Co-author Kelley Clark Morris

Geary v. Two Bow Ranch Limited Partnership* is an example of the havoc an unusual contract provision can create.

In 1981, Geary and other Grantors executed a warranty deed conveying 2,614 acres (let’s call it the Property) in Bandera County, Texas, to Meader, Two Bow’s predecessor. The Grantors reserved an undivided one-half mineral interest, and conveyed one-half. The deed conveyed to Meader the ”executory rights” to its minerals and reserved the same to Grantors over their half. The deed included this “Provisional Authority” language:

“Grantee may control the executory rights pertaining to the minerals provided the Grantors and Grantee share equally in any and all proceeds related thereto.”

Two Bow executed an oil and gas lease to Whiting, receiving a bonus of $174,498, which the Grantors contend should be shared with them. The Grantors sued, alleging that Two Bow owed contractual and fiduciary duties arising from the 1981 Deed. Two Bow either (1) breached its duty to lease in executing the lease covering only Two Bow’s one-half mineral interest or, alternatively, (2) breached its duty to share the lease bonus payments if the 2011 Lease was for the entire 100 percent.

The issues

Did Two Bow have the authority (and consequently the duty) to exercise the executive rights in the Grantors’ minerals? Was the Provisional Authority assignable? If so, was it assigned to Two Bow?

The plain language of the Deed did not convey the executive rights in the Grantor’ ‘minerals as part of “the Property” conveyed to Meader. The Property, as defined, did not include ownership of either the Grantors’ one-half mineral interest or the executive rights in those minerals, both of which were expressly reserved to the Grantors.

The Provisional Authority clause gave Meader conditional permission to exercise the executive rights held by the Grantors. But the deed did not impose on Meader any obligation or duty to exercise those rights. (Note the use of ”may”.) Meader was free to lease its one-half mineral interest or it could choose to lease the entire mineral interest, provided it shared the benefits equally with the grantors.

The Provisional Authority did not pass to future grantees by the 1981 Deed. The Deed’s plain language excluded the Provisional Authority from the definition of “the Property,” Moreover, while the Property was conveyed to Meader’s ” … heirs, successors and assigns forever … ” the authority was not. The Provisional Authority did not pass with the Property through subsequent transfers. Got that? So-called boilerplate that we often take for granted, such as “heirs, successors and assigns” has meaning.

But contract rights are generally assignable, right? Yes, except that the deeds from Meader to an intermediate buyer and then to Two Bow did not mention the Provisional Authority or the executive rights in the reserved one-half mineral interest, so the Provisional Authority was not contractually assigned.

The result

Two Bow had no authority to exercise the Grantors’ executive rights. Thus, the 2011 Lease included only Two Bow’s one-half undivided mineral interest, and the lease bonus was attributable only to that one-half mineral interest. Two Bow breached no duty to the Grantors and owed them no damages.

*No link today. Texas Judicial Branch was hacked (by someone fighting authority, I guess). The decision was January 22, 2020, from the Texas Court of Appeals San Antonio.

But we have a musical interlude