Face Challenges Confidently

138 Broughton Associates Joint Venture v. Boudreaux

Thursday, September 3rd, 2015

Richard F. Brown

The following is not a legal opinion. You should consult your attorney if the case may be of significance to you.
Broughton Associates Joint Venture v. Boudreaux, 70 S.W.3d 324 (Tex. Civ. App. – Waco 2002, no pet.), is a case involving waiver of the covenant of warranty of title in an exchange of a bank draft and an oil and gas lease. In Broughton, Lessee met with Lessor Boudreaux to negotiate an oil and gas lease, which resulted in a contemporaneous exchange of an oil and gas lease for a bank draft for bonus consideration. The executed lease contained a general warranty of title, and the bonus consideration for the lease was calculated at the rate of $750.00 per acre for an estimated 399 net mineral acres. The bank draft was made contingent upon approval of title within 15 days. Shortly after the funds to pay the draft had been wired to the Boudreauxs’ bank account, Broughton discovered that the Boudreauxs’ owned substantially less than the 399 acres for which they had been paid. Broughton contacted the Boudreauxs, requesting a refund of the overpaid amount, which the Boudreauxs refused.  Broughton then filed suit.
At trial, the court rendered a directed verdict on behalf of Lessee Broughton that the Boudreauxs had breached their covenant of general warranty of title and that Broughton had suffered damages as a result. However, the court submitted to the jury the defensive issue of waiver. The jury found that Broughton had waived the Boudreauxs’ failure to comply with the warranty of title. Lessee Broughton appealed.
On appeal, the court observed that a contemporaneously executed draft and deed must be construed together. Yet the execution of a draft and deed does not always immediately create a binding bilateral contract, as the formation of a contract may be contingent on a condition precedent. Where a promise is subject to a condition precedent, there can be no breach of contract until such condition or contingency is performed or occurs. However, a condition precedent may be waived, and such a waiver may be inferred by the conduct of the parties.
The court noted that the Texas Supreme Court has held that the provision “15 days after sight and upon approval of title” on the face of a draft made approval of title a condition precedent to formation of a contract. Broughton argued that the “approval of title” language on the Boudreaux draft likewise constituted a condition precedent. The court agreed, reasoning that the draft effectively protected Broughton from paying for the property if it disapproved of the title and, thus, at the time of the exchange of the draft and deed between Broughton and the Boudreauxs, there was no binding contract.
The Boudreauxs, however, claimed that Broughton’s funding of the draft constituted a waiver of the covenant of warranty of title as provided by the lease. The court disagreed with the Boudreauxs’ argument, stating that for their argument to be valid, the funding of the draft must have simultaneously created a bilateral contract, which is the lease, while waiving an express provision of that same contract.
Broughton could not exercise its right to approve title prior to its liability on the draft, and because there was no binding contract between the parties until the draft was funded, Broughton could not have waived the right to enforce the covenant of warranty of title simply by funding the draft. Consequently, as there could be no waiver of a contractual right when there is no contract yet in existence, the jury submission on waiver was improper.
The appellate court reversed the trial court’s ruling in favor of the Lessor Boudreaux and also awarded attorney fees to Lessee Broughton.
The significance of the case is that it confirms the general nature of the transaction involving a bank draft and a lease. There are very few reported cases, but the industry general understanding of the nature of the transaction is supported by the case law. The bank draft with the condition as to title gives lessee a window in which to approve title. After the window closes, the money is gone. Lessee can recover the bonus prior to the expiration of the term specified on the bank draft, if lessee disapproves title.  This particular case holds that funding of the draft does not close the window.