United States Court of Appeals

Fifth Circuit

FILED

August 17, 2007

Charles R. Fulbruge III

Clerk

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

No. 05-20493

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

2

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 consentto 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
No. 05-20493 c/w 05-20891

3

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 suedPetroQuestinTexas 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.
No. 05-20493 c/w 05-20891

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).

4

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 precedentis an act or eventthat musttake 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
No. 05-20493 c/w 05-20891

5

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
No. 05-20493 c/w 05-20891

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 generalterm “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.”).

6

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 ofthe 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
No. 05-20493 c/w 05-20891

4 Both parties conceded at oral argument that the summary judgment record contains

no extrinsic evidence that would render ambiguous the meaning of “consent.”

7

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
No. 05-20493 c/w 05-20891

5 We observe that Cedyco does not contend—and it is not apparent—that Exxon’s

conditionimposedonPetroQuest only that potentialliability to Exxon whichPetroQuestwould

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

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 judgmentfor Cedyco, and REVERSE and RENDER judgmentin favor

of PetroQuest that Cedyco take nothing.