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Energy & the Law

The Parol Evidence Rule at Work in a Mineral Transaction

Posted in Contract Disputes, Land Titles, Title Issues
Coach Maineiri wondering why the Tigers aren't reading Energy and the Law

Coach Mainieri searching for a Tiger who will read Energy and the Law

A phrase currently in common usage begins with “‘cluster” and ends with a vulgarity that has been around for centuries. Saheid v. Kennedy presents facts that pretty much exemplify the meaning of the phrase:

  • While living in England, start out to buy a hotel in New Orleans,
  • have no experience in Louisiana mineral transactions,
  • when the hotel falls through, buy 1096 acres with 500 wells in northernmost Caddo Parish,
  • do zero title due-diligence,
  • memorialize the $4 million transaction with a one-page handwritten document,
  • close the deal three weeks later with an Act of Credit Sale,
  • pay royalties for four years and then dispute the obligation,
  • when disagreement ensues sign another “contract” that doesn’t really help,
  • sum it all up by testifying as to your “confusion” about the transaction.

The one-pager for the 1096 acres provided: “Seller [Gish] to give a best effort to deliver to Buyer [Saheid] the remaining 12 ½% Gish family oil and gas lease holding.” Saheid’s purchase price would be reduced by $400,000 if Gish couldn’t deliver the minerals within five years. Saheid paid royalty to the Gish relatives for almost four years. Saheid and Gish later entered into a “contract” in which they agreed that the Saheid payment would be reduced and Gish would continue to withhold the 12.5% royalty.

What legal points are at play?

Not much about titles, a lot about parol evidence, which is admissible when:

  • the terms of a contract are susceptible to more than one meaning,
  • there is ambiguity as to its provisions, or
  • the intent of the parties cannot be ascertained from the language used.

Four witnesses sorted out the mess. And as one might expect, the testimony was confusing and contradictory. Saheid had never purchased mineral interests before and said he was unaware of the 12.5% being claimed by the family. His title-examiner expert testified that the public records showed there was no written contract for the 12.5% mineral interest. But he agreed that it was Gish’s right to sell 87.5% and keep the rest if the agreement so specified.

The court concluded that Gish did not intend to sell and Saheid did not intend to buy the entire mineral interest. Gish was selling 100% of the tract and 87.5% of the minerals, which is a reasonable concession for accepting a partial payment and owner financing. The court referred to Saheid’s “imperfect understanding” of the transaction.

Takeaways

  • Due diligence = good business, sloppiness and haste = bad business.
  • Lame, one-page agreements are seldom sufficient for anything, much less a $4 million land and mineral trade.
  • Paying royalties for four years and then saying you thought you owned the minerals = not persuasive.
  • Entering into a contract before you understand it = bad business.

If Saheid had stopped in Opelousas instead of turning north to Shreveport, maybe he could have avoided this mess.