Manges v. Guerra

• Citation: 673 S.W.2d 180
• Decision Date: 13 June 1984
• Docket Number: No. C-771,C-771
• Parties: Clinton MANGES, Petitioner, v. J.C. GUERRA, et al., Respondents.
• Court: Texas Supreme Court

Page 180

673 S.W.2d 180

Clinton MANGES, Petitioner, v. J.C. GUERRA, et al., Respondents.

No. C-771.

Supreme Court of Texas.

June 13, 1984.

Rehearing Denied July 11, 1984.

Pat Maloney, Adams & Hunter, Royal D. Adams, San Antonio, Luther Jones, Jr., Corpus Christi, Watson & Henderson, Murray Watson, Jr., Waco, for petitioner.

Smith, McIlheran, Lauderdale & Jones, Garland F. Smith, Weslaco, Dibrell, Dotson, Dibrell & Dibrell, T. Kellis Dibrell, San Antonio, Flores, Sanchez, Vidaurri, Munoz & Guerra, David H. Guerra, McAllen, McGinnis, Lochridge & Kilgore, Lloyd Lochridge and Thomas O. Barton, Austin, H.P. Guerra, III, Rio Grande City, for respondents.

POPE, Chief Justice.

We grant the motion for rehearing and withdraw the court's former opinion as well as the concurring and dissenting opinion.

This appeal concerns the proper exercise of the executive right of a mineral estate. The suit is one of several suits filed in the controversy among the various parties. The present suit was filed by J.C. Guerra and others against Clinton Manges, Gas Producing Enterprises and the Bank of the Southwest National Association. Clinton Manges and several members of the Guerra family were mineral co-tenants, with Manges holding the executive right to all the minerals. The Guerras sued Manges for failure to exercise diligence in leasing the minerals to third persons and for leasing a portion of the minerals to himself at allegedly unfair terms. The trial court rendered judgment removing Manges as holder of the executive rights; cancelling a lease Manges executed to himself; voiding, as to the Guerras' interests, certain transactions between Manges and third parties; and awarding the Guerras $382,608.79 in actual damages and $500,000 in exemplary damages. The court of civil appeals affirmed the judgment of the trial court. 621 S.W.2d 652.

This cause was tried by a jury and judgment was rendered on jury findings in favor of the Guerras. Those issues and findings are stated in the opinion of the court of appeals, and that court has found that each issue is supported by sufficient evidence. The issues are not attacked in this court. We affirm the judgment cancelling the lease that Manges made to himself. We affirm the award of damages for Manges' failure to lease the Guerra mineral acreage not covered by the Manges-to-Manges lease which the jury found he could have leased, and upon the basis of those actual damages we sustain the award of punitive damages. We reverse the judgment that removed Manges as the executive.

On March 31, 1969, Clinton Manges entered into a contract to purchase 72,000 acres of land in Jim Hogg and Starr counties from the M. Guerra & Son Partnership. Under the contract, Manges was to purchase all of the surface and an undivided one-half of the partnership's 55,000 to 60,000 mineral acres. The sale was to include the executive rights to the one-half mineral interest reserved by the Guerras. Litigation among members of the Guerra family resulted in the land being placed with a receiver. On August 20, 1971, the receiver executed a deed conveying the land to Manges in accordance with the contract of sale. The deed provided that Manges was not to lease the Guerras' mineral interest for less than a one-eighth royalty; also, it expressly provided that the Guerras were to participate "in all bonuses, rentals, royalties, overriding royalties and payments out of production." An agreed judgment rendered on June 11, 1974, adjudged that Manges was the owner of 53.4 percent of the minerals and the Guerras owned 46.6 percent.

In addition to the M. Guerra & Son Partnership land, between 1968 and 1970, Manges purchased the Virginia C. Guerra Estate, which consisted of 21,000 surface acres and about 16,000 mineral acres. Manges acquired the land by purchasing the undivided interests of the various Virginia C. Guerra descendants. As with the M. Guerra & Son Partnership land, Manges received all of the surface and an undivided one-half of the minerals. The sale included the executive rights to the one-half mineral interest reserved by the Guerras, subject to the limitation that Manges could not lease the minerals for less than a one-eighth royalty. The M. Guerra & Son Partnership owned an undivided one-seventh of the Virginia C. Guerra Estate land, and Manges received this interest by virtue of the June 11, 1974 agreed judgment.

The Guerras assert a number of ways that Manges used the executive powers to benefit himself with no similar benefit to the non-executives. On May 10, 1974, Manges, his wife, and Duval County Ranch Company executed a deed of trust securing a note in the principal amount of $7,028,346 held by the Bank of the Southwest National Association. This deed of trust covered, among other mineral interests, "all of the oil, gas and other mineral interests ... including ... executive rights and powers" owned or claimed by Manges and affecting lands in Starr and Jim Hogg counties.

On September 11, 1974, Manges, his wife and Duval County Ranch Company executed two instruments to Gas Producing Enterprises. One of the instruments was an option to purchase oil and gas and the other was a "Repayment Agreement, Collateral Assignment and Security Agreement." These instruments covered the mineral interest Manges purchased from the Guerras plus other properties owned by Manges in a total of thirteen Texas counties. The option contract purported to give Gas Producing Enterprises the right to purchase oil and gas produced from all of the mineral estates to which Manges held executive rights. The Gas Producing Enterprises contracts were executed in connection with a loan from Gas Producing Enterprises to Manges of $2,800,000 (later increased to $5,000,000). Manges was to use this money in drilling and developing the mineral interests. Neither contract required Manges to drill and develop the Guerra lands in particular.

J.C. Guerra sued Manges, Gas Producing Enterprises, the Bank of the Southwest, and Cove Investments, Inc., in Jim Hogg County, contending that these instruments effectively withdrew the Guerra minerals from the lease market. The other Guerras were made involuntary plaintiffs. R.R. Guerra filed a similar suit as a cross-action on the same day in Starr County. Cove Investments, Inc., intervened in the Starr County suit, claiming title to all, or alternatively, one-half of the minerals and executive rights owned by Manges. The controversy between Manges and Cove Investments was severed for a separate trial. See Cove Investments, Inc. v. Manges, 602 S.W.2d 512 (Tex.1980). Cove Investments, Inc., and R.R. Guerra filed notices of lis pendens on October 2, 1974, and September 19, 1975, respectively.

After the Guerras filed this suit, Manges discovered that Exxon had drilled wells on an adjoining tract which were draining the Guerra/Manges minerals. Manges, claiming that he was unable to lease to anyone else because of the lis pendens notices, leased 25,911.62 acres to himself on April 20, 1977. This lease was for a term of ten years, and provided for a one-eighth royalty and a $2 per acre annual delay rental. The lease recited a $5 bonus for the entire acreage. Purporting to act under the Manges-to-Manges lease, Manges drilled five offset wells, three of which were producing, and at the time of trial had produced over $2,000,000. Manges claimed at trial his proportionate 53.4 percent of the one-eighth royalty and 100 percent of the remaining seven-eighths of the production revenue. This money has been held in a suspense account.

On July 16, 1977, Manges, as lessee under the Manges-to-Manges lease, entered into a farm-out agreement with Joe Schero covering the same land as the Manges-to-Manges lease. Manges was to receive, in addition to his fractional share of the one-eighth royalty, a fifty percent working interest free of drilling costs. On the same day the farm-out agreement was executed, Manges gave Schero a "top lease," which was conditional on the Manges-to-Manges lease being declared void. Under the farm-out, Schero drilled an additional sixteen to eighteen other wells, all of which were nonproducing.

Trial was to a jury. The jury was instructed that:

the possessor of an "Executive Right" as herein defined owes to the co-mineral owners the same degree of diligence and discretion in exercising the...