Category Archives: Contract

Minds Met About Arbitration

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This is a cross-post from 600Commerce about a Dallas case recently reviewed by the Texas Supreme Court:

After a split decision from the Fifth Court declined to send a personal-injury case to arbitration, the Texas Supreme Court ruled otherwise in Baby Dolls v. Sotero: “The Family’s argument, and the court of appeals’ holding, that Hernandez and the Club never had a meeting of the minds on the contract blinks the reality that they operated under it for almost two years, week after week, before Hernandez’s tragic death. We hold that the parties formed the agreement reflected in the contract they signed.” No. 20-0782 (Tex. March 18, 2022).

New UCC Article

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Mike Lynn and I have an article in the latest Oklahoma Law Review about a fiendishly tricky issue with some “battles of the forms” under the Uniform Commercial Code. A few years back, Mike had a hard-fought trial about this issue in the context of the roof insulation for a big warehouse near D/FW Airport. I hope you enjoy it – and can use it someday in your next UCC case – https://digitalcommons.law.ou.edu/olr/vol74/iss2/3

New Year, Old Principles

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The supreme court engaged fundamental, black-letter principles of contract law in Angel v. Tauch, No. 19-0793 (Jan. 14, 2022), holding:

“Offer and acceptance are essential elements of a valid and binding contract. As a matter of blackletter law, an offer empowers the offeree to seal the bargain by accepting the offer. But equally well-established is the rule that acceptance is ineffective to form a binding contract if the power of acceptance has been terminated, such as by the offeror’s revocation before acceptance. The main issue in this contract dispute is whether a purported offer to settle a debt for a reduced sum was accepted before it was revoked. Resolution of that issue turns on the parameters of the recognized, but rarely implicated, doctrine of implied revocation.

Here, the parties dispute whether the implied-revocation doctrine (1) is limited to offers involving the sale of land, (2) applies if the offeree learns about the offeror’s inconsistent act from someone other than the offeror, and (3) is satisfied under the undisputed facts in this case. We hold that the doctrine is not constrained to real-property transactions and the settlement offer was impliedly revoked when the offeror assigned the underlying judgment to a third party for collection and the assignee gave the offeree a copy of the assignment agreement before he accepted the settlement offer. We therefore reverse the court of appeals’ judgment and render judgment that no contract to settle the debt was formed.”

(footnotes and citations omitted, emphasis added).

No future, no future damages.

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The Energizer Bunny, famously, keeps on going. Not so, the contract between Pura-Flo and Donald Clanton, under which Pura-Flo committed to pay Clanton a monthly fee for the use of fifty water coolers. The supreme court reversed and rendered as to an award of future damages in a lawsuit between them, observing:

“Here, no evidence indicated the contract would endure for any length of time, let alone five years after trial. Perhaps, as the court of appeals suggested, the jury sought to award Clanton either the amount Vanderzyden originally paid Pura-Flo to buy the water coolers in 1994 or the amount Pura-Flo’s investment proposal claimed the company would pay to repurchase the water coolers after sixty months. But neither suggested rationale can be the basis for an award of future damages, which, as evidenced by its name, is an award for damages that Clanton was reasonably certain to incur in the future. Without evidence that the contract would continue in the future, the jury’s $50,000 future-damages award has no reasonable basis in evidence and therefore was not reasonably certain as required by law.”

Pura-Flo Corp. v. Clanton, No. 20-0964 (Nov. 19, 2021) (per curiam) (citations omitted, emphasis added).

Writings Matter

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If you doubted that the written word carried dispositive weight in the current Texas Supreme Court, please consider these cases that lead up to an oil-and-gas opinion of last week:

  • In 2019, Bombardier Aerospace Corp. v. SPEP Aircraft Holdings holds that the written word matters: “Under our strongly held principles of freedom to contract, we hold that the limitation-of-liability clauses are valid limited warranties that were the basis of the parties’ bargain. … Although Bombardier’s conduct in failing to provide SPEP and PE with the new engines they bargained for was reprehensible, the parties bargained to limit punitive damages, and we must hold them to that bargain.”
  • In 2020, Energy Transfer v. Enterprise emphasized that the written word matters: “We hold that parties can conclusively negate the formation of a partnership under Chapter 152 of the TBOC through contractual conditions precedent. ETP and Enterprise did so as a matter of law here, and there is no evidence that Enterprise waived the conditions.”
  • During 2021, in In re the Estate of Johnson, the Court noted that actions also matter: “MacNerland was put to an election: either seek to set the will aside or accept the benefits Johnson bequeathed to her. She chose the latter. As a result, she ‘must adopt the whole contents of the instrument, so far as it concerns [her], conforming to its provisions, and renouncing every right inconsistent with it.’ Because MacNerland accepted benefits under Johnson’s will, the trial court properly dismissed her challenge to its validity.” (citation omitted).
  • But last week, in BPX Operating v. Strickhausen, the Court again gave primacy to the written word: “Strickhausen bargained for a strong anti-pooling clause, she consistently withheld the written consent the clause requires, and she reiterated her objections multiple times. Although she accepted BPX’s money, she reasonably believed that one way or another she was owed an amount in the same ballpark as the checks she deposited.”

Clash of the warranties

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Northland Industries v. Koba presented a clash between the UCC’s implied warranty of merchantability and the express terms of an asset purchase agreement. Held: “Subject to exceptions not applicable here, an asset purchaser inherits none of the asset seller’s liability absent an agreement to do so. Based on the asset-purchase agreement’s plain and unambiguous language, the Buyer’s express assumption of the written warranty for repair or replacement of defective treadmill parts was not an assumption of a warranty of merchantability implied by law.” No. 19-0835 (Oct. 23, 2020).

Title?

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“According to the special warranty clause at issue here, Cochran assumed the risk for a failure or defect of title that resulted from an individual claiming the property by, through, and under Cochran, but not otherwise. So while we recognize that the covenant of seisin and a warranty of title are conceptually distinct obligations, at bottom the deed’s language expressly limits liability for a failure of title, regardless of whether that failure of title falls within the scope of the covenant of seisin. Thus, reading the deed as a whole, we hold that it contains a qualifying expression that limits the scope of Cochran’s liability for a failure of title—including in the form of a breach of the covenant of seisin.” Chicago Title v. Cochrane Investments, No. 18-0676 (June 19, 2020).

Separate Agreements

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Rieder v. Woods, a case about an unusual aspect of enforcing forum-selection clauses, also addresses the basic contract-law issue of whether two documents should be construed together. Here, the supreme court found that the two relevant documents should not be read together, analyzing: (1) “the terms and obligations of the agreements,” (2) the merger clauses in the two agreements, (3) the “well-established legal principle that limited liability companies and their obligations are legally distinct from their members and manager,” and (4) the role of the “board exculpation” provision in one of the agreements. No. 19-0077 (Jan. 28, 2020).

Eight corners, more or less

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While Texas continues to strictly follow the “eight corners” rule about insurance coverage, that is a doctrine grounded in contract law. “Given the contractual foundations of the eight-corners rule, we conclude it does not bar courts from considering such extrinsic evidence regarding collusive fraud by the insured in determining the insurer’s duty to defend.” And while undisputed evidence of such fraud could justify an insurer’s denial of coverage without filing a declaratory-judgment action, the potential damages under various statutes “are adequate to ensure that insurers will seek a favorable declaratory judgment before withdrawing a defense in most cases where there is a real controversy regarding the duty to defend.” Loya Ins. Co. v. Hurtado Avalos, No. 18-0837 (May 1, 2019).

Dallas Businesses: Know. This. Case.

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This is a cross-post from 600Commerce, which follows the Dallas Court of Appeals.

One Dallas Court of Appeals case addresses the breach-of-contract defense of impracticability, Hewitt v Biscaro, 353 S.W.3d 304 (Tex. App.—Dallas 2011, no pet.). Relevant to the current crisis, it involves a government order that allegedly made performance more difficult. The Court examined whether:

  • the performance issue was a basic assumption of the contract;
  • the government’s action was an official order or regulation (in that case, the SEC’s contact with the defendant was not); and
  • the defendant was acting in good faith.

The Court relied on an earlier Texas Supreme Court case and the relevant Restatement (Second) of Contracts provision. Application of this opinion will be important in upcoming commercial disputes created by the novel coronavirus.