Face Challenges Confidently

394 Thomson Oil Royalty, LLC v. Graham

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.
Thomson Oil Royalty, LLC v. Graham, 351 S.W.3d 162 (Tex. App.—Tyler 2011, no pet.) held that a lessee with actual knowledge of a previous lease, who nevertheless proceeds to pay bonus to the lessor, ratifies his otherwise voidable lease, and loses any claim for damages.  On July 21, 2008, Graham leased a tract of land to a third party.  On July 25, Graham executed a lease on the same tract, as well as a second tract, to Thomson Oil Royalty, LLC (“Thomson”) and returned it to Thomson under a bank draft for $136,755.  On July 30, the third‑party prior lessee recorded its memorandum of lease on the first tract, notified Thomson of its lease, and Thomson actually inspected the memorandum.  Graham told Thomson about the prior lease, and Graham’s counsel then contacted Thomson, confirming the prior lease and requested that Thomson return the lease and refuse the draft.  On August 25, Thomson paid the draft and two days later filed its lease for recording.  Thomson assigned its interest in the lease as to the second tract actually leased to another, and then Thomson sued Graham for damages.  Graham defended based on ratification.
“Ratification occurs when a party recognizes the validity of a contract by acting under it, performing under it, or affirmatively acknowledging it.”  The court noted that ratification requires actual knowledge, established through personal information.  The court looked to the actions taken by Thomson once it became aware of Graham’s fraud.
Because Graham leased the first tract to Thomson after Graham leased the same tract to a third party, her contract with Thomson was voidable by Thomson, but only by Thomson.  By paying Graham on the lease with actual knowledge of the prior lease, Thomson ratified the lease, and by filing the lease for recording, Thomson confirmed the ratification.  “Ratification extends to the entire transaction” and a “party to a voidable contract may not, in equity, ratify those parts of the transaction that are beneficial to it and disavow those that are detrimental to it.”
In hot lease plays, it is common for there to be confusion and less than perfect information about the correct identity of owners and tracts leased.  The significance of the case is the holding that the opportunity to back out or to recover damages may be lost if lessee proceeds with knowledge of the defects.