Texas case holds seller bound to terms of forged document

By James T. Kittrell

The Texas Court of Appeals for the Eleventh District of Eastland has recently held that a seller of an oil and gas property may be held to the terms of a forged purchase agreement if the seller properly signs an assignment that specifically incorporates the terms of the forged document. Raven Resources, LLC v. Legacy Reserves Operating, LP, No. 11-09-00348-CV, 2012 Tex. App. LEXIS 310, (Tex. App. Eastland, Jan. 12, 2012).

            Raven Resources (“Raven”) was interested in selling certain oil and gas related-properties to Legacy Reserves Operating LP, (“Legacy”).  Raven employed Michael Lee as its primary contact in negotiations with Legacy over the sale of the property involved in the case. After a negotiation period, Legacy sent a draft of a purchase agreement to Raven. The document was dated June 22, 2007 and it was not signed.  The draft purchase agreement did not describe the property in question, but did state that the purchase price was $26.626,000.  Id. at *2 David Stewart, Raven’s sole managing member, signed the draft purchase agreement and sent it to Legacy. While Stewart thought this concluded the negotiation of the agreement, Legacy continued to conduct its own due diligence, and ultimately came to the conclusion that certain revisions to the draft purchase agreement were required.  Id. Among those revisions was a reduction in the purchase price to $20,300,000.  These changes were reflected in another purchase agreement, this one dated July 11,2007, which was sent from Legacy to Lee. At this point, Lee failed to tell Stewart about the agreement and forged Stewart’s signature to the document and returned it to Legacy. Id. at *2-3 The record indicated that only David Stewart had the authority to bind Raven to any agreement.

            The two sides closed the transaction by mail, in which Raven transferred the various interests and properties included in the July 11 agreement via thirty-five “assignments and bills of sale” dated August 3, 2007.  These assignments specifically incorporated the terms of the July 11 agreement.  Id. at *3 Several weeks later, Raven discovered the discrepancy between the price included in the June 22 draft agreement and the amount Legacy had actually paid Raven, which was the amount of the July 11 agreement.  Raven then filed a lawsuit against Legacy, and Legacy filed counterclaims against Raven.  Both sides moved for partial summary judgment, and the trial court granted Legacy’s motion, entered a take-nothing judgment against Raven, and severed Legacy’s remaining counterclaims to create a final ,appealable judgment.  The court did not give a reason for its decision to grant the summary judgment motion. Id. at *5 

            On appeal, Raven claimed that the trial court erred in granting summary judgment because the July 11 agreement was forged, and thus void as a matter of law.  Legacy responded by noting that the terms of the July 11 agreement were properly incorporated into the assignments, which were legal and enforceable. Id. at *6 Originally, the court of appeals issued an opinion overturning the grant of summary judgment for Legacy.  However, the court granted Legacy’s motion for rehearing and withdrew its former opinion. Id. at *1 Ultimately, the court of appeals affirmed the trial court.  It found that while the July 11 agreement itself was forged, and thus invalid, the incorporation was still effective.  Id. at *8 The opinion noted that while a reference to a void agreement references nothing, the assignments in question did more than simply mention the July 11 agreement.  Instead, by incorporating the terms of that agreement, the parties had made the actual language a part of the content of the assignment.  Id. at *9 Thus, those terms, which include the sale price, are treated as equal to any other language in the assignment, regardless of whether or not the original July 11 agreement was void. Since the assignments themselves were valid, the court of appeals upheld the grant of summary judgment.  Finally, the court rejected Raven’s argument that the assignments could be rescinded because of a mutual mistake as to price.  Id. at *10-11 Noting that a party is presumed to know the contents of any document it signs, the court rejected Raven’s claims, holding that based on an objective standard, there was not enough evidence to indicate mutual mistake.

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Oil and Gas Auction - August 2, 2012 10:30 PM

Don't Mess with Texas

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