IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUITUnited States Court of Appeals
Fifth Circuit
F I L E D
No. 05-20493 August 17, 2007
Charles R. Fulbruge III
Clerk
CEDYCO CORP
Plaintiff-Appellee-Cross-Appellant
v.
PETROQUEST ENERGY LLC
Defendant-Appellant-Cross-Appellee
consolidated with
No. 05-20891
CEDYCO CORP
Plaintiff-Appellee
v.
PETROQUEST ENERGY LLC; ET AL
Defendants
PETROQUEST ENERGY LLC
Defendant-Appellant
Appeal from the United States District Court
for the Southern District of Texas
Before GARWOOD, BARKSDALE, and GARZA, Circuit Judges.
EMILIO M. GARZA, Circuit Judge:
No. 05-20493 c/w 05-20891
In this diversity case, PetroQuest Energy, LLP (“PetroQuest”) appeals the
district court’s grant of summary judgment and award of damages in favor of
Cedyco Corporation (“Cedyco”) on Cedyco’s claim that PetroQuest breached a
contract to sell its working interest in two oil wells. Cedyco cross-appeals the
award of money damages and argues that it is entitled to specific performance.
I
PetroQuest is a company engaged in oil and gas exploration and
production. In November 2001, PetroQuest offered its working interest in two
Louisiana oil wells for sale by auction at the Oil & Gas Asset Clearinghouse
(“Clearinghouse”) in Houston, Texas. The wells were auctioned as “Lot 26.”
Prior to the auction, PetroQuest distributed a “Property Data Sheet” to potential
buyers. This document contained a provision stating that Lot 26 is “subject to
a consent to assign.” This is because the mineral deed identified as Lot 26 was
originally leased in 1945 to ExxonMobil Corporation (“Exxon”), then subleased
to PetroQuest in 1991 under the condition that PetroQuest not sell or assign the
mineral rights without first obtaining Exxon’s written consent.
Cedyco was the only bidder for Lot 26 and won the auction with a bid-offer
of $1,000. PetroQuest then asked Exxon for consent to assign Lot 26 to Cedyco,
and Exxon replied that it would grant only a conditional consent, subject to
PetroQuest’s remaining obligated for the original sublease and agreeing to
indemnify Exxon for any liability arising from Cedyco’s operation of the lease.
PetroQuest proceeded to investigate Cedyco’s credit and regulatory compliance
histories and found that Cedyco had a record of violating state regulations
imposed on oil and gas producers. As a result, PetroQuest declined to accept
Exxon’s conditional consent to assign because Cedyco presented too high of a risk
for PetroQuest to agree to indemnify Exxon. PetroQuest then notified
Clearinghouse that it could not sell Lot 26 to Cedyco because Exxon had given
“an unacceptable ‘conditional’ consent to the assignment.” Within three weeks
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of the auction, Clearinghouse informed Cedyco that Exxon had not consented
and refunded Cedyco’s bid money and auction fees. Almost two years later,
PetroQuest sold Lot 26 for $125,000.
Cedyco sued PetroQuest in Texas state court for breach of contract, specific
performance, and conversion. PetroQuest removed the case to federal court
pursuant to diversity jurisdiction, and both parties filed cross-motions for
summary judgment on the breach of contract issue. Applying Texas law, the
district court granted summary judgment in favor of Cedyco. Its reasons were
brief: “The sale at the auction was final. Title to Lot 26 passed to Cedyco.” After
a bench trial to determine damages, the district court denied Cedyco’s claim for
specific performance and awarded Cedyco $290,205 in damages and $37,250 in
attorney’s fees. The parties cross-appealed.
II
We review a district court judgment on cross-motions for summary
judgment de novo. White Buffalo Ventures, LLC v. Univ. of Texas, 420 F.3d 366,
370 (5th Cir. 2005). Evidence and inferences are taken in the light most
favorable to the nonmoving party. Id. We affirm only if there is no genuine
issue of material fact and one party is entitled to prevail as a matter of law.
Shaw Constructors v. ICF Kaiser Engineers, Inc., 395 F.3d 533, 539 (5th Cir.
2004); see also FED. R. CIV. P. 56. We apply Texas substantive law to this
diversity jurisdiction case because the parties so stipulated before the district
court.
III
PetroQuest first argues that summary judgment was improper because it
never accepted Cedyco’s offer to buy Lot 26, and, as a result, a contract was
never formed. Because Lot 26 was auctioned “with reserve,” PetroQuest argues
that it reserved the discretionary right to reject Cedyco’s bid-offer.
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Although we agree with PetroQuest that Lot 26 was auctioned “with
reserve” because none of the auction documents stated otherwise, see TEX. BUS.
& COMM. CODE ANN. § 2.328(c), we still find that a contract was formed. In a
“with reserve” auction “the auctioneer may withdraw the goods at any time until
he announces completion of the sale.” TEX. BUS. & COMM. CODE § 2.328(c).1
Thus, the “with reserve” designation does not allow a seller to reject a bid-offer
after the auction closes and a winner is announced. Rather, the right to
withdraw items in a “with reserve” auction ends once the auctioneer announces
completion of the sale. Id. Therefore, PetroQuest accepted Cedyco’s bid-offer at
the moment Cedyco was announced the winner of the action—otherwise known
as the “fall of the hammer.” See id. § 2.328(b); see also Moss v. Hudson &
Marshall, Inc., 599 S.E.2d 279, 281 (Ga. Ct. App. 2004) (“Generally, even if an
auction is with reserve . . . , the seller must exercise his right to withdraw the
property from sale before the auctioneer accepts the high bid by letting his
hammer fall; immediately after the hammer falls, an irrevocable contract is
formed . . . .”). A contract was formed as a matter of law.
Nevertheless, we agree with PetroQuest’s alternative argument that the
contract contained a condition precedent that Exxon consent to the assignment.
A condition precedent is an act or event that must take place before performance
of a contractual obligation is due. Hohenberg Brothers Co. v. George E. Gibbons
& Co., 537 S.W.2d 1, 3 (Tex. 1976); see also Texas Dept. of Housing and
Community Affairs v. Verex Assurance, Inc., 68 F.3d 922, 928 (5th Cir. 1995).
While Texas does not generally favor reading conditions precedent into
contracts, see Sirtex Oil Indus. v. Erigan, 403 S.W.2d 784, 787 (Tex. 1966), the
inclusion of words “such as ‘if,’ ‘provided,’ ‘on condition that,’ or some similar
phrase of conditional language” indicate that the parties intended there to be a
1
This is distinct from a “without reserve” auction where the seller may not withdraw
his items once he offers them for auction. TEX. BUS. & COMM. CODE § 2.328(c).
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condition precedent. Criswell v. European Crossroads Shopping Center, Ltd.,
792 S.W.2d 945, 948 (Tex. 1990).
Here, the auction documents contain the requisite conditional language
indicating that Exxon’s consent was a condition precedent to the sale. The
“Property Data Sheet” informed all potential buyers that Lot 26 was “subject to
a[] consent to assign.” “Subject to” means “likely to be conditioned, affected, or
modified in some indicated way[, and] having a contingent relation to something
and usually dependent on such relation for final form, validity or significance.”
WEBSTER’S UNABRIDGED DICTIONARY 2275 (3d ed. 1993). Thus, the language of
the auction documents expressly indicates that the sale of Lot 26 was
conditioned on Exxon’s consent. See Criswell, 792 S.W.2d at 948; see also Verex,
68 F.3d at 930 (“Although these phrases do not mirror those specifically listed
in Criswell, we believe they do constitute the type of conditional language the
Texas Supreme Court would find sufficient to create a condition precedent.”).
Moreover, the other auction documents reinforced that the sale was conditioned
on Exxon’s consent. See Citizens Nat’l Bank v. Texas & P. Ry., 150 S.W.2d 1003,
1006 (Tex. 1941) (determining the existence of a condition precedent by
examining the contract as a whole). PetroQuest included the language “consent
to assign required” in the “Property Data Package Update,” in a handwritten
cover page to the “Property Data Package Update,” in the “due diligence
inquiries” section of the Property Data sheet that was physically posted at the
auction, and in large bold letters on a sign at the auction. Cedyco acknowledged
and agreed to all disclosed conditions when it signed the “Bidder/Buyer’s Terms
and Conditions.”
Cedyco’s arguments that the auction documents did not contain a
condition precedent are entirely without merit. For one, its assertions are belied
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by the plain language of the auction documents.2 Furthermore, Cedyco’s
argument that a condition precedent is an event that must occur before a
contract is formed—and because a contract was formed at the close of the
auction, there no longer existed a condition precedent—is circular and finds no
support in Texas contract law. A condition precedent may be “those acts or
events, which occur subsequently to the making of the contract, that must occur
before there is a right to immediate performance and before there is a
contractual duty.” Gulf Construction Co. v. Self, 676 S.W.2d 624, 627 (Tex.
App.—Corpus Christi 1984, writ ref’d n.r.e.); Hohenberg, 537 S.W.2d at 3
(conditions precedent may “relate either to the formation of contracts or to
liability under them”).3 Here, Exxon entertained a request for consent after
knowing the identify of the buyer from the auction; thus, the condition precedent
was to occur after the contract was formed but before PetroQuest’s obligation to
sell Lot 26 came due.
Because we find that the contract for the sale of Lot 26 contained a
condition precedent, the critical question is whether the condition precedent was
met—i.e., whether Exxon consented to the assignment. See Verex, 68 F.3d at
928. PetroQuest argues that Exxon did not consent; Exxon only conditionally
consented. Cedyco responds that PetroQuest was obligated under the contract
to obtain consent by accepting Exxon’s conditions. In other words, neither party
2
Cedyco’s argument that Exxon’s consent to assign was a “limitation” and not a
“condition” is simply an attempt at semantic gymnastics with Cedyco unable to explain either
the legal difference in terms or why the instant contract contains the new legal term it
invented.
3
Confusion in terminology is somewhat common. See Rincones v. Windberg, 705
S.W.2d 846, 848 (Tex. App.—Austin 1986, no writ) (noting that Texas cases often “lump these
two definitions together as two types of conditions precedent, and do not distinguish conditions
precedent from conditions subsequent”). For this reason, perhaps the best approach is taken
by the Restatement Second of Contracts, which employs only the general term “condition.” See
RESTATEMENT (SECOND) OF CONTRACTS § 224 (“A condition is an event, not certain to occur,
which must occur . . . before performance under a contract becomes due.”).
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argues that the term “consent” is ambiguous; rather, the parties disagree over
the legal meaning of the term.4
Determining whether a contract is unambiguous and interpreting an
unambiguous contract are questions of law. Heritage Resources, Inc. v. Nations
Bank, 939 S.W.2d 118, 121 (Tex. 1996). “We give terms their plain, ordinary,
and generally accepted meaning unless the instrument shows that the parties
used them in a technical or different sense.” Id. “Consent” is normally
understood to mean “to accept a proposition” or “capable, deliberate, and
voluntary agreement to.” WEBSTER’S, at 482. There is nothing in the contract
indicating that “consent” meant anything more than its ordinary definition.
Thus, Exxon did not “accept” or “voluntarily agree to” the assignment as
contemplated by the contract. Instead, it responded with its own set of
conditions. Nothing in the contract mandated or even suggested that
PetroQuest must accept Exxon’s conditions in order to obtain consent. To hold
otherwise would force PetroQuest to accept whatever limited consent Exxon
gives.
Were we to interpret the contract as imposing on PetroQuest the duty to
obtain consent by accepting all of Exxon’s terms, then the contract’s condition
precedent would be superfluous, that is there would be no need include a
“consent to assign” provision in the contract at all as PetroQuest would be
required to obtain consent under any circumstances. We decline to adopt such
a construction, as we must ensure that each provision of the contract is given
effect and none are rendered meaningless. See Int’l Turbine Serv., Inc. v. VASP
4
Both parties conceded at oral argument that the summary judgment record contains
no extrinsic evidence that would render ambiguous the meaning of “consent.”
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Brazilian Airlines, 278 F.3d 494, 497 (5th Cir. 2002); see also Kona Tech. Corp.
v. S. Pac. Trans. Co., 225 F.3d 595, 610 (5th Cir. 2000)).5
The summary judgment record contains evidence only that Exxon
consented to the assignment under the condition that PetroQuest comply with
Exxon’s terms. Because PetroQuest was not obligated by the contract to accept
Exxon’s terms, Exxon’s response was not a “consent” under the terms of the
contract, and the condition precedent was never satisfied. As a result,
PetroQuest’s obligation to perform under the contract never came due. We
therefore vacate summary judgment, and reverse and render judgment in favor
of PetroQuest. See Vela v. City of Houston, 276 F.3d 659, 671 (5th Cir. 2001)
(“In situations involving cross-motions for summary judgment and upon finding
no genuine issues of material fact, this court regularly reverses grants of
summary judgment and enters judgment for the opposite party.”). We do not
reach PetroQuest’s remaining argument, nor address additional questions
concerning damages.
IV
For the foregoing reasons, we VACATE the district court’s grant of
summary judgment for Cedyco, and REVERSE and RENDER judgment in favor
of PetroQuest that Cedyco take nothing.
5
We observe that Cedyco does not contend—and it is not apparent—that Exxon’s
condition imposed on PetroQuest only that potential liability to Exxon which PetroQuest would
have anyway if Exxon had consented to the assignment without condition or if the original
sublease between Exxon and PetroQuest had not contained any express provision requiring
Exxon’s consent.
8