Face Challenges Confidently

081 Imco Oil & Gas Co. v. Mitchell Energy Corp.

Wednesday, September 2nd, 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.
Imco Oil & Gas Co. v. Mitch ell Energy Corp., 911 S.W.2d 916 (Tex. Civ. App.–Fort Worth, 1995, no writ) involves multiple operating agreements on the same tract and a preferential right to purchase. Mobil, Texaco and Getty were each parties to a 1945 operating agreement containing a preferential right to purchase. Westland earned the deep rights, subject to the 1945 operating agreement, and entered into a 1972 operating agreement with Mobil. The 1972 operating agreement was prepared with signature spaces for other parties, but only Mobil and Westland signed it. Mitchell acquired Mobil’s interest. Westland then tried to sell its interest to Imco. Mitchell exercised its preferential right under the 1945 operating agreement as acquired from Mobil. Imco sued to try and avoid the preferential right.
Imco contended that the 1972 operating agreement was ineffective because the additional signature blanks showed intent that the agreement was not to become binding unless signed by all of those for who blanks were provided. The issue had not previously been addressed in Texas. The court held that a contract not signed by all of the parties will be valid unless the nature or the wording of the contract indicates that it is not be come binding unless and until it is fully executed. In this particular case, the court also pointed to a language at the beginning of the operating agreement which referred to all the signatory parties as evidence that the intent was to bind any signatory party.
Imco also contended that the 1972 operating agreement was ineffective because its terms were inconsistent with the 1945 operating agreement. The 1945 agreement named Mobil as operator of the field. The 1972 agreement named Westland as the operator of the deep rights. The court reasoned that this was the same as Mobil hiring an independent contractor as operator, which would not relieve Mobile of its responsibilities to Getty and Texaco, but instead only created additional duties and responsibilities as between Mobil and Westland. This was consistent with the 1945 agreement.
The case is significant in exploring the relationship multiple operating agreements and is apparently a case of first impression on the binding effect of partially executed operating agreements. The practice pointer is to insert a recital that the agreement is not to be binding upon any party unless and until it is fully executed by all parties for whom signature blanks are provided.