042 Crowder v. Tri-C Resources, Inc.,

CASE NOTE

Richard F. Brown

 
The following is not a legal opinion. You should consult your attorney if the case may be of some significance to you.
 
Crowder v. Tri-C Resources, Inc., 821 S.W.2d 393 (Tex. App.–Houston [1st Dist.] 1991, no writ), concerns the enforceability of an area of mutual interest (AMI) agreement. Crowder and Tri-C entered into an Exploration Agreement and an Operating Agreement, and neither contained an AMI. The parties apparently talked about an AMI during the negotiations, there was a clause fixing an acquisition price per acre on new leases, a loose plat was floating about that outlined an AMI in red, and there was a subsequent letter from Tri-C to Crowder that referred to “our area of mutual interest of the above referenced prospect.” Tri-C’s land manager later even testified that Crowder had an AMI. Crowder and Tri-C conveyed away their interests, Tri-C then acquired a new interest within the alleged AMI, and Tri-C refused to offer Crowder his part.
 
Held: Enforcement of the alleged AMI was barred by the Statute of Frauds. To be enforceable, an AMI must be in writing and signed by the party to be charged. The letter which was signed by Tri-C did not refer to the plat or otherwise describe the land in the AMI. The plat was not signed by Tri-C. Neither the letter nor the plat referred to the other.
 
Tri-C also defended on the basis that Crowder had conveyed away the right to the AMI, if such right existed, by the subsequent conveyance of the leases under the general language in the conveyance that conveyed “other contracts, agreements and instruments relating to any of the Lease and Mineral Interests.” The court agreed with Tri-C.
 
Finally, the court refused to read into the Exploration Agreement or the Operating Agreement an implied covenant of good faith and fair dealing and refused to impose a constructive trust. A constructive trust is sometimes imposed as arising out of moral, social, domestic or purely personal relationships. The court followed existing case law in holding that mere subjective trust alone was not enough to transform arm’s-length dealing into a fiduciary relationship.
 
The case is significant because it demonstrates that the creation of an AMI must be given the same careful consideration in drafting as any contract to convey an interest in land. It must be in writing, contain a sufficient legal description, and be signed by the party to be charged. It is also interesting to find a case that defines some of the related or ancillary rights (here the AMI) which may pass under the common catch-all language used in conveyances of producing properties or exploration prospects.