041 Mims v. Beall

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.
 
Mims v. Beall, 810 S.W.2d 876 (Tex. App.–Texarkana 1991, no writ), is another in the recent explosion of Texas cases holding the executive owner liable for breach of duty in executing an oil and gas lease covering nonparticipating mineral interests. This case also addresses the liability of the lessee. John and Chattie Mims held the executive rights over a 1/4 nonparticipating mineral interest. They leased to their son, Angus Mims, for a 1/8 royalty, and Angus immediately assigned the lease and retained a 1/16 overriding royalty. There was evidence in the case that Angus Mims was well aware of the market value of the minerals in the area and that he had been involved in a prior leasing transaction in which the true amount of the royalty had been concealed from the nonparticipating owner.
 
The executive rights owners were held to have breached their duty, and they were subjected to both actual and punitive damages. The more interesting issues in the case concern the liability of Angus Mims, the lessee, who did not hold the executive rights. Held: The lessee was subject to actual damages, punitive damages, and a constructive trust was imposed on 1/4 of the overriding royalty. The lessee son conspiring with his parents (the holder of the executive rights) is obviously a “bad facts” case, and the typical lessee is not related to the lessor. However, in addressing the potential liability of the lessee, the court said:
 

Angus Mims did not owe a fiduciary duty to the Bealls, but a lessee who induces or participates in the executive’s breach can also be held liable to the nonparticipating interest owner. This participation or inducement to breach contractual obligations is similar in nature to an action for tortuous interference with contractual relations. So long as the lessee maintains an arm’s length position in the transaction, he does not owe a fiduciary duty or a duty of utmost good faith to the owner of a non- executive interest. If, however, the lessee agrees with the executive to an arrangement made for the purpose of excluding or minimizing the benefits of an outstanding or non-participating interest owner, the lessee can be held liable to the injured third party. Some authorities take the position that liability will also arise if the lessee should reasonably have been aware that the executive was acting in breach of his duty. In the present case, even if his father had not informed him, Angus Mims was put on constructive notice of the reservation of the 1/4 non-participating royalty held by the Bealls because the lease [deed?] had been filed with the county clerk.

 
The significance of the case is that it suggests that a recorded nonparticipating mineral interest puts the prospective lessee on notice of those rights, and if the lessee participates in any arrangement with the holder of the executive rights to exclude or minimize the rights of the nonparticipating interest owner, the lessee may be subject to actual damages, punitive damages, and a constructive trust.