Cleburne County landowners Bruce and Jan Smith won on appeal in the case of Smith v. Mountain Pine Timber, Inc., 2016 Ark. App. 193. In this case, Mountain Pine timber previously sold the minerals to land later sold to the Smiths. Mountain Pine then sold the land to the Smiths with full warranty of title and with no mineral reservation.
Under Arkansas law, a warranty of title is actionable as a breach of contract. The statute of limitations does not begin to run until a third party disturbs the purchaser’s rights to possession of the property. This is particularly important feature of the law when it comes to minerals. Minerals are not possessed until produced. Many years can pass before the requisite mineral development and production takes place.
In the Smith case, they purchased the land from Mountain Pine Timber in 1987. It was not until 2008, when the Smiths were approached to sell their mineral rights that the Smiths discovered that Mountain Pine previously sold the Cleburne County mineral rights.
Another point of black letter law in Arkansas is that the damages for breach of warranty of title are “so much of the consideration paid as is proportioned to the value of the land lost, with interest.” Furthermore, the damages cannot exceed the total value of the purchase price. The Court of Appeals therefore reasoned that the property point in time to fix damages was the time of the conveyance. In this case, that was the 1987 conveyance to the Smiths from Mountain Pine. The Smith trial court awarded only $250.22 in damages or $1/acre.
Notably, the only evidence offered on the value of the Cleburne County mineral rights in 1987 was from one of the Defendants who testified that the mineral rights were sold by Mountain Pine for $1 per acre in 1985. This underscores the importance of offering expert testimony of damages. Most likely, the actual value of the Cleburne County mineral rights was much higher than the $1 per acre awarded by the trial court, and the low damages award was the result of insufficient testimony by the Plaintiffs. I’ve seen numerous mineral deeds in the Cleburne County records prior to the Fayetteville Shale discovery that easily exceeded $1 per acre.
Justice, however, was in some manner served for the loss suffered by the Smiths. In a companion appeal of Mountain Pine Timber v. Smith, 2016 Ark. App. 197, the Court of Appeals upheld an award of attorney’s fees in the same case. Arkansas law allows attorney’s fees to the prevailing party in a contract action (which a deed covenant is) provided the fees are reasonable. The court awarded $17,500 in attorney’s fees. The Appeals Court concluded the award of attorney’s fees was not excessive.