October 2016 Legal Update by Patrick S. Ottinger

by: Martha Mills at 10/4/2016 8:37:06 PM | Viewed 1240 times.

AFTER-ACQUIRED TITLE AND THE MINERAL LEASE[1]

 

Patrick S. Ottinger

Ottinger Hebert, LLC

Adjunct Professor of Law, Paul M. Hebert Law Center,

Louisiana State University, Baton Rouge, Louisiana

 

Introduction

 

                    Before the adoption of the Louisiana Mineral Code, effective January 1, 1975, courts consistently held that a lessor of land as to which there were outstanding mineral servitudes, could expressly stipulate that the mineral lease would cover “outstanding mineral interests” after they “reverted” to the lands.  Whether such an agreement would bind particular successors to the land was a matter of significant doubt.  It was thought by some that, to recognize such an agreement, would be contrary to the prohibition against “dealing with” the “reversionary” interest.[2]

 

Jurisprudence

 

                    This early case law clearly recognized that the lessor’s obligation to “deliver” the newly acquired interest was “personal,” not “real,” to the end that a successor of a lessor under a recorded mineral lease, was not bound by this obligation, in the absence of an agreement by that successor to be bound thereby.

 

                    In the principal case,[3] suit was filed to declare the validity or invalidity of several conflicting mineral leases.  At issue was whether a successor-in-interest to the lessor’s interest in the land affected by a mineral lease which, when granted, covered an undivided one-fourth (1/4) interest in the minerals, was bound by an “After-acquired Title Clause” in the mineral lease so that, when an outstanding mineral servitude prescribed, it was automatically subjected to the lease.  This clause read, as follows:

 

Lessor agrees that any additional or greater mineral interest in the leased premises that may be acquired by him by purchase or otherwise, is also included and leased herein, and upon his written notice to said lessee with evidence of such additional interest given thirty (30) days prior to any annual delay rental paying date, the delay rentals payable hereunder shall be increased proportionately.[4]

 

                    The court held that a successor to the lessor is not bound by such a “personal” obligation,[5] explaining its view of the law as applied to the facts before it, as follows:

 

Therefore, when Mrs. Calhoun acquired the land from Thompson, while the land was subject to the lease, that lease was limited to Thompson’s ownership in the minerals, that is, one-fourth, and the other three-fourths interest remained outstanding.  The clause in the Thompson lease dealing with the outstanding minerals merely evidenced a personal agreement be­tween the original parties to the lease, was dependent on the happening of an uncertain event, and was limited to whatever additional ownership in the mineral rights Thompson right acquire while the lease was in full force and effect; the situation did not mate­rialize; consequently, the clause fell when Thompson failed to acquire outstanding mineral interests, and those became vested in Mrs. Calhoun, the owner of the land, at the time the servitude was extinguished because of its non-use for a period of more than ten years.[6]

 

Mineral Code

 

                    The Mineral Code now expressly regulates both the matter of the lessor’s warranty, and the effect of extinction of a mineral servitude.  When a lessor has “purportedly” leased rights that are “outstanding in another,” and those interests are extinguished by prescription, the interest that the lessor “acquires” accrues to the benefit of the lessee.

 

                    Thus, article 144 of the Louisiana Mineral Code reads, as follows:

 

Art. 144.  After-acquired title clause may bind lessor and successors in title

 

A mineral lease may provide that a mineral right that terminates during the existence of the lease and becomes owned by the lessor or his successor in title shall be subject to the lease.  If the lease is filed for registry, the provision is binding on all subsequent owners of the land or mineral rights leased.[7]

 

                    Article 145 of the Louisiana Mineral Code provides, as follows:

 

Art. 145.  After-acquired title doctrine; applicabil­ity in absence of special clause

 

If, in the absence of an express provision of the kind contemplated by the preceding Article, a party purports to grant a mineral lease on land or mineral rights that he does not own, any title thereto he subsequently acquires inures to the benefit of the lessee.  Successors in title of the original lessor are not bound under this Article unless they agree ex­pressly and in writing to become so bound.[8]

 

                    The typical scenario is where the lessor owned the land, but the leased premises was subject to outstanding mineral servitude interests for some portion of the minerals.  If, during the term of the mineral lease, the outstanding mineral servitude interests were to prescribe, such minerals would revert to the then surface owner of the land.[9]  The “After-acquired Title Clause” is designed to bring the prescribed interests under the ambit of the mineral lease, and correspondingly increase the fraction of minerals covered and affected by that lease.

 

Commercially Printed Mineral Lease Forms

 

                    The “After-acquired Title Clause” contained in both the Bath 4 Form and the Bath 6 Form reads, as follows:

 

Whether or not any reduction in rentals shall have previously been made, this lease, without further evidence thereof, shall immediately attach to and affect any and all rights, titles, and interests in the above described land, including reversionary mineral rights, hereafter acquired by or inuring to Lessor and Lessor’s successors and assigns.

 

                    This clause in the North Form simply states that the “lease shall also extend and apply to all outstanding mineral rights or servitudes affecting the lands herein described as the same may revert to Lessor, his heirs or assigns, from time to time.”

 

                    The motivation for the adoption of article 144 is explained in Acree v. Shell Oil Co., Inc.,[10] in which it is stated, as follows:

 

Article 144 changes the jurisprudential rule with re­spect to outstanding mineral rights which terminate during the existence of the lease.  Under the pre-code decisions, it was virtually impossible to obtain a secure lease when mineral servitude rights were outstanding and about to expire.  The servitude owner was unable to give secure title and the landowner would generally refuse to give a joint lease since that would extend the life of the servitude.  Thus, it was necessary to remedy this situation by allowing the lessee to bind the lessor’s successor to the lease when the outstanding mineral rights reverted to him.  L.S.A.-Min.Code art. 144 Comment.[11]

 

                    The import and purpose of the “After-acquired Title Clause” is explained in the comments to article 144 of the Mineral Code, as follows:

 

It has been recognized that lessor and lessee may validly execute an after-acquired title clause binding the lessor to subject outstanding mineral rights to the lease if they terminate and become reunited with the landowner’s title.  . . .  However, it was previously the law that such a clause is not binding on the suc­cessors and assigns of the landowner who grants a lease containing such a clause.  The obligation to subject the outstanding rights to the lease was regarded as “personal” to the lessor and not binding on his successor in title unless expressly as­sumed by him.  . . .  Article 144 changes the law in this respect and permits the execution of leases with after-acquired title clauses which, when filed for registry, will bind the successors in title of the lessor.  The principal reason for doing this is that in Louisiana it has been virtually impossible for a lessee to obtain a secure lease at a time when mineral servitude rights were outstanding and on the verge of expiring.  In such situations, the servitude owner could not give a lease that would give the lessee security of title, even if the servitude owner had executive rights over the landowner’s interest in the minerals.  . . .  The landowner was not ordinarily interested in granting a joint lease as this would have extended the life of the outstanding mineral servitude.  . . .  As noted above, the landowner could not execute a lease with an after-acquired title clause binding on successors in the title unless the obligation was expressly assumed.  This situation has often frustrated efforts at development of land for mineral production.  Therefore, the law was changed in this regard.[12]

 

Conclusion

 

                    The commercially printed mineral lease forms in prevalent use (the so-called South Forms, Bath 4 and 6, and the North Form), albeit formulated differently, each contain an “After-acquired Title Clause.”  Thus, unless it is stricken, article 144 would operate to the exclusion of article 145, and subject to the recorded mineral lease any fractional mineral interest that prescribes during the existence of the lease, but after the lessor has sold the land subject to the recorded lease. 

 

                    If the mineral lease does not contain an “After-acquired Title Clause,” article 145 regulates the situation, and subjects the newly acquired interest to the mineral lease only if the lessor remains the owner of the land, but not if the land has been sold, “unless they agree expressly and in writing to become so bound.”



[1]           This is an adaption of several sections contained in Patrick S. Ottinger, Louisiana Mineral Leases:  A Treatise, published by Claitor’s Law Books and Publishing Division, Inc., June 2016.  It is available at www.claitors.com and www.amazon.com.

[2]           See Hicks v. Clark, 72 So. 2d 322 (La. 1954), now codified at La. Rev. Stat. Ann. § 31:76.  See also Patrick S. Ottinger, Mineral Servitudes, Louisiana Mineral Law Treatise, Ch. 4, § 416 (Martin, ed., Claitor’s Law Publishing, 2012).

[3]           Calhoun v. Gulf Refining Co., 104 So. 2d 547 (La. 1958).  

[4]           Id. at 548.

[5]           Id. at 551.  It is noteworthy that the case was decided during the period of time when there was much uncertainty as to the legal character of a mineral lease under Louisiana law. 

[6]           Id. at 551-52.

[7]           La. Rev. Stat. Ann. § 31:144.  The statement that a mineral lease “may provide” to the effect stated in the article, is an explicit reference to the opportunity to address the topic under the notion of “freedom of contract.”  The lease clause that invokes this opportunity is generally called an “After-acquired Title Clause.”

[8]           Id. at § 31:145.

[9]           McDonald v. Richard, 13 So. 2d 712, 714 (La. 1943) (“The judge of the district court decided that, inasmuch as the mineral rights reserved by the Morley Cypress Company were merely a real obligation, or mineral servitude imposed upon the land, the lapsing of the obligation or servitude inured to the party who owned the land at the time when the obligation lapsed.  Our opinion is that the judgment is correct.”).

[10]         548 F. Supp. 1150 (M.D. La. 1982), aff’d 721 F. 2d 524 (5th Cir. 1984).

[11]         Id. at 1155.

[12]         La. Rev. Stat. Ann. § 31:144, cmt.

Pat Ottinger is a partner in Ottinger Hebert, L.L.C., where he has practiced oil and gas law since 1974.  He is a graduate of the Paul M. Hebert Law Center at Louisiana State University.  He is licensed to practice in Louisiana and Texas.  Since 1996, he has taught the course in Mineral Rights at the Paul M. Hebert Law Center.  He is the author of A Course Book on Louisiana Mineral Rights, utilized at three law schools in the state.  He recently published a work on mineral leases, entitled Louisiana Mineral Leases:  A Treatise, available through claitors.com and amazon.com.  He is an experienced mediator and arbitrator, rendering such services through The Patterson Resolution Group.  He currently serves on the Advisory Council of the Mineral Law Institute at LSU.  He is a member of the Mineral Code Committee, Prescription Committee, Counter-letter Committee, Unsolicited Offers Committee, Tax Sales Committee, and the Risk Fee Act Committee of the Louisiana State Law Institute.  He is a Past President of the Louisiana State Bar Association, and served as Chair of the Mineral Law Section of that association.  He served as City-Parish Attorney of Lafayette Consolidated Government from January 2004 to February 2011.

 

Links:

01H LAPL Article on After-acquired Title

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