Tanya L. McCabe Trust, McCabe Family Trust, and the Rochford Living Trust v. Ranger Energy LLC , 531 S.W.3d 783 ( 2016 )

Opinion issued December 22, 2016
In The
Court of Appeals
For The
First District of Texas
————————————
NO. 01-15-00044-CV
———————————
TANYA L. MCCABE TRUST, MCCABE FAMILY TRUST, AND THE
ROCHFORD LIVING TRUST, Appellants
V.
RANGER ENERGY LLC, Appellee
On Appeal from the 356th District Court
Hardin County, Texas1
Trial Court Case No. 54138
1
Pursuant to its docket equalization authority, the Supreme Court of Texas
transferred the appeal to this Court. See Misc. Docket No. 14-9246 (Tex. Dec.
15, 2014); see also TEX. GOV’T CODE § 73.001 (authorizing transfer of cases).
OPINION
In its 2009 opinion in Myrad Properties, Inc. v. LaSalle Bank National Ass’n,2
the Supreme Court of Texas held that a correction deed could not be used to
substantively change an unambiguous conveyance of real property to include an
additional parcel of land, as that would undermine the purpose of record notice. The
Texas Legislature responded in 2011, and again in 2013, by enacting statutes to
define the circumstances in which a correction deed can be used to change a recorded
original instrument of conveyance to remedy nonmaterial clerical or inadvertent
errors, or even to make a material correction to the deed.3 This case requires us to
apply these new statutes to a dispute about the validity of overriding royalty interests
in two oil-and-gas leases.
The appellants, Tanya L. McCabe Trust, McCabe Family Trust, and Rochford
Living Trust (collectively, the “Trusts”), acquired overriding royalty interests in
eight oil-and-gas leases in Hardin County, Texas. The dispute is limited to two of
those leases, called McShane Fee and Brice. Appellee Ranger Energy LLC later
acquired some Hardin County leases at a foreclosure auction. Contending that it had
2
300 S.W.3d 746 (Tex. 2009).
3
See Act of May 13, 2011, 82nd Leg., R.S., Ch. 194, § 1, 2011 Tex. Gen. Laws
747, 748 (codified at TEX. PROP. CODE §§ 5.027–.031); see also Act of May
8, 2013, 83rd Leg., R.S., Ch. 158, § 3, 2013 Tex. Gen. Laws 597, 597
(codified at TEX. PROP. CODE § 5.028(a) & (a-1)).
2
acquired the McShane Fee and Brice leases, Ranger Energy filed suit to quiet title.
The Trusts responded that the McShane Fee and Brice leases were not subject to the
mortgage that was foreclosed, and therefore their overriding royalty interests had not
been extinguished.
The parties filed competing motions for summary judgment that focused on
the validity of purportedly “corrected” instruments that changed the original
mortgage documentation which was recorded at the time the Trusts acquired their
overriding royalty interests. The trial court granted summary judgment in favor of
Ranger Energy, and the Trusts appealed. On appeal, the Trusts contend that the
purported correction instruments, which added the McShane Fee and Brice leases to
the description of the mortgaged property, were invalid as a matter of law.
We agree with the Trusts. The correction instruments were ineffective because
they purported to make material changes, yet they were not correctly executed as
specified by the Texas Property Code. We reverse the judgment of the trial court,
and we remand this case for further proceedings.
Background
The dispute in this case involves two oil-and-gas leases that have been jointly
owned and operated as part of a larger group of leases since at least 2004, which is
the earliest information reflected in the appellate record. In March 2004, Shamrock
Energy Corporation acquired leases pursuant to an assignment and bill of sale which
3
referred to “undivided working interests in those oil and gas leases that are described
on the Exhibit ‘A’ that is attached hereto and made a part hereof for all purposes.”
The March 2004 assignment’s “Exhibit ‘A’” included one tract identified as the “T.
Conzelman Lease,” and it also included twelve leases identified by name and located
in the Saratoga Oil Field in Hardin County, Texas, including leases identified as
“McShane Fee” and “Brice.”4
On June 8, 2005, Shamrock Energy conveyed to L & H Family Partnership,
Ltd some but not all of its interests acquired in the March 2004 transaction. The
conveyance assigned to L & H “undivided working interests in those oil and gas
leases that are described on the Exhibit ‘A’ that is attached hereto and made a part
hereof for all purposes.” The June 8, 2005 assignment’s “Exhibit ‘A’” excluded the
T. Conzelman Lease, but it included nine of the twelve leases in the Saratoga Oil
4
The March 2004 assignment and bill of sale contains the word “Saratoga” on
the upper-right corner of the first page of the document, but there is no
reference to all or part of the leases as the “Saratoga Leases.” In “Exhibit ‘A’”
to the March 2004 assignment, the McShane Fee and Brice leases were
identified as follows:
LEASE NRI WI ACRES RRC NO.
...
McShane Fee 1.000 100[%] 4.58 03637
...
Brice .730 100[%] .31 19052
...
4
Field that had been acquired by Shamrock Energy. Leases identified as “McShane
Fee” and “Brice” were included.5
5
Like the March 2004 documents, the June 8, 2005 assignment and bill of sale
contains the word “Saratoga” on the upper-right corner of the first page of the
document, but there is no reference to all or part of the leases as the “Saratoga
Leases.” In “Exhibit ‘A’” to the June 8, 2005 assignment, the McShane Fee
and Brice leases were identified, with a change to the description of Brice, as
follows:
LEASE NRI WI ACRES RRC NO.
...
McShane Fee 1.000 100[%] 4.58 03637
...
Brice .780 100[%] .31 19052
...
Unlike the March 2004 “Exhibit ‘A’,” the June 8, 2005 “Exhibit ‘A’” added
more descriptive identifications of eight of the nine assigned leases, including
the following descriptions of the McShane Fee and Brice leases:
Property Name: McShane Fee
Operator: Arrowhead Operating Inc.
County: Hardin
State: Texas
Legal: 4.58 acres being out of the C.F.S. Jordit 320
acre Survey.
Property Name: Brice
Operator: Arrowhead Operating Inc.
County: Hardin
State: Texas
Legal: All lands described in the following Oil, Gas
and Mineral Leases and amendments thereto
covering 5/16 of an acre located in the C.F.S.
Jordit Survey, A-783, Hardin County, Texas.
Said leases and amendments recorded as
5
L & H quickly flipped the interests it acquired from Shamrock Energy,
conveying them to Rex Chambers on June 29, 2005. The transaction assigned to
Chambers “undivided working interests in those oil and gas leases that are described
on the Exhibit ‘A’ that is attached hereto and made a part hereof for all purposes.”
The “Exhibit ‘A’” attached to the June 29, 2005 assignment is substantively identical
to the “Exhibit ‘A’” describing the royalty interests assigned by Shamrock Energy
to L & H.6
shown in Deed Records of Hardin County,
Texas.
1. Oil, Gas & Mineral Lease from Brice
Exploration Company to Bryan Lloyd,
dated August 16, 1983, recorded in
Volume 779, Page 110.
2. Amendment to Oil, Gas & Mineral Lease,
from Brice Exploration Company to
Bryan M. Lloyd, dated August 16, 1983,
recorded in Volume 818, Page 714.
3. Oil, Gas & Mineral Lease, from Warren
K. Hendriks to Bryan M. Lloyd, dated
August 16, 1983, recorded in Volume
779, Page 112.
4. Amendment to Oil, Gas & Mineral Lease,
from Warren K. Hendriks to Bryan M.
Lloyd, dated August 10, 1985, recorded in
Volume 818, Page 7.
6
Like the March 2004 and June 8, 2005 documents, the June 29, 2005
assignment and bill of sale contains the word “Saratoga” on the upper-right
corner of the first page of the document, but there is no reference to all or part
of the leases as the “Saratoga Leases.”
6
The next conveyance relevant to the McShane Fee and Brice leases was an
April 2007 assignment from Chambers to Tomco II LLC. The transaction assigned
to Tomco II “undivided working interests in those oil and gas leases that are
described on the Exhibit ‘A’ that is attached hereto and made a part hereof for all
purposes.” The April 2007 assignment’s “Exhibit ‘A’” excluded approximately two-
thirds of a page of language that had appeared at the beginning of the “Exhibit ‘A’”
descriptions attached to the June 8 and June 29, 2005 assignments. The April 2007
“Exhibit ‘A’” also listed descriptions of only six of the nine leases in the Saratoga
Oil Field that had been acquired by Chambers. The three excluded leases were
“McShane Fee,” “Brice,” and “Booher.”7 Later, in December 2007, this assignment
was corrected with a revised version of “Exhibit ‘A’.” The corrected December 2007
assignment specified that Chambers owned “an undivided fifty percent (50%)
interest in those Oil, Gas and Mineral Leases, Deeds and Properties described on
Exhibit ‘A’ attached hereto and made a part hereof for all purposes.” The December
2007 corrected assignment added “McShane Fee” and “Brice” (but not “Booher”) to
the property listed on “Exhibit ‘A’,” bringing the total number of assigned leases to
7
Like the preceding assignments, the April 2007 assignment and bill of sale
contains the word “Saratoga” on the upper-right corner of the first page of the
document, but there is no reference to all or part of the leases as the “Saratoga
Leases.”
7
eight. The descriptions for all eight leases were revised from the previous
documentation.8
8
Unlike the preceding assignments, the December 2007 corrected assignment
and bill of sale does not contain the word “Saratoga” on the upper-right corner
of the first page of the document. Like the preceding documents, there is no
reference to all or part of the leases as the “Saratoga Leases.” In “Exhibit ‘A’”
to the December 2007 corrected assignment, the McShane Fee and Brice
leases were identified as follows:
Property Name: McShane Fee (RRC Identifier 03637)
Operator: BHB Operating, Inc.
Description: 4.58 acres o/o the C.F.S. Jordit Survey, A-783,
Hardin County, Texas, all or a portion of which is more fully
described in Deed dated March 7, 1916 from Creighton-
McShane Oil Company to Paggi Brothers Oil Company,
recorded in Vol. 70, Page 129 of the Deed Records of Hardin
County, Texas.
....
Property Name: Brice (RRC Identifier 19052)
Operator: BHB Operating, Inc.
Description: All lands described in the following Oil, Gas and
Mineral Leases and Amendments thereto covering 5/16 of an
acre located in the C.F.S. Jordit Survey, A-783, Hardin, County,
Texas:
1. Oil, Gas and Mineral Lease dated August 16, 1983 from Brice
Exploration Company to Bryan M. Lloyd, recorded in Vol.
779, Page 110 of the Deed Records of Hardin County, Texas,
as amended by instrument dated August 19, 1985, recorded
in Vol. 818, Page 714 of said Deed Records.
2. Oil, Gas and mineral Lease dated August 16, 1983 from
Warren K. Kendricks to Bryan M. Lloyd, recorded in Vol.
779, Page 12 of the Deed Records of Hardin County, Texas,
8
Although the appellate record does not contain all of the underlying
documents relating to the next relevant transaction, the parties to this appeal have
stipulated that in August 2008 Tomco Energy, PLC and Mark III Energy Holdings,
LLC executed an assignment and bill of sale, by which Tomco Energy conveyed
title to “six of the eight oil and gas leases which are collectively known as the
‘Saratoga Leases’.” The parties have stipulated further that “[d]ue to an inadvertent
error, two of the Saratoga Leases were omitted” from an “Exhibit A” attached to the
August 2008 assignment, and the two omitted leases were known as the “McShane
Fee Lease” and the “Brice Lease.”
To finance its 2008 acquisition, Mark III borrowed $4 million from The
Peoples Bank. A financing statement, security agreement, and mortgage of oil-and-
gas property (the “2008 mortgage”) was filed in the records of Hardin County in
November 2008. Mark III granted to Peoples Bank a security interest in:
all of Mortgagor’s right, title and interest in and to the oil and gas leases
and in and to the oil and gas leasehold estate and other mineral interests,
if any, (all as shown of record in the offices of the County Register of
Deeds as applicable) in, under and covering the following described
land to wit:
See attached Exhibit “A”
together with all and singular the tenements, hereditaments, and
appurtenances now or hereafter in anywise belonging to or appertaining
as amended by instrument dated August 10, 1985, recorded
in Vol. 818, Page 7 of said Deed Records.
9
to the Mortgagor’s present or future rights, title, interest or estate in and
to all or any part of the mortgaged property above described . . . .
Like Tomco Energy’s August 2008 assignment (as described in the parties’
stipulation), the 2008 mortgage documentation identified the subject leases in an
attachment which included only six leases, and which did not include the McShane
Fee and Brice leases. The property description on “Exhibit ‘A’” to the 2008
mortgage is substantively identical to the description contained in the (uncorrected)
April 2007 assignment from Chambers to Tomco II.9
After obtaining the mortgage loan, Mark III sold overriding royalty interests
in leases it acquired from Tomco Energy. Although Mark III had acquired only eight
leases, the first such assignment, in May 2011, purported to convey to Tanya L.
McCabe Trust “an undivided 10% in all oil, gas, associated hydrocarbons and
minerals produced, saved and marketed from each of” nine different leases, not
including McShane Fee and Brice.10 The second assignment, in July 2011, conveyed
9
Like the (uncorrected) April 2007 assignment and bill of sale, “Exhibit ‘A’”
to the 2008 mortgage contains the word “Saratoga” on the upper-right corner
of the first page of the document, but there is no reference to all or part of the
leases as the “Saratoga Leases.”
10
The original first assignment to the Tanya L. McCabe Trust conveyed “an
overriding royalty interest in and to the oil, gas and mineral leases in Hardin
County, Texas described on Exhibit ‘A’, attached hereto and made a part
hereof for all purposes.” The nine leases identified in “Exhibit ‘A’” were: Sun
McShane, Sun Weldon, Coline Oil Corporation, Gulf Herrington, D.G. Petty
Estate, Producers Weiss, Queen City, Queen City 1 Acre, and Queen City 5
10
to Tanya L. McCabe Trust “an undivided 5% in all oil, gas, associated hydrocarbons
and minerals produced, saved and marketed from each of” seven different leases,
including McShane Fee and Brice.11 The third assignment, in November 2011,
conveyed to Tanya L. McCabe Trust “an undivided fifteen percent (15%) interest in
all oil, gas, associated hydrocarbons and minerals produced, saved and marketed
from each of” eight different leases, including McShane Fee and Brice.12 While all
three of these 2011 assignments contained different descriptions of the leases subject
to the assigned overriding royalty interests, the description contained in the third
Acre. The assignment of overriding royalty interest does not contain the word
“Saratoga” on the upper-right corner of the first page of the document, and
there is no reference to all or part of the leases as the “Saratoga Leases.”
11
The original second assignment to the Tanya L. McCabe Trust conveyed “an
overriding royalty interest in and to the oil, gas and mineral leases in Hardin
County, Texas described on Exhibit ‘A’, attached hereto and made a part
hereof for all purposes.” The seven leases identified in “Exhibit ‘A’” were:
Sun Weldon, Coline Oil Corporation, Gulf Herrington, D.G. Petty Estate,
Producers Weiss, McShane Fee, and Brice. The assignment of overriding
royalty interest does not contain the word “Saratoga” on the upper-right corner
of the first page of the document, and there is no reference to all or part of the
leases as the “Saratoga Leases.”
12
The original third assignment to the Tanya L. McCabe Trust conveyed “an
overriding royalty interest in and to the oil, gas and mineral leases in Hardin
County, Texas described on Exhibit ‘A’, attached hereto and made a part
hereof for all purposes.” The eight leases identified in “Exhibit ‘A’” were:
Gulf-Herrington, McShane Fee, D.G. Petty Estate, Producers Weiss, Sun
McShane, Coline Oil Corporation, Sun Weldon, and Brice. The assignment
of overriding royalty interest does not contain the word “Saratoga” on the
upper-right corner of the first page of the document, and there is no reference
to all or part of the leases as the “Saratoga Leases.”
11
assignment was substantively identical to the property description attached to the
2007 corrected assignment from Chambers to Tomco II. Each of these assignments
was filed in the records of Hardin County.
The third assignment apparently reflected what the parties intended with
respect to all three 2011 assignments, because Mark III and Tanya L. McCabe Trust
corrected the first two assignments to include the same property description as the
third assignment (thereby mirroring the property description in the 2007 corrected
assignment from Chambers to Tomco II). The corrected versions of the first and
second assignments to the Tanya L. McCabe Trust were executed by the parties in
November 2011 and filed in the records of Hardin County in December 2011.
Although the actual documentation is not included in the appellate record, the
parties stipulated that in December 2011, Tomco Energy executed a corrected
assignment and bill of sale which added McShane Fee and Brice to the property
description accompanying its 2008 assignment to Mark III. With this correction, the
assignment from Tomco Energy to Mark III was brought into conformity with the
property descriptions attached to the 2007 corrected assignment from Chambers to
Tomco II and with the three 2011 assignments to Tanya L. McCabe Trust (as
corrected in November 2011). The parties to this appeal do not dispute the validity
of this correction instrument.
12
In April 2012, Mark III made two additional assignments, each of an
undivided 2.5% overriding royalty interest: one to McCabe Family Trust and the
other to Rochford Living Trust. Like the 2011 assignments to Tanya L. McCabe
Trust (as corrected), these assignments referenced a property description that was
substantively identical to that attached to the 2007 corrected assignment from
Chambers to Tomco II, including the McShane Fee and Brice leases. These
assignments were filed in the Hardin County records.
Mark III fell behind in its loan payments, and Peoples Bank filed a foreclosure
suit and a suit to quiet title. In December 2012, to resolve their disputes and in lieu
of foreclosure, Mark III paid the bank $750,000 and executed a renewed and
modified deed of trust, security agreement, and assignment of production (the “2012
deed of trust”). The 2012 deed of trust identified, as part of the “Mortgaged
Property” subject to that agreement, Mark III’s interests in leases “in, on or under
and covering the real property described in Exhibit A and made a part hereof for all
purposes.” The “Exhibit ‘A’” attached to the 2012 deed of trust was substantively
identical to the “Exhibit ‘A’” that described the property subject to the bank’s
security interest under the original 2008 mortgage—it listed six leases, and the
13
McShane Fee and Brice leases were not referenced.13 The 2012 deed of trust
specifically provided that it would not “merge with the security interest” that the
bank held in the collateral that was subject to the liens. This was done for purposes
of priority as between “intervening or inferior liens and encumbrances, if any, on or
against the collateral,” and the bank retained the right to exercise its remedy of
foreclosure.
Soon after Peoples Bank recorded the 2012 deed of trust, it realized that the
McShane Fee and Brice leases had been omitted, and the bank recorded a revised
version (the “2013 revised deed of trust”). That document added the word
“Corrected” to the front page, it added an explanation of the changes to the front
page,14 and it added descriptions of the McShane Fee and Brice leases to the end of
“Exhibit A.”15 In addition, Peoples Bank also filed a revised version of its mortgage
13
Similar the original 2008 mortgage, “Exhibit ‘A’” to the 2012 deed of trust
contains the word “Saratoga” near the top of the document, but there is no
reference to all or part of the leases as the “Saratoga Leases.”
14
The explanation stated: “This document was originally filed under County
Clerk Instrument No. 2012-33676, Official Public Records of Hardin County,
Texas and is being refiled to correct the Exhibit A attached at the time of the
original filing.”
15
Unlike any of the previously described documents, “Exhibit A” to the 2013
revised deed of trust references the described property as “Saratoga Leases.”
The McShane Fee and Brice leases were identified similarly to the recorded
December 2007 corrected assignment from Chambers to Tomco II (with the
identification of the operator removed), as follows:
14
Property Name: McShane Fee
County: Hardin
State: Texas
Legal: 4.58 acres being out of the C.F.S. Jordit 320
acre Survey.
Property Name: Brice
County: Hardin
State: Texas
Legal: All lands described in the following Oil, Gas
and Mineral Leases and amendments thereto
covering 5/16 of an acre located in the C.F.S.
Jordit Survey, A-783, Hardin County, Texas.
Said leases and amendments recorded as
shown in Deed Records of Hardin County,
Texas.
1. Oil, Gas & Mineral Lease from Brice
Exploration Company to Bryan Lloyd,
dated August 16, 1983, recorded in
Volume 779, Page 110.
2. Amendment to Oil, Gas & Mineral Lease,
from Brice Exploration Company to
Bryan M. Lloyd, dated August 16, 1983,
recorded in Volume 818, Page 714.
3. Oil, Gas & Mineral Lease, from Warren
K. Hendriks to Bryan M. Lloyd, dated
August 16, 1983, recorded in Volume
779, Page 112.
4. Amendment to Oil, Gas & Mineral Lease,
from Warren K. Hendriks to Bryan M.
Lloyd, dated August 10, 1985, recorded in
Volume 818, Page 7.
15
documentation (the “2013 revised mortgage”), which changed the exhibit to the
original 2008 mortgage by substituting the same “Exhibit A” document that was
attached to the 2013 revised deed of trust.
Neither Peoples Bank nor Mark III signed the 2013 revised deed of trust or
the 2013 revised mortgage. Instead the bank used copies of the signature pages from
the 2012 deed of trust and the 2008 mortgage, which had been recorded previously,
and it notified Mark III of the filing of the new versions of the documents.
Two months later, in March 2013, Peoples Bank and Mark III entered into a
second written settlement agreement, which asserted that the bank had the right to
foreclose on the lien against the “Saratoga Leases,” which were defined in that
agreement to embrace the property listed on an “Exhibit A” substantively identical
to the one attached to the 2013 revised deed of trust and the 2013 revised mortgage.
Peoples Bank also agreed to pay a third-party lienholder $150,000 to obtain release
of its lien against the McShane Fee and Brice leases.
On the same date, Peoples Bank transferred its rights to an affiliate, Ranger
Energy, which foreclosed the mortgage. In May 2013, Ranger Energy filed a
declaratory judgment action against the Trusts. It asserted that because of the
foreclosure sale, the Trusts’ overriding royalty interests in the McShane Fee and
Brice leases had been extinguished.
16
The Trusts disagreed and sought partial summary judgment on the grounds
that the revised 2013 mortgage and deed of trust documents did not affect their
interests in the McShane Fee and Brice leases, which were not listed in or
encumbered by the original 2008 mortgage. Ranger Energy filed a competing motion
for summary judgment, which argued that the foreclosure sale extinguished the
Trusts’ interests in the McShane Fee and Brice leases. The trial court denied the
Trusts’ motion for partial summary judgment, granted summary judgment in favor
of Ranger, and issued a final declaratory judgment that the Trusts’ overriding royalty
interests were void and extinguished. The Trusts appealed.
Analysis
This appeal from rulings on cross-motions for summary judgment involves
the application of the correction-instrument statutes in the Texas Property Code.
Ranger Energy argues that the 2013 revisions to the 2008 mortgage and 2012 deed
of trust were valid and that the foreclosure extinguished the Trusts’ interests. As a
result, it contends that it obtained title to the McShane Fee and Brice leases at the
foreclosure auction.16
16
Although Ranger Energy suggests that we lack jurisdiction over the
interlocutory denial of the Trusts’ summary-judgment motion, in this case the
trial court’s rulings on cross-motions for summary judgment resulted in an
appealable final judgment. See Tex. Mun. Power Agency v. Pub. Util. Comm’n
of Tex., 253 S.W.3d 184, 192 (Tex. 2007).
17
The Trusts contend that the revised documents prepared by Peoples Bank in
2013 did not comply with the correction-instrument statutes as a matter of law, and
therefore they did not validly correct the 2008 mortgage. They contend that the
foreclosure sale pertained only to the leases actually included in the 2008 mortgage,
but not the McShane Fee and Brice leases, which were omitted. Thus, the Trusts
argue that the foreclosure sale had no effect on their overriding royalty interests in
those leases.
On appeal, the Trusts argue in two issues that the trial court erred by granting
summary judgment for Ranger Energy and by denying their motion for summary
judgment. We review de novo the trial court’s ruling on a motion for summary
judgment. Mann Frankfort Stein & Lipp Advisors, Inc. v. Fielding, 289 S.W.3d 844,
848 (Tex. 2009). When both sides move for summary judgment, and the trial court
grants one motion and denies the other, a reviewing court considers both sides’
summary-judgment evidence, determines all questions presented, and renders the
judgment the trial court should have rendered. Gilbert Tex. Constr., L.P. v.
Underwriters at Lloyd’s London, 327 S.W.3d 118, 124 (Tex. 2010). Each party
moving for traditional summary judgment bears the burden of showing that no
genuine issue of material fact exists and that it is entitled to judgment as a matter of
law. TEX. R. CIV. P. 166a(c); see Provident Life & Accident Ins. Co. v. Knott, 128
S.W.3d 211, 215–16 (Tex. 2003). When a plaintiff moves for summary judgment on
18
its own claim, it must prove conclusively all essential elements of its cause of action.
See Rhone–Poulenc, Inc. v. Steel, 997 S.W.2d 217, 223 (Tex. 1999); City of Houston
v. Clear Creek Basin Auth., 589 S.W.2d 671, 678 (Tex. 1979). A defendant moving
for summary judgment must conclusively negate at least one essential element of
each of the plaintiff’s causes of action or conclusively establish each element of an
affirmative defense. Sci. Spectrum, Inc. v. Martinez, 941 S.W.2d 910, 911 (Tex.
1997).
We review issues involving statutory interpretation de novo. Tex. Lottery
Comm’n v. First State Bank of DeQueen, 325 S.W.3d 628, 635 (Tex. 2010). Our
primary objective is to give effect to the intent of the Legislature, as it has been
expressed by the plain meaning of the text, “unless a different meaning is supplied
by legislative definition or is apparent from the context, or the plain meaning leads
to absurd results.” Id. “When a statute’s language is clear and unambiguous, it is
inappropriate to resort to rules of construction or extrinsic aids to construe the
language.” City of Rockwall v. Hughes, 246 S.W.3d 621, 626 (Tex. 2008).
The correction-instrument statutes were added to the Property Code in 2011
in response to the Supreme Court’s decision in Myrad Properties, Inc. v. LaSalle
Bank National Ass’n, 300 S.W.3d 746 (Tex. 2009), which had addressed the scope
of correction instruments in the real-estate context. The Supreme Court observed
that “using a correction deed to convey an additional, separate parcel of land is
19
beyond the appropriate scope of a correction deed.” Myrad Props., 300 S.W.3d at
750. It further noted that “[p]reserving the narrow circumstances for acceptable use
of a correction deed is important because a proper correction deed may relate back
to the date of the deed it corrects.” Id. “To allow correction deeds to convey
additional, separate properties not described in the original deed would introduce
unwarranted and unnecessary confusion, distrust, and expense into the Texas real
property records system.” Id. The Court held that a correction deed could not be used
to convey two parcels of land at a nonjudicial foreclosure sale after the original deed
unambiguously had conveyed only one of the mortgaged parcels. Id. at 751. The
Court explained that allowing substantive changes through correction deeds would
undermine the purpose of record notice. Id. at 750–51.
Soon after the Myrad Properties decision, the Legislature codified the
circumstances under which a correction deed can be used to make both material and
nonmaterial corrections. This legislation effectively modified the Myrad Properties
rule by expressly allowing “material” changes to be made by a correction instrument.
See Act of May 13, 2011, 82nd Leg., R.S., Ch. 194, § 1, 2011 Tex. Gen. Laws 747,
748 (codified at TEX. PROP. CODE §§ 5.027–.031).
Title 5, Subchapter B of the Property Code now authorizes the correction of
recorded instruments that transfer real property or an interest in real property. See
TEX. PROP. CODE § 5.027(a). “A correction instrument replaces and is a substitute
20
for the original instrument.” Id. § 5.030(b). It is “(1) effective as of the effective date
of the recorded original instrument of conveyance; (2) prima facie evidence of the
facts stated in the correction instrument; (3) presumed to be true; (4) subject to
rebuttal; and (5) notice to a subsequent buyer of the facts stated in the correction
instrument.” Id. § 5.030(a). The Property Code permits “a nonmaterial change that
results from a clerical error,” id. § 5.028(a), “a nonmaterial change that results from
an inadvertent error,” id. § 5.028(a-1),17 and “a material correction” to a recorded
instrument of conveyance. Id. § 5.029.
The statute allows correction of nonmaterial clerical errors that may be
corrected “by a person who has personal knowledge of facts relevant to the
correction,” including:
(1) a correction of an inaccurate or incorrect element in a legal
description, such as a distance, angle, direction, bearing or chord,
a reference to a plat or other plat information, a lot or block
number, a unit, building designation, or section number, an
appurtenant easement, a township name or number, a
municipality, county, or state name, a range number or meridian,
17
We include Section 5.028(a-1) for sake of completeness, and because the
dissent places the entire weight of its analysis on this particular provision. We
note, however, that it is actually inapplicable to the case before us. The statute
was enacted in 2013, after all the relevant events giving rise to this dispute.
The Legislature expressly made the statute effective September 1, 2013, so
there is no plausible argument that the statute operates retrospectively to save
the 2013 revised deed of trust and mortgage. See Act of May 8, 2013, 83rd
Leg., R.S., ch. 158, 2013 Tex. Gen. Laws 598 (“This Act takes effect
September 1, 2013.”).
21
a certified survey map number, or a subdivision or condominium
name; or
(2) an addition, correction, or clarification of:
(A) a party’s name, including the spelling of a name, a first or
middle name or initial, a suffix, an alternate name by
which a party is known, or a description of an entity as a
corporation, company, or other type of organization;
(B) a party’s marital status;
(C) the date on which the conveyance was executed;
(D) the recording data for an instrument referenced in the
correction instrument; or
(E) a fact relating to the acknowledgment or authentication.
Id. § 5.028(a). Examples of nonmaterial inadvertent errors that may be
corrected include:
(1) a legal description prepared in connection with the preparation
of the original instrument but inadvertently omitted from the
original instrument; or
(2) an omitted call in a metes and bounds legal description in the
original instrument that completes the description of the
property.
Id. § 5.028(a-1).
The code likewise authorizes material corrections that may be made by “the
parties to the original transaction or the parties’ heirs, successors, or assigns,”
including a correction to:
(1) add:
22
(A) a buyer’s disclaimer of an interest in the real property that
is the subject of the original instrument of conveyance;
(B) a mortgagee’s consent or subordination to a recorded
document executed by the mortgagee or an heir, successor,
or assign of the mortgagee; or
(C) land to a conveyance that correctly conveys other land;
(2) remove land from a conveyance that correctly conveys other
land; or
(3) accurately identify a lot or unit number or letter of property
owned by the grantor that was inaccurately identified as another
lot or unit number or letter of property owned by the grantor in
the recorded original instrument of conveyance.
Id. § 5.029(a).
I. Materiality of changes
The Trusts contend that the revised mortgage documentation contained
material corrections that did not comply with Section 5.029 because it was not
executed by the proper parties. At trial as on appeal, Ranger Energy’s response has
been that the revised documents were nonmaterial corrections of the legal
description. Ranger Energy argued that an agreed stipulation of facts between it and
the Trusts conclusively established that the purpose was to correct an inadvertent
error. Thus, it reasoned that the corrections were nonmaterial. The distinction is
important because the Property Code imposes different procedural requirements for
material and nonmaterial corrections.
23
To determine whether this case involves material or nonmaterial corrections,
we compare the changes made by the 2013 revised mortgage and deed of trust to
Sections 5.028 and 5.029. Both the 2013 revised mortgage and deed of trust had the
primary effect of adding the McShane Fee and Brice leases to the exhibits that listed
the properties as security for the loan or as subject to the deed of trust. The original
exhibits recorded in 2008 and 2012 listed each individual lease by name, the name
of the oil-and-gas operator, the county and state in which the lease was located, and
a “legal description,” which described each lease by reference to a prior conveyance
or survey, and including in some cases the volume and page number of prior
recordation. The 2013 revised versions added the McShane Fee and Brice leases to
the lists, including their names, county and state of location, and legal descriptions
similar to the others. Thus, the revisions purported to add property interests in two
leases that previously were not listed.
The addition of land to a conveyance that correctly conveys other land is a
material change. See id. § 5.029(a)(1)(C); cf. Myrad Props., 300 S.W.3d at 750. In
this case, the bank’s correction instruments purported to add the McShane Fee and
Brice leases to a mortgage and deed of trust that correctly conveyed an interest in
24
other specifically identified leases.18 Pursuant to Section 5.029, such a change
indicates a material correction.
18
Our dissenting colleague takes issue with this conclusion, stating that she
would conclude instead that “the revisions in the correction instruments added
the McShane Fee and Brice Leases to the legal description of the Saratoga
Leases, the property interest conveyed by Tomco to Mark III in 2008 and
mortgaged by Mark III to Peoples Bank in 2008.” Dissent at 21. That
statement significantly distorts the operative facts. The bank’s correction
instruments at issue in this appeal did not correct the 2008 conveyance from
Tomco Energy to Mark III, they purported to correct the 2008 mortgage and
the 2012 deed of trust. The 2008 mortgage and the 2012 deed of trust did not
define the mortgaged property by reference to “a property interest conveyed
by Tomco to Mark III,” nor was the security interest identified as property
known as the “Saratoga Leases.” To the contrary, both the 2008 mortgage and
the 2012 deed of trust defined the subject real property by reference to an
attached “Exhibit A.” Exhibit A to the recorded 2008 mortgage and 2012 deed
of trust defined the mortgaged property by providing the legal description of
six specifically identified oil-and-gas leases. As such, a purported correction
instrument substituting the previous Exhibit A with a new document adding
two additional leases is a material correction, particularly with respect to the
interests of any entity which, like the Trusts, may have acquired an interest in
the added leases without any actual or constructive notice that bank later
would claim they also were subject to the mortgage. Cf. TEX. PROP. CODE
§ 5.029(a)(1)(C); Myrad Props., 300 S.W.3d at 750. To the extent our
dissenting colleague also suggests that the 2008 mortgage and the 2012 deed
of trust merely “listed” the leases, and they were not actually “conveyed,”
Dissent at 20, the only possible implication is that, contrary to the parties’
shared assumption, the 2008 mortgage and the 2012 deed of trust do not
qualify as “original instrument[s] of conveyance” subject to the correction-
instrument provisions of the Property Code. We need not resolve that issue
which has not been raised by the parties, other than to observe that if
Sections 5.028 and 5.029 do not apply to these correction instruments, then
logic of the Myrad Properties rule dictates that they were ineffective.
25
Further, a comparison of Section 5.028 to the changes made in the 2013
revised documentation shows that none of the corrections are of the types identified
as nonmaterial. For example, the correction instruments at issue did not change any
of the identifying information or descriptions that were in the original documents
(other than to delete the identification of the lease operators). They did not alter any
element in any of the existing legal descriptions, see TEX. PROP. CODE § 5.028(a)(1),
nor did they add, correct, or clarify a party’s name or marital status, the date of
execution of the conveyance, recording data for an instrument referenced in the
correction instrument, or a fact relating to acknowledgment or authentication. See
id. § 5.028(a)(2). Thus, the correction instruments at issue are not consistent with a
nonmaterial correction pursuant to Section 5.028(a).19
The corrections at issue added two leases to a conveyance that correctly
conveyed interests in other specifically identified leases. The addition of “land to a
conveyance that correctly conveys other land” is a material change. Id.
§ 5.029(a)(1)(C). Having compared the plain and unambiguous language of the
19
Ranger Energy additionally argued that because the omission of these leases
was inadvertent, the corrections were nonmaterial pursuant to Section
5.028(a-1). That provision did not take effect until September 1, 2013, after
this litigation already had commenced. See Act of May 8, 2013, 83rd Leg.,
R.S., ch. 158, 2013 Tex. Gen. Laws 598 (“This Act takes effect September 1,
2013.”).
26
statute with the attempted correction instruments in this case, we conclude that the
addition of two leases was a material change.
II. Retrospective validity of correction instruments
The requirements for a correction instrument differ for nonmaterial and
material changes. See id. §§ 5.028–.029. An instrument making a material change
must be “executed by each party to the recorded original instrument of conveyance
the correction instrument is executed to correct or, if applicable, a party’s heirs,
successors, or assigns.” Id. § 5.029(b)(1). An instrument making a nonmaterial
correction need not be so “executed,” but it must be prepared by someone with
personal knowledge of the facts relevant to the correction, and the instrument itself
must disclose the basis for such personal knowledge. Id. § 5.028(a), (c).20 Both
20
Having incorrectly concluded that the expansion of the definition of the
mortgaged property from six to eight leases was a nonmaterial correction, our
dissenting colleague makes the conclusory assertion that the evidence “shows
that all of the requirements of Section 5.028 were met.” Dissent at 21. Yet the
dissent makes no effort to explain how the correction instrument satisfied the
requirement that a “person who executes a correction instrument” under
Section 5.028 “shall disclose in the instrument the basis for the person’s
personal knowledge of the facts relevant to the correction of the recorded
original instrument of conveyance.” TEX. PROP. CODE § 5.028(c). In fact, the
correction instrument contains no such disclosure, nor was it “executed” by a
person. Instead, the bank simply altered the first page to provide notice of the
correction, it substituted a new version of “Exhibit ‘A’,” and it recorded the
new document. Accordingly, even if the dissent were correct about the
applicability of Section 5.028(a-1) to an “inadvertent error” on these facts, the
instrument still was not correctly executed as specified by the Property Code.
27
nonmaterial and material correction instruments must be recorded in each county in
which the original instrument was recorded. Id. §§ 5.028–.029.
It is undisputed that the correction instruments were not executed by Peoples
Bank or Mark III—the parties to the original instruments—or by any of their
successors in interest. As such, the correction instruments did not comply with the
statute. See id. § 5.029. The correction instruments thus did not replace or substitute
for the original mortgage or deed of trust. See id. § 5.030(b). They were not
retrospectively valid as of the effective date of the recorded original instrument. See
id. § 5.030(a). They could not be construed as notice to a subsequent buyer of the
facts stated therein. See id.
III. Ratification
Ranger Energy also contends that Mark III ratified the correction instruments
by signing the second settlement agreement, which stated that Peoples Bank had the
right to foreclose on all “Saratoga Leases,” as that term was defined in the
agreement. We understand Ranger Energy’s argument to be that Mark III’s
ratification of the correction instrument caused it to have retrospective effect as of
the original conveyance date.
The Property Code does not include any provision for any party’s unilateral
ratification of an invalid correction instrument used to make a material correction to
a prior recorded instrument of conveyance. See id. § 5.029. Instead it includes a
28
mandatory requirement that the correction instrument itself be “executed” by “each
party to the recorded original instrument of conveyance” (or their successors in
interest) in order to be effective. See id. §§ 5.029–.030. Even if we were to agree
with Ranger Energy that “substantial compliance” is all that is required to satisfy the
correction statute,21 we still could not conclude that standard was met in this case.
To the extent “substantial compliance with a statute means compliance with its
essential requirements,” Edwards Aquifer Auth. v. Chem. Lime, Ltd., 291 S.W.3d
392, 403 (Tex. 2009), we have no basis upon which to conclude that the requirement
of execution “by each party to the recorded original instrument” is not “essential” to
fulfilling the Legislature’s standard for permitting a material correction as a
modification of the Myrad Properties rule that allowing substantive changes through
correction deeds would undermine the purpose of record notice. Cf. Myrad Props.,
300 S.W.3d at 750–51.
The primary issue is the effect of these purported correction instruments on
the overriding royalty interests that previously had been assigned to the Trusts and
recorded in Hardin County. “The general rule is that in a contest over rights or
21
The statute provides that “substantial compliance” is sufficient to effectuate a
correction instrument made prior to the statute’s effective date of
September 1, 2011. See TEX. PROP. CODE § 5.031. The statute is silent as to
whether substantial compliance is adequate for instruments filed after the
effective date, when parties to an attempted correction would be on notice of
the statutory requirements.
29
interests in property, the party that is first in time is first in right.” Nat’l City Bank v.
Tex. Capital Bank, N.A., 353 S.W.3d 581, 585 (Tex. App.—Dallas 2011, no pet.);
accord World Help v. Leisure Lifestyles, Inc., 977 S.W.2d 662, 668 (Tex. App.—
Fort Worth 1998, pet. denied). Even to the extent Mark III ratified the attempted
correction instruments, that action did not cause the documents to relate back to the
original mortgage which predated the assignments to the Trusts, at least for purposes
of determining the validity of those assignments. Cf. TEX. PROP. CODE § 5.029.
Because the 2013 revised deed of trust and mortgage did not satisfy the
correction statute, at the time of the foreclosure sale the only recorded security
interest enforceable against the Trusts was the mortgage executed and recorded in
2008, which did not include the McShane Fee and Brice leases. A trustee’s power to
sell property must be exercised in strict compliance with the deed of trust, and a
“foreclosure sale purchaser obtains only that title which the trustee has authority to
convey.” Conversion Props., L.L.C. v. Kessler, 994 S.W.2d 810, 813 (Tex. App.—
Dallas 1999, pet. denied). Therefore, Ranger Energy did not obtain any interest in
the McShane Fee and Brice leases. See id.
IV. Bona fide purchaser status
In its motion for summary judgment, Ranger Energy argued that the 2013
revised instruments substituted for the original 2008 mortgage and 2012 deed of trust
and that the Trusts could overcome the effect of this substitution only by showing
30
that they were bona fide purchasers with regard to their interests in the McShane Fee
and Brice leases. Ranger Energy reiterates this argument on appeal, asserting under
Section 5.030 that the correction instruments have no impact on the Trusts unless
they “are bona fide purchasers with regard to their interests in the McShane Fee and
Brice Leases.” Ranger Energy’s argument asserts the Trusts do not qualify as bona
fide purchasers because they had notice of the mortgage of other leases in Hardin
County and had a duty to inquire of the bank as to whether it claimed an interest in
the McShane Fee and Brice leases.
Section 5.030 states in relevant part:
(b) A correction instrument replaces and is a substitute for the
original instrument. Except as provided by Subsection (c), a bona
fide purchaser of property that is subject to a correction
instrument may rely on the instrument against any person making
an adverse or inconsistent claim.
(c) A correction instrument is subject to the property interest of a
creditor or a subsequent purchaser for valuable consideration
without notice acquired on or after the date the original
instrument was acknowledged, sworn to, or proved and filed for
record as required by law and before the correction instrument
has been acknowledged, sworn to, or proved and filed for record
as required by law.
TEX. PROP. CODE § 5.030(b), (c).
These provisions apply only when there is a valid correction instrument. See
id. As we have concluded that the correction instruments in this case were invalid
and did not affect the Trusts’ interests in the McShane Fee and Brice Leases, we
31
need not determine whether the Trusts were “bona fide purchasers” or whether their
interests were affected by Section 5.030.22
Conclusion
The 2013 revised mortgage documentation did not satisfy statutory
requirements to constitute material corrections. The McShane Fee and Brice leases
were not subject to the mortgage that was foreclosed by Peoples Bank. As such, the
foreclosure had no effect on the Trusts’ overriding royalty interests in the McShane
Fee and Brice leases. Ratification by Mark III and the bank did not divest the Trusts
of their overriding royalty interests in the McShane Fee and Brice leases. We
therefore hold that the trial court should have granted the Trusts’ partial summary-
judgment motion and denied Ranger Energy’s summary-judgment motion.
Accordingly, we sustain both issues raised by the Trusts.
We reverse the judgment of the trial court, we render partial summary
judgment in favor of the Trusts, and we remand this case to the trial court for further
22
See TEX. R. APP. P. 47.1. Although the issue is immaterial to our analysis, we
note there is no factual basis in the record for the dissent’s conclusory
assertion that when the Trusts acquired their interests in the McShane Fee and
Brice leases in 2011 and 2012, they had knowledge that those leases were
subject to the 2008 mortgage and 2012 deed of trust, even before the recording
of the 2013 revised deed of trust and the 2013 revised mortgage. See Dissent
at 24.
32
proceedings consistent with this opinion, including consideration of attorney’s fees
as requested by the Trusts’ motion for partial summary judgment.
Michael Massengale
Justice
Panel consists of Justices Keyes, Massengale, and Lloyd.
Justice Keyes, dissenting.
33