AFFIRM in Part, REVERSE in Part, and REMAND; Opinion Filed August 11, 2015.

S

In The

Court of Appeals

Fifth District of Texas at Dallas

No. 05-13-01700-CV

ORCA ASSETS, G.P., L.L.C., Appellant

V.

JPMORGAN CHASE BANK, N.A.,

JPMORGAN CHASE BANK, N.A., TRUSTEE OF THE RED CREST TRUST,

AND PHILIP METTHAM, Appellees

On Appeal from the 44th Judicial District Court

Dallas County, Texas

Trial Court Cause No. DC-12-05303

MEMORANDUM OPINION

Before Justices Bridges, Lang, and Schenck

Opinion by Justice Schenck

Appellees JPMorgan Chase Bank, N.A., JPMorgan Chase Bank, N.A., Trustee of the Red 

Crest Trust, and Philip Mettham (“JPMorgan”) leased oil and gas properties to appellant Orca 

Assets, G.P., L.L.C. (“Orca”). But JPMorgan had already leased the same properties to 

GeoSouthern Energy Corporation, an unrelated third party, some six months before. Orca sued, 

alleging fraud, negligent misrepresentation, and breach of contract. After a hearing under rule 

166, Texas Rules of Civil Procedure, the trial court rendered judgment for JPMorgan. Because 

JPMorgan was not entitled to judgment as a matter of law on Orca’s fraud and negligent 

misrepresentation claims, we reverse the trial court’s judgment and remand the cause as to those 

claims. We affirm the trial court’s judgment on Orca’s claims for breach of contract.
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BACKGROUND

In June, 2010, JPMorgan leased the mineral rights to acreage in DeWitt County, Texas to 

GeoSouthern.1 Around the same time, Orca identified the same acreage for potential acquisition 

as part of a strategy to “pursue unconventional drilling opportunities in the Eagle Ford Shale 

play.” The acreage in question was owned by the Red Crest Trust, and Orca was familiar with 

the title issues that arose concerning oil and gas properties purchased by H. J. McMullen, the 

original purchaser of the Red Crest Trust properties. Orca describes McMullen as “a colorful 

figure in Texas oil and gas history,” and cites numerous fraud cases litigated in Texas in the 

1960s over McMullen’s interests. Knowing of the potential title issues, but wanting to join the 

Eagle Ford “land rush,” Orca opened an office in DeWitt County and moved landmen there to 

check property records at the courthouse, as well as hiring two shifts of local residents to operate 

a phone bank. The landmen identified potential acreage, and the phone bank workers called the 

surface estate owners to inquire about any leasing activity on the properties. 

In November, 2010, Orca met with representatives of JPMorgan to discuss leasing the 

mineral rights to the same property that JPMorgan had already leased to GeoSouthern. Orca 

contends and offered summary judgment evidence2 that Mettham represented at the meeting the 

acreage in question was “open” for lease.

On December 6, 2010, the parties signed a letter of intent for the property, for which 

Orca paid consideration of $84,028.50. This letter provided in relevant part:

1. Orca has caused a search to be made in the records of Karnes and DeWitt 

Counties and has preliminarily determined that Red Crest Trust is the owner and 

 1 The ensuing dispute between Orca and GeoSouthern is a separate lawsuit. Orca Assets, G.P., L.L.C. v. Burlington Res. Oil & Gas Co., 

No. 13-13-00462-CV, 2015 WL 233670 (Tex. App.—Corpus Christi, Jan. 15, 2015, pet. filed). Orca has filed a petition for review of the court 

of appeals’ conclusion that GeoSouthern’s title and rights to the properties were superior to Orca’s. Orca Assets, G.P., L.L.C. v. Burlington Res. 

Oil & Gas Co., L.P., No. 15-0161 (Tex., pet. filed Apr. 9, 2015). GeoSouthern is not a party here.

2 At the time of the Rule 166 hearing, the parties had conducted discovery and had moved for summary judgment, so that the record 

contained summary judgment evidence submitted by both appellant and appellees. The record reflects that the trial court denied Orca’s motion 

for partial summary judgment. There is no separate ruling on appellees’ motion for summary judgment in the record.
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holder of the mineral estate underlying the following lands [descriptions omitted] 

which lands ORCA has further determined to be free of any recorded oil and gas 

lease heretofore executed [by] the rightful owner thereof; . . . .

Paragraph 2 of the letter of intent recited that Orca had offered consideration for leases covering 

the property described. The leases were to use the same form as a specific previous lease 

between the parties, except for a new paragraph 18 required by Mettham on behalf of JPMorgan. 

This new paragraph 18 is quoted in full in the letter of intent:

18. Negation of Warranty. This lease is made without warranties of any 

kind, either express or implied, and without recourse against Lessor in the event 

of a failure of title, not even for the return of the bonus consideration paid for the 

granting of the lease or for any rental, royalty, shut-in payment, or any other 

payment now or hereafter made by Lessee to Lessor under the terms of this lease.

Paragraph 3 of the letter of intent recited that “Orca has accepted the counteroffer of [JPMorgan] 

proposing to modify paragraph 18.” Paragraph 3 also explained that “in light of such requested 

modification,” the parties agreed to a delay in closing the transaction for up to thirty days “to 

allow ORCA the opportunity to re-examine its title work upon which its determination of 

ownership is based.” Paragraph 4 permitted Orca to close the transaction “on a piecemeal basis, 

that is to say, as the title to the individual tracts is examined and approved.” Also under 

paragraph 4, Orca could elect not to take a lease on a particular tract “[i]n the event that such reexamination of title should reveal information to Orca heretofore unknown to it about one or 

more tracts above described that brings into question the ownership of [JPMorgan] therein.” 

Paragraph 5 provided that during the term of the letter agreement, JPMorgan “shall not grant any 

oil, gas and mineral lease or leases to another party or parties covering the above described land” 

or grant an option to another party to acquire any mineral lease affecting the land.

After the letter of intent was signed, Orca undertook to review the title work it had 

already conducted on the property in question. That is to say, Orca retained counsel to closely 

examine the title history revealed by its examination prior to the November 2010 meeting and 
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resulting letter of intent. Orca did not, however, conduct any new, forward-looking title searches 

for competing leases on the property that might have been filed after the letter of intent. 

Therefore, when GeoSouthern recorded its lease on December 9, 2010, Orca did not discover it 

even though the thirty-day period to “re-examine” title work was still running under the letter of 

intent.

On January 5, 2011, Orca signed six leases, identical except for the property descriptions. 

Paragraph 18 of the leases signed by the parties contained the “Negation of Warranty” clause 

quoted above. Paragraph 1 of the leases provided in part:

1. A. Grant of Interest/Description. Lessor, in consideration of a cash bonus 

in hand paid, of the royalties herein provided, and of the agreements of Lessee 

hereinafter contained, hereby grants, leases and lets unto Lessee for the sole 

purpose of exploring for, drilling, operating and producing oil and/or gas . . . the 

following described land situated in DeWitt County, State of Texas , 

(sometimes referred to hereinafter as the “leased premises” or “said lands”) . . . .

B. Exceptions and Reservations. Lessor expressly EXCEPTS from this 

lease and RESERVES all minerals of every kind and character in, on, and under 

the lands above described, except only the oil and gas as hereinabove defined . . . .

On January 11, Orca delivered payment of $3,217,585 to JPMorgan pursuant to the 

leases. Orca contends and offered summary judgment evidence that when its representative 

delivered the payment, Mettham again represented that the property was “open” in response to 

Orca’s inquiry. Orca recorded its leases on January 12. Some days later, GeoSouthern contacted 

JPMorgan about the duplication, and JPMorgan attempted to return Orca’s consideration. Orca 

refused the payment, and sued for alleged lost profits of approximately $400 million.

At a pretrial conference, the trial court heard argument on five issues of law that 

JPMorgan contended were dispositive of Orca’s claims. After hearing, the trial court signed a 

Rule 166 order containing the following conclusions:3

 3 The trial court’s order also included rulings on Orca’s tortious interference and civil conspiracy claims. Because Orca states in its brief 

that it does not pursue these claims in this appeal, we do not consider them further.
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1. The Letter of Intent and the six Leases are unambiguous. As stated therein, the 

parties agreed that the Leases would be, and were, “without warranties of any 

kind” and “without recourse in the event of a failure of title.”

2. Orca cannot establish the element of justifiable reliance necessary for its 

claims of fraud, statutory fraud, and negligent misrepresentation.

3. The unambiguous terms of the Letter of Intent and Leases bar Orca’s claim for 

breach of contract.

The trial court then rendered final judgment for JPMorgan. This appeal followed.

STANDARD OF REVIEW

Subsection (g) of rule 166, Texas Rules of Civil Procedure, provides that a trial court 

may direct the parties to appear at a pretrial conference to consider “[t]he identification of legal 

matters to be decided by the trial court.” TEX. R. CIV. P. 166(g). The trial court must make an 

order reciting the actions taken at the pretrial conference, which “control[s] the subsequent 

course of the action.” TEX. R. CIV. P. 166; see also In re Estate of Henry, 250 S.W.3d 518, 526 

(Tex. App.—Dallas 2008, no pet.) (discussing trial court’s order under rule 166). After a rule 

166 pretrial conference, the trial court identified and determined six matters of law, and rendered 

judgment for JPMorgan. We review questions of law de novo. See, e.g., Ferry v. Sackett, 204 

S.W.3d 911, 912 (Tex. App.—Dallas 2006, no pet.) (appellate court performs de novo review of 

pure questions of law). “A de novo review is less deferential than ordinary reviews because a 

trial court has no discretion in deciding what the law is or in properly applying it.” Id.; see also 

McCreight v. City of Cleburne, 940 S.W.2d 285, 287 (Tex. App.—Waco 1997, writ denied) 

(concluding that rule 166 order “dispos[ing] of one of [plaintiff’s] theories of liability in a 

summary fashion” was “essentially a partial summary judgment,” and applying de novo standard 

of review).

The standard of review for questions of fact under rule 166 is the same as for a directed 

verdict. Walden v. Affiliated Computer Servs., Inc., 97 S.W.3d 303, 324 (Tex. App.—Houston 

[14th Dist.] 2003, pet. denied). A directed verdict in favor of a defendant is proper when the 
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plaintiff does not present evidence that raises a fact issue essential to the plaintiff’s right of 

recovery, or when the plaintiff admits or the evidence conclusively establishes a defense to the 

plaintiff’s cause of action. Prudential Ins. Co. v. Fin. Review Servs. Inc., 29 S.W.3d 74, 77 (Tex. 

2000). In reviewing a directed verdict, the standards are the same as a legal sufficiency 

challenge. City of Keller v. Wilson, 168 S.W.3d 802, 823 (Tex. 2005). We must credit favorable 

evidence if reasonable jurors could and disregard contrary evidence unless reasonable jurors 

could not. See id. at 827.

DISCUSSION

To decide Orca’s three issues, we must interpret the leases to determine (1) whether Orca 

contractually disclaimed reliance on any representation by JPMorgan, thereby barring its fraud 

and negligent misrepresentation claims; (2) whether Orca so clearly appreciated the risk of a 

prior lease that a reasonable factfinder would be compelled to find any reliance unreasonable;

and (3) whether, regardless of the viability of its fraud and negligent misrepresentation claims, 

Orca disclaimed any warranty by JPMorgan, thereby barring its claim for breach of contract. We 

conclude the provisions of the leases do not bar Orca’s fraud and negligent misrepresentation 

claims, but do bar Orca’s contract claims as a matter of law, for the reasons we discuss below.

1. Breach of contract claim

In the Rule 166 Order, the trial court determined as a matter of law that “[t]he 

unambiguous terms of the Letter of Intent and Leases bar Orca’s claim for breach of contract.” 

In its third issue, Orca contends this ruling was error. In Count VII of its operative petition, Orca 

asserts its breach of contract claim. Paragraph 59 of Orca’s petition quotes the contractual 

provision Orca contends was breached by JPMorgan:

Lessor, in consideration of a cash bonus in hand paid, of the royalties herein 

provided, and of the agreements of Lessees hereinafter contained, hereby 

grants, leases, and lets unto lessee for the sole purpose of exploring for, 

drilling, operating, and producing oil and/or gas . . . from the land leased 
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hereunder, the following described land situated in DeWitt County, State of 

Texas.

In paragraph 60 of its petition, Orca claims that appellees “failed to convey the Property 

to Orca because they claim they previously leased the property to a third party,” and therefore 

breached the letter of intent and the leases. Orca’s breach of contract pleading omits reference to 

the negation of warranty provision quoted above, included in both the letter of intent and the 

leases, which states that each lease “is made without warranties of any kind, either express or 

implied, and without recourse against Lessor in the event of a failure of title.”

Orca contends that “[t]he leases cannot reasonably be construed as waiving Orca’s right 

to redress in the event JPMorgan failed to convey the property as promised.” Orca argues (1) the 

phrase “failure of title” in paragraph 18 “cannot reasonably be construed to include prior leases 

by JPMorgan of the same property it leased to Orca,” but if the phrase may be so construed, then 

it is ambiguous and presents a fact issue for the jury, and (2) even if Orca waived any express 

warranties, it did not waive the covenants implied under section 5.023 of the Texas Property 

Code. See TEX. PROP. CODE ANN. § 5.023 (West 2014). We disagree with both propositions.

We begin by briefly considering the character of Orca’s claim to damages under the lease 

itself as a function of its nature as both a deed of conveyance and a contract. In Texas, minerals, 

including oil and gas, are regarded as a part of the fee interest from the inception of the estate.

Brown v. Humble Oil & Refining Co., 83 S.W.2d 935, 940 (Tex. 1935).4

 That interest may be 

severed from the surface estate or at any point in the chain of title by a deed or reservation or, as 

here, by the execution of an oil and gas lease. Quite unlike the “lease” of a surface interest, a 

standard oil and gas lease, then, has the effect of transferring a fee interest in land—a fee simple 

 4 While the surface owner may claim ownership to the minerals in place, prior to severance, in jurisdictions recognizing that interest as title, 

he does so subject to the law of capture by which his neighbors might remove the minerals by drilling operations on their own property without 

trespass. Brown, 83 S.W.2d at 940.
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determinable—for the period of, and subject to the terms of, the lease. The lease thus operates as 

both a conveyance and a contract. This is hardly unusual, as the transfer of other land interests

by deed or lease, i.e., freehold or non-freehold, do the same. In particular, and as relevant here, 

the standard lease of a dwelling or the sale of the fee interest in land may or may not be 

accompanied by warranties, expressed or implied, assuring rights of the transferee. And, 

regardless of the nature or description of the transaction, those warranties may be excluded or 

waived by the parties. Gym-N-I Playgrounds v. Snider, 220 S.W.3d 905, 909–13 (Tex. 2007) 

(lease); Young v. Rudd, 226 S.W.2d 469, 472 (Tex. Civ. App.—Texarkana 1950, writ ref’d n.r.e.) 

(sale). Thus, a warranty concerning title is not part of the conveyance but is a separate contract, 

enforceable as such and subject to rules governing contract construction, regardless of the form 

of the transaction. Bond v. Bumpass, 100 S.W.2d 1047, 1049 (Tex. Civ. App.—Dallas 1973), 

aff’d, 131 Tex. 266, 114 S.W.2d 1172 (1938). 

We therefore agree with Orca that any claim to relief for a failure to effect a transfer of 

good right or title to the lessee in contravention of the lease must sound in contract, if at all. See 

Rowe v. Heath, 23 Tex. 614, 619–20 (1859); Unit Petroleum Co. v. David Pond Well Serv., Inc., 

439 S.W.3d 389, 395–96 (Tex. App.—Amarillo 2014, pet. denied) (an oil and gas lease in Texas 

“is a contract and must be interpreted as one.”) (quoting Sabre Oil & Gas Corp. v. Gibson, 72 

S.W.3d 812, 816 (Tex. App.—Eastland 2002, pet. denied)). The question at this stage, of course, 

is whether any such claim in contract can survive as a matter of law in view of the lease’s 

language. 

When interpreting an unambiguous contract, the primary concern of the court is to 

ascertain the parties’ intentions as expressed in the instrument. Coker v. Coker, 650 S.W.2d 391, 

393 (Tex. 1983). That intent must be taken from the agreement itself, not from the parties’ 

present interpretation, and the agreement must be enforced as it is written. Calpine Producer 
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Servs., L.P. v. Wiser Oil Co., 169 S.W.3d 783, 787 (Tex. App.—Dallas 2005, no pet.). This is 

known as the “Four Corners Rule,” which means that the intention of the parties is to be 

ascertained from the instrument as a whole and not from isolated parts thereof. Id. We consider 

the entire writing and attempt to harmonize and give effect to all the provisions of the contract by 

analyzing the provisions with reference to the whole agreement. Frost Nat’l Bank v. L & F 

Distribs., Ltd., 165 S.W.3d 310, 312 (Tex. 2005) (per curiam). If, after the pertinent rules of 

construction are applied, the contract can be given a definite or certain legal meaning, it is 

unambiguous and we construe it as a matter of law. Id. The courts will enforce an unambiguous 

instrument as written; and, in the ordinary case, the writing alone will be deemed to express the 

intention of the parties. Sun Oil Co. (Delaware) v. Madeley, 626 S.W.2d 726, 728 (Tex. 1981).

Orca focuses on the phrase “failure of title,” urging that it unambiguously refers only to 

“a defect in the chain of title descending to the Red Crest Trust.” Under Orca’s interpretation, as 

long as the trust obtained good title when it acquired the property, there would be no “failure of 

title” even if, after it acquired its title, the trust effected a transfer of its interest by a lease, sale or 

other disposition. Orca argues the disclaimer “cannot reasonably be interpreted as showing an 

intent by Orca to waive its right to receive a remedy in the event JPMorgan had already leased 

the covered acreage to a third party.” Read in context, however, the “failure of title” phrase 

appears in a very broad contractual provision disclaiming “warranties of any kind, either express 

or implied,” and denying “recourse against Lessor in the event of a failure of title.” Orca’s 

argument, in effect, is that the disclaimer leaves the lease’s contractual covenants to function as a 

special warranty. Unlike a general warranty deed, which expressly binds the grantor to defend 

against title defects created by himself and all prior titleholders, the grantor under a special 

warranty deed is bound to defend the title only against the claims and demands of the grantor and 

all persons claiming through him. See Dyer v. Cotton, 333 S.W.3d 703, 712 n.2 (Tex. App.—
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Houston [1st Dist.] 2010, no pet.) (citing Munawar v. Cadle Co., 2 S.W.3d 12, 16 (Tex. App.—

Corpus Christi 1999, pet. denied)). But in light of the broad disclaimer of “warranties of any 

kind, either express or implied,” this argument is not well-taken.

As JPMorgan argues and as briefly outlined above, an oil and gas lease is not a “lease” in 

the traditional sense in Texas, but instead “conveys title to all of the oil and gas in place to the 

lessee.” Nat. Gas Pipeline Co. of Am. v. Pool, 124 S.W.3d 188, 192 (Tex. 2003). The lessee 

acquires ownership of all the minerals in place that the lessor owned and purported to lease, 

subject to the possibility of reverter. Id. The parties’ use of the term “title” in the disclaimer 

encompasses the interest that, under the terms of the leases, JPMorgan purported to convey and 

Orca sought to acquire. And under the express terms of the letter of intent and the leases, Orca is 

“without recourse” under the lease if title fails. This contractual allocation of risk is not 

ambiguous. As we have explained, in interpreting an unambiguous contract we consider only the 

parties’ agreement in order to ascertain their intent at the time the agreement was made. See 

Calpine Producer Servs., L.P., 169 S.W.3d at 787. “[A] court will not change the contract 

merely because it or one of the parties comes to dislike its provisions or thinks that something 

else is needed.” Id. Objectively considering the language chosen by the parties at the time of 

their agreement, there is no indication that the parties expected JPMorgan would convey a 

special, but not a general warranty to Orca. Contracting parties are free to structure their 

contractual undertaking and allocate risk as they see fit. See El Paso Field Servs., L.P. v. 

MasTec N. Am., Inc., 389 S.W.3d 802, 811–12 (Tex. 2012). “The role of courts is not to protect 

parties from their own agreements, but to enforce contracts that parties enter into freely and 

voluntarily.” Id. at 810–11. The trial court correctly enforced the parties’ agreement as written. 

See id.
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In the alternative, Orca argues that even if any express warranty of title has been 

disclaimed, there was no disclaimer of the statutory implied covenant against prior conveyances. 

This covenant is set forth in section 5.023(a)(1) of the property code:

(a) Unless the conveyance expressly provides otherwise, the use of “grant” 

or “convey” in a conveyance of an estate . . . implies only that the grantor 

. . . covenant[s] to the grantee . . . :

(1) that prior to the execution of the conveyance the grantor has not 

conveyed the estate or any interest in the estate to a person other than 

the grantee; . . .

TEX. PROP. CODE ANN. § 5.023(a)(1). There is also an implied covenant “that at the time of the 

execution of the conveyance the estate is free from encumbrances.” Id. § 5.023(a)(2). Orca 

argues (1) the waiver of implied warranties in the leases is not specific enough to waive the 

statutory warranties; and (2) any warranties of title disclaimed in the leases “are separate and 

distinct from the covenants implied through the Property Code.”

Under the property code, “a covenant of warranty is not required in a conveyance.” TEX.

PROP. CODE ANN. § 5.022(b) (West 2014). If the grantor omits a warranty clause, no warranties 

will be implied except as to prior conveyances by the grantor and encumbrances. Bond, 100 

S.W.2d at 1049. But even that implied warranty as to prior conveyances may be disclaimed “if 

the conveyance expressly provides otherwise.” TEX. PROP. CODE ANN. § 5.023(a).

Orca contends the statutory covenant is “separate and distinct from the warranty of title,” 

citing City of Beaumont v. Moore, 202 S.W.2d 448, 453 (Tex. 1947). Orca argues that the leases 

disclaim only “warranties of any kind, either express or implied,” and under Moore, the statutory 

“covenant” is not the same thing as a “warranty.”5

 The court in Moore explained that the 

 5 Orca also cites Luker v. Arnold, 843 S.W.2d 108, 115 (Tex. App.—Fort Worth 1992, no writ), overruled in part by PPG Indus., Inc. v. 

J.M.B./Houston Ctrs. Partners Ltd. P’ship, 146 S.W.3d 79, 82 n.1, 92 (Tex. 2004), for the proposition that the statutory implied covenant “has 

nothing to do with implied warranties, which are different creatures.” Neither Luker nor the case upon which it relies, however, addressed 

implied covenants dealing with conveyances of property. See id. (proposed warranty of developers to develop property in good and workmanlike 

manner for consumers who ultimately buy property from separate builder); Humber v. Morton, 426 S.W.2d 554, 555–56 (Tex. 1968) 

(contractor’s implied warranty that house was constructed in good and workmanlike manner and was suitable for human habitation). The court in 
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statutory implied covenant against encumbrances “is intended to protect the grantee against 

rights or interests in third persons, which, while consistent with the fee being in the grantor, 

diminish the value of the estate conveyed.” Id. Thus, the Moore court’s statement that the 

implied statutory covenant was “separate and distinct from the warranty of title” was in 

explanation that even where the grantor owns the property (that is, holds “the fee”), the grantor 

may be called upon to indemnify the grantee if an interest in a third party, such as a lienholder, 

decreases the value of the property conveyed. See id. But the court also explained that “the 

covenant against incumbrances is embraced within the general warranty clause . . . .” Id. “The 

covenantor warrants that he will restore the purchase price to the grantee if the land is entirely 

lost,” or restore a portion of the consideration in cases of partial loss. Id. 

Orca also cites Gibson v. Turner, 294 S.W.2d 781, 787 (Tex. 1956), in support of its 

argument that warranties of title, even if disclaimed in the leases, are different from the implied 

statutory covenants in section 5.023(a). In Gibson, the court explained that a warranty of title 

“does not constitute part of the conveyance.” 294 S.W.2d at 787. The covenant of general 

warranty in a lease “warrants the title of the lessees,” not the lessors. Id.; see also McMahon v. 

Christmann, 303 S.W.2d 341, 347 (Tex. 1957) (“The purpose and operative effect of the 

[warranty of title] covenant is not to guarantee that the lessor has good title to the premises but to 

guarantee the lessee in his title thereto.”). As we explained in Davis v. Andrews, 361 S.W.2d 

419, 424–25 (Tex. Civ. App.—Dallas 1962, writ ref’d n.r.e.), “[t]he very purpose of the warranty 

covenant is for the indemnity of the purchaser against a loss or injury he may sustain by a defect 

in the vendor’s title. The warranty clause does not convey title nor does it determine the 

character of the title conveyed.”

 Humber explained that the predecessor to property code section 5.023 “relates to covenants of title which arise out of conveyances and not to 

collateral covenants such as the suitability of a house for human habitation.” Id. at 556.
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But the implied covenant on which Orca relies is a promise that the grantor has not 

conveyed the property interest to anyone else. See TEX. PROP. CODE ANN. § 5.023(a)(1). As 

noted, this covenant is included in the “covenant of general warranty” and is the essence of the 

special warranty, both of which were emphatically excluded from this lease. Compton v. Trico 

Oil Co., 120 S.W.2d 534, 537 (Tex. Civ. App.—Dallas 1938, writ ref’d) (“a deed with covenant 

of general warranty means that the grantor has not conveyed the same estate, or any right, title, 

or interest therein, to any person other than the grantee, and that the property is free from 

encumbrances” (internal citations omitted)). And Orca expressly disclaimed “warranties of any 

kind, whether express or implied.” While the clause did not directly and specifically reference 

the possibility of a prior lease to GeoSouthern or to anyone, its far-reaching breadth to any 

warranty of any kind is sufficient. Therefore regardless of Orca’s arguments that the covenant 

regarding prior conveyances is different from “warranty of title” or implied by statute, Orca’s 

disclaimer encompassed its claim and foreclosed it. We overrule Orca’s third issue.

2. Fraud and negligent misrepresentation

In its first two issues, Orca contends the trial court erred by ruling that the negation of 

warranty barred Orca’s claims for fraudulent inducement and negligent misrepresentation by 

disproving the element of reliance as a matter of law. We agree.

 a. Contractual waivers of reliance

For purposes of this appeal, JPMorgan assumes that Mettham represented to 

representatives of Orca that the properties in question were “open” for lease. JPMorgan 

contends, however, that Orca’s claim for this misrepresentation is barred by the disclaimer in the 

leases. While a contract may generally be voided for fraud, under certain circumstances, the 

parties’ agreement in the contract with respect to whether either is relying on prior 

representations of the other may be treated as a separate undertaking, severable from the balance 
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of the agreement and enforced in much the same way as an arbitration commitment would be.

E.g., Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 446 (2006); In re Labatt Food 

Serv., 279 S.W.3d 640, 647–48 (Tex. 2012). Thus, under appropriate circumstances,6 a 

disclaimer of reliance embedded within a contract said to be induced by fraud will continue to 

function as an estoppel foreclosing what might otherwise appear to be a colorable claim of 

fraudulent inducement. See Schlumberger Tech. Corp. v. Swanson, 959 S.W.2d 171, 181 (Tex. 

1997). 

JPMorgan urges that the waiver of warranty language had the effect of disclaiming the 

reliance element necessary to maintain a fraud or misrepresentation claim under Schlumberger 

and its progeny. But the “intent to disclaim reliance on others’ representations—that is, to rely 

only on one’s own judgment” must be “evident from the language of the contract itself.” Italian 

Cowboy Partners, Ltd. v. Prudential Ins. Co. of Am., 341 S.W.3d 323, 335 (Tex. 2011) (citing 

Schlumberger, 959 S.W.2d at 180, and Forest Oil Corp. v. McAllen, 268 S.W.3d 51, 54 (Tex. 

2008)). “Pure merger clauses, without an expressed clear and unequivocal intent to disclaim 

reliance or waive claims for fraudulent inducement, have never had the effect of precluding 

claims for fraudulent inducement.” Id. at 334. The clause at issue, “[t]his lease is made without 

warranties of any kind, either express or implied, and without recourse against Lessor in the 

event of a failure of title,” does not mention the word reliance or purport to disclaim any earlier 

statements or representations of JPMorgan. In Italian Cowboy, the restaurant lease at issue 

included a clause entitled “representations,” and a clause entitled “entire agreement.” See id. at 

328. The former clause was the tenant’s acknowledgment that the landlord had not made any 

 6 In order to give effect to such a disclaimer, the Texas Supreme Court has, among other things, required clear and unequivocal language of 

that intent in order to protect parties from unintentionally waiving a claim for fraud. It has also been mindful of the contractual context. A 

settlement agreement between sophisticated parties already embroiled in controversy and represented by counsel, as in Schlumberger Technology 

Corp. v. Swanson, 959 S.W.3d 171, 180–81 (Tex. 1997), would appear to be the quintessential setting for an effective disclaimer. An agreement 

initiating a long-term lease relationship, on the other hand, “should be all the more clear and unequivocal in effectively disclaiming reliance.” 

Italian Cowboy Partners v. Prudential Ins. Co. of Am., 341 S.W.3d 323, 335 (Tex. 2011).
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representations about the premises “except as expressly set forth herein.” Id. The latter clause 

provided that the lease constituted the entire agreement of the parties. Id. The court held neither 

of these clauses was sufficient to disclaim reliance on the lessor’s statements, made before the 

parties signed the lease, that the building to be leased “was in perfect condition.” See id. at 328, 

336. In fact, the previous tenant had moved out after unsuccessful attempts to remedy a 

persistent sewer gas odor on the premises, and the lessor was aware of the problem. Id. at 329, 

338. The court concluded, “[w]e have repeatedly held that to disclaim reliance, parties must use 

clear and unequivocal language,” contrasting the provisions in Schlumberger and Forest Oil

which stated the contracting party was not “relying upon any statement or representation” in 

executing the contract. Id. at 336. There is no such unequivocal language in the negation of 

warranty paragraph relied on by JPMorgan. We conclude the negation of warranties is not 

sufficient to meet the standards of Italian Cowboy.

b. Direct conflict between representation and contract

JPMorgan contends, however, that “this case is not about a generic merger clause,” so 

that Italian Cowboy does not apply. Rather, JPMorgan urges that Orca’s fraud in the inducement 

claim, premised on Mettham’s alleged assurances that the property remained open for lease, 

must fail here in the face of Mettham’s insertion of the disclaimer of warranty into the 

agreement. Thus, according to JPMorgan this case “is about whether reliance is justified in light 

of a specifically negotiated, ‘red flag’ provision conflicting with the alleged misrepresentations.” 

In support of this argument, JPMorgan cites Miller Global Properties, LLC v. Marriott 

International, Inc., 418 S.W.3d 342, 348 (Tex. App.—Dallas 2013, pet. denied), and Grant 

Thornton LLP v. Prospect High Income Fund, 314 S.W.3d 913, 923 (Tex. 2010). In both cases, 

justifiable reliance was disproved as a matter of law. See Miller, 418 S.W.3d at 348–50; Grant 

Thornton, LLP, 314 S.W.3d at 923.
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To be sure, “[a] party cannot justifiably rely on oral representations in an arms-length 

transaction that are directly contradicted by the contract he signs.” McGonagle v. Stewart Title 

Guar. Co., 432 S.W.3d 535, 541 (Tex. App.—Dallas 2014, pet. denied) (citing Miller, 418 

S.W.3d at 347–48). In Miller, we noted that the subject matter of the alleged misrepresentations 

was “specifically dealt with at significant length in the contracts between the parties” and was 

“directly contradicted by the contracts’ terms.” Miller, 418 S.W.3d at 348. We distinguished 

Italian Cowboy, explaining that “the contract at issue in Italian Cowboy did not address the 

subject matter made the focus of the dispute and nothing in the agreement contradicted the 

alleged misrepresentation.” Id. at 350. We concluded, “[w]hen a party signs a contract that 

directly contradicts alleged misrepresentations and affirmatively disclaims any promises or 

representations other than those made in the contract, the party cannot justifiably rely on alleged 

extra-contractual misrepresentations as a matter of law.” Id.

Neither Italian Cowboy nor Miller is exactly on point. In Italian Cowboy, the contractual 

disclaimers did not address the subject of the misrepresentation. Italian Cowboy, 341 S.W.3d at 

328, 336. In Miller, the contract dealt with the subject of the misrepresentations “at significant 

length.” Miller, 418 S.W.3d at 348. Here, the negation of warranty provision does address the 

subject of failure of title, but does not disclaim reliance on statements made by JPMorgan or 

directly conflict with Mettham’s statements that the properties were open. See also Nat’l Prop. 

Holdings, L.P. v. Westergren, 453 S.W.3d 419, 424 (Tex. 2015) (per curiam) (no justifiable 

reliance as matter of law where plaintiff chose not to read release before signing it and instead 

relied on defendant’s representation that document was a receipt, but on its face “intent and 

effect” of release was “obvious and unambiguous”).

In Grant Thornton LLP, the court concluded that investors did not justifiably rely on an 

accountant’s audit report when buying additional bonds where the investors’ own sophisticated 
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senior portfolio manager knew the company issuing the bonds had lost its primary source of 

funding. Grant Thornton LLP, 314 S.W.3d at 923–24. The court stated that “both fraud and 

negligent misrepresentation require that the plaintiff show actual and justifiable reliance,” and 

explained, “[i]n measuring justifiability, we must inquire whether, given a fraud plaintiff’s 

individual characteristics, abilities, and appreciation of facts and circumstances at or before the 

time of the alleged fraud, it is extremely unlikely that there is actual reliance on the plaintiff’s 

part.” Id. (quoting Haralson v. E. F. Hutton Group, Inc., 919 F.2d 1014, 1026 (5th Cir. 1990),

abrogated on other grounds by Gustafson v. Alloyd Co., 513 U.S. 561 (1995) (internal quotation 

marks omitted)). The court continued, “[m]oreover, a person may not justifiably rely on a 

representation if there are ‘red flags’ indicating such reliance is unwarranted.” Id. (quoting 

Lewis v. Bank of Am. NA, 343 F.3d 540, 546–47 (5th Cir. 2003) (internal quotation marks 

omitted)). The court rendered judgment for the accountant, concluding there was no evidence of 

justifiable reliance by the investors on the accountant’s statement that the issuer was in 

compliance with certain escrow requirements. Id. at 931. 

Relying on Grant Thornton LLP, JPMorgan claims that several “red flags” preclude 

justifiable reliance by Orca as a matter of law. JPMorgan cites Mettham’s statement that he 

“would have to check” whether the property was open for lease; JPMorgan’s insistence on the 

stricter negation of warranty provision; JPMorgan’s refusal to accept responsibility for verifying 

title; the letter of intent itself; Mettham’s statement that other lessees were not doing careful title 

work; Orca’s knowledge that competitors might delay recording their leases; Orca’s knowledge 

that it did not check property records after the letter of intent was signed; and Orca’s landman’s 

“doubts” when delivering the bonus check, asking Mettham to confirm whether the property was 

open. But as Orca points out, these purported red flags are questions of fact for a jury regarding 

whether Orca’s reliance on Mettham’s representations that the property was open to lease was 
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reasonable, not, as in Grant Thornton LLP, evidence making actual reliance “extremely 

unlikely.” See id. at 923–24. Orca offered evidence that Mettham’s statements were consistent 

with Orca’s own title work, and therefore Orca did not undertake any new title searches after the 

letter of intent was signed. Whether this reliance was reasonable under the circumstances is a 

fact question to be resolved by a jury. See, e.g., Bank of Texas, N.A. v. Glenny, 405 S.W.3d 310, 

318 (Tex. App.—Dallas 2013, no pet.) (summary judgment improper where genuine issues of 

material fact existed about whether Bank justifiably relied on letters and other information in 

loan application).

As noted above, the breadth of the warranty waiver is substantial and sufficient to defeat 

any contract claim arising from any defect in title. But that same breadth of reach undermines 

JPMorgan’s claim of a “direct” conflict between Mettham’s alleged statements assuring that the 

property was still open for lease and the lease language. Our cases rejecting misrepresentation 

claims based on a conflict with subsequent contract language have consistently required a 

“direct” conflict with the earlier representation such that a reasonable person could not read the 

agreement and still plausibly claim to believe the earlier representation. E.g., Miller, 418 S.W.3d 

at 348 (alleged statements that property development was “essentially complete” and existing 

budget adequate were in conflict with contract’s 21 pages listing 200 projects yet to be approved 

and provision assigning risk of cost overruns to plaintiff); Simpson v. Woodbridge Props., L.L.C.,

153 S.W.3d 682, 684 (Tex. App.—Dallas 2004, no pet.) (alleged representation that seller was 

not concerned with deadlines conflicted with contract’s imposing a specific deadline for closing). 

We are aware of no case from this Court (or any other for that matter) that would treat a 

general disclaimer of warranty as so plainly correcting an earlier, specific misrepresentation to 

the effect that the seller of a land interest himself had not already, recently sold the same interest 

to someone else as to warrant a rendition of judgment. The far-sweeping warranty disclaimer 
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here would have covered a virtually limitless span of title defects on numerous tracts ranging 

from misplaced boundary fences to pretermitted heirs, and certainly did so without making any 

reference to a prior lease. In all events, we do not believe the disclaimer of warranty here was 

sufficiently specific to re-assign that risk from a seller, with obviously superior knowledge of its 

own actions, to a buyer who is groping for the same information in the face of what a reasonable 

jury might find as an assurance from the seller that he had not already sold the property to 

someone else.

We conclude that questions of fact remain regarding Orca’s claim that it was fraudulently 

induced into a contractual relationship with JPMorgan. The same questions of fact remain 

regarding Orca’s negligent misrepresentation claims, which also require proof of justifiable 

reliance. See Grant Thornton LLP, 314 S.W.3d at 923. JPMorgan contends that in the letter of 

intent and the leases, Orca expressly assumed the responsibility to ensure that the properties were 

available to be leased. Even if that is the case, JPMorgan was not free to affirmatively 

misrepresent that the properties were open in order to induce Orca into a contractual relationship, 

as Orca claims it did. A jury may decide that no misrepresentations were made, or that Orca did 

not reasonably rely on them. But as a matter of law and based on the record presently before us, 

Orca has offered more than a scintilla of evidence to support its claim that it was fraudulently 

induced into a contractual relationship with JPMorgan and suffered damage as a result. We 

sustain Orca’s first and second issues.
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CONCLUSION

We reverse the trial court’s judgment as to Orca’s fraud and negligent misrepresentation 

claims, affirm the judgment as to Orca’s claim for breach of contract, and remand the cause to 

the trial court for further proceedings consistent with this opinion.

131700F.P05

/David J. Schenck/

DAVID J. SCHENCK

JUSTICE
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Court of Appeals

S

Fifth District of Texas at Dallas

JUDGMENT

ORCA ASSETS, G.P., L.L.C., Appellant

No. 05-13-01700-CV V.

JPMORGAN CHASE BANK, N.A., 

JPMORGAN CHASE BANK, N.A., 

TRUSTEE OF THE RED CREST TRUST, 

AND PHILIP METTHAM, Appellees

On Appeal from the 44th Judicial District 

Court, Dallas County, Texas

Trial Court Cause No. DC-12-05303.

Opinion delivered by Justice Schenck, 

Justices Bridges and Lang participating.

In accordance with this Court’s opinion of this date, the judgment of the trial court is 

AFFIRMED in part and REVERSED in part. We REVERSE that portion of the trial court’s 

judgment on the claims of Orca Assets, G.P., L.L.C., for fraud and negligent misrepresentation. 

In all other respects, the trial court’s judgment is AFFIRMED. We REMAND this cause to the 

trial court for further proceedings consistent with this opinion.

It is ORDERED that each party bear its own costs of this appeal.

Judgment entered this 11th day of August, 2015.