I am stuck.
In Texas, I do think (or think I remember) a case exists that puts the onus of the payment of the bonus to the non-executive squarely on the executive interest holder.
If my memory is more or less correct, does anybody have the case name and citation for it?
Dear Pete,
I do the same thing as you. Now, I have found a set of non executive interest owners who have not been paid their share for decades. There is a suit that will likely be filed. The question placed of me by the attorney is "Who has the ultimate responsibility to seeing that the non-executive gets paid?"
I do believe that the responsibility lands on the executive. That is what I remember. Now I need to prove my memory before we get too deep in the case.
This is not going to be a case of convention, but of law. I will be testifying as to convention, but not of law.
The last burning question in my mind is can the executive only lease his interest without binding the Non Executive? I think not out of common sense. It seems to me that the non-executive is inextricably linked to the actions of the executive in leasing. However, a case on that would be nice. I think that is on of the issues that was brought up on the Manges case.
Dear Pete,
Not NPMI, but non-executive, who are entitled to their share of bonus, rental, royalty, etc.
This is one of those situations that I found that has the potential to rightfully return about 1/2 million to the right people. I presented my idea to an attorney and he liked it and signed up some of the non-executives. I will be doing the land work and he gets the fee.
I would prefer that we would be able to easily go after the operators, since they in theory have the deeper pockets and they may be named. It is just that I remember (again, I think that I remember) that it is the job of the executive to ensure that the non-executive receives his share.
If my typing and thinking is off, I am on heavy duty pain meds for my back. Some days are better than others. This has been a day with a cane and mobility scooter, along with being the primary caretaker for a very ill wife. No fun.
I don't know about TX, but in OK, Non-executive interest holders are entitled to royalties only.
Pete Wrench said:
Why would the executive pay bonus to the non-executive, why wouldn't the Lessee do that? Whenever I leased an executive with a NEMI somewhere in the chain of title, I paid the executive his pro-rate share of the bonus, if any, and paid the NEMI his share directly to him.
It is the case in my particular situation. It does depend on how things are set up. I have 2 mineral interests in OK and 1 in TX. One of each in OK. The bonus is shared equally in one and by the holder of executive rights on the other. That is how my grandad set it up
This is a very interesting conversation. Could u guys give a quick explanation of executive and non rights? And maybe an example of of where they would be used? Buddy, I am sorry for your troubles. We will send prayers ur way. Thanks Rick Tatum
Buddy,
I could find no case or other legal authority supporting the proposition that the holder of the executive rights is responsible for payment of bonus monies to a non-executive whose interest includes the right to receive bonus payments (it may be there, I just couldn't find it in either major oil and gas treatise or in TX jurisprudence). To me this makes sense.
The right to receive bonus payments is one of five distinct, separable property rights inherent in ownership of mineral rights "in fee". As a property right, rather than a contractual right, the owner of that right holds it against the world, rather than merely against one with whom he has contracted. Meaning, anyone acquiring a lease over his minerals must, in doing so, respect that owner's rights in the property and take the lease subject to those rights.
That said, Texas's treatment of the executive/non-executive relationship creates problems. In most states, the holder of an executive right is not a fiduciary of the non-executive (in which case he almost certainly would have a duty to remit bonuses paid to him that were in fact owed to the non-executive), but instead merely has the obligation of adhering to some lesser standard of conduct (usually "utmost fair dealing;" or obligation of "reasonable prudence" in Louisiana).
However, Texas defines the executive owner's duty as one of "utmost good faith." Cryptically, the TX Supreme Court has defined that duty as being a fiduciary one, but then goes on to define that duty in a way that completely negates the fiduciary nature of the duty. *sigh.* Who knows if this duty includes the duty to remit bonuses received, but I know of no prior authority saying this is the case. So, unless there is some authority in Texas I'm missing (and there may well be), the duty to pay the bonus to the proper party rests, in my opinion, on the party acquiring the oil and gas lease.
The executive right holder who receives the bonus is in the same position as anyone who has been paid bonuses to which he is not entitled, that of being unjustly enriched. He takes the money and hopes the lessee doesn't get wise before the statute of limitations runs, but he must return that money if the lessee demands it back in a timely fashion.
Correspondingly, the non-executive is in the same position as any other owner entitled to bonuses when a lessee has paid bonuses to the wrong party. The fact that the lessee paid the bonuses to the wrong person is, put simply, not his problem. The right to receive bonus payments is his property right that must be respected by others, and the lessee must pay him the bonuses to which he is entitled. Getting the bonuses that were erroneously paid from the executive right holder is the lessee's problem.
Of course, this all assumes the instrument creating the non-executive interest which specifically includes the right to receive bonuses and rents is filed in the public records prior to the execution of the lease.
Rick Tatum, you can find an explanation here:
www.mineralrightsforum.com/profiles/blogs/the-executive-right
From Bob Fairey--
Buddy, as usual you are right. Your memory is good, despite the pain you’re enduring and the great difficulty your wife suffers.
While the holder of an executive interest who obtains a bonus for himself has the responsibility to obtain (or share) the same bonus for a non-executive interest is not specifically discussed in the cases referred to in the excerpt of cases below, that responsibility, I believe, is emphatically supported by those Texas cases, including the decisions of the Texas Supreme Court.
Following are excerpts from Section 5 of a paper presented by J. Steven Stewart presented at the 34th Annual Ernest E. Smith Oil, Gas & Mineral Law Institute, April 3 – 4, 2008, Houston, Texas. (Since including the entire paper here would have required many pages, relevant excerpts are repeated here, with emphasis supplied by me in bold or colors.The entire paper is at http://www.jstevenstewart.com/uploads/1/2/3/0/12303218/the_duties_owed_ty_the_executive_rights_owner_and_the_oper.pdf Read Section 5. (Stewart is a Houston lawyer with office at 5353 West Alabama, zip 77056, Suite 605. Phone 713-977-3447. He specializes in oil and gas and construction law. Unfortunately, I don’t know him.)
Here are the brief excerpts from Section 5:
Section 5 – Duty of the Executive to the Non-Participating Royalty Interest
The duty of utmost good faith owed by an executive to the NPRI has been settled since Schlittler v. Smith, 128 Tex. 628, 101 S.W.2d 543, 545 (1937). The question that has remained is what does the duty entail and when does it arise.
In Portwood v. Buckalew, 521 S.W.2d 904 (Tex. Civ. App. – Tyler 1975, writ ref’d n.r.e.), the Tyler Court of Appeals citing Schlittler v. Smith, 101 S.W.2d 543 (Tex. 1937) held that an executive owes an implied covenant of utmost fair dealing so as to protect the interest of the non-participating royalty owner . The court stated that the executive “must exact for the non-executive every benefit that he exacts for himself” Id.at 911.
This brings us to perhaps the seminal case defining g the duty of the executive right Holder, Manges v. Guerra, 673 S.W.2d 180 (Tex. 1984). In that case, Guerra
and Manges were mineral co-tenants under a 72,000-acre ranch.
Manges owned one-half of the minerals, all of the surface, and all of the executive rights. Guerra participated in bonus, delay rentals, and royalty. Manges leased a portion of the property to himself for a 10-year primary term and a 1/8 royalty. The lease further provided for a $2 per acre delay rental. After leasing, Manges farmed out the lease reserving a 50% working interest free of any drilling cost. The Texas Supreme Court noted that “The duty of utmost good faith owed by an executive has been settled since Schlittler v. Smith, 101 S.W.2d 543, 545 (1937).” That duty requires the holder of the executive right, Manges in this case, to acquire for the non-executive every benefit that he exacts for himself.” Id at 183. This was the first instance in which the duty of utmost good faith had been
equated to a fiduciary duty.
===============
That concludes the excerpts, obtained after a fairly exhaustive search. There are many more cases discussed in the paper, into the 2Ist Century, but none depart from the position stated above. I hope this will be helpful. Robert A. (Bob) Fairey
Dear Pete,
The issue is not whom actually makes the monetary distribution, but whose ultimate responsibility it is to see that the non-executives get paid.
The Manges case was instructive inasmuch as it was the first case to elevate the utmost good faith standard to a fiduciary standard. Clinton Manges really cooked the books on this one and got caught. Later courts have implied that the fiduciary/utmost good faith standard is on a case by case basis, a struggle the Supreme Court has had since the Manges decision in 1984.
By definition a holder (or holders) of executive rights has the exclusive right to negotiate a lease, as long as he does so in good faith. That does not excuse him from requiring the lessee (in negotiating the lease) to pay a bonus to anyone else who may be legally entitled to such bonus. You make a reasonable argument, but I believe it is in conflict with oil and gas law. The law does not necessarily require that the holder of executive rights physically deliver the bonus (unless he has received the bonus for both).
I am certainly not infallible and may be wrong. I have practiced over 50 years and made my share of mistakes. This could be another one. Best wishes, Bob Fairey
Confusion. We begin to see why lawyers' statements are judged by judges and judges are judged by appellate courts. I am pleased to note that in conflict good will can prevail.
I'm disappointed that Buddy's problem has apparently not been solved. Bob
This, gentlemen, will be the basis of the suit. The oil companies will be drug into it, of course.
Take 2000 acres where the offer was 200 per acre. The non-executives were not paid a total of $200K on that one transaction. There were five transactions over the past two decades or so.
I just know that there is a case out there. I just cannot find it.
Buddy, there must be such a "white horse" case. You might consider suggesting to your litigation lawyer that he talk with Steven Stewart, who seems to have immersed himself in similar oil and gas research.
Good luck, Bob
Buddy, I know of no "white horse" case regarding this matter in any state. As I said above, I believe the responsibility is on the party acquiring the property interest (i.e. the Lessee) to ensure that consideration is paid to the proper party. The case law saying that the executive must "exact the same benefit" for the non-executive as exacts for himself does not address this issue. That merely means that the executive may not negotiate certain benefits for himself to the exclusion of the non-executive (i.e. an override for himself only).
Budddy Cotten,
I am not a 'legal eagle' but I came across an attorney blog discussing executive rights and thought it might be useful to you.
www.oilandgaslawyerblog.com/2013/05/friddle-v-fisher---duty-of-own.html
this happened to me without payment for one year. We eventually received all funds executor received and are bound by what the executor signed. No exceptions. CHK had to pay us the same amount.
Buddy Cotten said:
Dear Pete,
I do the same thing as you. Now, I have found a set of non executive interest owners who have not been paid their share for decades. There is a suit that will likely be filed. The question placed of me by the attorney is "Who has the ultimate responsibility to seeing that the non-executive gets paid?"
I do believe that the responsibility lands on the executive. That is what I remember. Now I need to prove my memory before we get too deep in the case.
This is not going to be a case of convention, but of law. I will be testifying as to convention, but not of law.
The last burning question in my mind is can the executive only lease his interest without binding the Non Executive? I think not out of common sense. It seems to me that the non-executive is inextricably linked to the actions of the executive in leasing. However, a case on that would be nice. I think that is on of the issues that was brought up on the Manges case.
Best,
the answer to your last question from experience is NO
that is not the case in Texas as far as my experience goes.
Kirk Hardin said:
I don't know about TX, but in OK, Non-executive interest holders are entitled to royalties only.
Pete Wrench said:Why would the executive pay bonus to the non-executive, why wouldn't the Lessee do that? Whenever I leased an executive with a NEMI somewhere in the chain of title, I paid the executive his pro-rate share of the bonus, if any, and paid the NEMI his share directly to him.