Statute of Frauds Torpedoes an Overriding Royalty Sale

Gray Reed
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Gray Reed

Here we go  again, in Gary and Theresa Poenisch Family Ltd. P’Ship v. TMH Land Servs., Inc., learning that a purported Texas land transaction will not be enforced if the parties fail to comply with the Statute of Frauds.

Poenisch and TMH, among others, jointly owned an overriding royalty interest in the Wiatrek oil and gas lease. The lease became the subject of a lawsuit, and litigant GulfTex could settle if all of the overriding royalty owners agreed it could buy down their overrides. Poenisch was the only holdout. Poenisch did not want its override to decrease and sought to acquire TMH’s share.

TMH was open to the deal, and the following email correspondence ensued:

  • President of TMH emails to selling overriding royalty owners’ attorney Butler: “Pursuant to my conversation with [override owners’ spokesperson], I will sell my retained ORR in the Gulftex proposed 300+ acre unit for $20,000.” (emphasis added).
  • Butler via email to Poenisch: Asks for confirmation of the agreement.
  • Poenisch’s attorney to Butler: “We have a deal.”
  • Poenisch’s attorney to Butler: [I] “will draft up the Ellerbe assignment of [override] and send your way for review.”

Poenisch’s attorney never sends the draft, and no further steps are taken to consummate the transaction.

A year later Poenisch sends a letter to TMH seeking to enforce the email chain as a binding contract and asks TMH to sell its override for $20,000. TMH refuses, and Poenisch sues for specific performance. The trial court determines that the contract did not contain a legal property description sufficient to satisfy the Statute of Frauds. The court of appeals affirms the trial court’s Judgment.

Why did the suit fail?

In Texas, the Statute of Frauds requires a contract for the sale of real property (such as an overriding royalty) to be:

  • in writing,
  • signed by the person to be charged, and
  • a sufficient legal property description, such as the lease from which the override stems. The described property must be identified with “reasonable certainty”.

The only description of the property in the alleged contract was the bold portion of the email. Poenisch argued that the property described in the email could be identified with reasonable certainty when read with extrinsic evidence. The court disagreed.

  • The “descriptive language used in this email is vitally lacking in definitiveness.”
  • There must be a “key or nucleus” property description before extrinsic evidence can be introduced to identify the property with reasonable certainty.
  • Extrinsic evidence may be used only for the purpose of identifying the property with reasonable certainty from the data contained in the contract, not for the purpose of supplying the location or description of the property.

The purported contract contained an inadequate property description and the Statute of Frauds precluded Poenisch’s claims as a matter of law.

Your musical interlude (George was always undervalued)

[View source.]

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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