Face Challenges Confidently

022 Day & Company, Inc. v. Texland Petroleum, Inc.

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.
Day & Company. Inc. v. Texland Petroleum. Inc., S.W.2d , 33 Tx. S. Ct. J. 297 (March 7, 1990), holds that the executive right is an interest in property, an incident and part of the mineral estate like the other attributes such as bonus, royalty and delay rentals. Texland overrules Pan American Petroleum Corporation v. Cain, 163 Tex. 323, 355 S.W.2d 506 (1962). In Texland, Keaton owned an undivided 1/2 non-executive mineral interest in Blackacre. Day & Company, Inc. owned everything else. Day & Company, Inc. conveyed the east ten acres of Blackacre to Shoaf by warranty deed, reserving 3/4 of the minerals. The deed was silent as to the executive rights on the Keaton minerals.
The issue was whether Day & Company, Inc. or Shoaf held the executive rights on the Keaton minerals in the east ten acres. Held: the executive rights to 3/4 of the minerals passed to Shoaf under the warranty deed. The Court reasoned that the transfer of executive rights is best governed by principles of real property and oil and gas law, and not by principles of contract law pertaining to agency and powers of attorney. The executive rights passed under the deed because the deed did not reserve or except the executive rights on the Keaton minerals.
The significance of the case is that it overrules Cain. The Cain case held that a reservation of the executive rights in “A,” rather than to “A” and his heirs, was a mere contract right. (When “A” died, the executive rights reverted to the mineral owner.) Contract rights must ordinarily be described to be conveyed or to be reserved. Rights incident to the mineral estate simply follow the deed, even if the deed is silent as to those rights. The Cain case had been widely criticized, and the Texland opinion probably makes Texas oil and gas law more coherent. The Texland opinion does not state whether it is to be given retroactive effect. Any fundamental change in valuable property rights, such as the right to lease, will cause lessors and lessees to re-examine existing leasehold relationships. This opinion is not final as a motion for rehearing is pending. The opinion is itself a second effort. The Supreme Court withdrew its July 12, 1989 opinion on Texland’s motion for rehearing.