Preserving Your Ability to Collect Damages When You Buy Damaged Property

The Senns bought the surface estate to 23,013 acres on June 5, 1997. Part of this land had been used for active oil production since 1948, which had left oil and gas related roads, well locations, treatment plants, exposed pipelines, and tank batteries scattered around, by the time the Senns bought it.

The deed transferring title to the Senns contained normal language often considered boilerplate:

AS IS WHERE IS, AND WITH ALL FAULTS AND WITHOUT ANY REPRESENTATIONS OR WARRANTIES WHATSOEVER EXPRESS OR IMPLIED, WRITTEN OR ORAL, EXCEPT SOLELY THE WARRANTY OF TITLE EXPRESSLY SET FORTH HEREIN ABOVE; IT BEING THE INTENTION OF GRANTOR AND GRANTEE TO EXPRESSLY REVOKE, RELEASE, NEGATE AND EXCLUDE ALL REPRESENTATIONS AND WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY AND ALL EXPRESS OR IMPLIED REPRESENTATIONS AND WARRANTIES AS TO…..(viii) ANY ENVIRONMENTAL, GEOLOGICAL, METEOROLOGICAL, STRUCTURAL, OR OTHER CONDITION OR HAZARD OR THE ABSENCE THEREOF HERETOFORE, NOW, OR HEREAFTER AFFECTING IN ANY MANNER ANY OF THE PROPERTY, INCLUDING, WITHOUT LIMITATIONS, CONCERNING WATER IN, ON, UNDER, OR ABOUT THE PROPERTY.

Then, the Senns sued Texaco, Exxon, and seemingly every other oil company in sight, to recover for all these surface damages to their land, as well as additional damage caused to the underground water aquifer. Needless to say, the oil companies were less than impressed. They basically walked right into court and said “the damage had already been done, so there’s no way the Senns can win.” The rule the oil companies relied on is simply this:

a cause of action for damages to real property is a personal right which belongs to the person who owns the property at the time the thing that causes the damage commences to affect the land. It is not a right that “runs with the land” from owner to owner.

Strike one.

But the Senns said “not so fast” and threw out a few “come backs”: (1) the seller conveyed us their rights against these big, bad oil companies for surface damages, and (2) we, and nobody before us, discovered the aquifer damage, so since we discovered it, that cause of action, at least, is ours, all ours.

Said the court “well, let’s take a peek at the written documents you signed or accepted.” And that was pretty much the end of the case. In response to the Senns’ first comeback argument, the court simply read from the deed:

Nothing contained herein is intended to limit the right of [Seller]….to seek to recover whatever surface damages to which [Seller]…..may be entitled under Texas law in the event of the production or mining of any of the foregoing minerals and other substances.

The Sellers expressly kept to themselves the right to sue the oil companies for damages relating to oil and gas production. If the Sellers kept it, by definition they couldn’t have also conveyed it to the Senns. Strike Two.

On the Senns’ comeback argument No. 2, the Court said the whole “I discovered it first” applies to statutes of limitations, where, for example, a person has 2 years to bring a lawsuit, and they don’t bring it until 3 years after the damaging event, but they argue “the statute of limitations should be extended because I only now discovered the injury.” The court basically said “this is an irrelevant argument for land damage. The question of statute of limitations can’t even apply unless and until a party has the right to bring a cause of action, and the Senns have absolutely no right to bring any cause of action for surface damages. Strike three, and the Senns were poured right out of court.

In a very similar case, David Pluff bought the surface estate to 10 acres in Rusk County, Texas, for $1,000 per acre. The year was 1992. By this time all oil production on this land had come to a halt. He moved “two cattle and some horses” onto it, but soon had to get them back off the property because there was just too much abandoned oil production material. It had all been, DOM DoM dom……..Left Behind.

So he sued all these oil companies that had operated on his land, and he actually won a jury trial verdict against Exxon for $30,000. Unfortunately, the Court of Appeals overturned the verdict and awarded him a big, fat zero. Why? Because he didn’t own any cause of action against Exxon. The damage had been done to the land before he bought it.

In technical legal terms, we call it “standing.” A plaintiff must have standing to come before the court. Standing requires the plaintiff to have a legally recognized injury producing legally recognized damages, and a defendant that has caused those damages.

Pluff’s case went a little further, though. He also argued that the terms of the oil and gas lease required these oil companies to remove all their equipment from the land. But here’s the language from the lease:

[Exxon] shall have the right at any time during or after the expiration of this lease to remove all property and fixtures placed by [Exxon] on said land including the right to draw and remove all casings.

The court decided that “shall have the right” doesn’t mean “must” but rather made it optional at Exxon’s discretion. Here’s another example of language that just doesn’t quite impose a duty to remove equipment:

upon termination of this lease, lessee shall have 90 days to remove its machinery, structures and other property erected on the land by lessee.”

There is no implied duty to repair damage done to land caused by rightful and necessary use. Aren’t written documents wonderful? They can clear up a lot of misunderstandings, if people would just believe what they said.

So what are the morals to these stories? Well, there are several:

As buyer:

1. Put an express provision in deeds or the sales contract conveying all the seller’s personal rights to damages for prior surface damage to the real property. This is in the nature of an assignment of a personal right.

2. Make sure you understand the effect of prior leases affecting the property, so you know what can be enforced against prior users of the property, assuming you do get the assignment of the seller’s rights to sue for those damages. That effect could well be zero, or several hundred thousand dollars.

3. Bargain for warranties in the deed about the condition of the land and any subsurface aquifer.

4. Perform a complete inspection of the land and any subterranean waterways before purchasing the land. This is typically referred to as “due diligence.” Do your homework.

As Seller, make sure whatever warranties you agree to make, whether about title, land condition, improvements, aquifer condition, or any other matter, are accurate. And as the Buyer bargains for more warranties, bargain for more cash. Lots more cash.

Exxon Corp. v. Pluff, Case No. 12-01-000009-CV, Texas Court of Appeals, Tyler, May 31, 2002; Senn, et al., v. Texaco, Inc., et al., 55 S.W.3d 222 (Tex. App.–Eastland 2001).

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