SCAD appealed, arguing the affirmative defenses of waiver, ratification and estoppel. SCAD’s arguments in Chambers II basically centered around the assertion that notwithstanding the language of the leases, by signing division orders and accepting royalty payments calculated on the basis of pooling, the Chambers were estopped from arguing that there had been no cross-conveyance.[10] In response to SCAD’s arguments, the Chambers II Court provided a convenient comparison of the affirmative defenses of ratification, waiver, and quasi- estoppel. Ratification occurs when a person who knows all the material facts confirms or adopts a prior act that did not then legally bind him. To prove ratification, you must establish (1) approval by act, word, or conduct, (2) with full knowledge of the facts of the earlier act, and (3) with the intention of giving validity to the earlier act.[11] Waiver, on the other hand, is an intentional relinquishment of a known right or intentional conduct inconsistent with claiming that right. Waiver cannot exist if the person allegedly waiving a right says or does nothing inconsistent with an intent to rely on the right.[12] Finally, quasi-estoppel precludes a person from asserting, to another’s disadvantage, a right inconsistent with a position previously taken. It is an equitable doctrine that applies when it would be unconscionable to allow a person to maintain an inconsistent position.[13] In applying the doctrines of ratification, waiver, and quasi-estoppel to the Chambers’ actions, the court found that none of these affirmative defenses gave SCAD the right to tax the Chambers’ Shelby County properties. The execution of division orders did not, as SCAD argued,“subordinate and supersede” the express lease provisions disclaiming a cross-conveyance.[14] First, the division orders included the standard language that they“do not amend any lease . . . between the undersigned and the lessee . . .” Although signing a division order and accepting payment may have the effect of ratifying a pooled unit, the parties here were not contesting the pooling itself. Rather, what was at issue in Chambers I and II was whether the pooling created a cross-conveyance under the terms of the leases. Because a division order cannot alter the terms of a lease, the Chambers’ act of signing their division
orders and accepting royalty payments calculated on the basis of pooling did not act as a ratification of cross-conveyance. Thus, the court held that the Chambers did not ratify the cross-conveyance or waive their rights to assert the anti-cross- conveyancing language in their leases. Further, the Chambers were not estopped (or quasi-estopped) from enforcing said anti-cross-conveyance language. Finally, the Chambers II Court was unsympathetic to SCAD’s claim that its holding would“create uncertainty in every royalty payment” and taxing districts“would be forced to review every lease, many of which are not public record.”[15] This case provides an interesting insight into the sometimes misunderstood effects of the cross- conveyancing theory in Texas (or in this situation, contracting around a cross-conveyance). The Tyler Court of Appeals did not seem to be concerned about burdening an appraisal district with potentially having to investigate and construe the contents of a specific oil and gas lease. At least in situations where a production unit straddles a county line, it appears that appraisal districts may now have a heightened duty to ascertain whether a true cross-conveyance was effectuated under the terms of a lease before appraising ad valorem taxes on royalty payments. One takeaway might be that depending on the property tax rates in two adjacent counties, it may behoove lessors whose property lies on or near the county line to include an anti-cross- conveyancing clause in their leases. Ultimately, the Chambers II Court held that signing a division order does not have the effect of ratifying a cross-conveyance of interests and that the Chambers were entitled to rely upon their lease language which prohibited cross-conveyancing.[16] As a result, the Court of Appeals affirmed the trial court’s judgment that SCAD failed to establish authority to
tax the Chambers’ mineral interests. _________________________________
[1] 514 S.W.3d 420 (Tex.App.—Tyler 2017, no pet.). [2] 618 S.W.3d 398 (Tex.App.—Tyler 2021, pet. denied). [3] 514 S.W.3d 420, 422. [4] Id. at 423. It is worth noting here that this would be a proper method of assessing ad
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N at i onal A ssociation of D i v i s i on O rder A nalys t s
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