## Facts

- Lazy M Ranch, Ltd. owned a ranch property; TXI Operations, L.P. sought to explore the property for sand and gravel and, if warranted, secure an option to lease acreage for mining.
- The parties executed an exploration and option agreement granting TXI (for $2,000) the right to conduct subsurface tests only within a specifically described 1,669-acre tract.
- The agreement also granted TXI an exclusive, irrevocable option to lease up to 300 acres within the described tract, exercisable within six months by written notice and tender of $98,000.
- TXI paid the $2,000 and began exploration activities.
- After the original negotiator for Lazy M died, TXI timely delivered written notice of election and tendered a $98,000 bank check, but Lazy M’s new management refused to execute the lease.
- Lazy M asserted TXI repeatedly and intentionally conducted subsurface testing outside the 1,669-acre area despite protests, and contended this conduct (and surrounding circumstances) made TXI’s conduct inequitable.
- TXI sued for specific performance to compel execution of the lease; the trial court granted TXI summary judgment and ordered specific performance.

## Issues

1. Whether evidence that TXI repeatedly and intentionally explored outside the contract’s defined 1,669-acre area raised a fact issue that TXI materially breached the agreement, excusing Lazy M from honoring the option even if that would forfeit TXI’s option rights.
2. Whether evidence of TXI’s alleged misconduct related to the transaction raised a fact issue on unclean hands that would bar specific performance on equitable grounds.
3. Whether TXI conclusively negated Lazy M’s defenses so as to be entitled to summary judgment ordering specific performance.

## Decision

- The court of appeals reversed the summary judgment and remanded.
- Lazy M’s evidence raised genuine issues of material fact on whether TXI committed a material breach by repeatedly and intentionally testing outside the authorized area despite protests.
- Lazy M’s evidence also raised fact issues on whether TXI had unclean hands sufficiently connected to the agreement to preclude specific performance.
- Because those defenses presented fact questions, TXI was not entitled to specific performance as a matter of law at the summary-judgment stage.

## Legal Principles

- A party may be excused from future performance if the other party repudiates the contract or commits a material breach.
- Materiality is commonly a fact question and may be assessed using Restatement (Second) of Contracts § 241 factors, including deprivation of expected benefit, adequacy of compensation, likelihood of cure, and good faith and fair dealing.
- Courts disfavor forfeitures, but forfeiture concerns do not require enforcement where doing so would be unreasonable or inequitable in light of serious misconduct.
- Specific performance is an equitable remedy; a court may deny it under the unclean-hands doctrine when the plaintiff’s unlawful or inequitable conduct is sufficiently related to the transaction for which relief is sought.
- On summary judgment, courts must view evidence in the light most favorable to the nonmovant and deny judgment if genuine issues of material fact exist.

## Conclusion

The appellate court held that summary judgment compelling specific performance was improper because Lazy M presented evidence creating fact disputes over whether TXI’s alleged intentional, protested exploration outside the permitted tract materially breached the agreement and whether TXI’s conduct barred equitable relief under unclean hands, requiring remand for further proceedings.


Lazy M Ranch, Ltd. v. TXI Operations, L.P., 978 S.W.2d 678 (Tex. App.—Austin 1998)