Face Challenges Confidently

051 Lone Star Gas Co. v. Mexia Oil & Gas, Inc.

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 some significance to you.
Lone Star Gas Company v. Mexia Oil & Gas, 833 S.W.2d 199 (Tex. App.–Dallas 1992, no writ), concerns the obligation of the purchaser of a lease subject to a gas contract to pay the gas buyer for obligations owed by the seller of the lease. The chronology of the relevant facts was as follows:

  1. Producer subjected the lease to a gas contract
  2. The gas contract required producer to pay severance taxes.
  3. Producer did not pay all of the severance taxes.
  4. Producer sold the lease to assignee “subject to” the gas contract
  5. Assignee did not know about the unpaid taxes

Held: Assignee was not liable for the unpaid taxes. Assignee did not expressly assume the obligation to pay the unpaid taxes because an assignment “subject to” the gas contract is not an express assumption of existing liabilities. Assignee did not impliedly assume the obligation to pay the unpaid taxes, even if the obligation was a covenant running with the land, because assignees are not liable for breaches of covenants running with the land which took place prior to the assignment. The gas purchaser also argued that if assignee receives a benefit from the contract, it must also assume the burden of the contract. The court cited with approval secondary authority holding that this is true only where (1) the benefit was so entwined with the burden that the assignee was estopped from denying assumption, and (2) the assignee would otherwise be unjustly enriched. This claim was essentially a claim for restitution and the equities favored assignee.
The significance of the case is that it highlights the relevance of the language found in some gas contracts that any assignee must assume the gas contract.