Green Mountain Learns to Draft Its Drafts More Carefully

Green Mountain Oil and Gas Corporation sought to “flip” its oil leases by assigning them to EOG Resources at a higher price than it had paid for them.  After it had signed the assignment, however, EOG discovered that the lease assignments created an additional overriding royalty that reduced the mineral estate amount.  Because the leases included a draft–and because each draft provided that if the draft was not paid within 20 banking days, the bank was to return it to the payee and all further obligations of the parties would terminate–EOG decided to decline payment of each of the drafts and terminate the contract.   Green Mountain sued, seeking enforcement of the assignment.  The Court of Appeals, however, found that, under the terms of the draft, “EOG had an absolute right not to pay the draft.”  Accordingly, it did not breach the contract when it declined the draft regardless of whether EOG’s agent had established good title.

Green Meadow Oil & Gas Corp. v. EOG Resources, Inc., No. 05-11-00291-CV