with which can result in money damages but termination of Said Lease) ( W.T. Waggoner Estate v. Sigler Oil Co., 19 S.W.2d 27 (Tex. - 1929); Slaughter v. Cities Service Oil Co, 660 S.W.2d 860 (Tex.App. — 1983); Haskins v. First City Nat. Bank of Lufkin, 698 S.W.2d 754 (Tex. App. — 1985)) In the author’s opinion, A’s right to consent to the foreclosure sale is clearly a covenant unless there is language in the clause that makes it a special limitation . If there are any damages provable by A for the violation of this covenant, such damages can be sued for and recovered by A. In the author’s opinion, violation of the consent provision would not yield any actual damages for its breach. Beginning with the case of W.T. Waggoner Estate v. Sigler Oil Co., 19 S.W.2d 27 (Tex. - 1929), and continuing with the cases of: Slaughter v. Cities Service Oil Co, 660 S.W.2d 860 (Tex.App. — 1983); Rendleman v. Barlett, 21 S.W.2d 58 (Tex.Civ.App. - 1929); Wes-Tex Land Co. v. Simmons, 566 S.W.2d 719 (Tex.Civ.App. — 1978), Texas courts have consistently recognized that a party affected by a breach of a covenant, especially in the context of an oil and gas lease, actually has two potential remedies for the breach of that covenant. “Thus, the lessor’s remedy for breach of the implied covenant of reasonable development is an action at law for damages or, if damages are incalculable, an action in equity for a decree of conditional cancellation that would require the lessee to develop the property within a reasonable time or forfeit the lease .” Slaughter v. Cities Service Oil Co, 660 S.W.2d 860, 862 (Tex.App. — 1983) (emphasis added) In the author’s opinion, damages for breach of the consent provision are incalculable. (NOTE: whether this conclusion is correct or not is the subject of another article. The opinion of the author on this point is the basis for the following conclusions.) Assuming damages are incalculable, A can elect to sue for and prosecute a suit for conditional cancellation of Said Lease against the lessee, XYZ Oil Company, ABC Bank and Burns Oil Company In that suit, A can ask the court to force XYZ Oil Company, ABC Bank and Burns Oil Company to obtain A’s written consent to the mortgage/foreclosure deed. A can ask for and should receive in the court’s order a conditional cancellation of
Said Lease if such consent is not requested by ABC Bank within a reasonable time period. It goes without saying, if A does not consent to the assignment of Said Lease, that the mortgage transaction may not proceed further. It is a worse case scenario for ABC Bank if, after loaning the money to XYZ Oil Company, it finds out it cannot sell the collateral at a foreclosure sale.
V.
Looking to the future
The point of this article is that none of the foregoing has to happen. Part and parcel of any title review by a lender should be an actual, hands on review of each oil and gas lease which will be collateralized in an effort to determine if any of the subject leases contain a consent provision which might impact the potential mortgage. A bank cannot rely on a title opinion written for drilling purposes since each individual oil company and its attorneys may or may not need to have a consent provision identified in a title opinion. Any lender would do well, as a matter of course, to have each lessor under a pre-existing and collateralized oil and gas lease, waive in futuro its right to consent to the initial mortgage of the working interest by the lessee, any transfers of said mortgage by the mortgagee as well any subsequent foreclosure sale that could take place should the lessee default on its loan obligations. The mortgagor may have representations and warranties in the mortgage document by which the oil company indicates that it has the authority to enter into a mortgage/deed of trust and collateralize the mortgagor’s interest in the oil and gas leases. It will not do the bank any good to sue the mortgagor for breach of the representations and warranties provision – it is already in default on the loan. More importantly, the lender cannot be a good faith purchaser for value where a lease has been duly executed and properly recorded prior to the execution of the mortgage documents.
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G r o w t h T h r o u g h E d u c a t i o n - O c t o b e r / N o v e m b e r / D e c e m b e r 2 0 2 0
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