Face Challenges Confidently

411 MPH Prod. Co., Inc. v. Smith

Tuesday, September 1st, 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.
MPH Production Co., Inc. v. Smith, 06–11–00085–CV, 2012 WL 1813467 (Tex. App.—Texarkana May 18, 2012, no pet.) (mem. op.), held that a right of first refusal to purchase minerals was a covenant running with the land, and it was attached to and conveyed with the surface estate.  The parties aligned as successors-in-interest to Grantor and Grantee under a deed executed in 1979, which covered 18.620 acres in Harrison County.  Grantor conveyed the surface estate and a right of first refusal to buy the minerals in the land (“ROFR”) to Grantee.  The issue was whether the successors to Grantee acquired the ROFR either (1) as a covenant running with the land or (2) as part of the rights transferred by the assignments of the surface estate to them.
“In Texas, a real property covenant runs with the land when it touches and concerns the land, it relates to a thing in existence or specifically binds the parties and their assigns, it is intended by the parties to run with the land, and the successor to the burden has notice.”  Privity of estate between the parties is also required.  In this case, only privity of estate and the intent of the parties were in dispute.
“Privity of estate exists when there is a mutual or successive relationship to the same rights of property.”  Two separate estates were created when Grantor reserved the mineral estate subject to the ROFR.  Grantor argued there was no privity of estate, because the 1979 deed only conveyed the surface interest, and therefore, there was no simultaneous or successive interest in the mineral estate between Grantor and Grantee.  The court held there was privity of estate, even though the 1979 deed created two separate estates, because the mineral estate owned by Grantor became burdened with the obligation represented by the ROFR.
The parties disputed whether the deed expressed sufficient intent for the ROFR to run with the land.  “In order for a covenant to run with the land, the parties who created the covenant must intend for it to do so.”  The deed states:
And for the same consideration, we have granted, and do grant, to the Grantees the right, privilege and option of purchasing the oil, gas and other minerals, or any portion thereof, in and under the above described land, for such sum as we may be willing to accept upon our receipt of a bona fide offer from any third party (being any party other than one of the Grantors); and upon the receipt by either of the Grantors of an offer to purchase a Grantor’s interest in oil, gas and other minerals, or any portion thereof, which said Grantor desires to accept, the Grantor receiving such offer shall notify the Grantees of such offer and the terms thereof, and such Grantor’s willingness to accept such offer, and the Grantees shall have the right and privilege of purchasing the interest of said Grantor in the oil, gas and other minerals of the price and upon the terms and conditions therein stated, at any time within twenty days after the Grantees receive such notice from said Grantor.
Immediately after the right of first refusal was the following language:
The right, privilege and option herein granted shall, be binding upon the Grantors, and their respective heirs and assigns.  No sale of an interest in oil, gas and other minerals may be made by a Grantor without complying with the provisions set out herein.
The habendum clause contained general warranty language which Grantee relied on to support Grantee’s argument that the parties intended the right to pass to Grantee’s successors in title.  The court analyzed the language of the 1979 deed and concluded that the ROFR was a covenant running with the land.
Finally, the court also held (but with more conviction) that because the subsequent deeds out of the Grantee in 1981 conveyed the fee subject to any mineral reservations, these deeds conveyed the surface and the ROFR, which was a right connected to the ownership of the surface.  In other words, regardless of whether the ROFR was or was not a covenant running with the land, the ROFR was a part of the surface estate expressly assigned to Grantee’s successors.  “[I]t is a stretch to read into the subtleties of the deed’s text an intent to make the right of first refusal a personal right only.”
The significance of the case is the conclusion that it is unlikely a ROFR is a personal right only, and therefore:  (1) it will be included in the property rights of the estate to which the ROFR is first attached and (2) it will be included in any subsequent conveyance unless excepted.  The analysis of the deed in this case suggests that a ROFR will generally be construed as a covenant running with the land.