Lease of Oil and Gas Rights • Bonus Payments • Warranty of Title • Estoppel by Deed

Shedden v. Anadarko E&P Co., L.P., PICS Case No. 14-0470 (Pa. Super. March 14, 2014) Musmanno, J. (9 pages).

Where a lessor warranted free and clear title to leased property, and only subsequently gained free and clear title to part or all of the leased property, the doctrine of estoppel by deed inured the full leased property to the use and benefit of the lessee. Affirmed.

Plaintiffs Leo and Sandra Shedden appealed from the order entering summary judgment against them and in favor of defendant Anadarko, concerning the lease of oil and gas rights to defendant on property owned by the plaintiffs.

The plaintiffs leased to defendant the oil and gas rights underlying plaintiff’s 62-acre parcel of real estate for a term of five years with an optional five year extension/renewal term. Subsequently, counsel for defendant discovered that a third party had reserved to themselves one-half of the oil and gas rights in the parcel in an 1894 deed. Defendant then paid plaintiffs a bonus payment for the interest in one-half of the parcel.

Later, plaintiffs successfully filed a motion to quiet title on the reserved interest, and were granted a fee simple of all the oil and gas rights associated with their parcel. At the end of the initial five-year term, defendant sent a bonus payment representing an extension/renewal of the lease for the full 62 acres of plaintiff’s parcel.

Plaintiffs filed a complaint, seeking declaratory judgment that the lease between the parties only pertained to oil and gas on one-half of the plaintiff’s parcel. Defendant filed a motion for summary judgment, arguing that plaintiffs were estopped by the doctrine of estoppel by deed from denying that the lease covered the oil and gas rights of the whole parcel. Plaintiffs argued that at the time of the lease they could only lease one half of the parcel, and that defendant’s initial bonus payment served to amend the written lease, leaving them free to lease the other half of the parcel they later acquired.

The court found that the lease between the parties both described the subject parcel as the full 62-acre parcel, and contained a covenant of warranty of title provision. The lease also provided that, if plaintiffs owned less than the full described parcel, they would only be entitle to a pro-rata share of the payments.

The court noted that the doctrine of estoppel by deed held that where a party conveyed land to which he had no title or defective title, and afterward acquired good title, that good title immediately inured to the benefit of the grantee. Specifically, where a party leased property that he did not own and afterwards acquired ownership and attempted to repudiate the lease, he would be estopped from denying the lease on the grounds that he did not have the power to lease the property.

The court found that because the plaintiffs warranted good title to the full parcel and attempted to lease the oil and gas rights for the full parcel, by subsequently acquiring title to the full rights, the doctrine of estoppel by deed barred them from denying that the lease covered the full 62 acres. The court further found that defendant’s initial payment covering only one-half of the interest did not convert the terms of the lease.