Continuing the theme from its recent Energy Transfer opinion, the Texas Supreme Court’s opinion in Chalker Energy v. Le Norman Operating involved a “No Obligation” provision in the parties’ Confidentiality Agreement. Entered at the beginning of a bidding process for valuable oil-and-gas assets, the clause said: “The Parties hereto understand that unless and until a definitive agreement has been executed and delivered, no contract or agreement providing for a transaction between the Parties shall be deemed to exist and neither Party will be under any legal obligation of any kind whatsoever with respect to such transaction by virtue of this or any written or oral expression thereof, except, in the case of this Agreement, for the matters specially agreed to herein. For purposes of this Agreement, the term ‘definitive agreement’ does not include an executed letter of intent or any other preliminary written agreement or offer, unless specifically so designated in writing and executed by both Parties.”
This provision was sufficient to preclude the formation of a later contract through an exchange of emails: “If mere proposals that contemplate a later-executed PSA and the subsequent exchanging of unagreed-to drafts are sufficient to raise a fact question on the existence of a definitive agreement, No Obligation Clauses will be stripped of much of their meaning and utility. Even worse, these clauses would mislead parties operating under the assumption that they can freely engage in negotiations without binding themselves to proposals in an email exchange. By including the No Obligation Clause in the Confidentiality Agreement, the Sellers and LNO provided themselves with the freedom to negotiate without fear of being bound to a contract.” No. 18-0352 (Feb. 28, 2020).
