Exemplary Damages The implied covenant to protect against drainage is apart of

Exemplary damages the implied covenant to protect

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Exemplary Damages: The implied covenant to protect against drainage is a part of the lease and is contractual in nature. o Exemplary damages are not allowed for breach of contract. Actual Damages: What the Alexander’s loss? 125
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o The amount that could have been recovered v. the amount drained recovered would have been more o Notes: Many people disagree with Amoco v. Alexander that a common lessee should be held captive by the lessor o HECI Exploration Co. v. Neel : PH: Court of Appeals: reversed in part a summary judgment for the lessee, holding that an o&g lease contains an implied covenant that a lessee will notify a royalty owner (1) of the need to sue an operator on an adjoining lease for damage to the common reservoir, and (2) that the lessee intends to sue. o The discovery rule applies to causes of actions against lessees who fail to notify. Holding: There is no implied covenant that requires a lessee to give notice of its intent to sue an adjoining operator because such a duty is not necessary to effectuate the full purpose of the lease and is not so clearly within the contemplations of the party that they deemed it unnecessary to express o = 1) no duty because we don’t need them for leases to be performed o =2) the parties did not intend for the lease to express this requirement Facts: 126
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Neel family are royalty owners in Fayette county, and sued HECI for not notifying them that HECI had sued and received judgment against the operator of an adjoining lease, AOP Operating Corporation. AOP illegally overproduced a well on the property adjoining the HECI formation. HECI got the TRRC to enjoin AOP. AOP continued to illegally produce which caused HECI’s well to water out sooner than it should and prevented them from producing as much o&g as they possibly could have based on the formation. The Neels sued HECI more than 4 years after the release of judgment against AOP and 4 years after the damage to the reservoir occurred. o Court of appeals held that there was an implied duty to notify within the implied covenant to protect the leasehold. This duty exists because if HECI brought suit, the Neels could be collaterally estopped from litigating their claims against the AOP. Analysis: When did the duty to notify arise? o It began the moment when the cause of action against AOP began AOP’s illegal action ended on Dec. 1988 so that’s the last date at which the Neels could sue Discovery Rule: 127
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o Generally applied when the nature of the injury is inherently undiscoverable and that the injury itself must be objectively verifiable. Inherently undiscoverable? NO, when the Neels learned that HECI had sued then they should have known that they failed to notify them. Neels had an obligation to exercise reasonable diligence in determining whether an adjoining owner was damaging their interest.
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