Operation Executive Freedom (of Contract): Following the Executive's Fiduciary Obligation from Manges to Magruder in Mineral Leasing

By Fowles, John B. | Brigham Young University Law Review, January 1, 2004 | Go to article overview

Operation Executive Freedom (of Contract): Following the Executive's Fiduciary Obligation from Manges to Magruder in Mineral Leasing


Fowles, John B., Brigham Young University Law Review


I. INTRODUCTION

Fiduciaries hold an esteemed and valuable position in the U.S. common law of trusts and agency as inherited from England. In these contexts, the duty a fiduciary owes to a beneficiary is essential to protect dependent beneficiaries from potential abuses arising from the power a fiduciary holds over the interests of the beneficiary.1 Literally, a fiduciary is either "[o]ne who owes to another the duties of good faith, trust, confidence, and candor," or "[o]ne who must exercise a high standard of care in managing another's money or property."2 In essence, "[t]he duty of loyalty, coupled with restitution of any gain the trustee obtains by favoring his own interest," creates the special relationship that the common law recognizes as containing the fiduciary duty owed in a fiduciary relationship.3 Although appropriate and necessary in certain contexts, a fiduciary duty may be inapposite in other contexts, detracting from economic value or upsetting the longstanding expectations of parties to a contract.4 This age of expanding fiduciary duties5 demands recognition of limits on the reach of fiduciary duties or relationships, particularly where the fiduciary duty might interfere with legitimate property rights or upset principles of contract law.

Fundamental principles of property and contract law govern the relationships between parties to mineral leases in the context of oil and gas law. In mineral leasing, the inequality resulting from the ownership of disparate property interests can create the opportunity to contract. But some courts have supplanted the bargaining power attendant to the unequal property interests in the relationship between the owner of the executive interest6 and owner(s) of the nonexecutive interest7 in a mineral estate. They have found that a fiduciary obligation exists in that relationship that accrues to the benefit of the nonexecutive.8 Holders of the executive mineral interest in mineral estates, whose executive right is a legitimate property right,9 were not originally subject to strict fiduciary obligations10 requiring them to subordinate their interests to those of the nonexecutive interest holder when contracting with third parties in mineral leases before these courts began imposing a fiduciary duty on them.

This Comment examines this expansion of fiduciary duties in the mineral estate in a bid at reestablishing the executive mineral interest holder's freedom of contract when leasing with third parties. First, Part II surveys the spectrum of duties of care-arising out of property and contract law-in oil and gas relationships. The duties that arise in these relationships constitute various duties of care rather than a fiduciary duty of loyalty,11 which precludes any selfish benefit on the part of the fiduciary. Part III investigates fiduciary relationships in search of what sets them apart from other standards of care, concluding that the duty of loyalty, combined with a standard of care concerned with measuring competence in performance, creates a fiduciary obligation. Absent a duty of loyalty, the severity of which is so starkly exemplified in MagruAer v. Drury,12 a mere duty of care does not rise to the level of a fiduciary duty. Part IV compares the strict nature of the fiduciary obligation and its characteristic duty of loyalty with the spectrum of relationships and duties of care in oil and gas operations. Absent special facts that normally create a fiduciary relationship in other contexts, the duty of loyalty-the prohibition against any selfish benefit to the fiduciary-inherent in a fiduciary obligation does not naturally exist in these relationships.

Part V examines the applicability of a fiduciary obligation between the executive and the nonexecutive interest owners in a mineral estate, questioning the soundness of the court's reasoning in Manges v. Guerra^ the leading case holding that a fiduciary duty is proper in this relationship. The Manges court's lack of adequate analysis or explanation for departing from the earlier intermediary standard in favor of the unreasonably high fiduciary standard renders recent court decisions reinforcing Manges\ "radical departure from orthodoxy"14 troublesome, not least because the Manges fiduciary duty inevitably exposes executive mineral interest holders to the fiduciary severity of Magruder. …

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

Operation Executive Freedom (of Contract): Following the Executive's Fiduciary Obligation from Manges to Magruder in Mineral Leasing
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Full screen

matching results for page

Cited passage

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited passage

Welcome to the new Questia Reader

The Questia Reader has been updated to provide you with an even better online reading experience.  It is now 100% Responsive, which means you can read our books and articles on any sized device you wish.  All of your favorite tools like notes, highlights, and citations are still here, but the way you select text has been updated to be easier to use, especially on touchscreen devices.  Here's how:

1. Click or tap the first word you want to select.
2. Click or tap the last word you want to select.

OK, got it!

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.