An Oil Patch Morality Play – Part 2

Originally published by Charles Sartain.

Co-author Chance Decker

We recently discussed Freeman v. Harleton. The opinion shows the transaction as a bunco job. Here’s more:

• Bufkin and Wayne Freeman have done business together since the 1980s. They had a co-development agreement with Harleton.
• Long-standing agreements among the three of them made it clear that Harleton owned 50 percent of the Geisler Unit.
• Chesapeake never talked to the Freeman defendants, who were not parties to the letter agreement for the sale.
• Chesapeake didn’t contract non-ops because Chesapeake believed the letter agreement prevented them from doing so.
• Bufkin would bring non-ops to each closing, and they would receive offers to sell on the same terms as Buffco.
• Wayne Freeman, who attended his closing, knew Harleton’s ownership interest in the unit but did not raise the issue because, ”It did not occur to him to do so.” He said “[I]t was Chesapeake’s obligation to figure out who owned what” in the unit.
• As a non-op and non-signatory Freeman never made representations or warranties.
• To Chesapeake it became obvious that Bufkin had known when he closed that the ownership in the Geisler Unit was different than what he said it was.
• The due-diligence landman’s work was entirely from Buffco/Twin files. He didn’t check the county records because he was told by Bufkin and team that his title determination was correct.
• The landman came to believe that Buffco removed materials from files that would have revealed Harleton’s interest in the deep rights.
• See the opinion for federal Judge Gilstrap’s view of the defendants’ activities. it was adopted by the state court trial judge.

 

 

Could Chesapeake have protected itself?

Yes,  in retrospect (which is when these revelations are often revealed to the contract drafter). What if, in the letter agreement the sellers had warranted the specific WI and NRI they were selling in each property, and in the assignment sold all right, title and interest, referred to the unrecorded letter agreement for the quantum, and still made a by-through-and-under warranty?

The legal analysis

• Harleton didn’t raise unjust enrichment in the federal court. By the time the issue was presented to the state court, the two-year statute of limitations had run.
• Chesapeake’s unjust enrichment claim was barred because there was a written contract in which it conclusively waived title defects.
• In rejecting Harleton’s third-party beneficiary claim the court concluded that a third party may only enforce the contract when it is entered into directly for that party’s benefit. To create a third-party beneficiary the contracting parties must have intended to grant to the third-party the right to be a claimant in the event of a breach.

What’s left?

The fraud and misrepresentation claims against Bufkin and Buffco are still pending.

There are several ways to see this case:

By one of the defendants, if he gets the gold.

By others, wondering who might need a moral compass to find to find “home”.

Curated by Texas Bar Today. Follow us on Twitter @texasbartoday.

from Texas Bar Today http://ift.tt/2uReJEj
via Abogado Aly Website