CHAPTER 18 CURATIVE DOCUMENTS AND TOOLS

• Jurisdiction: United States

Mineral Title Examination
(Feb 2012)
CHAPTER 18
CURATIVE DOCUMENTS AND TOOLS
Angela L. Franklin
Holland & Hart LLP
Salt Lake City, Utah

ANGELA L. FRANKLIN is an attorney with Holland & Hart LLP in Salt Lake City, Utah. Ms. Franklin's practice focuses on natural resources law, with an emphasis in oil and gas. She has extensive experience with title examination of private, Federal, State and Indian lands in the Rocky Mountain States and rendering drilling, division order, acquisition and financing opinions. In addition, she advises clients in complex acquisition and divestiture transactions, including performing all aspects of curative work and preparing transaction agreements. She also represents clients before the Utah Board of Oil, Gas and Mining and the Interior Board of Land Appeals, and assists clients in interfacing with government agencies, such as the Bureau of Land Management, Utah School and Institutional Trust Lands Administration, and Utah Division of Oil, Gas and Mining. Angela is from a multi-generational oil and gas industry family.

You have a defect now what do you do?

Angela L. Franklin

Holland & Hart LLP

Salt Lake City, Utah

©Copyright 2012 by Angela L. Franklin All Rights Reserved

I. INTRODUCTION¹

This paper addresses common types of title defects encountered in title examinations and opinions and how to cure such defects. Title defects are usually identified in a title opinion rendered by a title attorney for a company and its landman; however, title defects are also often identified by the landman at earlier stages. Title curative is most frequently a joint effort of the attorney and the company or field landman. The attorney is responsible for identifying the defect and drafting and/or approving the curative document. The landman is also relied upon by the company to identify the defect and draft the curative document. Additionally, a company landman typically has a more complete knowledge of the company's holdings and future operations while the title attorney's knowledge may be limited to the lands and leases being examined. If the defect covers lands and leases outside of the coverage of the opinion, the landman (and title attorney if possible) should be cognizant of the need to include the additional lands and leases in the curative document and, most importantly, the impact the curative may have on the company's interests in the additional lands and leases. In the world of title curative, "one size does not fit all." It is important to understand at the outset that each title defect must

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be analyzed on its own legal and factual basis and within the context of the applicable state's laws.²

Each time a title defect is identified, the following questions should be addressed:

1. Whose and what interest does the title defect affect? This should be answered in the opinion; it should identify specifically whose interest is affected by the defect and what amount of the interest is affected.

2. Does the title defect need to be cured now? The type of opinion will give some indication of the urgency of the curative. If the purpose of the opinion is for acquisition of leasehold or mineral interests and the defect affects the seller's interests, it is easier to have the seller cure the defect rather than waiting until years later and the seller no longer has any desire to assist in obtaining the curative. The seller will be motivated only so long as it has a financial stake in getting the curative done. If the opinion is for drilling purposes and the defect does not adversely change the company's working interest or net revenue interest, then it may be reasonable to wait to see if production is actually achieved before embarking on the curative efforts. If the opinion is for division order purposes, a title defect may result in production proceeds affected by the defect being suspended; frequently, being a great incentive for non-operators, royalty and overriding royalty interest owners to clean-up their title defects. Financing opinions will require curing of any defects that adversely affect the secured party's net revenue interest.

3. What is the risk to the company if the defect is not cured? Although a title attorney's job is to identify every defect, some defects are of such a nature that failure to cure the defect will not cause any present or future harm to the company. The title attorney should give some indication as to the significance of the defect; this will be conveyed in the language of the requirement - "must" versus "suggest". If possible, a title attorney should indicate if there are reasonable alternatives to curing title defect that can give the company some additional assurances.

This paper is not intended to be a "cure-all" paper. It is, however, intended to provide guidance and generally address the advantages and disadvantages of the various curative documents and curative actions available to the attorney and landman. Each state has its own set of statutes and case law creating many variations to the general rules for the curative documents and actions discussed below. Before embarking on a course of action, the specific state's statutes and case law should be examined to determine the right approach to the title defect for the company.

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II. CURATIVE DOCUMENTS

A. General Rules

This portion of the paper assumes that all curative documents will be executed in compliance with the laws of the applicable state.³

1. Parties. The name shown in the document and in the signature block should be identical to the name in which title is held. If there are discrepancies in the chain of title as to a party's name, the instrument should include a representation identifying each variation and that the party is also known as each name variation.

2. Execution

Attorneys-in-Fact. The power of an attorney-in-fact to execute a document will be defined in the Power of Attorney and will be strictly construed. ⁴ Several states require recordation of the Power of Attorney in the county where the property is located. ⁵

Corporations. The appropriate officer or agent to execute a document on behalf of a corporation will be governed by the state in which the corporation is incorporated. Typically, a document should be executed by the president or vice president. However, the agent/officer's power and authority is set forth in either the corporation's governing documents (articles of incorporation and bylaws), statutory laws, ⁶ or a resolution of its board of directors. If required, the officer's signature should be attested and a corporate seal affixed.

Individuals. An individual executing a document should be an adult and competent to execute the document on his own behalf.

Limited Liability Companies. Typically, a document should be executed by a manager or, if there is not a manager, then by any member. ⁷ Again, it is the company's governing documents (article of organization and operating

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agreement) and the state of organization's laws that determine who has the authority to execute the document on behalf of the company.

Limited Partnerships. The general partner of the limited partnership is the appropriate party to execute the document unless the authority is otherwise restricted in the partnership agreement. ⁸ A document executed on behalf of a limited partnership will also be governed by the state in which the partnership is organized.

Partnerships. Typically, a document can be executed by any partner unless otherwise restricted in the partnership agreement. ⁹ A document executed on behalf of a partnership will also be governed by the state in which the partnership is organized.

Trusts. The state laws and the trust agreement will determine the trustee's authority to execute a curative document. The states have a wide variety of requirements for dealing with a trust. At a minimum, the document should describe the grantor or grantee trustee by including the name of the trustee and the name and date of the trust.

3. Acknowledgment.¹⁰ In order for the document to be recorded, the signatures must be properly acknowledged by an officer such as a notary public.¹¹ The acknowledgement form shall be determined by the laws of the state where the property is located.

4. Words of Grant. As stated in Professor Pierce's paper,¹² state statutory law usually defines the specific words of grant and their effect as to being quitclaim, warranty or special warranty. Regardless of the specific words, the language must be present tense words of grant. The parties cannot simply agree to convey, such as, "Grantor hereby agrees to convey to Grantee...." To be effective, the language must demonstrate an actual present conveyance, such as, "Grantor conveys to Grantee...."

5. Consideration. The need for recitation of consideration is determined by whether the instrument is a contract or conveyance. Consideration is required for a valid contract. There is some dispute as to whether consideration is required for an oil and gas lease. Regardless if the instrument is a contract or conveyance, lease or deed, payment of some consideration is desirable to enable the grantee/lessee bona fide purchaser status under the recording laws or to prevent the instrument from being voidable at the behest of

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creditors.¹³ Except in Louisiana, the courts do not appear to be concerned with the adequacy of the consideration.¹⁴

6. Legal Description. In order for the instrument to be effective, the premises involved must be adequately described.

Drafting Recommendation: in cases where all of a grantor's interests are to be conveyed to a grantee, such as, conveyances to a grantor's trust or all of a decedent's interests are to go the same heirs or devisees, the deed or court order of distribution should also contain "catch-all" language conveying or distributing all of the interests whether now known or hereafter discovered.

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