and those rights which XYZ Oil Company had in Said Lease ( First Southern Properties, Inc. v. Vallone, 533 S.W.2d 339 (Tex. – 1976); Durkay v. Madco Oil Co., Inc., 862 S.W.2d 14 (Tex.App. — 1993); Williams v. Nationstar Mortg., LLC , 349 S.W.3d 90 (Tex.App. - 2011)) A’s possibility of reverter and right to consent to any assignment remained vested in A AFTER the foreclosure sale. A’s right to consent/non-consent to any “assignment” of Said Lease was found in the express terms of its oil and gas lease, which lease was both dated and filed of record prior to the date and filing of ABC Bank’s mortgage/deed of trust. Neither ABC Bank nor Burns Oil Company can claim to be an innocent purchaser for value. Both entities either knew or were charged with constructive notice of not only the existence of Said Lease but its contents as well, including the consent provision. ( Carlisle & Co. v King , 133 S. W. 241 (Sup. Ct. - 1910); American Exch. Nat. Bank of Dallas v. Colonial Trust Co ., 186 S. W. 361 (Tex. Civ. App. - 1916, no writ hist.); Houston First American Sav. v. Musick, 650 S.W.2d 764 (Tex. - 1983)). A’s right of consent is therefore not cut off but remains a viable right vested in A and which must be complied with by ABC Bank to have a valid foreclosure deed issued by the trustee ( Draper v. Gochman, 400 S.W.2d 545 (Tex. - 1966); Williams v. Nationstar Mortg., LLC , 349 S.W.3d 90 (Tex.App. - 2011)) In the author’s opinion, it would be poor policy and practice for a lending institution to lend money to an oil company collateralized by that company’s interest in oil and gas lease(s) and not have read the underlying leases (or cause same to have been read by a landman/attorney) to insure that there were no provisions in the oil and gas lease which could interfere with the enforcement of the lender’s rights under the mortgage/deed of trust. So…. ABC Bank deliberately ignored A’s right of consent, both upon execution of the mortgage/deed of trust as well as at the time of issuance of the trustee’s deed? It would appear that this conclusion, namely: (i) the failure to get A’s written consent to the issuance of the mortgage and/or (ii) issuance of the foreclosure deed as a result of a non-judicial foreclosure, is in fact the situation some lenders could find themselves where the underlying oil and gas lease(s) have a consent provision similar to the one set out above (or one differing from the example, requiring additional inquiry and research) which has not
been complied with. What if A (i) wants the non-consent provision contained in Said Lease complied with and/or (ii) does not like nor approve of the purchaser at the foreclosure sale and thus does not want that purchaser to drill on and produce oil and gas from his property. (NOTE: XYZ Oil Company could seek to acquire A’s mineral interest in Said Lease in an attempt to overturn its initial decision to mortgage its interest therein by non-consenting the issuance of the mortgage/deed of trust or the foreclosure deed. Such an action could well fail under the merger doctrine as well as potentially under other contractual/tort/ real property doctrines, none of which are the subject of this article.) In Texas, what remedies does A potentially have to enforce its right to consent/withhold its consent under the terms of Said Lease to the issuance of the trustee’s deed or conducting of the foreclosure sale after XYZ Oil Company’s default? First, prior to the foreclosure sale, A could bring an action in equity to cancel the mortgage due to the mortgagee’s failure to get A’s written consent to the issuance of the mortgage. Generally speaking, for purposes of standing and joinder of necessary parties, both XYZ Oil Company and ABC Bank should be joined as parties to this lawsuit. Second, if the foreclosure deed has been issued, A could bring an action in equity to cancel said deed due to the mortgagee’s failure to get A’s written consent to the issuance of the foreclosure deed. Again, for purposes of standing and joinder of necessary parties, XYZ Oil Company, ABC Bank and Burns Oil Company should be joined as parties to this action. Last, especially if ABC Bank and Burns Oil Company are actively resisting judgments in either of the herein identified resolution scenarios, A could also bring a suit for conditional cancellation of Said Lease (in the same suit) if A is not offered the right to consent/non-consent to the issuance of the mortgage and/or foreclosure deed. Again, for purposes of standing and joinder of necessary parties, XYZ Oil Company, ABC Bank and Burns Oil Company should be joined as parties to this action. In the last scenario, it is first necessary to classify A’s retained right of consent under Said Lease as either a limitation (failing to comply with which leads to Said Lease being declared invalid) or a covenant (failing to comply
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