I'm going to reverse myself for now.
If I sign an oil & gas lease with an oil & gas co. & they give me as a bonus a bank draft for $200 per acre which may or may not be honored within 30 business days & another company comes along during that 30 day period & offers me a $2000 per acre lease in the form of a cashier's check -- under basic Texas contract law I should be able to enter into a contract with the 2nd company.
Is there a Texas Supreme Court case which says I can not?
Dillon:
This is a good question and I'm not sure of the correct answer but I would think in the event that if Company A which has issued the bank draft has not recorded the mineral lease and Company B issues the cashiers check and expedites the process thus beating Company A to recording the lease, then I would think that this would be legal. In short, who wins the race to be the first to record the mineral lease. I'm sure that someone else may be able to cite case where this has happened and we'll both find out the answer.
why not treat these lease sales like they do with real property sales. You sign the documents at a title company, and later that day, once the title documents are recorded by the title company, you get a cashiers check. I posted about this subject before on not accepting a draft check, and I was called a liar and other things, so I will stop with that suggestion. The way the leasing of mineral rights is done, seems to be next to fraudulent business activity as the gasco wants to control ever thing to their benefit.
Joe -- that's what I'm wondering -- why dont the same CONSIDERATION rules apply on oil & gas leases as on real estate sales & all other contracts in Texas?
As an exp., if I enter into a basic RE contract to buy your house for $150,000 & put up $15,000 as Earnest Money but I have 30 days to get & approve an inspection on the house & get my money back if I dont like it & during that 30 day period someone else offers the seller $165,000 he is free to sell to that other person because there was no consideration.
Because of this, if a real estate agt is involved he'll likely draw up the contract nowadays so that in addition to the $15,000 around $50 to $500 will be put up which will be forfeited if the deal doesnt go thru for whatever reason. NOW WE HAVE A CONTRACT!
Consideration rules do apply. Just depends on the state. For example, the covenants and conditions of the oil and gas lease has been held to be consideration in some courts.
It is up to the landowner to protect themselves and to manage their assets. Nobody else will do their job for them, unless the landowner has a hired gun.
Dillon,
You're funny! Reading your previous post you had me scratching my head for a moment! lol
Dillon,
Are these two offers, presently on the table?
Here in my state, from my experience the first offer would be binding, but if I were in your shoes I would run to an experienced oil and gas attorney to find out my rights since, there's a substantial difference.
As stated earlier, it all depends which State your minerals are located in. I would seek legal assistence in this matter as not to be sued by the first party if the law leans that direction.
Offers are not binding.
there are several ways to protect yourself in this situation. I am recommending to my clients that the lease define marketable title.....we define marketable title as that title which is curable....we also recommend that the lease expressly provide that the lessor has an absolute right to cure ....the lessee is required to give notice of any defect with in the the lease title review period....if the lessee does not object to title within the title review period he is barred from raising any objection.....be sure to add a clause which states that a prior existing mortgage shall not be considered a title defect......also include an express clause that the parties are acting in good faith and that express purpose of the OGL is to develop the mineral estate ....instruct any court interpetation of the the lease to read the terms of the lease in light of the purpose clause.......lastly, state that the lease is effective upon execution ie a binding agreement.....if you do not have clear title the lessee can relieve itself of the olbligation to pay by invoking the non marketable title provision (condition subsequent)....otherwise it is obligated to pay the lessor upon close of the title review period.....by the way Dillion in Mich the consideration for the lease is the exchange of promises as stated in the leaase.....
In Texas if I write on a piece of paper that I agree to sell you my car for $1000 in the next 60 days & you and I sign that, I am not obligated to sell to you the car because that is not a contract.
Now if we add -- and you agree to buy it for $1,000 within 60 days, then we have a contract -- a promise in exchange for a promise...consideration on both sides satisfies the requirment.
--
Now if I write on a piece of paper that i agree to lease you my land for $10,000 & the payment of a 1/4 royalty & you give me a bank draft which you tell me you may or may not honor in the next 60 days...that is not a contract until such time as the draft clears IMHO.
Dillon, I have been through this elsewhere, IE not Texas. If you return the executed contract and the lessee executes the contract also and records it ( notice ) within the time allowed within the draft, you promised to lease, the lessee promised royalty, you have consideration on both sides. To not pay you the signing bonus is only a partial failure of consideration. You are welcome to sue the lessee to recover your bonus, but I think your lease will stand.
In the example I gave he didnt promise to pay me royalties,
Dillon said:
In the example I gave he didnt promise to pay me royalties,
Sorry, I thought you mentioned 1/4 royalty. From everything I have seen, the promise of future royalty IS consideration. If you return the contract and the lessee executes it and records the lease before the draft goes stale dated, I think you have a contract. I think there is grey area if the lessee did not execute the lease, as they would only be recording your agreement and not their own, and the simple fact that they recorded the document to me does not imply that the lessee has bound themselves to the lease. I think lessees generally do not execute the lease, because they do not need to because they can show that consideration has passed through payment of the lease bonus. The promise of future royalty is considered, consideration. Should it be? I don't like it but what I like has nothing to do with what the courts have said, and we have to work with what the courts say unless you have very large sums of money to gamble on getting a court to reverse what has gone before and see it your way.
Dillon said:
In Texas if I write on a piece of paper that I agree to sell you my car for $1000 in the next 60 days & you and I sign that, I am not obligated to sell to you the car because that is not a contract.
Now if we add -- and you agree to buy it for $1,000 within 60 days, then we have a contract -- a promise in exchange for a promise...consideration on both sides satisfies the requirment.
--
Now if I write on a piece of paper that i agree to lease you my land for $10,000 & the payment of a 1/4 royalty & you give me a bank draft which you tell me you may or may not honor in the next 60 days...that is not a contract until such time as the draft clears IMHO.
Okay, for there to be consideration on a contract there must be something of value given up by each side that is benificial to the other side -- it could be cash or it could be a promise that benefits the other side.
Mr Lessor what did you give up? -- I promised to give up control of my oil & gas rights for what could be a hundred or more years
Mr. Lessee what did you promise to do? -- I didnt promise to do a damn thing.
++ Ssorry, no contract.
Nope, Mr. Lessee says he promised 1/4 of whatever we produce. I think Dillon that you are hitting the wall on the point that the consideration can be intangible. If the lessee promises to pay you 1/4 of whatever they get from digging a 10,000 foot hole that you likely couldn't do for yourself, you would be getting something, the chance to realize something from a resource that you probably otherwise wouldn't or couldn't. Possibly you could think of the lessee as your sharecrop tennant. If the harvest is wiped out due to drought, you get nothing, there is no guarantee that you would get anything in that situation, but the promise of a portion of the harvest would be the consideration for the use of the property. Dillon, I think your understanding will be at a disadvantage until you understand that something you can not see or weigh on a scale has value. Just as love and affection can be consideration, so can a promise to perform a certain act in the future. You say the lessee did not promise anything, is there no place in whatever lease you are looking at where the operator says they will deliver to the credit of lessor___ part of production ?
Dillon said:
Okay, for there to be consideration on a contract there must be something of value given up by each side that is benificial to the other side -- it could be cash or it could be a promise that benefits the other side.
Mr Lessor what did you give up? -- I promised to give up control of my oil & gas rights for what could be a hundred or more years
Mr. Lessee what did you promise to do? -- I didnt promise to do a damn thing.
++ Ssorry, no contract.
If he promised to drill, I would agree with you.
r w kennedy said:
Nope, Mr. Lessee says he promised 1/4 of whatever we produce. I think Dillon that you are hitting the wall on the point that the consideration can be intangible. If the lessee promises to pay you 1/4 of whatever they get from digging a 10,000 foot hole that you likely couldn't do for yourself, you would be getting something, the chance to realize something from a resource that you probably otherwise wouldn't or couldn't. Possibly you could think of the lessee as your sharecrop tennant. If the harvest is wiped out due to drought, you get nothing, there is no guarantee that you would get anything in that situation, but the promise of a portion of the harvest would be the consideration for the use of the property. Dillon, I think your understanding will be at a disadvantage until you understand that something you can not see or weigh on a scale has value. Just as love and affection can be consideration, so can a promise to perform a certain act in the future. You say the lessee did not promise anything, is there no place in whatever lease you are looking at where the operator says they will deliver to the credit of lessor___ part of production ?
Dillon said:
Okay, for there to be consideration on a contract there must be something of value given up by each side that is benificial to the other side -- it could be cash or it could be a promise that benefits the other side.
Mr Lessor what did you give up? -- I promised to give up control of my oil & gas rights for what could be a hundred or more years
Mr. Lessee what did you promise to do? -- I didnt promise to do a damn thing.
++ Ssorry, no contract.
Nope Dillon, I agree with you. The thing is the courts don't agree with us and no matter how much I don't like it, I am not going to try to go against court decisions on that subject. I do have a suit at the moment but it hinges on the fact that the draft and deal expired before the potential lessee recorded the lease, which they did not execute, and they had not honored the draft or paid by other means. All this can be avoided by not letting go of the lease until you have cash. It's a lesson I had to learn. I'd rather others learn from mistakes I made.