of the act by being in possession of the land, either personally or by tenant, or by filing the notice of claim required in Section 63, within ten (10) years of the recording of the conveyance, or entry (or recording) of the decree under which the claim of valid and marketable title is to be made, or within one (1) year of the effective date of the Act, whichever date occurs last. The filing of the notice of claim takes the interest or claim out from under the operation of the Act.
29.6 ABSTRACTING
Abstracting relating to court proceedings under the Simplification of Land Titles Act, 16 O.S. § 62(b), (c) & (d), when the instruments have been entered or recorded for ten (10) years or more, as provided in the statute, shall be considered sufficient when there is shown the following in the abstract:
A. In sales by guardians or personal representatives, the deed and order confirming the sale.
30 B. In probate and partition proceedings in district court, the final decree and estate tax clearance unless not required by 58 O.S. § 912 or 68 O.S. § 815(d) or unless the estate tax lien is barred. C. In general jurisdiction court sales under execution the judgment, the deed, the court order directing the delivery thereof and proof of service of the notice of the pendency of such action on the Superintendent of the Five Civilized Tribes, now Area Director of the Five Civilized Tribes and Election Not to Remove, if any. D. In general jurisdiction court partitions, or adjudications of ownership, the final judgment, any deed of partition, any court order directing the delivery thereof and proof of service of the notice of the pendency of such action on the Superintendent of the Five Civilized Tribes, now Area Director of the Five Civilized Tribes and Election Not to Remove, if any. E. Any pleading in which an attorney’s lien is claimed by the attorney for a party that is awarded an interest in the property.
The Abstractor can make in substance the following notation: “other proceedings herein omitted by reason of 16 O.S.A. § 61 et seq., and Title Examination Standards Chapter 29.
C. MARITAL STATUS WAIVER
TITLE EXAMINATION STANDARD:
7.1 MARITAL INTERESTS: DEFINITION; APPLICABILITY OF STANDARDS; BAR OR PRESUMPTION OF THEIR NON-EXISTENCE The term “Marital Interest,” as used in this chapter, means the rights and restrictions placed by law upon an individual landowner's ability to convey or encumber the homestead and the protections afforded to the landowner's spouse therein. Severed minerals cannot be impressed with homestead character and therefore, the standards contained in this chapter are inapplicable to instruments relating solely to previously severed mineral interests. Marketability of title is not impaired by the possibility of an outstanding marital interest in the spouse of any former owner whose title has passed by instrument or instruments which have been of record in the office of the county clerk of the county in which the property is located for not less than ten (10) years after the date of recording, where no legal action shall have been instituted during said ten (10) year period in any court of record having jurisdiction, seeking to cancel, avoid or invalidate such instrument or instruments on the ground or grounds that the property constituted the homestead of the party or parties involved. Authority: 16 O.S. § 4. Comment: See Title Examination Standard 6.7 as to use of powers of attorney.
31 7.2 MARITAL INTERESTS AND MARKETABLE TITLE
Except as otherwise provided in Standard 7.1, no deed, mortgage or other conveyance by an individual grantor shall be approved as sufficient to vest marketable title in the grantee unless:
A. The body of the instrument contains the grantor's recitation to the effect that the individual grantor is unmarried; or B. The individual grantor's spouse, identified as such in the body of the instrument, subscribes the instrument as a grantor; or C. The grantee is the spouse of the individual grantor and that fact is recited by the grantor in the body of the instrument.
Comments: 1. There is no question that an instrument relating to the homestead is void unless both husband and wife subscribe it. Grenard v. McMahan, 1968 OK 75, 441 P.2d 950, Atkinson v. Barr, 1967 OK 103, 428 p.2D 316, but also see Hill v. Discover Bank, 2008 OK CIV APP.111, 213 P.3d 835. It is also settled that husband and wife must execute the same instrument, as separately executed instruments will both be void, Thomas v. James, 1921 OK 412, 204 P. 284. It is essential to make the distinction between a valid conveyance and a conveyance vesting marketable title when consulting this standard. 2. While 16 O.S. § 13 states that “The husband or wife may convey, mortgage or make any contract relating to any real estate, other than the homestead, belonging to him or her, as the case may be, without being joined by the other in such conveyance, mortgage or contract,” joinder by husband and wife must be required in all cases due to the impossibility of ascertaining from the record whether the property was or was not homestead or whether the transaction is one of those specifically permitted by statute. See 16 O.S. §§ 4 and 6 and Okla. Const. Art. XII, §2. A well-settled point is that one may not rely upon recitations, either in the instrument or in a separate affidavit, to the effect that property was not the homestead. Such a recitation by the grantor may be strong evidence when the issue is litigated, but it cannot be relied upon for the purpose of establishing marketability. Hensley v. Fletcher, 1935 OK 458, 44 P.2d 63. 3. If an individual grantor is unmarried and the grantor’s marital status is inadvertently omitted from an instrument, or if two grantors are married to each other and the grantors’ marital status is inadvertently omitted from an instrument, a title examiner may rely on an affidavit executed and recorded pursuant to 16 O.S. § 82 which recites that the individual grantor was unmarried or that the two grantors were married to each other at the date of such conveyance. Caveat: These recitations may not be relied upon if, upon “proper inquiry,” the purchaser could have determined otherwise. Keel v. Jones, 1966 OK 73, 413 P.2d 549. 4. A non-owner spouse may join in a conveyance as part of a special phrase placed after the habendum clause, yet be omitted from the grantor line of a deed, and still be considered a grantor to satisfy paragraph B. of this title standard. Melton v. Sneed, 188 Okla. 388, 109 P.2d 509 (1940).
32 D. ACKNOWLEDGEMENT WAIVER
TITLE EXAMINATION STANDARD:
6.1 DEFECTS IN OR OMISSION OF ACKNOWLEDGMENTS IN INSTRUMENTS OF RECORD
With respect to instruments relating to interests in real estate:
A. The validity of such instruments as between the parties thereto is not dependent upon acknowledgment, 16 O.S. § 15. B. As against subsequent purchasers for value, in the absence of other notice to such purchasers, such instruments are not valid unless acknowledged and recorded, except as provided in Paragraph C herein, 16 O.S. § 15. C. Such an instrument which has not been acknowledged or which contains a defective acknowledgment shall be considered valid notwithstanding such omission or defect, and shall not be deemed to impair marketability, provided such instrument has been recorded for a period of not less than five (5) years, 16 O.S. §§ 27a & 39a.
E. POWER OF ATTORNEY WAIVER
TITLE EXAMINATION STANDARD:
6.7 VALIDITY OF INSTRUMENTS EXECUTED BY ATTORNEYS-IN- FACT
A. An instrument affecting title to real estate executed by an attorney-in-fact duly appointed and empowered, and not subject to the provisions of paragraphs B or C below, is acceptable to vest marketable title in the grantee, if:
1. the power of attorney, other than a durable power of attorney, was executed, acknowledged and recorded in the manner required by law; or 2. the power of attorney is a durable power of attorney recorded in the manner required by law and: a. executed after November 1, 1988 under the Uniform Durable Power of Attorney Act (58 O.S. §§ 1071-1077); or b. executed between June 16, 1965 and September 1, 1992, under the provisions of the Special Power of Attorney Act (58 O.S.§§ 1051-1062); or c. executed after November 1, 1998, under the provisions of the Uniform Statutory Power of Attorney Act (15 O.S. §§ 1001 - 1020). 3. Notwithstanding the foregoing, an instrument executed by an attorney in fact that has been recorded for at least five (5) years is valid even though no power of attorney was recorded in the office of the county clerk of the county in which the property is located.
33 B. An instrument that otherwise conforms with the provisions of paragraph A above fails to vest title in the grantee if a revocation of the power of attorney by either 1. the principal, or 2. a conservator, guardian or other fiduciary of the principal appointed by a court of the principal's domicile, has been recorded in the same office in which the instrument containing the power of attorney was recorded.
C. An instrument that otherwise conforms with the provisions of paragraph A above fails to vest title in the grantee if the power of attorney has otherwise terminated by law, and such termination either appears in the abstract or is within the personal knowledge of the examiner.
Authority: 15 O.S. §§ 1001 - 1020; 16 O.S. §§ 3, 20, 21, 27a and 53; 58 O.S. §§ 1071 et seq.
Comment: The death, disability or incapacity of a principal who has previously executed a written power of attorney, whether durable or otherwise, does not revoke or terminate the agency as to the attorney-in-fact who, without actual knowledge of the death, disability or incapacity of the principal, acts in good faith under the power. Any action so taken, unless otherwise invalid or unenforceable, binds the principal and successors in interest, 58 O.S. § 1075. A power of attorney executed in another state shall be considered valid for purposes of the Uniform Durable Power of Attorney Act if the power of attorney and the execution of the power of attorney substantially comply with the requirements of the Uniform Durable Power of Attorney Act (58 O.S. §§ 1071-1077) or the Uniform Statutory Power of Attorney Act (15 O.S. §§ 1001 - 1020).
F. MORTGAGE RELEASE WAIVER
TITLE EXAMINATION STANDARD:
24.8 UNENFORCEABLE MORTGAGES AND MARKETABLE TITLE
No mortgage, contract for deed or deed of trust barred under the provisions of 46 O.S. § 301 shall constitute a defect in determining marketable record title.
Authority: 46 O.S. § 301.
Caveat: The examiner should be aware that the above Standard may not apply to mortgages, which are part of a nationwide federal program, in which the United States Government, or one of its agencies, is the mortgagee. See United States v. Ward, 985 F.2d 500 (10th Cir. 1993).
34 Comment: As a result of the repeal of 12A O.S. § 3-122, paragraph B of this standard was repealed in 1995. It provided that, for a debt payable on demand, the due date of the last maturing obligation for the purposes of 46 O.S. § 301 was the date of execution of the mortgage.
Comment: 46 O.S. § 301.B states that if enough information is provided on the face of the mortgage, contract for deed or deed of trust to calculate the final due date of the last maturing obligation of the instrument, even if the final due date is not specifically stated, the lien is unenforceable after the expiration of seven (7) years from the date of the last maturing obligation.
G. AFFIDAVITS AND RECITALS
TITLE EXAMINATION STANDARD:
3.2 AFFIDAVITS AND RECITALS
A. Recorded affidavits and recitals should cover the matters set forth in 16 O.S. § 83; they cannot substitute for a conveyance or probate of a will.
B. Affidavits and recitals should state facts rather than conclusions and should reveal the basis of the maker’s knowledge. The value of an affidavit or recital is not reduced if the maker is interested in the title.
Authority: 16 O.S. §§ 53, 67, 82, 83.
Comment: This Standard does not supplant other Standards or statutes providing for use of affidavits, such as 16 O.S. § 67 or 58 O.S. § 912.
H. ABBREVIATIONS AND IDEM SONANS
TITLE EXAMINATION STANDARD:
5.1 ABBREVIATIONS AND IDEM SONANS
Identity of parties should be accepted as sufficiently established in the following cases: A. Where there are used common abbreviations, derivatives or nicknames for Christian names, such as “Geo.” for George, “Jon.” for John, “Chas.” for Charles, “Alex.” for Alexander, “Bob” for Robert, “Eliza” or “Liza” for Elizabeth, “Jos.” for Joseph, “Thos.” for Thomas, “Wm.” for William, “Susan” for Suzanna, “Ellen” for Eleanor, “Rich” for Richard, “Mc’ for Mac (as prefix to a name);
35 B. Names within the rule of the generally accepted doctrine of idem sonans; and
C. In all instruments or court proceedings where in one instance a Christian name or names of a person is or are used, and in another instance the initial letter or letters only of any such Christian name or names is or are used but the surnames are the same or idem sonans, and in one instance a Christian name or initial letter is used, and in another instance is omitted, but in both instances the other Christian names or initial letters correspond and the surnames are the same or idem sonans. A greater degree of liberality should be indulged with the greater lapse of time and in the absence of circumstances appearing in the abstract to raise reasonable doubt as to the identity of the parties.
Authority: 16 O.S. § 53; Patton & Palomar on Land Titles §§ 73-78 (3d ed. 2003); King v. Slepka, 194 Okla. 11, 146 P.2d 1002 (1944); Collingsworth v. Hutchinson, 185 Okla. 101, 90 P.2d 416 (1939); Maine v. Edmonds, 58 Okla. 645, 160 P. 483 (1916); Annot., 57 A.L.R. 1478 (1928). West Digest System, Century Digest, Names, Key Number 4; Decennials, 4 and 5, Deeds, Key Number 31.
I. VARIANCE IN NAMES
TITLE EXAMINATION STANDARD:
5.2 VARIANCE BETWEEN SIGNATURE OF BODY OF DEED AND ACKNOWLEDGMENT
Where the given name or names, or the initials, as used in a grantor's signature on a deed vary from the grantor's name as it appears in the body of the deed, but the grantor's name as given in the certificate of acknowledgment agrees with either the signature or the body of the deed, the certificate of acknowledgment should be accepted as providing adequate identification.
Authority: 16 O.S. § 33; Patton and Palomar on Land Titles §§ 79 & 80 (3d ed. 2003); Basye, Clearing Land Titles § 36 (1953); 1 C.J.S. Acknowledgments § 92(3); Woodward v. McCollum, 16 N.D. 42, 111 N.W. 623 (1907) (Henry S. Woodward and Harry S. Woodward); Blomberg v. Montgomery, 69 Minn. 149, 72 N.W. 56 (1897) (Isabella A. Dern and Isabella Dern, Myrtie B. Thorp and Myrtie Thorp, and George B. Conwell, Sr., and G.B. Conwell, Sr.); Paxton v. Ross, 89 Iowa 661, 57 N.W. 428 (1894) (Michael Thompson and M. Thompson); Rupert v. Penner, 35 Neb. 587, 53 N.W. 598, 17 L.R.A. 824 (1892) (Archibald T. Finn and Arch T. Finn); Gardner v. City of McAlester, 198 Okla. 547, 179 P.2d 894 (1946); O'Banion v. Morris Plan Industrial Bank, 201 Okla. 256, 204 P.2d 872 (1948); L. Simes & C. Taylor, Model Title Standards, p. 38 (1960).
Comment: The Oklahoma form of acknowledgment for individuals provides that the official taking the acknowledgment shall certify that the person named was known to the official to be the identical person who executed the instrument. This is similar to the
36 acknowledgment forms in most other states and is sufficient to create a presumption of identity when the signature differs from the body of the deed but the acknowledgment agrees with one or the other. The cases from North Dakota, Minnesota, Iowa and Nebraska, cited above, support this rule and are typical of the many cases on the subject. No Oklahoma cases directly in point have been found. However, in the Gardner and O'Banion cases, supra, the Court held the acknowledgments sufficient to identify the persons executing the instruments although the names were omitted from the acknowledgments. This indicates the rule will be sustained in Oklahoma, if and when the point is raised.
J. RECITAL OF IDENTIY
TITLE EXAMINATION STANDARD:
5.3 RECITAL OF IDENTITY
A recital of identity, contained in a conveyance executed by the person whose identity is recited, may be relied upon unless there is some reason to doubt the truth of the recital. Authority: 16 O.S. § 53; Basye, Clearing Land Titles § 36 (1953); Patton & Palomar on Land Titles § 79 (3d ed. 2003); L. Simes & C. Taylor, Model Title Standards, Standard 5.4 at 37 (1960).
Comment: This standard concerns statements of identity such as that Alfred E. Jones and A. E. Jones are the same person. It is not intended to apply where names differ in substantial and material ways.
K. OMISSIONS AND INCONSISTENCIES
TITLE EXAMINATION STANDARD:
6.2 OMISSIONS AND INCONSISTENCIES IN INSTRUMENTS AND ACKNOWLEDGMENTS
Omission of the date of execution from a conveyance or other instrument affecting the title does not, in itself, impair marketability. Even if the date of execution is of peculiar significance, an undated instrument will be presumed to have been timely executed if the dates of acknowledgment and recordation, and other circumstances of record, support that presumption.
An acknowledgment taken by a notary public in another state which does not show the expiration of the notary's commission is not invalid for that reason.
37 Inconsistencies in recitals or indications of dates, as between dates of execution, attestation, acknowledgment or recordation, do not, in themselves, impair marketability. Absent a peculiar significance of one of the dates, a proper sequence of formalities will be presumed notwithstanding such inconsistencies.
Authority: Patton and Palomar on Land Titles §§ 353, 356, 362 & 366 (3d ed. 2003); P. Basye, Clearing Land Titles §§ 233-236 & 247-249 (1953); 26 C.J.S., Deeds §§ 22a. & f., & 53a; May v. Archer, 302 P.2d 768 (Okla. 1956); Maynard v. Hustead, 185 Okla. 20, 90 P.2d 30 (1939); Scott v. Scott, 111 Okla. 96, 238 P. 468 (1925). Vol. 1 C.J.S. Acknowledgments § 876; Annot., 29 A.L.R. 980 (1928); Kansas City & S.E. Ry. Co., v. Kansas City & S.W. Ry. Co., 129 Mo. 62, 31 S.W. 451 (1895); Sheridan County v. McKinney, 79 Neb. 220, 112 N.W. 329 (1907); (See also acknowledgment curative statutes).
Comment: An indication of the date of execution is not essential for any purpose. It is a recital, like other recitals; important, if the date is in issue; helpful, in any case; presumptively correct, but subject to rebuttal or explanation. The same is true of the date of attestation and, generally, of acknowledgment. The only crucial date, that of delivery, is not normally found in the instrument. Hence, omission of the date from one of an ordinary series of conveyances may be disregarded. Even though a special importance attaches to the date of execution, as in the case of a power of attorney, a presumption of timely execution (e.g., in proper sequence in relation to other instruments) should be indulged if supported by other dates and circumstances of record.
As recitals of dates may be omitted or explained, are notoriously inaccurate and are more generally in error than are the actual sequences of formalities, inconsistencies in the indicated dates of formalities (e.g., acknowledgment dated prior to execution; execution dated subsequent to indicated date of recordation) should be disregarded. Further, the inconsistency or impossibility of a recited date should not be regarded as vitiating the particular formality involved. An act curative of the formality will eliminate any question as to its date. If, however, under the circumstances indicated by the record, a peculiar significance attaches to any of the dates (e.g., priorities; important presumption), inconsistency or impossibility should not be disregarded.
L. DELIVERY
TITLE EXAMINATION STANDARD:
6.4 DELIVERY; DELAY IN RECORDING
Delivery of instruments acknowledged and recorded is presumed in all cases. It is also presumed that delivery occurred on the date of the instrument's execution. Delay in recording, with or without record evidence of the intervening death of the grantor, does not end the presumption or create an unmarketable title. However, as an added
38 exceptional protection to their clients, examiners may satisfy themselves as to the facts by inquiry outside the record title.
Authority: Watkins v. Musselman, 205 Okla. 514, 239 P.2d 418 (1951); Fisher v. Pugh, 261 P.2d 181 (Okla. 953); State, ex rel. Comm'rs of Land Office v. Leecraft, 279 P.2d 323 (Okla. 1955); Wasson v. Collett, 204 Okla. 360, 230 P.2d 258 (1951); Hamburg v. Doak, 207 Okla. 517, 251 P.2d 510 (1952); McKeever v. Parker, 204 Okla. 1, 226 P.2d 425 (1950); 12 O.S. §§ 2902 & 3005; P. Basye, Clearing Land Titles § 13 (1970); Powell on Real Property, § 898(2) (1997); 26A C.J.S. Deeds. §§ 185, 187 & 204g; L. Simes & C. Taylor, Model Title Standards, Standard 6.3, at 43-45 (1960).
Comment: The presumption of delivery of recorded instruments inheres in our system of proving titles by public records. This is the law in Oklahoma. The presumption is strengthened by our statute creating a rebuttable presumption of delivery, 16 O.S. § 53(3), and by statutes making certified copies of recorded instruments affecting real estate prima facie evidence in all courts without further authentication. The presumption is not overcome by inferences to the contrary drawn from the record. When the record shows a long delay in recording or the death of the grantor prior to the recording of the instrument, the following procedures are suggested: (1) if the instrument has been recorded longer than fifteen years, do not inquire; (2) if the abstract or records or convenient inquiries do not reveal the death of the grantor, do not inquire further; and (3) if death occurred between the dates of execution and recording, inquire but appraise the situation realistically with a view to the probability of a claim of non-delivery. Affidavits resulting from such inquiry may be recorded. However, recording is unnecessary and may create more doubts than previously existed. It should be emphasized that delay in recording and post-mortem recordation are in themselves unobjectionable and do not render a title unmarketable. The actual risk inherent in non-delivery is easily over- emphasized. By use of presumptions, estoppel and other legal theories, courts properly display an almost insurmountable hostility to claims against innocent purchasers of apparently clear titles.
M. REBUTTABLE PRESUMPTIONS
TITLE EXAMINATION STANDARD:
12.2 REBUTTABLE PRESUMPTIONS CONCERNING CORPORATE INSTRUMENTS EXECUTED IN PROPER FORM
If a recorded instrument from a corporation is executed and acknowledged in proper form, the title examiner may presume that: A. the persons executing the instrument were the officers they purported to be, B. the officers were authorized to execute the instrument on behalf of the corporation, C. the corporation was authorized to acquire and sell the property affected by the recorded instrument, and
39 D. the corporation was legally in existence when the instrument was executed. From and after September 1, 1994, recorded instruments must be signed on behalf of a domestic corporation by a president, vice president, chairman or vice chairman of the board of directors. A corporate instrument executed in another state may be accepted if it is executed either by the proper officers under Oklahoma law or by the proper officers under the laws of the state where the instrument was executed. Before September 1, 1994, corporate instruments were required to be executed by a corporate president or vice president, attested by a corporate secretary or assistant secretary, and impressed with the corporate seal. Instruments from banks could be attested by a cashier or assistant cashier.
Authority: 16 O.S. §§ 53, 93.
N. CONCLUSIVE PRESUMPTIONS
TITLE EXAMINATION STANDARD:
12.3 CONCLUSIVE PRESUMPTIONS CONCERNING INSTRUMENTS RECORDED FOR MORE THAN FIVE YEARS
The following defects may be disregarded after an instrument from a legal entity has been recorded for five years:
A. the instrument has not been signed by the proper representative of the legal entity, B. the representative is not authorized to execute the instrument on behalf of the legal entity, C. the instrument is not acknowledged, and D. any defect in the execution, acknowledgment, recording or certificate of recording the same.
Authority: 16 O.S. §§ 1 & 27a.
O. RECITAL OF SUCCESSORSHIP
TITLE EXAMINATION STANDARD:
12.4 RECITAL OF IDENTITY, SUCCESSORSHIP, OR CONVERSION. Unless there is some reason disclosed of record to doubt the truth of the recital (e.g., the recordation of a conflicting certificate prepared pursuant to 18 O.S. § 1144 or § 1090.2), then:
40 A. A recital of succession by corporate merger or corporate name change (e.g., the corporation was formerly known by another name) may be relied upon if contained in a recorded title document properly executed by the surviving or resulting corporation. B. After September 1, 1990, a recital of succession by merger or consolidation of one or more corporations with one or more limited partnerships may be relied upon if contained in a recorded title document properly executed by the surviving or resulting entity. C. On or after November 1, 1998, a recital of succession by merger or consolidation of one or more corporations with one or more business entities, as defined in 18 O.S. § 1090.2(A), may be relied upon if contained in a recorded title document properly executed by the surviving or resulting entity. D. On or after January 1, 2010, a recital by a business entity, as defined in 18 O.S. § 2054.1(A), of a conversion to a domestic limited liability company may be relied upon if contained in a recorded title document properly executed by the domestic limited liability company.
Authority: 18 O.S. § 1144 (effective November 1, 1987), 1088 (effective November 1, 1986), 1090.2 (effective November 1, 1998) and 2054.1 (effective January 1, 2010).
P. POWERS OF TRUSTEE
TITLE EXAMINATION STANDARD:
15.1 POWERS OF TRUSTEE
The trustee of an express trust has the power to grant, deed, convey, lease, grant easements upon, otherwise encumber and execute assignments or releases with respect to the real property or interest therein which is subject to the trust. A trustee's act is binding upon the trust and all beneficiaries thereof, in favor of all purchasers or encumbrances without actual knowledge of restrictions or limitations upon the trustee's powers by the terms of the trust, and without constructive knowledge imposed by the trust instrument containing restrictions and limitations having been recorded in the county where the real estate is located.
Authority: 60 O.S. §§ 171 et seq., 175.7 & 175.45; and see 60 O.S. § 175.24 for a listing of the extensive powers which a trustee has unless they have been denied to the trustee by the trust agreement or a subsequent order of a court.
Comment: In a declaration of legislative intent enacted as part of the legislation, it is said that trusts are private instruments and therefore need not be recorded unless the trustor desires to put the public on notice of restriction on the trustee's powers.
IV. OKLAHOMA SEVERED MINERALS AFFIDAVIT OF HEIRSHIP
A. STATUTE: 16 O.S. Section 67
41 Oklahoma Statutes Citationized Title 16. Conveyances
Chapter 1 - General Provisions
Section 67 - Acquiring a Severed Mineral Interest from Decedent - Establishing
Marketable Title Cite as: 16 O.S. § 67,
A. After the date of death of a person who was an owner of a severed mineral interest in real estate, a person who claims such interest, immediately or remotely, through an affidavit of death and heirship recorded pursuant to Sections 82 and 83 of this title, shall acquire a valid and marketable title to such interest as against any person claiming adversely to such recorded affidavit on the conditions set forth in subsection C of this section.
B. Any purchaser for value acquiring a severed mineral interest in real estate from a person who claims such interest, immediately or remotely, through a recorded affidavit of death and heirship or a recital of death and heirship in a recorded title transaction, as that term is defined in Section 78 of Title 16 of the Oklahoma Statutes, shall acquire a valid and marketable title to such interest as against any person claiming adversely to such recorded affidavit or recital on the conditions set forth in subsection C of this section.
C. In order to establish marketable title pursuant to this section:
1. The affidavit or recital must state that the decedent died without a will, or if the decedent had a will, that the will was never probated in Oklahoma and a copy of the will is attached to the affidavit or recital, or if the will was probated that the severed mineral interest was omitted from the final decree of the decedent and a copy of the will and final decree is attached to the affidavit or recital;
2. The affidavit or recital must list the names of the decedent’s heirs and their relationship to the decedent;
3. The affidavit or recital must state that the maker is related to the decedent or otherwise has personal knowledge of the facts stated therein;
4. The affidavit or the title transaction that contains the recital must have been recorded for at least ten (10) years in the office of the county clerk in the county in which the real property is located; and
5. During the ten-year period following the recording of the affidavit or the title transaction that contains the recital, no instrument inconsistent with the heirship alleged in the affidavit or recital was filed in the office of the county clerk in the county in which the real property is located.
This section shall apply to affidavits recorded before November 1, 1999, as well as to those recorded thereafter, except that, with respect to those recorded before such date, the ten-year period specified above shall not expire until one (1) year after November 1, 1999. This section
42 shall not apply as against any person in possession of the land, by occupancy or by occupancy of a tenant, at the time such purchaser acquires an interest in such land.
Historical Data
Added by Laws 1999, HB 1817, c. 84, § 2, eff. November 1, 1999; Amended by Laws 2010, HB 1319, c. 223, § 1, emerg. eff. May 10, 2010
B. TITLE EXAMINATION STANDARD: No. 3.2 (adopted November 15, 2013)
3.2 AFFIDAVITS AND RECITALS A. Recorded affidavits and recitals should cover the matters set forth in 16 O.S. §§ 82 and 83. They cannot substitute for a conveyance or probate of a will.
B. Affidavits and recitals should state facts rather than conclusions and should reveal the basis of the maker’s knowledge. The value of an affidavit or recital is not reduced if the maker is interested in the title. C. Oklahoma statutes have authorized the use of affidavits to affect title to real property for several purposes. The specific statute should be consulted and the requirements of the statute should be followed carefully. D. Special attention should be given to the provisions of 16 O.S. § 67 – Acquiring Severed Mineral Interests from Decedent – Establishing Marketable Title:
1. In part, 16 O.S. § 67 provides that a person who claims a severed mineral interest, through an affidavit of death and heirship recorded pursuant to 16 O.S. §§ 82 and 83, shall acquire a marketable title ten years after the recording of the affidavit by following the five specific steps set forth in part C of Section 67. The act applies only to severed minerals, not leasehold interests. Section 82 provides that such an affidavit creates a rebuttable presumption that the facts stated in the recorded affidavit are true as they relate to the severed minerals.
2. Although not specifically required by 16 O.S. § 67, it is recommended that the affidavit contain sufficient factual information to make a proper determination of heirship. Such information includes the date of death of the decedent, a copy of the death certificate, marital history of the decedent, names and dates of death of all spouses, a listing of all
43 children of the decedent including any adopted children, identity of the other parent of all children of the decedent, the date of death of any deceased children and the identity of the deceased child’s spouse and issue, if any. During the ten year period of 16 O.S. § 67, if an affidavit fails to include factual information necessary to make a proper determination of heirship, the examiner should call for a new affidavit that contains the additional facts necessary for a proper determination of heirship. If a new or corrected affidavit is filed, the statutory ten-year period would run from the date of recordation of the new or corrected affidavit
3. Title 16 O.S. § 67 is unclear when an unprobated will is attached, whether title passes to the intestate heirs or to the devisees under the will. Oklahoma cases have held that until a will is admitted to probate, it is wholly ineffectual to pass title to real property, including any mineral or leasehold interest and a devisee has no rights to enforce under the will. 3 A foreign will that has not been probated in Oklahoma is ineffective to establish any interest or title in the persons claiming thereunder. If the decedent died with a will, strong consideration should be given to a probate of the estate.
4. If the decedent died intestate, strong consideration should be given to an administration of the estate or a judicial determination of death and heirship during the ten year period before the title becomes marketable by a properly prepared 16 O.S. §67 affidavit.
Comment 1: Affidavits affecting real property include: Affidavits to Terminate Joint Tenancy or Life Estates (58 O.S. § 912); Multi Subject Information Affidavit (16 O.S. §§ 82-83); Memorandum of Trust (60 O.S. § 175.6a). Affidavits to Terminate Joint Tenancy or Life Estates under 58 O.S. § 912 may be recorded with only a jurat or only an acknowledgment, or both. Since this provision is specific to §912, prudence dictates that an affidavit which is not prepared under 912 contain both a jurat and acknowledgment. See 16 O.S. § 26.
44
Comment 2: Before the affidavit or unprobated will has been of record for ten years, it is not uncommon for the title examiner to recommend to the party paying royalty owners to consider assuming the business risk of waiving the requirements of marketable title, which might include a probate administration, or judicial determination of death and heirship, and assume the business risk of relying upon the affidavit called for in Section 67.
Comment 3: Yeldell v. Moore, 1954 OK 260; 275 P.2d 281. Oklahoma cases discuss the “factum” of a will: whether the will is legally executed in statutory form; legal capacity of the testator; the absence of undue influence, fraud and duress, Ferguson v. Paterson, 191 F.2d 584 (10th Cir. 1951); Matter of the Estate of Snead, 1998 OK 8, 953 P2.d 1111; Foote v. Carter, 1960 OK 234, 357 P.2d 1000. In Oklahoma the district court determines the validity of a will, interprets the will and determines the heirs. A probate proceeding is necessary to determine if there are pretermitted heirs, allow for spousal elections, determine if there is any marital property, and confirm the absence of liens for taxes and debts.
Comment 4: Smith v. Reneau, 1941 OK 99; 2112 P.2d 160. The decree of the court administering the estate is conclusive as to the legatees, devisees and heirs of the decedent, Wells v. Helms, 105 F.2d 402 (10th Cir. 1939).
Comment 5: The use of (non-judicial) heirship affidavits under 16 O.S. § 67 may also be suspect in the context of restricted citizens (members) of the Five Civilized Tribes in light of the Act of June 14, 1918, 40 Stat. 606 (25 U.S.C. 375) and Section 3 of the Act of August 4, 1947, 61 Stat.731 which confers exclusive jurisdiction upon the courts of Oklahoma to judicially determine such heirship in accordance with the Oklahoma probate code.
45 V. AUTHOR'S SELECTED OIL AND GAS ARTICLES
(See www.eppersonlaw.com for all of my articles.)
OIL & GAS ISSUES
272, ""Defensible Title' When Examining Oil and Gas Interests: An Overview of the Law In Oklahoma", TAPL, Tulsa, Ok (February 20, 2014)
265. "Oil and Gas Title Examination Basic Terms", Oil and Gas Title Examination, OBA, Tulsa (September 12, 2013), Oklahoma City (September 13, 2013)
239. "Oklahoma’s Marketable Record Title Act: An Argument for its Application to Chains of Title to Severed Minerals after Rocket Oil and Gas Co. v. Donabar", 82 The Oklahoma Bar Journal 622 (March 12, 2011)
232. "Oil and Gas Title Examination Basic Terms", Energy Law Basics, The National Business Institute, Oklahoma City, Oklahoma (November 18, 2010)
222. "‘Defensible Title’ When Examining Oil and Gas Interests: An Overview of the Law in Oklahoma", The Real Property Tract, The Annual Oklahoma Bar Association Meeting Continuing Legal Education Program, Oklahoma City, Oklahoma (November 4, 2009)
215. "Well Site Safety Zone Act: New life for Act", The Oklahoma City Mineral Lawyers Society (May 21, 2009)
214. "Well Site Safety Zone Act: New life for Act", 80 The Oklahoma Bar Journal 1061 (May 9, 2009)
194. "Marketable Title: What is it? And Why Should Mineral Title Examiners Care?", The 2007 Rock Mountain Mineral Law Foundation Institute, Westminster, Colorado (September 13, 2007) 44. "Oil and Gas Title Examination Standards Update," 1990 Practical Oil and Gas Seminar (with David D. Morgan), Oklahoma City Petroleum Landmen's Association and Oklahoma City University Law School, Fountainhead Resort Hotel, Oklahoma (June 1-2, 1990)
41. "Title Examination Standards Relevant to Oil and Gas Leases," (with Don Laudick David Morgan) Tulsa County Bar Association Mineral Law Section, Tulsa, Oklahoma (December 13, 1989)
38. "Title Examination Standards Relevant to Oil and Gas Leases," Back to Basics-A New Look at Fundamental Oil and Gas Issues, Joint Oklahoma Bar Association and OBA Mineral Law
46 Section, Tulsa, Oklahoma (September 29, 1989) and Oklahoma City, Oklahoma (October 6, 1989)
37. "Oklahoma Title Examination Standards and Curative Acts Relating to Oil and Gas Interests," 24 Tulsa L.J. 548 (1989) (with David D. Morgan)
30. "The Application of the Title Examination Standards to Oil and Gas Opinions," (with Don Laudick and David D. Morgan) Tulsa County Bar Association Mineral Law Section, Tulsa, Oklahoma (October 12, 1988)
28. "The Application of the Title Examination Standards to Oil and Gas Title Opinions" (with David Morgan), Presented to: Oklahoma City Association of Petroleum Landmen, Oklahoma City, Oklahoma (April 21, 1988)
25. "The Application of the Title Examination Standards to Oil and Gas Opinions," (with David Morgan) Mineral Lawyers Society of Oklahoma, Oklahoma City, Oklahoma (November 19, 1987)
23. "Oklahoma Title Examination Standards and Curative Acts Relating to Oil and Gas Interests," Oil and Gas Problems and Solutions, Oklahoma City University Law School, Oklahoma City, Oklahoma (October 2, 1987)
3. "Lenders Mineral Title Insurance: A Mini-Primer," 53 Oklahoma Bar Journal 3089 (December 1982)
2. "Lender's Mineral Title Insurance," The Troubled Oil Venture, Oklahoma City University Law School, Oklahoma City, Oklahoma (August 20, 1982)
47
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
THE OIL AND GAS LEASE: THE CORE LEGAL DOCUMENT OF OIL AND GAS DEVELOPMENT
by Gabe Bass
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
KEY TERMS IN THE OIL AND GAS LEASE The Core Legal Document of Oil and Gas Development
Presented at OBA Oil and Gas Title Examination CLE April 9, 2015
Gabe Bass, OBA #19749 BASS LAW 201 Robert S. Kerr, Suite 700 Oklahoma City, OK 73102 (405) 262-4040 [email protected]
1. Interpretation / Rules of Construction
a. Oil and Gas Leases are strictly construed against the lessee
i. Oil and gas leases are construed most strongly against the lessee
and in favor of the lessor. Probst v. Ingram, 1962 OK 97; 373
P.2d 58, 62.
b. Options - terms must be strictly complied with to effectively exercise
i. The terms and conditions of an option contract must be strictly
complied with by the purchaser. Landrum v. Jordan, 1924 OK 727,
100 Okla. 272, 229 P. 182.
ii. Time is of the essence in an option contract unless expressly stated
otherwise. Roberts v. Canning, 1969 OK 90, 455 P.2d 302, 302.
iii. It is a familiar rule of our law that save exceptional circumstances
an option can only be exercised in conformity with its terms and
never after the time fixed for its expiration. Mario Mercado e Hijos
v. Commins, 322 U.S. 465, 470, 64 S. Ct. 1118, 1120, 88 L. Ed.
1396 (1944).
c. Grant or rights to lessee must be clear
i. All rights claimed by lessee not conferred in direct terms or by fair
implication from those granted are to be considered withheld.
George v. Curtain, 1925 OK 194; 236 P. 876.
2. The Lessor
a. Minors, Guardianships and Estates
i. Title 30 O.S. § 4-759 gives authority to guardians and personal
representatives to grant oil and gas leases subject to court approval
ii. Title 58 O.S. § 924 et seq. provides the procedure for obtaining
court approval
1. Public auction unless lessor is the estate of a deceased
person and the decedent’s will empowers personal
representative to sell oil and gas or other mineral leases
upon lands of the testator
b. Life Tenants
i. A life may not grant an oil and gas lease without the consent of the
remainderman. However, under open mines doctrine, a life tenant
is entitled to income from a lease in existence at the time the life
tenant's estate is created. Nutter v. Stockton, 1981 OK 30; 626 P.2d
861.
c. Married Persons
i. Spouse must join in a conveyance of an interest in real property
under Oklahoma’s homestead law or the conveyance is void.
Husband and wife must execute the same instrument. Title 16 O.S.
§ 4
ii. Spouse need not join when dealing in a severed mineral interest
that constitutes lessor’s separate property. Title Examination
Standard 7.1 d. Trusts
i. Title held by Trust
1. Must be signed by trustee
2. Must have a memorandum of record that identifies trustee
with power to convey. TES 15.2
ii. Title held by Trustee
1. Trustee of record may convey (presumed to have power to
convey unless memorandum of record states otherwise).
TES 15.2
2. If successor trustee serving that is not of record, need
recorded memorandum identifying successor trustee e. Entities
i. Corporation - must be signed by either president, vice-president,
chairman or vice-chairman of board. TES 12.2
ii. Limited Liability Company - must be signed by manager. TES
14.2-14.3
iii. Partnership - must be signed by partner or, if limited partnership, a
general partner in the usual course of business and not contrary to
Statement of Partnership Authority filed of record. TES 13.2-13.4
f. Attorney-in-fact (i.e., signing under POA) - the POA must be of record.
TES 12.5
1. Legal Description
a. "The description of the premises conveyed must be so certain and definite
as to enable the land to be identified." Arbuckle Realty Trust v. Southern
Rock Asphalt Co., 1941 OK 237, 116 P.2d 912, 914. A deed that does not
sufficiently describe the property interest conveyed is void on its face.
Coley v. Williams, 1924 OK 323, 224 P. 345, 346.
b. "[T]he want of an adequate and precise description of the premises tends
to render his title unmarketable and objectionable to future purchasers;
and . . . a conveyance, though admitted to record, is not notice to
subsequent purchasers, unless the granted premises be therein so plainly
and clearly described that a person reading the deed may locate and
identify the property therefrom." Coley v. Williams, 1924 OK 323, 98
Okla. 143, 224 P. 345, 346.
2. Term (Habendum Clause)
a. Primary term
i. General rule is that lessor (or assigns) commence operations on the
lease prior to end of the primary term to extend lease into
secondary term.
1. What type of operations must be commenced?
a. A lessee has commenced a well if he has conducted
operations on the land in good faith preparation for
the drilling of a well and has continued the
operation in good faith and with due diligence. It is
generally held that acts which are preparatory to
drilling are sufficient to constitute the
commencement of a well and that it is not essential
that the lessee be in the process of making hole.
21st Century Inv. Co. v. Pine, 1986 OK CIV APP
27.
b. General rule may be modified by lease
i. "Commencement requires that a drilling rig
capable of drilling to total depth be on
location and drilling on or before expiration
of the primary term."
ii. "Commence operations" vs. "commence
drilling operations"
b. Secondary term
i. “…and as long thereafter as oil or gas, or either of them, is
produced from said land by the Lessee.”
1. “Produced” means production (or even capability of
production) in paying quantities. Hoyt v. Continental Oil,
1980 OK 1; 606 P.2d 560.
a. If (Revenue – Lifting Costs) > 0, then Production is
in Paying Quantities, even if drilling and equipping
costs are never recovered. Hininger v. Kaiser, 1987
OK 26, 738 P.2d 137, 140.
i. Lifting Costs include but are not limited to
the following: costs of pump operation,
pumper's pay, costs of supervision, gross
production taxes, royalties, electricity,
depreciation.
b. "Compelling equitable considerations" may save
even an unprofitable lease. Barby v. Singer, 1982
OK 49, 648 P.2d 14, 16-17.
ii. Cessation of Production
1. Temporary Cessation of Production. A lease remains viable
so long as the interruption of production in paying
quantities does not extend for an unreasonable period
which is not justifiable in light of all the circumstances.
2. CAUTION - Cessation Clause in Lease may give lessee a
definitive time to restore production in paying quantities.
a. "Where the parties have bargained for and agreed
on a time period for a temporary cessation clause
that provision will control over the common law
doctrine of temporary cessation allowing a
'reasonable time' for resumption of drilling
operations." Hoyt v. Continental Oil Co., 1980 OK
1; 606 P.2d 560.
iii. Lease terminates immediately of its own terms, effective date is
not the date a court order is entered terminating the lease. Baytide
Petroleum v. Continental Resources, 2010 OK 6; 231 P.3d 1144.
3. Royalty
a. What can be deducted?
i. Mittelstaedt v. Santa Fe, 1998 OK 7, 954 P.2d 1203.
1. In the absence of clear lease terms to the contrary, lessee
has a duty to make gas marketable and must absorb all
costs of gathering, blending, compression, treating and
hydrating required to make gas marketable.
a. Marketable (Merchantable) is defined as raw natural
gas from which impurities have been removed so
that the natural gas meeting the quality
specifications of the pipeline transmission facility
that will receive it for transportation to market. Also
called "pipeline quality gas."
2. Lessee may deduct reasonable transportation costs incurred
to move gas that is marketable at the wellhead to a distant
market. (Logically should apply wherever gas is marketable
(e.g., somewhere upstream from the wellhead)).
3. Lessee may deduct costs to enhance an already marketable
product when: (1) the costs are reasonable and (2) royalties
increase in proportion to the costs. ii. Whatever the express terms of the Oil and Gas Lease allows.
4. Pugh Clause (a/k/a "Partial Lease Termination")
a. Statutory – 52 O.S. § 87.1
i. Effective for leases executed after May 25, 1977and not retroactive.
Wickham v. Gulf Oil Corp., 1981 OK 8; 623 P.2d 613.
ii. In case of spacing unit of 160 acres or more, no leasehold interest
outside of the spacing unit may be held by production from the
spacing unit more than 90 days beyond the expiration of the
primary term of the lease.
1. Does not apply to spacing unit < 160 acres
b. Oil and Gas Lease may provide terms more favorable to lessor
5. Depth Clause
a. "At the end of the primary term, this Lease shall expire as to all depths
below the base of the deepest formation then producing from any well
located on the Leased Premises or lands pooled therewith..."
b. New development for horizontal plays - "... this Lease shall expire except
for the formation(s) then producing..."
6. Shut-In Royalty
a. Failure to pay shut-in royalties in and of itself does not operate to cause a
termination of the lease. Pack v. Santa Fe Minerals, 1994 OK 23; 869
P.2d 323.
i. Failure to pay shut-in royalties creates a debt and lessor has a
contract remedy to collect that debt.
ii. Failure to pay shut-in royalties along with failure to comply with
the implied covenant to market will result in lease cancellation.
7. Implied Covenants
a. Duty to Market. Flag Oil Corp. v. King Res. Co., 1972 OK 19; 494 P.2d
322.
b. Duty to Fully Develop
i. Once production has been obtained, the lessee is required to drill
such additional wells to develop the lease as a reasonably prudent
operator would drill. Wilds v. Universal Res. Corp., 1983 OK 35;
662 P.2d 303.
c. Duty to Protect Against Drainage
i. A lessee has a duty to protect the land from drainage by adjoining
gas wells so long as the drilling of a protection well or wells will,
in the judgment of a reasonably prudent operator, be a profitable
undertaking, having due regard for the interests of both lessor and
lessee. Krug v. Helmerich & Payne, Inc., 2013 OK 104; 320 P.3d
1012.
d. Lessor should make written demand on lessee prior to bringing suit for
cancellation based on breach of implied covenant.
8. Geophysical Operations
a. Unless the terms of an Oil and Gas Lease state otherwise, both the
severed mineral owner and the lessee may grant permission to conduct
seismic operations. Roy Realty & Developing, Inc. v. Southern Seismic,
711 P.2d 946, 949 (OK CIV APP 1985). b. The mineral estate owners (and not the surface estate owner) have
the exclusive right to grant permission to conduct seismic
operations. Enron Oil & Gas Company v. Worth, 947 P.2d 610 (OK CIV
APP 1997).
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
ASSIGNMENTS OF THE LEASEHOLD: THE OIL AND GAS INDUSTRY’S BUNDLE OF STICKS
by Jereme Cowan
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
INTERPRETING ASSIGNMENTS OF THE OIL AND GAS LEASE
By Jereme M. Cowan
Introduction
The transfer of leasehold (hereinafter “assignment”) is a central element of oil and gas development. Whether a fractional working interest is transferred to correspond with a joint venture agreement between two or more companies or whether all the rights of a certain company under a lease are transferred as a result of a purchase and sale agreement, oil and gas development requires the execution and recordation of assignments to reflect the business of the industry. From a title perspective, it is important to not only understand principles of land titles in relation to assignments of oil and gas leases but also the business reasons behind the assignments. This paper will attempt to explain, in a cursory manner, how to interpret oil and gas leasehold assignments. The objective, therefore, is to equip the title examiner with the necessary knowledge to read an assignment and then to give effect to the assignment, subject to any necessary requirement.
There are a couple of points to note before diving into the substance of this paper. First, when interpreting assignments, the title examiner should be aware that assignments can often be ambiguous. Unlike most conveyances of surface and minerals, assignments are no longer boilerplate documents. In the early record, usually before the 1980s, assignments were relatively straightforward, most assignors using boilerplate assignment forms, reducing the chance of ambiguity. Boilerplate forms eventually fell by the wayside, however. Adding to the chance of ambiguity are agreements between the assignor and assignee, such as a purchase and sale agreement, which are far more complicated than a traditional transaction conveying surface or minerals. As a result, the corresponding assignments to the agreements are more complex and lengthy, increasing the likelihood of ambiguity or error.
Second, basic rules of contract apply to the interpretation of assignments, including the intent of the parties. However, the title examiner will only be able to make his or her determination based on the information at hand, which would most likely exclude extrinsic evidence. More often than not, the title examiner is left with the four corners of the document, in the context of the record. And lastly, while it should be noted that basic title principles that affect conveyances of surface and minerals, such as recording date, acknowledgments, or proper executions, also affect assignments, this paper will focus on the more challenging or unique interpretative problems connected with assignments and their application.
With the foregoing in mind, the following is a step by step approach that an attorney can take when interpreting assignments in the record title. Note that this is a generalized discussion based on firsthand experience in the oil and gas industry, much of which cannot be found in a reference book.
Interpreting Assignments of the Oil and Gas Lease Oil and Gas Title Examination, OBA/CLE 2015 By Jereme Cowan
Step 1: What is the identity of the Assignor?
The parties to an assignment are known as the assignor and the assignee, their counterpart in a conveyance being the grantor and the grantee. The assignor executes the assignment transferring an interest unto the assignee. One issue as it concerns the parties to an assignment is the identity or succession of the assignor. Since assignments cover working interests, the prevailing record owner will be a company, many of which will merge with or be acquired by other companies or may simply change their name. If the assignor is a stranger to the record title, the title examiner should therefore inquire as to whether the assignor is the successor in interest to a record owner. For example, Drilling Oil and Gas, Inc. is the record owner of a certain lease, which is then assigned in the record by Drilling Partners, Ltd. Nothing in the record suggested that Drilling Partners acquired, merged with, or otherwise succeeded in interest to Drilling Oil and Gas. However, after inquiry, the title examiner determines that said Drilling Partners did in fact succeed in interest to the record owner, Drilling Oil and Gas.
Many times the succession or identity of a company can be presumed, subject to objection and requirement, based on information contained in the record. However, on occasion, the title examiner may need to consult information outside the record, such as a company’s history provided on a home website or a list containing mergers and acquisitions of oil and gas companies. As always, whether the succession or identity is presumed from information contained in or outside the record, an objection and requirement should be made when the succession or identity is not properly substantiated in the record.
Related to the foregoing, a title examiner may rely on a recitation in the record that clarifies the succession or identity. For example, an assignment’s granting clause may read “Drilling Partners, Ltd., formerly known as Drilling Oil and Gas, Inc., hereby assigns….” In this case, the assignment itself reflects that the record owner has been succeeded in interest, whether it be by merger, acquisition, or name change. If title examination is conducted in a state without title examination standards allowing for reliance on a recitation contained in a recorded title document properly executed by the surviving or resulting corporation, then a broad comment stating such should suffice, without having to resort to a specific objection and requirement. Note the distinction in scenarios when an objection is necessary as opposed to when a broad comment is sufficient. In the former, there is no direct recitation contained in the record but rather the title examiner is extrapolating from information either inside or outside the record. In the latter, the assignment itself provides the necessary information for the title examiner to directly link the entity executing the assignment with a prior entity in the record.
Step 2: What Type of interest?
First and foremost, the title examiner needs to determine the type of interest being assigned (or reserved). More often than not, if the assignment is transferring an interest in a lease without overriding royalty language or net profits language, then a working interest is being assigned. When there is ambiguity, the title examiner should remember that a working interest is the right to work on the leased property— searching, developing, and producing oil and gas. On the other hand, an overriding royalty interest is share in production attributable to a particular lease. An overriding royalty interest operates the same as a landowner’s royalty: an interest free of the cost of production that does not carry with it the right to explore or produce.
2 Interpreting Assignments of the Oil and Gas Lease Oil and Gas Title Examination, OBA/CLE 2015 By Jereme Cowan
Here is an example where the type of interest may not be as clear as it ought to be. Assume that Drilling Oil and Gas, Inc. assigns unto Bob Energy Corporation an undivided 1/32 of all oil and gas produced under a certain lease. No other language indicates what type of interest is being assigned. Being that the language reads “1/32 of all oil and gas produced” and not “1/32 of the lease,” it would appear that the assigned interest was a share of production, not the right to “work” on the leased premises. Therefore, unless other factors outside the assignment suggest the intent to convey a working interest, the title examiner should credit Bob Energy Corporation with an overriding royalty interest. Depending upon his or her comfort level, the title examiner may also want to include an objection and requirement.
Using the same example, note that if Drilling Oil and Gas had assigned ½ or, say, ¾ of all oil and gas produced under a lease, the large fractional interest may suggest a working interest was intended to be assigned, not an overriding royalty interest, being that working interest owners tend to not carve out a majority of their proceeds. Furthermore, using the same example, assume that Drilling Oil and Gas had conveyed unto Bob’s Royalty, Inc. Based on the name of the assignee alone, it may be safe to assume, especially in light of all the other factors, that an overriding royalty interest was intended to be assigned.
Step 3: What Amount of Interest?
Working interests tend to be relatively straightforward. Either the assignor is purporting to assign all of its right, title and interest under a lease, all of a lease (read 100%), or a fractional interest in a lease. Digressing a bit, now would be a good moment to discuss the difference between all right, title and interest of the assignor and 100% of a lease. All of the assignor’s right, title and interest could be 100% or could be some fractional interest. It depends on what the assignor owns of record. If an assignor assigns a lease, without any fractional limitations or without the foregoing language limiting it to the assignor’s right, title and interest, then the assignor is purporting to assign 100% of the lease. The prudent examiner notes the distinction.
Overriding royalty interest can sometimes not be as straightforward. Often, the assignor decides to use a formula for the computation of the assigned or reserved overriding royalty interest. For example, a recitation in the assignment reads as follows: an overriding royalty interest equal to the difference between 20% and lease burdens. Here, the overriding royalty interest would be calculated by first adding up all the lease burdens, such as a 1/8 landowner’s royalty and a previously conveyed 1/32 overriding royalty interest, and then subtracting that number from 20%, which is represented mathematically as 20% - (1/8 + 1/32) = 4.375%. There are various business reasons for computing an assigned or reserved overriding royalty interest with the subtraction of lease burdens from a certain percentage, the most prominent being that assignments of leases typically cover a “block” of leases, which contain various lease net revenue interests. Showing the overriding royalty interest as a formula rather than a specific number allows the assignor to either retain or convey the leases at certain net revenue interest. In the prior example, assuming the assignor was assigning the overriding royalty interest, it was retaining an 80% net revenue interest in all the leases covered by the assignment, except, of course, those leases which were already burdened greater than 20%.
3 Interpreting Assignments of the Oil and Gas Lease Oil and Gas Title Examination, OBA/CLE 2015 By Jereme Cowan
Regarding that last statement, the title examiner should be aware that sometimes when a formula is given to calculate a certain overriding royalty interest, an overriding royalty interest may not be created. Using the previous example of a recitation reading “an overriding royalty interest equal to the difference between 20% and lease burdens,” if the landowner’s royalty was ¼, then it would be impossible mathematically to assign or reserve an overriding royalty interest, due to the lease already being at a 75% net revenue interest.
One last note regarding the calculation of overriding royalty interests, it should be noted the assignor may use the following language: “a 1/32 of 7/8 overriding royalty interest.” If reviewing Ohio land titles, the question becomes whether the overriding royalty interest or share of production was intended to be 1/32 or 1/32 x 7/8. In numerous instances, industry standard in the State of Ohio was to identify or describe the overriding royalty interest in light of the current leasehold burdens, so the “7/8” was a reference to the 1/8 mineral owner’s royalty, not an attempt at creating an overriding royalty interest equal to 1/32 x 7/8. Therefore, though mathematically it reads “1/32 of 7/8” or “1/32 x 7/8” the parties were intending to simply convey or reserve a 1/32. If conducting title examination for lands located in the State of Ohio, the attorney should be aware of this oddity, and as always, object.
Step 4: What lease is covered?
All leasehold interests derive from a lease. Therefore, it is imperative that the examining attorney determine what lease is covered by an assignment. If the assignment covers one or just a few leases, then the lease(s) will probably be described somewhere in the body. If the assignment covers multiple leases, then typically they will be described in an Exhibit “A” attached thereto.
The descriptions of the leases can be detailed or cursory. Obviously, the title examiner prefers a more detailed description, which would include recording information, dates, references to the lessor and the lessee, and lands covered. However, sometimes the description of the leases are not as detailed, maybe only containing a book and page and section number. Regardless of the detail in the description, the title examiner need only be certain what lease is being referenced. If it is ambiguous, the attorney should object. The attorney should also object if the description of the lease is not in compliance with a particular state’s statute. Note that a scrivener’s error in the description does not necessarily constitute a title defect if there is enough information contained in the record to infer what lease is being described.
Moreover, the examining attorney may occasionally come across an assignment with a broad description, such as “all leasehold interest in Section 25-7N-7W” or “all interest in Bob Unit #2.” When this occurs, the attorney should credit the assignment against any leasehold interest held by the assignor as to the broadly described lands, which may include multiple leases. To clarify the record, an objection may be necessary, depending upon the attorney’s comfort level with the intent of the parties.
4 Interpreting Assignments of the Oil and Gas Lease Oil and Gas Title Examination, OBA/CLE 2015 By Jereme Cowan
Step 5: What are the limitations to the assigned interest?
By far the most challenging (and often most ambiguous) aspect of an assignment is the limitations to the assigned interest. Like land itself, a lease is a bundle of sticks. A lease can be cut and carved any which way, limited only by the imagination of the oil and gas industry. If an assignor wants to assign a lease insofar as that lease covers a particular formation in the strata, then the assignor can do so. The following are standard limitations that the examining attorney should recognize.
Wellbore
An assignment can be limited to the wellbore of a well. A wellbore limitation means that the assignor is assigning only those rights to production from the wellbore of a certain well, arguably at the total depth it existed at the time of the assignment. All interest outside the wellbore are excluded from the assignment, entailing that a wellbore assignee can produce from shallower formations in the wellbore but cannot produce from deeper formations or lands outside the wellbore.
The central problem with wellbore only assignments is determining when in fact there is a wellbore only assignment. The title examiner should be aware that a wellbore assignment is the narrowest of assignments. Very limited rights to the lease are being assigned. It can be argued that the lease or unit and the lands covered by the lease or unit need only be described for informational purposes, as it is rights to the wellbore being assigned.
Here are a few examples of wellbore only assignments or assignments that masquerade, in the mind of the title examiner, as a wellbore only assignment. For starters, an unambiguous wellbore only assignment would include the following language:
All of Assignor’s right, title and interest in and to the oil and gas leases described in Exhibit “A” attached hereto, insofar as said leases cover rights in the wellbore of the Bob Well #1 only.
Further language in the assignment, making it abundantly clear that it is the intent to convey rights to production from the Bob Well #1 only, may provide that the leases and lands described in the Exhibit “A” attached thereto are for informational purposes and that the assignor reserves all rights outside and below the wellbore of the Bob Well #1. Unfortunately, the title examiner will not always have the luxury of interpreting such well-defined limitations, no pun intended.
Another example would be when no lease is mentioned. An assignment reads, as follows:
All of Assignor’s right, title and interest in the production in the wellbore of the Bob Well #1 only, located in the NW/4 of Section 25-7N-7W.
Here, a lease is not described; however, for recording purposes, description of lands would be necessary in order for it to be properly filed against a tract indices. The fact that the lease or leases are not described may not affect the intent of the parties to assign a wellbore only. In this case, the attorney should limit the foregoing language to wellbore rights in the leases owned by the assignor, even though the leases were not
5 Interpreting Assignments of the Oil and Gas Lease Oil and Gas Title Examination, OBA/CLE 2015 By Jereme Cowan described, not even for informational purposes. As always, when not definitively clear, the attorney should object.
Adding a twist to the prior example, assume that the assignment contained the following language:
All of Assignor’s right, title and interest in the Bob Well #1 Unit.
As will be immediately noted, this language lacks the term “wellbore.” When an assignment lacks that crucial term, it probably is not a wellbore only assignment, or at least it would be hard for a title examiner to make that determination without extrinsic evidence. While this language is limiting in nature, it should not be concluded that the assignor intended to limit the assigned interest to a wellbore only assignment, unless the attorney is privy to more information. On the other hand, if the foregoing language included a reference to “production only from Bob Well #1 Unit,” there would then be a case to argue that perhaps wellbore rights only were intended. However, the term “unit” would imply the encompassing acreage making up the unit, casting doubt on a wellbore only assignment.
One last example regarding wellbore only assignments, suppose the Exhibit “A” attached to a certain assignment tabulated a lease, along with the name of the well, such as follows:
Book 74, Page 90; Bob Smith, Lessor; 9/18/1978; NE/4 NE/4; Section 25; Bob Well #1
The fact that a well or unit is mentioned in the description of the lease does not entail that the assignor intended to convey wellbore rights only. More often than not, a reference to a well or unit is for informational purposes. When in doubt, the title examiner should refrain from crediting a wellbore interest only, unless it is clear that such was the intent of the parties.
Depth Limits
Many assignments are limited to certain depths or to a particular formation. For instances, an assignment may limit the assigned leases “insofar as said leases cover the Woodford Formation” or “insofar as from the surface to a depth of 8100 feet.” Depth limitations are far more prominent than wellbore limitations and are considerably less ambiguous. The essential task at hand when dealing with depth limits is juggling the split leaseholds. The examining attorney needs to be meticulous when chaining the leasehold, remembering that all formations or depths not described in the assignment are not part of the assigned interest.
Sometimes an assignment may be limited to a certain formation or depth as the result of a reservation. For example, an assignment may contain the following reservation:
Reserving unto the Assignor all formations above the top of the Queenston Formation.
This language results in all interest below the top of the Queenston Formation being conveyed, while all interest above the top of said formation being reserved or excluded from the assignment.
6 Interpreting Assignments of the Oil and Gas Lease Oil and Gas Title Examination, OBA/CLE 2015 By Jereme Cowan
There are numerous ways to construct an assignment in order to limit it to a formation or depth, too numerous to give an example of each. The examiner should always read an assignment thoroughly to determine whether a depth limitation is pertinent. Many times such a limitation is buried in one of the numerous special provisions. Furthermore, being that the examining attorney may face multiple splits in the leasehold, a stratigraphic chart may be necessary. At times, the attorney may also need to refer to well information to determine total depth in a certain well or to determine at what depth a certain formation lies. For example, an assignment may be limited to all interest “100 feet below total depth drilled in the Bob Well #1.”
Horizontal Limits
In order to accommodate the formation of units, leases will often be assigned only as to a portion of the lands covered thereby. For example, Drilling Oil and Gas, Inc. enters into a joint operating agreement with Bob Energy Corporation for the drilling of a 40 acre unit well in the NW/4 NW/4 of Section 25. Drilling Oil and Gas owns all of a lease that covers the N/2 NW/4 of Section 25. Rather than assigning all of that lease, Drilling Oil and Gas decides to assign only that portion of the lease covering the NW/4 NW/4, which will encompass the unit lands. Therefore, Drilling Oil and Gas executes a lease in favor of Bob Energy with the following limitation: “Insofar as said lease covers the NW/4 NW/4 of Section 25.”
The examiner should be aware that sometimes a horizontal limitation may not be clear. Using the example from above, which reads as follows:
All of Assignor’s right, title and interest in the Bob Well #1 Unit.
As discussed above, this language is not detailed enough to limit the assigned interest under the lease to a wellbore only. However, it can be argued that the language limits the assigned interest to those lands lying within the identified unit. Consequently, if the assigned lease covered lands in addition to the lands covered by the unit, then it can be argued that only that portion of the leased lands within the unit are assigned. It should be noted that horizontal and depth limits are fact based and will vary greatly from one scenario to the next.
Step 6: Any References to Unrecorded Agreements?
Many assignments have corresponding purchase and sale agreements, farmout agreements, or joint operating agreements, all of which can have an effect on ownership of the leasehold. A title examiner should look for references to such agreements so that he or she can properly advise his or her client as to the possible effect on title. It should be noted that some agreements may be between multiple parties, some of which may not be an assignor or assignee to a particular assignment.
7 Interpreting Assignments of the Oil and Gas Lease Oil and Gas Title Examination, OBA/CLE 2015 By Jereme Cowan
Conclusion
As mentioned in the introduction above, this paper serves as a general overview of the examination of assignments in the record title. A more detailed paper could accompany many of the topics discussed above. Following the steps above, an attorney should have a solid framework to operate when interpreting assignments of leasehold. Remember, the title examiner not only needs a grasp of the types of interest being assigned in the leasehold but also an awareness of the dimensions of the assignment as used in the oil and gas industry.
8
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
THE PURPOSE AND COMMON ISSUES WITH TITLE REQUIREMENTS: A DETAILED LOOK AT SOMETHING NO ONE FULLY UNDERSTANDS, NOT EVEN ME
by Melissa R. Gardner
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
Melissa R. Gardner Associate Direct 405.606.4782 [email protected]
Common Issues Regarding Title Requirements: An Indepth Look at Something No One Understands, Not Even Me
I. Purpose of Title Requirements II. Types of Title Requirements III. General Types of Problems a. Lack of Specificity b. Lack of Connection to Current Owner c. Unnecessary d. Too Much Specificity e. No Way to Cure Title f. Not Combing Similar Issues g. Omitting Objections IV. Conclusion
Many parts of drafting a title opinion can be intimidating. Reviewing old instruments can be overwhelming. Rounding ownership numbers to within eight decimal places can be confusing. But, I’ve found that drafting the body of the opinion is what concerns the young title attorney the most. In an effort to reduce that stress, I want to address common issues that occur when drafting objections and requirements. In trying to ascertain the most common issues, the answer will change depending on the party you ask. Our clients want a title opinion that reflects record ownership is without issue or defect and they want that opinion completed in a day’s time. On the other hand, our burden is to make our clients aware of any and all issues that arise in title and all of the risks they are accepting if they choose to operate in the lands described. If you were to ask many of our clients, the problem with title requirements lies in their mere existence, they add a roadblock to their drilling operations. Title attorneys know requirements are necessary, but need advice on how to prepare them in the way that would best serve the clients. That is my hope for this paper.
I. Purposes of Title Requirements
When identifying the most common issues with title requirements, you have to first look at their purpose. The purpose of a title objection or comment should be to provide your client with information regarding defects in mineral and leasehold ownership in lands they are interested in developing and the risks associated with those defects. The subsequent requirement, in most cases, should contain a plan of action as to how to establish marketable title to those lands. In some cases, requirements are written for informational or advisory purposes. All of these comments and objections are intended to make the clients aware of the risks they are taking by operating on the lands covered. While pointing out risks is the purpose of drafting a title opinion, establishing marketable title in a timely fashion is the purpose behind requesting a title opinion. These purposes are often in tension. The more issues a title examiner encounters and includes in a title requirement, the greater the length of time between a client’s request for a title opinion and the receipt of that work product. Additionally, the more issues the client has to address prior to their drilling operations, the less effective an opinion seems in their estimation. And, of course, the longer it takes to prepare an opinion, the greater the bill. Dealing with these somewhat conflicting purposes often result in the following common issues with title requirements. As a title examiner, it is our burden to balance these conflicting purposes and provide enough information to the client to adequately advise them of the risks and provide them with information necessary to clear title, while at the same time understanding the client needs for efficiency and timeliness.
II. Types of Title Requirements
As you might imagine, different types of objections and comments are subject to different kinds of issues. While there are various types of objections and comments, in my experience, I’ve found three general categories.
a. Defect In Record Title This category is the most common. These objections and requirements are necessary when, as you’re examining instruments in the chain of title, you find that there is an error in one or in the chain as a whole. In general, the subjects of these objections are specific. They involve
specific owners, with specific interests, in specific lands, and through specific instruments. In kind, they have specific requirements to cure them. If an instrument contains an error, you call for a correction. If an instrument in the chain has been omitted, you call for it to be filed of record. An example of this type of objection would be: Comment: The acknowledgement in Lease 4, as tabulated below, is defective in that James Madison, individually, is not properly described.
Requirement: File a correction of Lease 4, containing a proper acknowledgment and satisfy yourself that it is properly indexed against the lands covered herein.
Most of the issues discussed in this paper involve this type of objection and requirement. They are more susceptible to these issues because there is a certain level of specificity that is necessary to inform the client, while still needing a certain amount of restraint to meet the client’s needs for timeliness and efficiency.
b. Advisory This type of objection and requirement is often shown in title opinions as comments. They include information that you want your client to be aware of without calling for any action from the client. They often include information that would cause your client confusion if they were not made aware of the information. The following is one of the most frequently occurring advisory objections I’ve drafted:
Comment: This opinion is limited to the force pooled formations, being the Marmaton, Tonkawa, and Hunton.
Requirement: Advisory.
This type of objection and requirement is most subject to the last issue discussed herein, omission. There are many times when the title examiner, while in the midst of their examination, fails to inform the client of information they assume is common knowledge. It takes knowledge and experience to determine when this information is necessary versus overly burdensome.
c. Including Information Not Found of Record Finally, this type of objection and requirement is necessary because our clients often provide us with information that is not found of record. In these cases, there are multiple reasons to include an objection stating that you have reviewed those instruments or that your client has advised you of an issue that is not of record. The following is a common example of such: Comment: Rough Riders, Inc. owned Leases 1-44. You have advised that Rough Riders, Inc. has conveyed all of its interest in these leases to New Deal Enterprises, Inc. We have not reviewed an instrument conveying such interest. However, for the purposes of this opinion, we have shown Leases 1-44 as being owned by New Deal Enterprises, Inc.
Requirement: You should obtain and file of record a conveyance through which Rough Riders, Inc. conveyed all of its interest in Leases 1-44 to New Deal Enterprises, Inc.
Including this information in your title opinion is important for multiple reasons. Frist, the person giving you that information might not be the person who examines your title opinion. If the person reviewing the opinion is unaware of the deal made between the parties mentioned in the example, they will be questioning the ownership of New Deal Enterprises, Inc. Second, it is customary for you to list the instruments on which you are relying. That traditionally includes instruments filed of record. If you’re examining something outside of those instruments, you should make everyone aware of it. Finally, you want this information included for your own purposes. You might be asked to update the information, or be questioned regarding ownership years after you’ve prepared the opinion. If you haven’t made the foregoing objection and an assignment between the parties isn’t included in your instruments, your job becomes much more difficult. In my experience, these objections are susceptible to many of the issues listed below.
III. General Types of Issues
a. Lack of Specificity The most common type of issues I’ve found in title requirements involves the lack of specificity. We’ve all examined opinions which included comments and objections wherein an attorney failed to fully explain the details resulting in the title defect. For instance, the following objection and requirement could describe a valid issue, but the lack of information causes a very real problem:
Comment: The Heirs and/or Devisees of Thomas Jefferson could be claiming more interest in the NE/4 than Thomas Jefferson owned in said lands at the time of his death.
Requirement: Inquire with the Heirs and/or Devisees of Thomas Jefferson to determine what interest they are claiming. If an interest greater than that shown herein is claimed, you should provide us with any proof evidencing the same. If no greater interest is claimed, they should execute and file of record a disclaimer of any interest greater than that shown herein.
From the information provided above, you know that the Heirs and/or Devisees of Thomas Jefferson could be claiming more than they should own of record, however, that is not enough information. The names of these Heirs and/or Devisees are not listed; there is no description of the instrument through which these parties are claiming the increased interest; the date of these claims were omitted from the information provided; and finally, it does not indicate what interest is claimed or what actual interest is owned. If title examiners are to provide a product that serves the purposes stated above, their comments and objections have to contain enough information for a client to easily cure the defect. In the foregoing example, the client would not know what individuals to approach or from whom to obtain the disclaimer. Additionally, they would not have the information necessary to provide the instrument through which the individuals are claiming the interest. By including this information in the comment and requirement, the attorney meets the client’s needs in a more direct and efficient manner. This lack of specificity can also result in describing conflicting ways to interpret a situation or instrument, without stating how you’ve chosen to handle it in your opinion. The following example illustrates this common problem: Comment: Lyndon Johnson owned 10 mineral acres in the NE/4. In a Mineral Deed filed in Book 113, Page 114, Lyndon Johnson assigned all of his interest in the NE/4 to John Kennedy. Such deed contains an intent clause, indicating that it was the intent of the parties to convey 5 mineral acres in the NE/4.
Requirement: Obtain and file of record a corrected Mineral Deed, correctly describing how many mineral acres in the NE/4 were to be conveyed under the foregoing deed.
There were two possible interpretations of the mineral deed in question, equally reasonable. It would have been reasonable for you to show John Kennedy owning 5 or 10 mineral acres in the NE/4. To alleviate any confusion, you should have included in the objection how you
interpreted the deed, specifically, how many acres you are crediting to John Kennedy as a result of the mineral deed.
b. Lack of Connection to Current Owners Another common issue occurs when the comment or objection does not indicate what current owners are affected by the title defect. In these cases, even when the title examiner includes sufficient detail, they fail to connect the title defect with the current owners. Using our first example, you can see how the lack of this connection poses a problem to clients attempting to satisfy requirements: Comment: The Heirs and/or Devisees of Thomas Jefferson could be claiming more interest in the NE/4 than Thomas Jefferson owned in said lands at the time of his death.
Requirement: Determine with the Heirs and/or Devisees of Thomas Jefferson to determine what interest they are claiming. If an interest greater than that shown herein is claimed, you should provide us with any proof evidencing the same. If no greater interest is claimed, they should execute and file of record a disclaimer of any interest greater than that shown herein.
The client would not have known which owners to approach to cure the requirement. The information provided does not indicate if the Heirs and/or Devisees of Thomas Jefferson still own in the lands. Even if more specific information, being the names of the heirs and/or devisees described in III(a) was provided, the requirement is unhelpful. In order to best meet the needs of the client you have to provide them with information as to what issues are burdening which current owners. The oil and gas operator is concerned about obtaining current drilling rights; by connecting the issues to those current rights, you’re best serving your client. If they have no way of knowing which current drilling rights are affected by this title defect, you haven’t provided your client with an effective product. If a client has to do research beyond the opinion to determine these risks, the title requirements fails to meet any of the above stated purposes.
c. Unnecessary The problem I was most often guilty of in my early practice of title examination was the inclination to draft objections or comments which were not necessary. I would draft lengthy objections, laying out situations that would otherwise have resulted in title defects. Then I would
arrive at the drafting of the requirement and I would find that a) I should call for an instrument that had already been filed of record or b) there was a curative statute that would have removed the defect. The first category, previously filed instruments, is illustrated in the example below:
Comment: George Washington was the record owner of the S/2. He conveyed all of his interest in the S/2 to John Adams in a Warranty Deed filed in Book 123, Page 456. In a Mineral Deed filed in Book 222, Page 333, George Washington purported to convey all of his interest in the S/2 to Andrew Jackson. In a QCD filed in Book 234, Page 101, Andrew Jackson conveyed all of his interest in the S/2 to John Adams.
Requirement: Determine what interest, if any, John Adams is claiming in the S/2 as a result of the conveyance from Andrew Jackson.
Andrew Jackson was a stranger to record title; however, he subsequently conveyed all of his interest to the correct owner of record, making the requirement unnecessary. While this is a simple example, it is a very common issue, and one that directly contradicts with our client’s purposes for requesting a title opinion. Even if you end up not calling for the unnecessary instrument and determine you should omit the objection entirely from the opinion, if you’ve spent valuable time and energy drafting the objections, you’ve acted counter to your client’s desire for timeliness and efficiency. The second category, curative statutes, would result in drafting an objection and requirement when enough time had lapsed that statutes would have made any further action unnecessary. More in-depth discussions of these statutes are covered in other portions of this course. You are most likely to fall into this trap when you’re discussing issues that occurred many years prior, thus not directly affecting current drilling rights.
d. Too Much Specificity Some title attorneys would tell you that it is impossible to be too specific. After you’ve read their title opinions, you’d disagree. As a title examiner, your task is to give the client just enough information, not too much. Including irrelevant information in your comments, objections, or requirements will result in opinions that are far too lengthy and cause unnecessary confusion. You’ll note that in many of the examples given in this paper, the record owner is
stated as a matter of fact. If those examples were more like the one below, you can easily see the problem: Comment: In a patent dated September 16, 1904 and filed in Book 1, Page 151, Martha Washington was patented the SE/4. In a patent dated December 20, 1905 and filed in Book 2, Page 252, William Clinton was patented the SW/4. In a Final Decree entered in the Estate of Martha Washington, Case No. 1234, Carter Co., dated September 16, 1906 and filed in Book 4, Page 55, the Court distributed Martha Washington’s interest in the SE/4 to George Washington. In a Warranty Deed dated January 1, 1907 and filed in Book 5, Page 44, William Clinton conveyed the SW/4 to George Washington. In a Warranty Deed dated February 2, 1938 in Book 123, Page 456, George Washington conveyed all of his interest in the S/2 to John Adams. In a Mortgage dated March 16, 1938, John Adams mortgaged the S/2 to the Bank of Melissa. In a Mineral Deed filed in Book 222, Page 333, George Washington purported to convey all of his interest in the S/2 to Andrew Jackson. In a QCD filed in Book 234, Page 101, Andrew Jackson conveyed all of his interest in the S/2 to John Adams.
Requirement: Determine what interest, if any, John Adams is claiming in the S/2 as a result of the conveyance from Andrew Jackson.
It is clear how much of the information included above is unnecessary. The title is clear and marketable up to the point of George Washington’s ownership. The dates of the instruments are not in question. The filing dates of the instruments are irrelevant. The mortgage filed did not affect ownership. All of the necessary information would have been included if the foregoing objection started as our example in III(c), with George Washington’s ownership. As was mentioned previously, you want to provide your client with enough information to find the documents in question, but you rarely need to include all of the information about an instrument, unless it is those details that are the cause of the title defect.
e. No Way to Cure Title Even when you’ve successfully included all of the information we’ve discussed in the prior examples, you have not written a proper objection and requirement if you have not provided your client with a clear plan of action as to how to cure or clear title. In the following examples, if any of them had simply been advisory, or had generally called for the client to “fix” the problem without giving specifics, you haven’t given your client enough information. You are the title attorney. You are in the best position to determine what would cause the title issue to go away. In the following example, you can see the issue:
Comment: Franklin Roosevelt owned a 1/4 mineral interest in the N/2 of the section. In Lease 32, as tabulated below, Franklin Roosevelt leased his interest in the NE/4 to Winston Churchill Oil and Gas, Inc.
Requirement: Satisfy yourself that Lease 32 covers all of Franklin Roosevelt’s interest.
The requirement included herein isn’t wrong, it’s just not complete. You should include a method by which the parties would ensure that Lease 32 covered all of the N/2. This could include calling for a correction of Lease 32 between the parties correctly describing the N/2; a separate lease from the current owners of the NW/4; or other variations of this solution. Any of these are acceptable, but whichever you choose should be specific enough for the client to know how to go about satisfying the requirement. Another way to view this issue is if you’re asked to update a title opinion prepared by someone else, what would you need to examine to “satisfy” the requirement? Or, the filing of what instruments of record would have prevented you from including this objection originally? These are the things you should specifically outline for your client.
f. Not Combining Similar Issues In order to best meet your clients’ needs for timeliness and efficiency, it makes the most sense to combine issues that are alike. This can include combining different issues that affect the same parties or combining the same issue that affects multiple parties. This issue first came to my attention when I was examining an old title opinion wherein the examiner drafted a lengthy objection and requirement for each unleased mineral owner. It appeared to me that the examiner’s desire to illuminate risk and the client’s desire for efficiency would both have been better served if the examiner had drafted one objection listing all of the unleased mineral owners, calling for the client to lease or force pool all of those parties listed. The following is another example:
Comment: Woodrow Wilson owned the SE/4. In a Mineral Deed filed in Book 555, Page 987, he purported to convey the S/2 to Warren G. Harding.
Requirement: Inquire with Warren G. Harding to determine what interest in the SW/4 he is claiming as a result of the foregoing Mineral Deed. If an interest in the SW/4 is claimed, you should provide us with proof evidencing the same, including what interest was owned by Woodrow Wilson in the SW/4 at the time of the foregoing Mineral Deed.
If no interest in the SW/4 is claimed, you should obtain and file of record a disclaimer of the SW/4 from Warren G. Harding.
Comment: Warren G. Harding owned the minerals in the SE/4. In Lease 29, as tabulated below, Warren G. Harding purported to lease the S/2 to Thousand Points of Light Operating Corp.
Requirement: Inquire with Warren G. Harding and Thousand Points of Light Operating Co. to determine what interest in the SW/4 is claimed under Lease 29. If an interest in the SW/4 is claimed, you should provide us with proof evidencing the same. If no interest in the SW/4 is claimed, you should obtain and file of record a correction of Lease 29 correctly describing the SE/4.
You can see how these two issues could easily be combined. This would not only meet the client’s needs for efficiency, but it would also help the client get the issues cured at one time. If these objections are separated in the opinion and not correctly attached to the current owners, it could be difficult for the client to see that these issues are very closely related. Again, as mentioned above, this could also be an issue if the examples were as follows:
Comment: Warren G. Harding owned 1/2 of the minerals in the SE/4. In Lease 29, as tabulated below, Warren G. Harding purported to lease the S/2 to Thousand Points of Light Operating Corp.
Requirement: Inquire with Warren G. Harding and Thousand Points of Light Operating Co. to determine what interest in the SW/4 is claimed under Lease 29. If an interest in the SW/4 is claimed, you should provide us with proof evidencing the same. If no interest in the SW/4 is claimed, you should obtain and file of record a correction of Lease 29 correctly describing the SE/4.
Comment: Calvin Coolidge owned 1/2 of the the minerals in the SE/4. In Lease 30, as tabulated below, Calvin Coolidge purported to lease the S/2 to Thousand Points of Light Operating Corp.
Requirement: Inquire with Calvin Coolidge and Thousand Points of Light Operating Co. to determine what interest in the SW/4 is claimed under Lease 30. If an interest in the SW/4 is claimed, you should provide us with proof evidencing the same. If no interest in the SW/4 is claimed, you should obtain and file of record a correction of Lease 30 correctly describing the SE/4.
This one issue, affecting many parties could be combined. You can see how this would advise the client to obtain one instrument to clear both issues.
g. Omitting Objections The final issue that I’ll address in this paper is a difficult one of which to provide examples. I would frame it as an omission of necessary objections and requirements. There could be issues that you miss; there could be defects you intended to address that you fail to; or there could be instruments you misinterpret. While this omission can certainly occur due to mistakes, I am convinced that there are other motivations. I assume that this error most often occurs in an effort to meet the demands of a client. As a title examiner it is tempting to choose not to write objections and requirements covering certain issues that you know will annoy a client or that you are certain will be waived by a client. While it is understandable why one would do this, especially if requested by a client, it is important to remember many of the things we’ve previously discussed. Your client, specifically the individual requesting the opinion, is not the only individual who will be reviewing and relying upon your title opinion. Additionally, while you have a responsibility to give the client what they are asking for, you also have a responsibility to correctly interpret the law. You have to cover, not only your liability, but also that of your client. There could be objections that you know a client will waive and you have a responsibility to include them anyway. It is your job to make the client aware of all of the risks they are taking. Taking those risks is their choice.
IV. Conclusion
There are many issues that can occur when a title attorney is preparing the objections and requirements to include in their opinion, many more than even listed here. These issues differ based on the type of requirement an attorney is drafting and for which clients they are drafting the opinion. In order to become aware of and minimize these issues in an opinion, there are a few steps an examiner would be well served to take. My advice would include asking the following questions while drafting an opinion.
1. Why am I objecting to or commenting on this issue? This question will address many of the issues we’ve outlined above, including framing what information you include in the objection. If you are able to clarify why the situation has caused a title defect, you’ll include the proper amount of specificity in the objection; connect it to the current owner; combine it with related objections; and provide a way to cure the title. It will also help you determine if the issue should be included at all.
2. If I knew nothing of this issue and had examined no instruments, could I fully understand the issue just by reading the opinion? This question helps put you in your clients’ position. This, like the previous question, will help you to determine what information you include in your opinion and what information you exclude. It will often ensure that you connect the title defect with the current owner and provide adequate detail to aid the client in obtaining the instrument(s) necessary to cure the defect. Finally, this question helps up remove some of the overly complicated language we, as attorneys, tend to use. Your client is best served when they understand what you’re asking for.
3. What risk would the client being accepting if they were to waive this requirement? This question speaks to the basic purpose of a title opinion. Much like the previous question, it helps you view the issue from the perspective of your client. It helps determine whether or not you include the objection at all and, if so, if it should be advisory in nature. Additionally, the greater the risk, the more substantive the objection and requirement you draft.
4. What would have prevented me from addressing this in an objection? This question is directly related to the information you include as to how to cure title. This question will help you determine what instrument(s) are necessary to clear the defect you’re addressing in your objection and establish marketable title. Additionally, this question can help you determine if an objection and requirement are even necessary. It can also help you determine if they should be framed as advisory objections.
Being aware of these common issues and actively asking the foregoing questions when you’re drafting your title opinion will produce a product that both a) meets the timeliness and efficiency needs of your client and b) fulfills the responsibilities of a title examiner to point out risks and defects in marketable title. It will also produce a product that you are easily able to update and amend, creating a longstanding working relationship.
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
INTERPRETIVE PROBLEMS IN THE MINERAL ESTATE
by Joshua C. Greenhaw
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
OIL AND GAS TITLE EXAMINATION OKLAHOMA BAR ASSOCIATION CLE April 9, 2015
Interpretive problems in the Mineral Estate
1 BY JOSHUA C. GREENHAW
1 Partner, Mee Mee Hoge & Epperson, PLLP.
1
I. THE MINERAL INTEREST
We will begin with the mineral interest. What is a mineral interest? In the oil and gas context, it is the right to explore for “oil, gas, and other minerals”. Is there magic in that phrase? In short: yes.
Oklahoma follows the doctrine of ejusdem generis. This doctrine essentially states that general words do not explain or amplify particular terms preceding them, but are themselves restricted and explained by the particular term. In an oil and gas context, this means the phrase “other minerals” in the longer phrase “oil, gas, and other minerals” means oil, gas, and minerals of like character, i.e. hydrocarbons similar to crude oil and natural gas, but not coal.2 When the phrase “oil, gas, and other minerals” is used in a conveyance, it is understood in Oklahoma that this means the right to explore for oil and gas is being conveyed.
Oklahoma is an “exclusive right to take” state. In other words, Oklahoma subscribes to the theory that the landowner does not own the oil and gas which underlie her land. She merely has the exclusive right to capture such substances by operations on her land. Once reduced to dominion and control, such substances become the object of absolute ownership, but, until capture, the property right is described as an exclusive right
3 to capture.
In Oklahoma, the mineral interest means, while they remain in the ground, oil and natural gas are real property subject to the law of real estate. They are considered to be minerals, and the exploration for oil and gas is considered to be mining. It is clearly
2 See e.g. Wolf v. Blackwell Oil & Gas Co., 186 P. 484 (Okla. 1920). 3 EUGENE KUNTZ, ET AL., THE LAW OF OIL AND GAS § 2.4 (Matthew Bender & Company, Inc. 2014) (citing Rich v. Doneghey, 177 P. 86 (Okla. 1918)).
2 recognized that oil and gas in place are objects of ownership in the sense that the owner
4 of the mineral estate has rights in or to the oil and gas which are protected.
OTHER INTERESTS An overriding royalty interest is a percentage of the working interest which as between the lessee and the assignee is not charged with the cost of development or production.5 Overriding royalty interests typically terminate when the underlying lease out of which they are carved terminates.
A term mineral interest is a mineral interest in effect in the grantee, her successors and assigns, for a term of years, at which time it reverts back to the grantor. A production payment is simply the right to payment from production.
A net profits interest is typically an interest carved out of the working interest, that entitles the holder to a percentage of the net profits (after the expenses of production are deducted.) It is typically a non-participating interest.
TITLE STANDARD In oil and gas title examination, it is important to know what standard of title applies. Typically, this is not a big issue, but it is critical to understand the import of what standard is expected.
Types of Title Standards
Practically speaking, there is no such thing as a “perfect” title6. The closest this to a “perfect” title would be “merchantable title” and “marketable title,” which are used
7 interchangeably in Oklahoma and elsewhere.
4 EUGENE KUNTZ, ET AL., THE LAW OF OIL AND GAS § 2.2 (Matthew Bender & Company, Inc. 2014) (citing Peppers Ref. Co. v. Barkett, 256 P.2d 443 (Okla. 1953)). 5 See XAE v. SMR Prop. Mgmt. Co., 968 P.2d 1201 (Okla. 1998). 6 “If the term ‘free from defects’ means free from all flaws or defects, both of record and in fact, we are speaking of the perfect title, and long ago Lord Chancellor Hardwick stated that ‘it is impossible in
3 By statute in Oklahoma the Title Examination Standards adopted by the
Oklahoma Bar Association (“Oklahoma Standards”) are the official statutory gauge used to determine if title to oil and gas interests is adequate to require the producer to pay the proceeds to the holder of such interest. If payment of proceeds is held up, when the title is really marketable, the producer must pay 12% on the funds being held, rather than 6%,
8 when the title is not marketable.
The Oklahoma Standards define Marketable Title as: “[Title] free from apparent defects, grave doubts and litigious uncertainty, [consisting] of both legal and equitable title fairly deducible of record.”9 Marketable title has also been defined, in a treatise, as title that is saleable (i.e., that which a purchaser can be required to accept) as opposed to
10 being perfect.
The Oklahoma Standards are not only made applicable to oil and gas matters by such statute, but, in general, are deemed by the Oklahoma Supreme Court as being the nature of things that there should be a mathematical certainty of a good title.” G.D. Ashabranner, Standards of Mineral Title Examination—Marketable Title vs. Defensible Title, 9 Rocky Mtn. Min. L. Inst. 95 (1964). 7 The Oklahoma Supreme Court views the terms “merchantable title” and “marketable title” as synonyms. See Knowles v. Freeman, 1982 OK 89, ¶ 16, 649 P.2d 532, 535 (using both terms interchangeably); see also Hawkins v. Wright, 1951 OK 12, ¶ 14, 226 P.2d 957, 961 (“The terms ‘merchantable title’ … and ‘marketable title’ have been generally held to be synonymous”.). The Arkansas Supreme Court also views the terms “merchantable title”, “marketable title”, and “good and indefeasible title” as synonymous. See Hinton v. Martin, 151 Ark. 343, 236 S.W. 267, 268, 271 (1921) (“The word ‘merchantable’ … is synonymous with the word ‘marketable,’ and is used interchangeably with it by all the courts in discussions of titles …”. Moreover, “there is … no difference between a ‘good and indefeasible” title and a ‘marketable’ title.”). 8 52 O.S. § 570.10.D.2a provides, in part: “Marketability of title shall be determined in accordance with the then current title examination standards of the Oklahoma Bar Association.” (emphasis added); see also, Hull v. Sun Ref. & Mktg. Co., 1989 OK 168, ¶ 9, 789 P.2d 1272, 1277 (“Marketable title is determined under §540 [now §570.10] pursuant to the Oklahoma Bar Association's title examination standards”.) 916 O.S. App. § 1.1 (OSCN 2009); see also Holt v. Manuel, 186 Ark. 435, 54 S.W.2d 66, 67 (1932) (defining marketable title as title that “is free from reasonable doubt); see also, Camp v. Commonwealth Land Title Ins. Co., 787 F.2d 1258, 1261 (8th Cir. 1986) (applying Arkansas law and holding, “marketable title is one which imports such ownership as enables and ensures to the owner the peaceable control and use of the property as against everyone else.… To be marketable, title need only be free from reasonable doubt, not ‘ultimately prove impervious to assault.’”) (citing Holt, 54 S.W.2d 66). 10See Thomas P. Schroedter, Oil and Gas Title Examination and Title Curative: Marketable v. Defensible Title, Comprehensive Land Practices, an AAPL Publication, at III-48 (1st ed. 1984).
4 “persuasive”. This weight makes them the equivalent of an opinion from the Oklahoma
11 Court of Civil Appeals.
It would be uncommon for a Marketable Title standard to be specified in a large oil and gas transaction. Some smaller transactions may use this standard, especially for developed producing properties. If you are, for example, examining title for due diligence purposes, a different, and perhaps lower standard may apply.
The standard that is more typically used in a larger transaction is the Defensible
Title standard. There is no specific definition of “Defensible Title” in Oklahoma.
Nationally there is also no definitive definition for “Defensible Title”. A professional article confirms this absence: “There is no legally or commonly accepted meaning for
12 ‘defensible title’ so it must be defined in each asset purchase agreement.”
If a Defensible Title standard is used, since there is no specific definition, it is very important the parties explicitly define what constitutes Defensible Title.
“Defensible Title” is sometimes defined as “provable title that can be successfully defended, if challenged.” This approach requires each separate title to be reviewed under the applicable substantive statutes and case law to determine whether a lessor can successfully challenge such title. Such an approach is noted in another professional article: “The concept of a defensible title is one which, if challenged, has sufficient merit under the relevant court decisions to be successfully defended...” 13 .
11See Knowles, 1982 OK 89, ¶ 16, 649 P.2d at 535 (holding that the title examination standards are persuasive in authority); see also 1979 OK AG 230 (indicating that the examination standards are uniform interpretations for use in examining title but not statutes, and Oklahoma statutes should prevail where there is a conflict with the examination standards). 12 Allen D. Cummings & Randy Browne, Meeting of the Minds on Title Defects, 48 Rocky Mtn. Min. L. Inst. 27, 27.07 (2002). 13 See e.g. Robert G. Pruitt, Jr., Mining Claim Titles for Investors and Lenders, 33 Rocky Mtn. Min. L. Inst. 9, 9.08 fn. 71 (1988).
5 Defensible title has also been defined as: “…[S]omething less than marketable; it is
14 imperfect on the record but is possible to defend.”
Consequently, pursuant general industry practices, each property to be conveyed is subject to a scrutiny requiring (1) a search for all discoverable facts, (2) the identification of the applicable law, and (3), most importantly, an evaluation as to what would be the likely result of a challenge in the form of litigation by a hypothetical lessor, who is attempting to defeat the lessee’s claim.
Defensible Title is viewed through the lens of litigation. Defensible Title, as opposed to Marketable Title, is typically, again by definition, NOT free from litigious uncertainty. Defensible Title is many times defined as that which “can be successfully defended if challenged.” Litigious uncertainty (i.e., a court challenge) is, by definition, expected. However, the contracting parties are free to change or elaborate on this standard. One way to look at Defensible Title is title that is held to a reasonable lease broker standard. In other words, it is title as leased by a reasonable broker, prior to any title opinion or curative work being done. In relatively undeveloped areas, this standard may be the only one available. In more mature areas, it may well be possible to have a higher title standard that falls short of Marketable Title.
II. CONVEYANCING
A. THE MINERAL DEED A mineral deed is typically used to convey the mineral interest, while an assignment of oil and gas leases is typically used to convey the working interest.
However, you should be aware that The terms of an instrument and not its name
14 Schroedter, supra, at note 10.
6 determine its nature and character.15 In the absence of language indicating a contrary intent on the part of the grantor, everything which is essential or reasonably necessary to full beneficial use and enjoyments of the interests conveyed, and which the grantor has the power to convey, passes to the grantee. 16 The right of ingress and egress for
17 development is now implied in both grants and reservations.
B. RULES OF CONSTRUCTION Professor Kuntz succinctly explained the law for construing conveyances:
Under the four corners rule, the court makes every effort to reconcile all provisions of the entire instrument and to arrive at the intention of the parties as deduced from all language contained in the instrument. Stated another way, arbitrary and technical rules of construction are not invoked if the intention of the parties can be determined from the four corners of the instrument without aid. Technical words need not be construed in their technical sense, and strict or literal meaning of the language used will not be applied if it would frustrate the apparent intention of the parties as deduced from the entire instrument.
…The controlling policy is that certainty, though desirable, should be sacrificed in favor of preserving property ownership; that it is not desirable to achieve certainty at the risk of producing injustice to parties who through ignorance or neglect inadvertently make a poor choice of words in attempting to express their intentions in a written instrument.
…Rules of construction or aids in construction are nevertheless utilized in arriving at the intention of the parties under the four corners rule, when the meaning of the instrument is doubtful. The instrument will be construed against the party who prepared the instrument and is responsible for the language used, particularly if such party is experienced in the oil business. In the instance of a deed, the grantor normally prepares the instrument, and consequently the same rule of construction is frequently expressed in terms of construction against the grantor and in favor of the grantee. Where there is no evidence indicating which party drafted the instrument, it will not be construed most strongly against the grantor and the four corners rule of construction will be applied. Further, where the grantors can neither read nor write there is a strong presumption that the grantee prepared the instrument, and the instrument will be construed against the
15 See Colonial Royalties Co. v. Keener, 266 P.2d 467 (Okla. 1953). 16 See Bonner v. Oklahoma Rock Corp., 863 P.2d 1176 (Okla. 1993). 17 See Bonner v. Oklahoma Rock Corp., 863 P.2d 1176 (Okla. 1993).
7 grantee. The rule of construction against the grantor is applied to reservations contained in the instrument, except in those jurisdictions where the court makes faithful application of statutory rules of construction requiring reservations to be construed in favor of the grantor.
If a printed instrument also contains written portions which are in conflict with the printed portions, the written portions will prevail. This is so because the ‘written words are the immediate language and terms selected by the parties themselves for the expression of their intention, while the printed form is intended for general use without reference to particular objects and aims.’ Such rule is applied, however, only where the written and printed portions cannot be reconciled and are wholly inconsistent. It has also been held that if the written provision is repugnant to the grant, it will be regarded as surplusage and will have no effect. Thus where the grantor executed separate deeds, each conveying a fee simple to each child and the widow of a deceased child (retaining a life estate), a written notation in the margin of each deed: "Each heir shall share equally in the underground minerals" was held to be surplusage and ineffective as an attempted testamentary disposition. Typewritten recitals that the land was ‘not leased’ control over the printed form recitals of an existing lease and render ineffective other clauses providing for sharing of royalties and rentals to be "paid under the terms of said lease."
Although the entire instrument is given consideration under the four corners rule of construction, the provisions of the granting clause are given great weight and ordinarily will control in the event of an irreconcilable conflict with other provisions, or if the other provisions are too indefinite to be given any meaning. The interest described in the granting clause may be modified, however, by provisions of a subsequent specific clause, where such later clause is not in conflict, but is explanatory. There has also been a recognized rule that the habendum clause will control over the granting clause, but such rule has lost much of its force. A specific description of the interest in the deed will control over a general description, and a clear intention expressed in the habendum clause will control over the printed provisions of a granting clause. If parenthetical explanatory words are added to the instrument which are inconsistent with the otherwise clear provisions intended to be explained, the explanatory words will be disregarded.
When a deed is capable of two interpretations, that interpretation should be applied which least restricts ownership of the land.
…In Oklahoma, the court has stated that the label has no bearing on the intention of the parties as expressed in the written instrument.…it is apparent from the many opinions which recite the label along with the terms of the instrument, that the label is at least within the "four corners" of the instrument to be construed, although it has no peculiar or
8 controlling weight. As a practical matter, if the instrument is drafted in such a manner that it requires construction, it is likely that the label constitutes little more than a condensation of the confusion created by the terms in the body of the instrument and ordinarily will be of little aid to construction of inconsistent provisions.
…Where reference is made in the deed to other instruments in the chain of title, all such instruments will be read into such deed, and if the deed expressly incorporates an antecedent contract, both instruments must be considered in arriving at the intention of the parties. If a deed refers to other deeds recorded on a date after the date of the deed in which the reference is made, the inconsistency does not invalidate the reference but creates an ambiguity making it possible for the court to consider extraneous evidence. If the deed refers to a prior instrument that is not in evidence, an ambiguity is created and the instrument is construed against the grantor.
…If the deed or other instrument under consideration is ambiguous, then extrinsic evidence may be admitted to show the facts and circumstances surrounding the parties and the execution of the instruments for the purpose of arriving at the true meaning of the instrument and the intention of the parties. If, however, the deed or other instrument is not ambiguous, then such extrinsic evidence is not admissible. Likewise, if the instrument is ambiguous, evidence of subsequent conduct of the parties and the practical construction placed upon the instrument by the parties is admissible. If, however, the instrument is not ambiguous, the construction placed upon it by the parties is not material.
If two or more instruments are prepared and executed as part of the same transaction, all of the instruments will be considered together. Thus, if two deeds are prepared that clearly convey a percent royalty interest, a third on which contains a parenthetical phrase which makes it appear that the percent is "of" royalty, the third deed will be construed in the same manner as the other two deeds, if the consideration is proportionately the same.
…The mere fact that a deed describes an unusual combination of interests or describes different fractions in separate clauses does not mean that such deed is ambiguous if the court can give effect to the intention as expressed literally. Where, however, separate provisions of the deed are inconsistent and effect cannot be given to all such provisions, an ambiguity arises. Such ambiguity arises in most instances, where a deed purports to convey a single interest and contains language which is descriptive of both a mineral interest and a royalty interest. If the term "royalty" is used without specification as to amount or without reference to any oil and gas lease, an ambiguity is created; but the mere use of the term "royalty" does not create an ambiguity if it is possible to determine the extent of such interest.
9 A restricting clause that is not set off by commas modifies only the nearest antecedent clause. Thus, in an exception of "oil, gas and other minerals, reservations and conveyances and oil and gas leases and easements of record," the phrase "of record" does not modify "oil, gas and other minerals," with the result that the grantee did not receive any interest in oil, gas and other minerals.
…Contemporaneous and interrelated deeds must be construed as a whole 18 and harmonized…
Most, if not all of these rules of construction are codified in Oklahoma at 15 O.S.
§§ 151, et seq.
C.THE IMPORTANCE OF THE LEGAL DESCRIPTION. THE STATUTE OF FRAUDS. In Oklahoma, the statute of frauds is found at 15 O.S. § 136. This statute provides that an agreement for the sale of real property must be in writing. If you recall, oil and gas interests are interests in real property. Thus it is critical in any conveyance to satisfy the statute of frauds by adequately describing the location of the interest conveyed. The term for the description of the location of the conveyed interest is the “legal description.”
The purpose of a legal description is to describe a particular parcel of real property to the exclusion of all others on the face of the earth. Thus, a typical legal description (as used in the oil and gas industry) would be: The NE/4 of Section 21-
Township 8N-Range 4E of the Indian Base and Meridian, based on the U.S. Government
Survey thereof.
This method of description is called the Government Survey method. It uses the township system of survey adopted by the U.S. Government. All lands in Oklahoma are described by Government Survey. There are two bases/meridians in Oklahoma: the
18 EUGENE KUNTZ, ET AL., THE LAW OF OIL AND GAS § 16.1 (Matthew Bender & Company, Inc. 2014).
10 Indian and the Cimarron. The Indian Meridian controls the vast majority of the lands in
Oklahoma, while the Cimarron Meridian controls lands in the Oklahoma panhandle.
Other types of legal descriptions include: metes and bounds, platted lands (lots and blocks) and the use of monuments. In Oklahoma, metes and bounds and platted land descriptions are also used.
The goal in drafting and interpreting a legal description is to make sure the lands are described such that all other lands than the lands intended by the parties to be conveyed and accepted are excluded.
D. SPECIFIC PROBLEMS
We will focus on two specific conveyancing construction issues commonly encountered. These are: 1) the Duhig problem, and 2) the royalty/mineral distinction.
1.THE DUHIG PROBLEM What is the Duhig problem? The "Duhig" doctrine comes from the Texas case in which it was famously applied. The case is Duhig v. Peavy-Moore Lbr. Co., 144 S.W.2d
878 (1940).
The Duhig problem is usually illustrated as: X conveys Blackacre to O, reserving an undivided ¼ mineral interest. O then conveys Blackacre to A by warranty deed,
19 reserving to O an undivided ¼ mineral interest. What does O retain?
The Duhig problem is resolved by the Duhig Rule, which is simply stated:
Where full effect cannot be given both to the granted interest and to a reserved interest, the courts will give priority to the granted interest (rather 20 than to the reserved interest) until the granted interest is fully satisfied.
19 See John S. Lowe, Oil and Gas Law in a Nutshell, 140 (Thomson-West 4th ed. 2003). 20 See id. at 141.
11 The Duhig Rule is usually applied when the conveyance contains a general warranty, and perhaps sometimes if it does not 21 , but purports the grantor has full ownership. In such a case, the title which the grantor attempted to reserve will pass to the grantee through estoppel by deed.22 The rationale is the grantor could not convey and
23 warrant and reserve the same thing at the same time.
So, by application of the Duhig Rule, O retains nothing, and A receives ¾ of the minerals, with the other ¼ clearly having been reserved in X. This is consistent with the idea of construing conveyances liberally in favor of the grantee and reservations strictly against the grantor, as discussed previously. The Duhig Rule applies in Oklahoma as stated in the case of Birmingham v. McCoy, 1960 OK 183, 358 P.2d 824.
Duhig persists to this day, as set forth in the case of Combs v. Sherman, 2011 OK
CIV APP 102, 267 P.3d 150 (holding Duhig stands for the proposition that where a warranty deed is executed by a grantor who owned one-half or less of the minerals, and the same grantor then attempted to convey and retain a one-half mineral interest, the warranty deed conveys to the grantee an absolute fee simple subject only to the reservation of the one-half interest previously retained by the grantor's predecessor in title.)
2.THE ROYALTY/MINERAL DISTINCTION The distinction between the mineral interest and royalty interest is important to understand. A mineral interest is usually described as a right to or an interest in oil or gas
21 See e.g. 16 O.S. § 17 (OSCN 2014) and Singer-Fleischaker Royalty Co. v. Whisenhunt, 1964 OK 268, ¶ 22, 402 P.2d 886 (holding “this familiar doctrine [estoppel by deed] while of commonlaw origin, was fused into our jurisprudence by enactment of Title 16 O.S. 1961 § 17…”) Note that 16 O.S. § 17 does not require the instrument be a warranty deed. 22 See EUGENE KUNTZ, ET AL., THE LAW OF OIL AND GAS § 14.5 (Matthew Bender & Company, Inc. 2014). 23 See id.
12 as they reside in place, while a royalty interest is a right to or interest in oil or gas after capture. Both interests are present interests before entry and capture, but the owner of
24 each interest looks to different methods of enjoyment.
You will run across conveyancing instruments which sometimes confuse the two concepts, or which may seem ambiguous at first. It is obviously important to correctly attribute what was intended to be conveyed.
In Oklahoma, instruments which describe a right to minerals "in, under and upon" the land, or use words relating to the minerals in place, have been construed to create full mineral interests. See McNeill v. Shaw, 1956 OK 42, 295 P.2d 276. The terms "mineral rights," "oil rights," "oil and gas rights," or like words also appear to grant or reserve a full mineral interest in Oklahoma. See Surety Royalty Co. v. Sullivan, 1954 OK 270, 275
25 P.2d 259.
Alternatively, instruments with phrases such as "oil and gas produced and saved," or "that may hereafter be produced," have been construed in Oklahoma to create non- participating royalty interests and not full mineral interests. See Casteel v. Crigler, 1953
OK 226, 266 P.2d 643. However, in Oklahoma, conveyances containing the term "and may be produced," or similar words have been construed to create full mineral interests .
See Sanders v. Bell, 1960 OK 60, 350 P.2d 293. If an instrument is ambiguous and contains words that would convey a mineral interest and words that would convey a royalty interest, it is likely that the instrument will be construed to create a full mineral
24 See EUGENE KUNTZ, ET AL., THE LAW OF OIL AND GAS § 16.2 (Matthew Bender & Company, Inc. 2014).
25 See id.
13 interest.26 This is again consistent with the idea that instruments are construed strictly against the grantor and liberally in favor of the grantee.
27 III. RECENT OKLAHOMA CASE LAW UPDATE
CROSLIN V. ENERLEX, INC., 2013 OK 34; 2013 OKLA. LEXIS 40 A mineral owner (“Croslin”) died, leaving his children as heirs (“Plaintiffs”).
Subsequent to Croslin’s death, Croslin was named in a pooling order (the “Order”) as having an unleased mineral interest with an unknown address. Several thousand dollars accrued to an escrow account for Croslin’s interest established under the statutory custodial taking statute (the “Proceeds”). Plaintiffs were unaware of the Order or the
Proceeds. Years later, a buyer (“Defendant”) approached Plaintiffs about purchasing the mineral interest without disclosing Defendant’s knowledge of the Order and the Proceeds.
Plaintiffs sold the minerals to Defendant, but upon learning of the Order and Proceeds, brought suit. The trial court granted summary judgment in favor of Plaintiffs, but the appellate court reversed. The Supreme Court vacated the appellate decision, holding that constructive notice is not a defense against misrepresentation and constructive fraud.
FUKSA INVESTMENTS, INC. V. TWENTY-TWENTY OIL AND GAS, INC., NO. 111,462 (OKLA. CIV. APP. OCT. 18, 2013) (UNPUBLISHED). Several oil and gas companies (“Defendants”) owned a majority of the leasehold
(the “Leasehold”) and the same interest in the only producing well (the “Well”) on certain lands. Defendants executed an assignment to another company (“Plaintiff”) but a dispute arose as to what was assigned. Plaintiff brought a declaratory judgment action to quiet title in Plaintiff in the entire Leasehold and the Well. The trial court granted partial
26 See id. 27 Case summaries by the Newsletter of the Energy and Natural Resources Section of the Oklahoma Bar Association. This is an excellent publication, and is highly recommended.
14 summary judgment in favor of Plaintiff and the appellate court affirmed, holding that
Defendants unambiguously assigned the portion of the Leasehold held by the Well and the Well itself since the assignment contained no limiting language such as “wellbore only” or using only the Well name in the granting language.
BOYDSTUN V. VERHYDEN, NO.109,415 (OKLA. CIV. APP. NOV. 22, 2013) (UNPUBLISHED) Trustees (“Trustees”) of a trust (the “Trust”) contracted to sell certain tracts of land along with half of the minerals to an individual (“Buyer”). Upon closing, a deed (the
“Deed”) was recorded in which the exhibit referencing the mineral conveyance was omitted. After Trustees distributed the omitted minerals to the Trust’s beneficiaries,
Buyer brought suit for reformation of the Deed to include the additional exhibit. The trial court found in favor of Buyer, and the appellate court affirmed, holding that the exclusion of the exhibit in the recorded deed amounted to a scrivener’s error and was against the intent of both parties.
WIDNER V. ENERLEX, INC., 2013 OK 91, 313 P.3D 930 A mineral owner (“Owner”) died, leaving his mineral interests (the “Interests”) in trust. After Owner’s death, the Interests were compulsorily pooled after Owner’s heirs were not locatable. The Interests began accruing mineral proceeds (the “Proceeds”) and were put in suspense. After learning of the Proceeds, a purchaser (“Appellant”) located
Owner’s heirs (“Appellees”) and offered to buy the Interests without disclosing the
Proceeds. After selling the Interests including “all royalties, accruals and other benefits,”
Appellees learned of the Proceeds and brought suit for damages and rescission. The trial court granted the rescission and cancelled the mineral deeds. The appellate court reversed, but after granting certiorari, the Oklahoma Supreme Court held that Appellant had a duty
15 to inform Appellees of the Proceeds before the sale and that rescission was an appropriate remedy.
16
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
LANDMAN AND ATTORNEY RELATIONSHIP: WHAT DO YOU WANT FROM ME?
by Laura Bennett Schwarz
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
THE LANDMAN ATTORNEY RELATIONSHIP: WHAT DO YOU WANT FROM ME?
Laura Bennett Schwarz
Attorney at Law
Oil and Gas Title Examination
April 9, 2015 Oklahoma Bar
Center Oklahoma City,
Oklahoma
i
Laura Bennett Schwarz
Attorney at Law
405-834-8827
Laura Bennett Schwarz
Bar Admission: 2013 Oklahoma
Education:
University of Oklahoma (B.A., 2005); Oklahoma City University Law School (J.D., 2012).
Professional:
Mrs. Schwarz worked as a landman for 9 years with multiple companies including XTO Energy, Chesapeake Energy and Continental Resources with various areas of responsibilities including Oklahoma, Arkansas and Texas. Since May 2013 Mrs. Schwarz has worked in private law practice focusing primarily on oil and gas title matters. She also serves as counsel for Bennett Mineral Company.
ii Introduction
It is my belief that the relationship between landmen and title attorneys should be relatively straight forward. However in practice there seems to be confusion as to what the expectations are by both groups. This confusion can lead to frustrations, annoyances, and ultimately an unhappy client. I believe that with some simple communication and organization any confusion can be overcome. Communication between the client and attorney is the foundation in their relationship.
What do you do?
First, to best communicate we need to know what it is that a landman does. Wikipedia1 defines a “landman” as an individual working in the United States or Canada who performs various services for oil and gas exploration companies, which services include: 1. Negotiating for the acquisition or divestiture of mineral rights; 2. Negotiating business agreements that provide for the exploration for and/or development of minerals; 3. Determining ownership in minerals through the research of public and private records; 4. Reviewing the status of title, curing title defects, and otherwise reducing title risk associated with ownership in minerals; 5. Managing rights and/or obligations derived from ownership in minerals; and 2 6. Unitizing or pooling interests in minerals.
A “landman” is a professional who is “primarily engaged in negotiating for the acquisition or divestiture of mineral rights and/or negotiating business agreements that provide for the exploration for and/or development of minerals.”3 Most of the landman’s job tasks sound similar to tasks that many people might assume would be performed by oil and gas lawyers. This is not a coincidence. In fact, the job of landmen and lawyers is so similar that the Texas Legislature felt compelled just a few years ago to pass a statute excepting land work from 4 the definition of the practice of law.
The distinction between landmen and oil and gas lawyers can be unclear. Within the land profession itself, lawyers should understand the different roles of company landmen and field landmen. Company landmen take the lead in land negotiations with other oil and gas companies, supervise independent land contractors, administer and ensure land contract compliance, and otherwise manage their company’s land asset base.5 Field landmen are
1 http://en.wikipedia.org/wiki/Main 2 Wikipedia’s definition is taken almost verbatim from Article II, Definitions, Bylaws of the American Association of Professional Landmen, (Last Amended, July 1, 2005) 3 Article II, Definitions, Bylaws of the American Association of Professional Landmen, (Last Amended, July 1, 2005). 4 V.T.C.A. Occupations Code, §954.001 (2005). 5 In large oil and gas companies the contract compliance function is typically handled by a separate department, often called “lease administration” or “landowner relations” or something similar. Perhaps the most important
1 typically independent contractors who specialize in title due diligence and lease acquisitions.6 In large oil and gas companies company landmen may negotiate, draft and finalize complex oil and gas agreements with varying degrees, and sometimes even minimal, involvement of company legal departments. Likewise, field landmen may render “stand-up” title examinations based upon review of courthouse records that oil and gas companies may rely upon to purchase expensive oil and gas leases, or to drill oil and gas wells.7 So what is the distinction between a lawyer and a landman? The best description of the role of the landmen is what is posted by the AAPL on its website,8 “Landmen constitute the business side of the oil and gas exploration team”. Therefore, almost by definition, landmen do not practice law, they are the businessmen of the oil patch.
It is clear that the “Landman” title is given many different roles and it is important to keep that in mind when communicating with clients. For instance an acquisitions focused landman is going to have different priorities and goals than an exploration focused landman and the same is true for a field landman. However, it is unlikely anyone will be introduced to any landman with such clarity. Both landman and title attorneys have tendencies to assume each knows what the other is wanting. Be sure to ask questions, knowing the type of landman being dealt with and what their goals are will go a long way to establishing a strong working relationship.
Expectations
First, appreciate the different roles played by the landmen and lawyers. The AAPL recognizes the distinction between lawyers and landmen which is why they write into their code of ethics: “The Land Professional shall represent others only in his areas of expertise and shall not represent himself to be skilled in professional areas in which he is not professionally qualified.”9 When a landman purchases a lease which is subsequently drilled, and assuming
task of the lease administration function is to prevent loss of leases through non-payment of rentals or non- compliance with other lease obligations. Lease administration is usually considered a subspecialty within the overall land function. Division order analysts specialize in title issues which pertain to payment of production proceeds and are close cousins (so to speak) to landmen and lease analysts. In smaller companies, which sometimes have one man (or lady) land departments, the distinction between the three specialty areas is often blurred. 6 Field landmen are also very often referred to by company landmen as “brokers” in throwback to the days when landmen would frequently broker deals between landowners and oil companies, often in exchange for an override or other piece of the action. Today field landmen tend to work for a set daily rate and it is much less common for an oil company to agree to give them an override as part of the consideration for their services. But use of the job title “broker” in reference to field landmen has become part of the nomenclature of the oil patch irrespective that the job function that the field landman provides may have little to do with brokering oil and gas leases. 7 Paul G. Yale, “The Ethical Obligations of Lawyers and Landmen: Are they different?” Texas Mineral Title Course, May 2-3, 2013, Houston, Texas. 8 www.landman.org 9 See Appendix, Code of Ethics, American Association of Professional Landmen.
2 that he or she had cured all the requirements in the title opinion, the blame for the subsequent 10 title failure would fall on the lawyer, or his malpractice carrier, not the landman.
The land profession is unregulated and landmen are not subject to specific educational requirements. This does not mean that landmen are not apt to hold advanced degrees. More significantly, an experienced landman with or without a law degree has likely encountered a large number of the legal issues that an experienced oil and gas lawyer might be expected to have encountered. Landmen are, “street smart” when it comes to oil and gas legal issues and if the landmen is experienced, chances are he may know as much or more about oil and gas legalities than many oil and gas lawyers, particularly a new oil and gas lawyer just entering the 11 profession.
The lawyer owes the respect to landmen which they are due, but nonetheless, the lawyer must often stand his ground.12 Sometimes a provision in a lease simply must be reworded, sometimes a title requirement should not be waived, and sometimes more time is necessary to accomplish a legal task that was more complex than anticipated. In most cases the landman will respect the lawyer more for standing his ground than those lawyers who easily 13 cede a point or rush a task to the subsequent prejudice of the client’s business objectives.
Organization is Key
As a landman my biggest complaint was the organization of the title opinion. Through my experience working with over 30 title attorneys in three states they all do it different. Here are my personal preferences as suggestions for organization.
Have a Recap (at the first of the opinion is preferred) in the unit size requested by the client.
Always have a recap or summary of the ownership in a clear concise format at the beginning of every opinion and make sure the unit size is the same as the client’s unit. If they are drilling 640 units and the opinion is written with 4 separate 160’s this is a clear miscommunication. This somewhat minor issue can make the landman speculative of the opinion work from the onset.
10 For further discussion see the author’s article, “To Waive of Not to Waive? Analyzing Oil and Gas Title Opinion Requirements,” 27th Annual Advanced Oil, Gas and Energy Resources Law Course, October 8-9, 2009, Houston, Texas. 11 See supra note 7. 12 Both the American Bar Association (ABA) Model Rules of Professional Conduct 1.1 and 2.1 as well as Texas Disciplinary Rules of Professional Conduct 1.01 and 2.01 require a lawyer to provide competent representation and to exercise independent professional judgment irrespective that the client may not want to hear the lawyer’s advice. The ABA Model Rules and the Texas Disciplinary Rules of Professional Conduct are so similar that for purposes of brevity the author will hereafter cite the ABA Model Rules, only, and will refer to them in the following format: “ABA Rule __” 13 See supra note 7.
3 Keep comments and requirements as brief as possible.
I recognize the goal of the attorney is to establish the status of the title but do it as concisely as possible. Do not inject too much complexity. To paraphrase slightly a quote attributed to Albert Einstein, “Any fool can make things more complex; true genius takes the complex and makes it more simple.” 14 Oil and gas law, and oil and gas title examination in particular, involves complexity and tedium. Nevertheless, a good oil and gas lawyer should strive to keep it as simple as possible.
One of the most common complaints from landmen about oil and gas lawyers performing title examinations is that the number of requirements in title opinions is too great. Similarly, too lengthy title opinions and too lengthy contracts written to cover every possible worst case eventuality are generally ill-received by landmen. Landmen do not like having to defend overly verbose or poorly written title requirement that they themselves did not 15 author.
Organize the requirements for the client’s needs.
All attorneys appear to have their own practice here but most if not all landmen would like to see requirements organized in a certain way: Important to skip it. Why? We have short attention spans? Lazy? We will never cure a 1920’s name discrepancy? In reality the “why” does not matter but I can assure a new best friend if you regularly organize the requirements in the following order:
1. Anything to do with Restrict Indians or Federal lands. Big and Bold and always first; 2. Anything affecting large working interest owners. If there is an issue that brings into question who owns a large working interest note it early; 3. All other drilling type requirements. Those requirements affecting who can or should be participating in the well; 4. The pay requirements. Anything having to do with how much revenue post-drilling, these are Division Order type requirements. This is not a “who” question but instead a “how much”; and 5. Advisory and boiler plate.
If this seems intimidating or leads to questioning whether it is the attorney’s job to access these issues, do not worry about it. Attorneys do not make the business decision to waive or not, they can only organize the requirements in the most likely to be cured order. There does not need to be a hard line between groupings just a best guess opinion which of the requirements is most likely to affect the decisions to drill the well, then the decisions on who to pay and then the advisory type notes that are unlikely to get any reaction at all.
14 “Any intelligent fool can make things bigger, more complex, and more violent. It takes a touch of genius -- and a lot of courage -- to move in the opposite direction.” (“Collected Quotes From Albert Einstein," .rescomp.stanford.edu/~cheshire/EinsteinQuotes.html) 15 See supra note 7.
4
Tips From a Landman
Pooling Respondent Lists
The key here more than anything is LIST EVERYONE. I am sure today each speaker will make some reference to Oklahoma poolings and there is a reason, forced poolings are a curative dream come true, but poolings only work when all the parties get named. For that purpose when asked for a list, give the most complete list imaginable. It never hurts to over notify and cleanup poolings are never favorable.
Unallocated Leases
Unallocated leases happen, sometimes they are curative, sometimes the field brokers just make mistakes but if the unallocated lease list gets over five or six stop, send an email to either the company landman or the lease broker and ask what is going on. Here is why, the client is going to ask what is going on the second they notice what is happening and very likely the lease broker is going to have curative or unfiled documents the attorney did not receive but needs to write an accurate opinion. While this is clearly not something the attorney can control, it should have provided from the beginning, it is something the attorney should take note of and correct prior to submitting a final opinion.
Using the Ownership Reports
As the title attorney it is important to realize the title opinion is never the first document for the unit and although the attorney is the expert and ultimately the last word it will greatly benefit to remember the opinion will be compared immediately to the work already done, the OR. If the completed opinion and OR do not match be prepared to explain. Now this seems illogical, clearly the reason an attorney was hired was to write an authority opinion, why should you have to do the explaining? Because the opinion is not the first, the preliminary work is done off the ownership or some lease report. That means leases were taken and money was spent based on that report and if they do not match questions ensue. It is much easier to review and explain discrepancies while preparing the opinion than to go back once it is finalized. There will always be questions as to these types of discrepancies, ALWAYS. That does not mean discrepancies are wrong or should be adjusted it only means they will always require an explanation.
Conclusion
I hope this has meet the goal of clarifying some of the expectations of title attorneys from a typical landman perspective and that some of these suggestions at a minimum shed some light into the thinking behind landman requests.
5