Caselaw Update: Concho Resources, Inc. v. Ellison
On April 16, 2021, the Texas Supreme Court issued its decision in Concho Resources, Inc., v. Ellison, redefining ratification in the context of boundary stipulation agreements. The court previously defined ratification as “the adoption or confirmation by a person with knowledge of all material facts of a prior act which did not then legally bind him and which he had the right to repudiate.” At issue in the Concho case was whether a lessee’s countersignature on a copy of a boundary stipulation agreement between mineral owners amounts to ratification—the court found that it could.
The Concho dispute stemmed from years of conveyances relating to two tracts of land totaling one 640-acre section. In 1927, a deed purported to convey a 147-acre portion of the section located northwest of a public road running diagonally through the section (the “northwest tract”). A 1930 deed conveyed the remainder of the section retained by the seller, described as 493 acres (the “southeast tract”). After multiple subsequent conveyances, the northwest tract was leased and eventually assigned to Jamie Ellison in 1996. The leases covering the northwest tract described the land as 147 acres, being the same land conveyed by the 1927 deed, but later applications for well permits, filings with the RRC and signage on the leased acreage described the leases as covering 320 acres. Ten years later, on April 13, 2006, the southeast tract was leased to Samson Resources Company (“Samson”) and eventually assigned to Concho Resources, Inc (“Concho”).
In October 2006, prior to commencing operations on the southeast tract, Samson uncovered title issues relating to the two tracts of land: the 1930 deed described the southeast section as containing 493 acres but lacked any description of the location of said acreage, and the deed conveying the northwest tract contained descriptions which did not match the land’s physical characteristics or location. Additionally, a title opinion indicated that the 1927 and 1930 deeds incorrectly described the acreage of both tracts: the northwest tract actually contained 301 acres and the southeast tract only contained 339 acres. Samson commissioned a survey plat crediting 493 acres to the southeast tract in compliance with the language of the two deeds.
In 2008, Samson drafted a boundary stipulation of ownership of mineral interest between the owners of the mineral estates to confirm the actual physical boundary between the two tracts. The stipulation declared the boundary of the mineral estate in accordance with Samson’s survey and subtracted 154 acres from northwest tract and credited it to the southeast tract to reflect the acreage actually conveyed by the 1927 and 1930 deeds. The mineral owners agreed and executed the stipulation in August and September of 2008, “effective, for all purposes, as of July 8, 1987.” In October 2008, Samson sent the stipulation to Ellison with a request that he accept it by signing and returning a copy to Samson. The letter promised a “more formal and recordable document” upon Ellison’s acceptance. Ellison countersigned the stipulation and returned it to Samson within a month. After receipt, Samson proceeded to drill two wells: one on the 154 acres credited to the southeast tract in the stipulation, and one near the border of the lease lines. The promised “formal and recordable document” was never provided to Ellison.
In 2010, Concho obtained the lease for the southeast tract of land. After Ellison’s death in 2011, his widow Marsha Ellison continued to maintain the lease on the northwest tract and on June 21, 2013, upon learning that the lease now covered roughly half the original acreage, she filed suit against Concho for trespass-to-try-title and other claims. Concho countersued Ellison for breach of contract, seeking a declaratory judgment based on Jamie Ellison’s ratification of the 2008 stipulation. Ellison argued that the stipulation was invalid and therefore could not be ratified, and alternatively, that Ellison’s ratification of the stipulation’s boundary line was contingent on the execution of the more formal document promised by Concho.
The trial court held that the stipulation between the mineral owners was valid, and Ellison was retroactively bound by its terms because he had ratified the stipulation with his signature. The appeals court sided with Ellison, holding that the stipulation agreement was void because it did not amount to a conveyance additional acreage (as would a correction deed), and did not address an some “objective uncertainty” as to the location of a boundary line. The Texas Supreme Court sided with the trial court, reasoning that public policy favors the freedom of adjacent property owners to resolve uncertainty amongst themselves without court intervention, and giving deference to informal settlements allows parties to maintain confidence that such agreements are effective without a court declaration. The court held that ratification was an available defense to a trespass-to-try-title claim, and Concho had conclusively demonstrated that Jamie Ellison had ratified the stipulation, entitling Concho to a declaratory judgment in its favor. Samson’s letter to Ellison containing the stipulation requested that Ellison signify his acceptance of the description of the 147-acre northwest tract, being his leasehold, by countersigning the letter. Instructions as to acceptance were clear—it was not dependent on any further action by Ellison, including the execution of the “more formal” document referenced in the letter. On proving the affirmative defense of ratification, Ellison’s remaining claims failed as a matter of law. The Texas Supreme Court remanded the case to the court of appeals for determination of counterclaims and damages.
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