Cities Service Oil Co. v. Dunlap

Background

An oil company acquired an oil-and-gas lease that relied on an 1899 Texas deed describing a 68-acre parcel by distance and by a called corner. Measured on the ground, the distance called for the north line ended sixty-six feet east of the named corner, creating a disputed sixty-six-foot strip. In 1934 a neighbor, Dunlap, obtained a lease covering most of that strip. The oil company sued in federal court to remove the cloud on its title. Dunlap and the Rogers heirs said the named corner was a mistake and that the distance controlled; they asserted an equitable interest. The District Court ruled for Dunlap, and the Circuit Court of Appeals affirmed.

Reasoning

The core question was which party must prove key facts when someone claims legal title as a good-faith buyer of a recorded deed under Texas law. The Circuit Court held that the buyer seeking to quiet title should prove it paid value without notice. The Supreme Court disagreed, finding that the Texas rule — that a challenger asserting a superior equitable title must show the recorded buyer lacked value, good faith, or notice — affects a substantial right and must be applied. The Court concluded the lower court erred in refusing to follow that local rule and reversed the judgment.

Real world impact

The decision protects holders of recorded legal title in Texas by requiring challengers to prove a purchaser lacked value, notice, or good faith before upsetting a recorded deed. The case was sent back to the lower court for final determination consistent with the Supreme Court’s ruling, so further proceedings will apply the Texas rule.