Court Opinion

ID: 3111066
Source: CourtListenerOpinion
Date Created: 2015-10-16 06:53:45.168072+00
Date Added: 2024-06-11T12:44:19.705522
License: Public Domain

NO. 07-10-0035-CV

                           IN THE COURT OF APPEALS

                      FOR THE SEVENTH DISTRICT OF TEXAS

                                 AT AMARILLO

                                   PANEL B

                              FEBRUARY 23, 2011
                        _____________________________

                           AURORA PETROLEUM, INC.,

                                   Appellant
                                     v.

                           CHOLLA PETROLEUM, INC.,

                                    Appellee
                        _____________________________

              FROM THE 46TH DISTRICT COURT OF HARDEMAN COUNTY;

               NO. 10,426; HONORABLE DAN MIKE BIRD, PRESIDING
                        _____________________________

                             Memorandum Opinion
                        _____________________________

Before QUINN, C.J., and  CAMPBELL and HANCOCK,  JJ.
      This appeal involves a farmout agreement[1] wherein Aurora  Petroleum,
Inc. (Aurora) and Cholla Petroleum, Inc. (Cholla) agreed that  Cholla  would
drill a test well at a  location  "mutually  acceptable"  to  both  parties.
After Aurora rejected the two drilling sites  proposed  by  Cholla  and  the
deadline to drill lapsed, Aurora demanded the return of the lease  interests
it conveyed to Cholla.  Yet, it refused to return the  $50,000  Cholla  paid
it as part of the transaction.   The  question  before  us  is  whether  the
"mutually acceptable" provision rendered the agreement  unenforceable  as  a
matter of law.  The trial court found that it did and returned  the  parties
to the positions they were in prior  to  formation  of  the  agreement.   It
further ordered Aurora to return the $50,000 to Cholla.  On  appeal,  Aurora
contends that there was no lack of mutual assent as to  any  essential  term
of the contract and it was not unjustly enriched by retaining  the  $50,000.
We disagree, overrule the issues, and affirm the judgment.
      Background
      On November 1, 2006, Aurora and Cholla entered  into  an  "exploration
agreement" of the Goodlett Prospect in Hardeman County, Texas.  Pursuant  to
that agreement, Aurora agreed to assign  to  Cholla  its  interest  in  four
leases and share  with  Cholla  certain  geological  and  geophysical  data.
Those leases as well as a fifth specified lease  owned  by  Cholla  and  any
other leases acquired by either party within a designated  area  constituted
an area of mutual interest comprising the prospect.  Cholla  agreed  to  pay
$50,000 to Aurora and to commence the drilling of a test well on  or  before
January 23, 2008, at a  location  "mutually  acceptable"  to  both  parties.
Should Cholla fail to comply with its obligation to timely  drill  the  test
well, it  was  to  "reassign  to  [Aurora],  or  to  its  designee,  all  of
[Cholla's] rights, titles and interests in the Leases, this  Agreement,  and
in the Prospect . . . ."
      Though Cholla proffered several  drilling  locations  to  Aurora,  the
latter rejected each.  Indeed, nothing in the contract obligated  Aurora  to
agree to any location; nor did the contract provide guidance as to  how  the
location would be selected.  And, once the deadline to drill lapsed,  Aurora
demanded the return of the four leases it conveyed to Cholla  and  at  least
one other acquired by Cholla from  a  third  party.   Cholla  reassigned  to
Aurora the original four leases but refused  to  assign  any  others.   That
resulted in Aurora suing Cholla for specific performance.  In  turn,  Cholla
sought to recover the $50,000  it  had  paid  to  Aurora  after  the  latter
refused to return it.
      Both parties filed motions for summary judgment.  Cholla sought both a
traditional  and  no-evidence  summary  judgment  on  the  basis  that   the
agreement was unenforceable as a matter of law because the parties  did  not
agree on an essential term of the contract, i.e. the location  of  the  test
well, and that Aurora had been unjustly enriched by $50,000.   Aurora  moved
for a traditional summary judgment on the basis that there  was  no  genuine
issue of material fact that the agreement was valid and  had  been  breached
by Cholla.
      Standard of Review
      We review motions for summary judgment under the  standards  discussed
in Kimber v. Sideris,  8 S.W.3d 672,  675  (Tex.  App.-Amarillo  1999,  no
pet.).  When both parties move for summary judgment on the  same  issue  and
the trial court grants one and denies the other, we may  determine  all  the
questions presented and render the judgment  the  trial  court  should  have
rendered.  Valence Operating Co. v.  Dorsett,  164 S.W.3d 656,  661  (Tex.
2005).
       Enforceability of the Contract
      In a nutshell, what we have here is a party who  seeks  to  retain  or
recover more than it began with simply by  invoking  contractual  provisions
that effectively obligated it to do nothing.  Admittedly, Aurora  was  bound
to assign to Cholla four leases but  those  leases  could  be  recovered  by
Aurora if the latter simply refused to approve any drilling site  until  the
drilling deadline expired.  So, not only was it actually  free  to  give  up
nothing but now it wants to  keep  the  fruits  delivered  or  developed  by
Cholla.
      To be enforceable, the parties must agree to  the  material  terms  of
the contract.  T. O. Stanley Boot Co. v. Bank of El Paso,  847 S.W.2d 218,
221 (Tex. 1992).  When an agreement leaves material matters open for  future
agreement and that agreement never occurs, the contract is  not  binding  on
the parties and constitutes merely an agreement to agree.  Playoff Corp.  v.
Blackwell, 300 S.W.3d 451, 455 (Tex. App.-Fort  Worth  2009,  pet.  denied).
Next, whether a term is material is determined on a case-by-case basis.   T.
O. Stanley Boot Co. v. Bank of El Paso, 847 S.W.2d at 221.  And,  in  making
that assessment, we consider whether the  uncertainty  imposed  derails  the
greater purpose embodied in the agreement.  See Thedford Crossing,  L.P.  v.
Tyler Rose Nursery, Inc., 306 S.W.3d 860,  868-69  (Tex.  App.-Tyler  2010,
pet. filed); see also Komet v. Graves, 40 S.W.3d 596,  602  (Tex.  App.-San
Antonio 2001, no pet.) (determining that a term could be left  open  without
destroying the contract's effectiveness).  With this in  mind,  we  turn  to
the exploration agreement at bar.
      The purpose of the agreement was to pool resources to produce oil  and
gas.  Indeed, the continued viability of the agreement  was  dependent  upon
Cholla drilling a test well by a time certain at a location  on  which  both
parties had to agree.  If such a location could not be  agreed  upon  within
the pertinent time frame,  the  contractual  arrangement  ended.   Moreover,
Aurora was under no obligation to approve of  a  drilling  site  before  the
drilling deadline.  From this, we cannot but conclude  that  both  the  time
within which Cholla had to drill and  the  provision  regarding  the  mutual
selection of the initial drilling site were material,  if  not  pivotal,  to
the  existence  of  the  accord.   Both  were  more  than  mere   incidental
details.[2]  See R.I.O. Systems, Inc. v. Union  Carbide  Corp.,  780 S.W.2d
489, 491-92 (Tex. App.-Corpus Christi 1989, writ denied) (holding that  when
R.I.O. Systems agreed to purchase a plant at a price based  on  10%  of  the
pretax  profits associated with the plant's operation and the definition  of
pretax profits was to be agreed on later by the parties,  the  missing  term
was the essence of the contract and not a mere detail); see also Fort  Worth
Indep. Sch. Dist. v. City of Fort Worth, 22 S.W.3d 831, 846-47  (Tex.  2000)
(holding that a letter agreement whereby the  city  committed  that,  if  it
negotiated a new agreement with Southwestern Bell, it  would  arrive  at  an
appropriate arrangement to distribute revenue to  the  school  district  was
not enforceable); Playoff Corp. v. Blackwell, 300 S.W.3d at 458 (holding  an
employment agreement unenforceable  when  there  was  no  agreed  method  of
determining  the  fair  market  value  of  the  company  and   the   parties
acknowledged  that  they  had  no  understanding  of  how  it  was   to   be
calculated).
      Next,  Aurora  relies  upon  Medallion  International  Corporation  v.
Sylva, No. 10-01-00234-CV, 2004 Tex. App. Lexis 4974  (Tex.  App.-Waco  June
2, 2004, no pet.) (mem. op.) to support its proposition that  there  was  an
enforceable agreement.  In that case, the court relied upon the  facts  that
the consulting and marketing agreement was signed before  a  notary  by  two
sophisticated  businessmen,  it  included  seven  clauses  setting  out  the
parties' respective obligations including indemnification  and  cancellation
clauses, and the parties had begun performance under the contract.  Yet,  at
bar, we have no provisions defining or regulating how the  parties  were  to
select a drilling site.  So, there was nothing by which to  gauge  the  bona
fides of Aurora's conduct.  That differs from the situation in Medallion.
      While it is true that there had been some performance  by  Aurora  and
Cholla (given the assignment of leases and payment of money), we  find  that
insufficient to render the contract  enforceable.   Actual  exploration  for
and production of oil and gas could not  begin  until  both  parties  agreed
upon a location for the test well,  and  Aurora  had  no  obligation  to  so
agree.  Without the drilling of a test well, the  purpose  of  the  contract
would be thwarted.  We find as a  matter  of  law  that  the  agreement  was
unenforceable.
      Unjust Enrichment
      Aurora also argues that Cholla was not entitled to the return  of  its
$50,000 because unjust enrichment is not applicable.  Unjust  enrichment  is
an equitable principle that is the result of a failure to  make  restitution
of benefits wrongfully or passively received under circumstances  that  give
rise to an implied or  quasi-contractual  obligation  to  repay.   Foley  v.
Daniel, No. 08-07-00188-CV, 2009 Tex. App. Lexis 8028, at *6  (Tex.  App.-El
Paso October 15, 2009, no pet.); Walker v. Cotter Props,  Inc.,  181 S.W.3d
895, 900 (Tex. App.-Dallas 2006, no pet.).  While it often applies when  one
person has obtained a benefit from another by fraud, duress,  or  by  taking
an undue advantage, Walker v. Cotter Props, Inc., 181 S.W.3d at 900,  it  is
also available  if  a  contract  is  unenforceable,  impossible,  not  fully
performed, or void for other legal reasons.   SCI  Texas  Funeral  Services,
Inc. v. Hijar, 214 S.W.3d 148, 156 (Tex. App.-El Paso  2007,  pet.  denied);
French v. Moore, 169 S.W.3d 1, 11 (Tex. App.-Houston [1st  Dist.]  2004,  no
pet.).  Indeed, fraud is not a requisite component for a finding  of  unjust
enrichment.  Southwestern Bell Tel. Co. v.  Marketing  on  Hold,  Inc.,  170
S.W.3d 814, 827 (Tex. App.-Corpus Christi 2005),  rev'd  on  other  grounds,
308 S.W.3d 909 (Tex. 2010).
      In preparation for performance under  the  contract,  Aurora  assigned
its interest in four leases to Cholla[3] and Cholla paid $50,000 to  Aurora.
 We have nevertheless determined that the  agreement  is  unenforceable  and
Aurora has been reassigned its leases.  Under these circumstances,  we  find
it would be inequitable for Aurora to retain the $50,000.   Moreover,  while
Aurora argues that Cholla received the benefit  of  certain  geological  and
geophysical data under the agreement, there is no summary judgment  evidence
of that in the record.  While we agree that Cholla had  the  right  to  that
information under the agreement, the nature and extent, if any, of what  was
actually obtained by Cholla is not before us.
      Accordingly, the summary judgment is affirmed.

                                        Per Curiam
-----------------------
      [1]A farmout agreement is one in which a lease owner who does not want
to drill an oil or gas well assigns the lease  or  some  portion  of  it  to
another operator.  The assignor may retain an overriding royalty payment  or
production payment.  Young Refining Corp. v. Pennzoil Co.,  46 S.W.3d 380,
389 (Tex. App.- Houston [1st Dist.] 2001, pet. denied).

      [2]Moreover, while we may not rewrite the agreement of the parties, we
note that if we find the location of the test  well  to  be  a  nonessential
term, Aurora could earn $50,000,  obtain  the  return  of  its  leases,  and
possibly obtain additional leases by refusing to agree on a location.

      [3]There is no summary judgment evidence that Aurora  ever  owned  the
fifth lease specified in the exploration agreement.