[J-7-2016] IN THE SUPREME COURT OF PENNSYLVANIA

MIDDLE DISTRICT

SAYLOR, C.J., BAER, TODD, DONOHUE, DOUGHERTY, WECHT , JJ.

LEO E. SHEDDEN AND SANDRA L. SHEDDEN, Appellants

v.

ANADARKO E. & P. COMPANY, L.P., Appellee : : : : : : : : : : : : No. 103 MAP 2014 Appeal from the Order of the Superior Court dated March 14, 2014 at No. 758 MDA 2013 affirming the Order of the Court of Common Pleas of Tioga County, Civil Division, dated April 16, 2013 at No. 876 CV 2011

ARGUED: October 7, 2015 RESUBMITTED: January 20, 2016

OPINION

JUSTICE TODD DECIDED: March 29, 2016 In this appeal, we consider whether the Superior Court properly applied the doctrine of estoppel by deed to conclude that an oil and gas lease between Appellee, Anadarko E. & P. Co., L.P. (“Anadarko”), and Appellan ts, Leo and Sandra Shedden, covers the oil and gas rights to 100% of the property i dentified in the lease, notwithstanding the fact that, unbeknownst to them, App ellants owned only a one-half interest in the oil and gas rights to the property at the time the lease was executed, and, consequently, received a bonus payment only for the oi l and gas rights they actually owned. Upon review, we affirm. The facts of the instant case are undisputed. Appellants are the owners of a 62- acre parcel of land (the “Property”) located in Ward T ownship, Tioga County, which they purchased from Colgate University in 1990. Unbeknown st to Appellants, on February[J-7-2016] - 2

21, 1894, Appellants’ predecessors in interest, Ezra and Emma Baxter (the “Baxters”), reserved by recorded deed one-half of the oil and gas rights to the Property. 1 In May 2006, Appellants leased to Anadarko the oil and gas rig hts to the Property for a term of five years, expressly warranting title in all of the o il and gas. 2 As consideration, Anadarko agreed to pay Appellants a bonus payment of $80 per acre. Anadarko sent Appellants a Lease Purchase Report and an Order of Pay ment reflecting a bonus payment of $80 per acre on 62 acres, totaling $4,960. Prior to tendering the bonus payment, however, Anadarko’s land agent discovered the Baxters’ 1894 reservation of one-half of the oil and gas rights to the Property, a nd informed Appellants that Anadarko would pay a bonus on only 31 of the 62 acres. Thereaf ter, Anadarko sent Appellants a revised Order for Payment, describing the subject Prope rty as “a tract of land containing 62.00 gross acres, 31.00 net acres,” and indicating that, as consideration for the agreement, Anadarko would pay Appellants a total of $ 2,480. Order for Payment (R.R. at 19a). Appellants did not sign the revised Order f or Payment, but subsequently accepted Anadarko’s payment of $2,480. Critical to the instant appeal, two years after executing the Lease, Appellants filed a motion to quie t title on the Baxters’ previouslyreserved one-half interest in the oil and gas rights to the Property, which the trial court granted.

1 Although Appellants claim they were unaware of the r eservation, they arguably had record notice, as the reservation was properly recorded. See Collins v. Phillips, 84 A. 854, 854 (Pa. 1912) (a party has record notice where a deed is properly recorded). Nevertheless, the issue of Appellants’ knowledge of the r eservation is not before this Court.

2 Specifically, the covenant of warranty in the lease stated: “The LESSOR covenants and agrees . . . [t]hat LESSOR has full title to the premises and to all the oil and gas therein at the time of granting this Lease, and fore ver warrants title to the leasehold estate hereby conveyed to LESSEE.” Lease (hereinafter , “Lease”), 5/23/06, at 2 § B.2 (Reproduced Record (“R.R.”) at 11a).[J-7-2016] - 3

On March 31, 2011, Anadarko invoked the extension clause contained in the Lease by sending Appellants a check in the amount of $4, 340, which represented an extension payment of $70 per acre on 62 acres. Appella nts did not cash the check, however, based on their belief that Anadarko had lea sed the oil and gas rights to only one-half of the Property, and, thus, that Anadarko ov erpaid them by $2,170. On October 21, 2011, Appellants filed a declaratory judgm ent action seeking a declaration that the Lease “only pertains to oil and gas contained on 31 acres” of the Property. Complaint, 10/12/11, at 4 (R.R. 5a). In response, An adarko filed a motion for summary judgment, asserting that Appellants were estopped, bot h by their contractual promises and by the doctrine of estoppel by deed, from denying that the Lease grants Anadarko 100% of the oil and gas rights to the Property. In response to Anadarko’s motion for summary judgment, A ppellants argued that they could not have leased to Anadarko 100% of the oil and gas rights to the Property because they owned only one-half of the rights thereto at the time the Lease was executed. Appellants further maintained that Anadark o’s 2006 revised bonus payment of $80 on 31 net acres of the Property constituted a m odification of the Lease. Appellants contended that, because Anadarko leased onl y one-half of the oil and gas rights to the Property, Anadarko could extend the pri mary term of the Lease only as to one-half of the oil and gas rights to the Property. On April 16, 2013, the trial court granted Anadarko’s motion for summary judgment and dismissed Appellants’ declaratory judgmen t action, concluding that the Lease “covers all oil and gas underlying the entirety of [Appellants’] 62-acre property . . . and that the Primary Term of the Lease was timely and validly extended, and the Lease remains in effect according to its terms.” Trial Court Order, 4/16/13. In support of its order, the trial court observed that the Lease describe d the premises as:[J-7-2016] - 4 containing for the purpose of calculating rentals and royalties, 62.00 acres whether actually containing more or less. In addition to the above described land, any and all strings or parcels of land adjoining or contiguous to the above described land and owned or claimed by LESSOR ar e hereby leased to LESSEE. Lease at 1 (R.R. at 10a). Based on this language, t he trial court determined that Appellants intended “to enter into a binding lease ex clusively with Anadarko as to all 62 acres.” Trial Court Opinion, 6/19/13, at 3-4. The trial court rejected Appellants’ argument that t heir receipt of a bonus payment equal to one-half of the agreed-upon sum for 62 acres modified the Lease such that it applied only to 31 acres, noting that Para graph C.3 of the Lease provides: “[i]f LESSOR owns less than all of the oil and gas rig hts in the premises, LESSOR shall be entitled to only a share of the rentals and royal ties equivalent to the proportion of such oil and gas rights owned by LESSOR.” Lease at 2 § C.3 (R.R. at 11A). Moreover, the trial court determined that, under the doctrine o f estoppel by deed, Appellants’ subsequent acquisition of title to the previously-reserved one-half interest in the oil and gas rights to the Property passed to Anadarko under the terms of the Lease, and that Appellants’ covenant of warranty in the Lease estops them from arguing otherwise. Trial Court Opinion, 6/19/13, at 5-6. The Superior Court, in a unanimous published opinion , affirmed the trial court’s grant of summary judgment in favor of Anadarko. Shed den v. Anadarko E & P Co., L.P., 88 A.3d 228 (Pa. Super. 2014). Citing this Co urt’s decision in Dixon v. Fuller, 46 A. 553 (Pa. 1900), and its own decision in Hennebont C o. v. Kroger Co., 289 A.2d 229 (Pa. Super. 1972), the court noted that the doctrine of estoppel by deed is well established in this Commonwealth, and concluded that, pu rsuant thereto, “[Appellants] are barred from denying that the Lease covers all 62 a cres of the leased premises.” Shedden, 88 A.3d at 233. The court found it immater ial that Appellants received a[J-7-2016] - 5

bonus payment of only one-half of the agreed-upon su m, noting that Paragraph C.3 of the Lease specifically provides that they were entitled to only the share of the rentals and royalties equivalent to the proportion of gas and oil they actually owned. Id. (citing Lease at 2 § C.3). Finally, the Superior Court hel d that Anadarko’s exercise of its contractual option to extend the Lease for an additio nal five years was timely, and covered all 62 acres of the Property. We granted allowance of appeal to consider the propri ety of the Superior Court’s grant of summary judgment in favor of Anadarko, based on its finding that, pursuant to the doctrine of estoppel by deed, Appellants are precl uded from arguing that the Lease does not cover the oil and gas rights to the entirety of the Property, despite Appellants having initially received a bonus payment of one-half the agreed-upon sum. 3 Summary judgment is appropriate only where the record clearly demonstrate s that there is no genuine issue of material fact, and th e moving party is entitled to judgment as a matter of law. Summers v. Certainteed Corp., 997 A.2d 1152, 1159 (Pa. 2010). An appellate court may reverse a grant of sum mary judgment if there has been

an error of law or an abuse of discretion. Weaver v. Lancaster Newspapers, Inc., 926 A.2d 899, 902 (Pa. 2007). The issue as to whether th ere are genuine issues as to any

3 We note that the parties and the lower courts sometime s characterize the interest conveyed to Anadarko via the lease as a one-half intere st in the oil and gas rights to the entire Property, and at other times characterize it a s a full interest in the oil and gas rights to 31 acres of the Property. For practical purpo ses, the amount of the bonus payment to which Appellants were entitled was the same − $40 per acre on 62 acres, or $80 per acre on 31 acres. However, as the Baxters’ rese rvation specifically reserved a one-half interest in the oil and gas rights to the ent ire Property, it is most accurate to describe the interest actually conveyed to Anadarko as a o ne-half interest in the oil and gas rights to the Property as a whole, rather than a f ull interest in one-half of the Property, i.e., 31 acres. Nevertheless, in order to acc urately describe the parties’ specific arguments and the analysis of the lower courts, we will utilize the terminology they use.[J-7-2016] - 6

material fact presents a question of law; thus, on that question, our standard of review is

de novo and our scope of review is plenary. Id. at 903. Appellants contend that the Superior Court erred in a pplying the doctrine of estoppel by deed to conclude that the Lease grants Ana darko the oil and gas rights to the entire 62 acres of the Property for two reasons. F irst, Appellants submit that application of the doctrine of estoppel by deed is no t justified in this case because Anadarko was not prejudiced by Appellants’ misrepresenta tion in the Lease that they owned 100% of the oil and gas rights to Property. Se cond, Appellants contend that there was a “necessary and implied modification of both t he consideration and the scope of the lease” as a result of Anadarko’s payment, a nd their receipt, of one-half of the agreed-upon bonus. Appellants’ Brief at 14. As a finding that the Lease was modified by the parti es would render the issue of estoppel by deed moot, we begin by addressing Appellant s’ lease modification argument. Appellants emphasize that the revised Orde r for Payment described the Lease as covering only 31 net acres, and they argue tha t, by paying Appellants a bonus on only 31 acres, Anadarko “elected to forego any atte mpt to lease the remaining interest in the oil and gas which was reserved by Ezra a nd Emma Baxter,” and “knowingly accepted a lease of one-half of the oil and g as underlying [Appellants’] property.” Id. Appellants further aver that the con cept of modification is in accord with Paragraph C.3 of the Lease, which provides for a pro portional reduction in rents and royalties upon discovery that Appellants own less proper ty than the Lease purports to

convey. In response, Anadarko asserts that its payment of a red uced bonus did not constitute a modification of the scope of the Lease, bu t, rather, was proper consideration for the interest actually conveyed by Appel lants pursuant to the terms of[J-7-2016] - 7

the Lease. Specifically, Anadarko relies on Paragraph C.3 of the Lease, noting it provides that Appellants were entitled to a bonus paym ent only for the interest actually conveyed, i.e., one-half of the oil and gas rights to the Property. An oil and gas lease is in the nature of a contract, an d, thus, is controlled by principles of contract law. T.W. Phillips Gas & Oil Co. v. Jedlicka, 42 A.3d 261, 267 (Pa. 2012). A contract, either oral or written, may be modified by a subseque nt agreement which is supported by legally sufficient consideration, or a substitute therefor, and meets the requirements for contract formation. Kreutzer v. Monterey Cty. Herald Co., 747 A.2d 358, 362 (Pa. 2000); see also Wilcox v. Regester, 207 A.2d 817, 821 (Pa. 1965) (“An agreement may be modified with the assent of bot h contracting parties if the modification is supported by consideration.”). We hold that the Lease between Appellants and Anadar ko was not modified as a result of Anadarko’s payment of, and Appellants’ accepta nce of, a bonus payment of one-half the originally agreed-upon sum. Anadarko or iginally agreed to pay Appellants an $80 per acre bonus for the oil and gas rights to the Property. Paragraph 3.C of the Lease provided, however, that if Appellants owned le ss than all of the oil and gas rights to the Property, they would be entitled to payment only in proportion to the oil and gas rights they actually owned. Pursuant to that paragra ph, upon finding that Appellants owned only one-half of the oil and gas rights to the Property, under the express terms of the Lease, Anadarko was obligated to pay Appellants onl y one-half of the agreed-upon bonus payment − i.e., $40 per acre − and this was the e xact consideration that Appellants received. Accordingly, rather than a modif ication of the Lease, Anadarko’s payment of a reduced bonus was in accord with its precise terms, and so cannot be

considered as additional consideration or evidence of an agreement to modify the

Lease.[J-7-2016] - 8

Having concluded that the Lease was not modified as a r esult of Anadarko’s payment of a reduced bonus, we next consider whether, having quieted title to the entire Property, the doctrine of estoppel by deed pr ecludes Appellants from asserting that Anadarko is entitled to only one-half of the oil and gas rights to the Property. Under the doctrine of estoppel by deed,

[w]here one conveys with a general warranty land whi ch he does not own at the time, but afterwards acquires the ownership of it, the principle of estoppel is that such acquisition inures to the benefit of the grantee, beca use the grantor is estopped to deny, against the terms of his warranty, that he had the title in question. Jordan v. Chambers, 75 A. 956, 958 (Pa. 1910); 4 see also Hennebont, 289 A.2d at 233 (noting that, in Pennsylvania, doctrine of estoppel by deed precludes one who leases property which he does not own, but of which he later acquires ownership, from denying the lease on the basis he did not have ownership at the time the lease was executed). Appellants do not dispute the viability of the doctr ine of estoppel by deed in this

context. 5 However, they contend that, because estoppel by deed is an equitable doctrine, its application requires a finding of detrime ntal reliance by the grantee. Appellants’ Brief at 10-11 (citing Novelty Knitting M ills, Inc. v. Siskind, 457 A.2d 502 (Pa. 1983), In re Estate of Tallarico, 228 A.2d 736 (Pa. 1967), and Northwestern Nat’l Bank v. Commonwealth, 27 A.2d 20 (Pa. 1942)). Appellan ts further note that, in Shell Oil Co. v. Trailer & Truck Repair Co., Inc., 828 F.2d 205 (3d Cir. 1987), the United States Court of Appeals for the Third Circuit predicted that New Jer sey courts would conclude that

4 An oil and gas lease is considered a conveyance of a prope rty interest. Hutchison v. Sunbeam Coal Corp., 519 A.2d 385, 387 n.1 (Pa. 1986 ). 5 We note, however, that other courts have applied the doctrine of estoppel by deed to leases, see, e.g., Southland Corp. v. Shulman, 331 F. Supp. 1024, 1029 (D. Md. 1971) (applying Maryland law), including mineral leases, see, e.g., White v. Hodges, 9 So. 2d 433, 443 (La. 1942).[J-7-2016] - 9

detrimental reliance is, in fact, an essential elemen t of both equitable estoppel and estoppel by deed. Noting that Anadarko paid a reduced bonus upon learning of the

Baxters’ 1894 reservation of one-half of the oil and gas rights to the Property, Appellants maintain that there can be no finding of d etrimental reliance by Anadarko and that the doctrine of estoppel by deed does not app ly. In response, Anadarko contends that Appellants conflate th e principles of equitable estoppel with those of estoppel by deed, and are improperly attempting to impose a requirement of detrimental reliance on the application of estoppel by deed where none exists. Specifically, Anadarko observes that t here are three distinct types of estoppel − estoppel by record, estoppel by deed, and equitable estoppel (also referred to as estoppel in pais ) − and that estoppel by deed is a “technical legal the ory” based on the grantor’s own covenant in the deed and di vorced from the subjective elements of inducement and justifiable reliance. Anada rko’s Brief at 11-12 (citing In re Webb, 99 B.R. 283, 290 (Bankr. E.D. Pa. 1989) (“Estop pel by deed . . . allows application of estoppel without any reference to the moral qualities of the party seeking to be estopped.” (citation and internal quotation mar ks omitted)); In re Solomon, 40 F. Supp. 62, 65 (E.D. Pa. 1941) (“[T]he doctrine of est oppel by deed is a distinct kind of estoppel which does not require all of the elements of estoppel in pais .”)). Anadarko further notes that, in Phillips v. Tetzner, t his Court applied the doctrine of estoppel by deed despite a grantee’s lack of payment at the time the grantor obtained full legal title to the subject property. 53 A.2d 1 29, 131-32 (Pa. 1947) (purchaser’s failure to tender consideration for a lease did not p reclude application of estoppel by deed because tender of purchase money is excused “where such tender would be a useless and idle ceremony.”). Thus, Anadarko maintains th at, notwithstanding its reduced bonus payment to Appellants, estoppel by deed is applicable here because[J-7-2016] - 10

Appellants warranted their title, conveyed less than wh at they warranted, and subsequently perfected title. 6 Appellants’ sole basis for arguing that the doctrine of estoppel by deed should not apply is their contention that, because Anadarko pa id a reduced bonus upon learning of the Baxters’ 1894 reservation of one-half of the oil and gas rights to the Property, Anadarko failed to demonstrate detrimental reliance. However, unlike the doctrine of equitable estoppel, we find that the doctr ine estoppel by deed does not require detrimental reliance. The doctrine of equit able estoppel

prevents one from doing an act differently than the m anner in which another was induced by word or deed to expect . A doctrine sounding in equity, equitable estoppel reco gnizes that an informal promise implied by one’s words, deeds or representations which leads another to rely justifiably thereon to his own injury or detriment , may be enforced in equity. Novelty Knitting Mills, 457 A.2d at 503 (emphasis adde d). In contrast, the doctrine of estoppel by deed precludes one who conveys an interest in land that he does not own, but subsequently acquires the title thereto, from denying the validity of the first conveyance. Jordan, supra; Phillips, supra; Bowen v. A.R. Boyd Enterprises, Inc., 191 A. 137, 140 (Pa. 1937 ) (under the doctrine of estoppel by deed, “ when a vendor or mortgagor either sells or mortgages l and which he does not own, and afterwards acquires title thereto, he is not p ermitted to set up this afteracquired title to defeat his previous grant or mortgag e, for this would permit him to

6 The Pennsylvania Independent Oil & Gas Association fil ed an amicus brief in support of Anadarko, presenting substantially the same argume nts as Anadarko. Notably, however, Amicus contends that, even if this Court holds that prejudice i s required for application of the doctrine of estoppel by deed, Anada rko did, in fact, suffer prejudice as a result of “not having the sole and exclusive right to develop the oil and natural gas resources underlying all 62 acres . . . unless and until t he Lessors removed the cloud on their title.” Amicus Brief at 5.[J-7-2016] - 11

perpetrate a fraud upon his grantee or creditor.”); D aley v. Hornbaker, 472 A.2d 703, 705 (Pa. Super. 1984) (“A grantor is estopped to asser t anything in derogation of his deed, as against grantee.”).

While the doctrine of estoppel by deed is rooted in equity, its considerations are

broader:

The principle is that when a person has entered into a

solemn engagement by deed, he or she will not be per mitted to deny any matter that he or she has asserted therein for a deed is a solemn act to any part of which the law gives effect as the deliberate admission of the maker; to him or her it stands for truth, and in every situation in which he o r she may be placed with respect to it, it is true as to him or her. Estoppel by deed promotes the judicious policy of making certain formal documents final and conclusive evidence of their contents.

28 Am.Jur.2d, Estoppel by Deed or Bond, § 5 (footnote s omitted). Accordingly, we reject Appellants’ contention that detrimental reliance is a prerequisite for application of the doctrine of estoppel by deed. 7 Herein, Appellants conveyed, through a lease, the oil and gas rights to the Property, expressly warranting their full title to al l the oil and gas therein. After discovering that they owned less than all of the oil an d gas rights to the Property,

7 But see Shell Oil Co., 828 F.2d at 209 (recognizing that some courts, including the court in In re Solomon, supra, have held that detrime ntal reliance is not an element of estoppel by deed, but stating that “[w]e know of no re ason” for such a conclusion and opining that, “detrimental reliance is so obvious that courts may not bother to mention it.”); McLaughlin v. Lambourn, 359 N.W. 2d 370, 372 (N.D. 1985) (in case involving reservation of mineral rights, application of estoppel by deed requires, inter alia , that the party asserting estoppel relied directly upon such conduct or admissions, and will be injured by allowing the truth to be disproved). How ever, we note that, even if we were to follow the decisions of those courts which require a demonstration of detrimental reliance for the doctrine of estoppel by deed to apply , Appellants fail to support their suggestion that proof of detrimental reliance is limite d to monetary loss. Cf. supra note 6.[J-7-2016] - 12

Appellants filed a motion to quiet title to the one- half interest in the oil and gas rights to the Property, ultimately perfecting their title to a ll of the oil and gas rights to the Property. Under the doctrine of estoppel by deed, Ap pellants may not deny the validity of their initial conveyance to Anadarko of all of the oil and gas rights to the Property. See Jordan; Bowen; Daley. For the above reasons, we hold that the Superior Co urt properly affirmed the trial court’s grant of summary judgment in favor of Anadarko based on the doctrine of estoppel by deed.

Order affirmed. Chief Justice Saylor and Justices Baer, Dougherty and We cht join the opinion. Justice Donohue did not participate in the consideratio n or decision of this case.