Opinion ID: 6108626
Heading Depth: 3
Heading Rank: 2

Heading: Direct Contradiction

Text: Throughout the course of this transaction, Orca encountered red flags that should have alerted it to the danger of blindly relying on JPMorgan's representations regarding title to the tracts. But another alarm Orca disregarded was the negation-of-warranty provision's direct contradiction of the representation upon which Orca claims to have relied. [A]s Texas courts have repeatedly held, a party to a written contract cannot justifiably rely on oral misrepresentations regarding the contract's unambiguous terms. Westergren , 453 S.W.3d at 424-25 (citing Thigpen , 363 S.W.2d at 251 ). [A] party to an arm's length transaction must exercise ordinary care and reasonable diligence for the protection of his own interests .... Therefore, reliance upon an oral representation that is directly contradicted by the express, unambiguous terms of a written agreement between the parties is not justified as a matter of law. ... If written contracts are to serve a purpose under the law, relative to oral agreements, it is to provide greater certainty regarding what the terms of the transaction are and that those terms will be binding, thereby lessening the potential for error, misfortune, and dispute. ... [A] party who enters into a written contract while relying on a contrary oral agreement does so at its peril .... See DRC Parts & Accessories, L.L.C. v. VM Motori, S.P.A. , 112 S.W.3d 854 , 858-59 (Tex. App.-Houston [14th Dist.] 2003, pet. denied). In this case, the court of appeals held that for a contract to sufficiently contradict a representation such that reliance is rendered unjustifiable, the contract must conflict with the earlier representation such that a reasonable person could not read the agreement and still plausibly claim to believe the earlier representation. 542 S.W.3d at 605 . Because the letter of intent and the leases did not directly and specifically refer to the possibility of an earlier lease, the court of appeals continued, the instruments did not plainly correct Mettham's representation that the acreage was not already leased. Id. at ----. The court of appeals further concluded the provision did not unambiguously reassign to Orca the risk that the lands had already been leased. Id. at ----. We do not quarrel with the standard the court of appeals employed to determine  whether the letter of intent directly contradicted Mettham's representation that the acreage was open: there is no direct contradiction if a reasonable person can read the writing and still plausibly claim to believe the earlier representation. But we also agree with JPMorgan that the court of appeals applied this standard incorrectly. In reaching its conclusion, the court of appeals held that for a contradiction to preclude justifiable reliance, both the contractual clause and the extra-contractual representation it supposedly contradicts must explicitly speak to the same subject matter with sufficient specificity to correct and contradict the prior oral representation. Such a requirement is simply too strict to be workable as it essentially requires the contract and extra-contractual representation to use precisely the same terms. Courts have found direct contradiction even when the terminology appearing in the representation and the writing are not exactly the same. See, e.g. , Mikob Props., Inc. v. Joachim , 468 S.W.3d 587 , 599 (Tex. App.-Dallas 2015, pet. denied) (holding a representation that a settlement agreement covered all parties was directly contradicted by the agreement explicitly listing some defendants while remaining silent about one, thus, barring the unlisted defendant from establishing justifiable reliance). For example, in Playboy Enterprises Inc. v. Editorial Caballero S.A. de C.V. , a company that Playboy magazine had licensed to distribute a Spanish-language version of the publication sued Playboy for breach of contract and various business torts, including fraud. 202 S.W.3d 250 , 256-57 (Tex. App.-Corpus Christi 2006, pet. denied). One of the alleged representations was that renewal of the parties' license agreement would be automatic. Id. at 257 . The court did not hesitate to acknowledge a direct contradiction since the contract stated the licensee would have the option to request negotiations concerning an extension of the license if the licensee was in full compliance with the agreement. See id. at 258 . Similarly, it held that saying it would not be a problem to distribute or sell 150,000 copies per month was directly contradicted by the agreement's provision that the number of copies the licensee would be allowed to distribute will not exceed one-hundred-fifty thousand (150,000) per issue. See id. at 257-58 . Though the representations and contractual provisions did not involve precisely the same terms, the Playboy Enterprises court nevertheless held that the alleged misrepresentations the licensee complained of were directly contradicted by the express, unambiguous terms of the License Agreement, precluding justifiable reliance as a matter of law. See id. The representation in this case is likewise directly contradicted by the language of the letter of intent and the parties' lease. As we discussed above, Mettham's representation that the acreage was open was essentially equivalent to stating the trust had not leased the property and, thus, had good title. And the parties' negation-of-warranty clause spoke to Orca's lack of recourse for failure of title. Moreover, the warranties the clause negated were warranties of title. A warranty clause is [a] provision in an oil-and-gas lease by which the lessor guarantees that title is without defect and agrees to defend it. Warranty Clause , BLACK'S LAW DICTIONARY (10th ed. 2014). It stands to reason that a negation-of-warranty clause is just the opposite: a provision in the lease by which the lessor disavows any guarantee[ ] that title is without defect. For Orca to rely on Mettham's statement that the trust had title, it would have to ignore an express contractual provision explaining that JPMorgan and the trust make no guarantees pertaining to title.  By their own testimony, the members of Orca's team acknowledged that the letter of intent left Orca responsible for verifying title to the tracts-and that Orca could obtain only whatever the trust had to convey. The sophisticated oil-and-gas businesspeople Orca employs understood the implications of the language in the letter of intent. They negotiated the letter's terms at arm's length-terms that assigned Orca the risk of a failure of title. It's true that the negation-of-warranty clause did not include the specific terms leased, open, or unleased-but it didn't need to. If Mettham's earlier representation amounts to a guarantee of title, as Orca contends, the negation of warranty was exactly the opposite. And as no reasonable, sophisticated entity could read the latter and plausibly believe the former, they are in direct contradiction. See Grant Thornton , 314 S.W.3d at 923 (defining the justifiable reliance inquiry as one that accounts for 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'  (alteration in original) (quoting Haralson , 919 F.2d at 1026 ) ).