TEC OLMOS, LLC AND TERRACE ENERGY CORPORATION F/K/A TERRACE RESOURCES, INC., Appellants
CONOCOPHILLIPS COMPANY, Appellee
Appeal from the 270th District Court Harris County, Texas
Trial Court Case No. 2015-65813
consists of Chief Justice Radack and Justices Brown and
Radack Chief Justice
dispute arises in the context of the oil and gas industry.
The parties entered into a drilling contract that contained a
"force majeure" clause. When one of the parties
failed to perform its contractual obligations by the contract
deadline, it sought to invoke force majeure protections.
Litigation followed, and the trial court held that the force
majeure clause was inapplicable as a matter of law. This
appeal requires us to construe the parties' force majeure
Olmos ["Olmos"] entered into a farmout agreement
with ConocoPhillips Company ["ConocoPhillips"] to
test-drill land leased by ConocoPhillips in search of oil and
gas. The contract set a deadline to begin drilling and
contained a liquidated damages clause that required Olmos to
pay $500, 000 if it failed to begin drilling by the specified
contract also contained a force majeure clause that listed
several events that would suspend the drilling deadline,
followed by a "catch-all" provision for events
beyond the reasonable control of the party affected. The
force majeure clause provides:
Should either Party be prevented or hindered from
complying with any obligation created under this Agreement,
other than the obligation to pay money, by reason of
fire, flood, storm, act of God, governmental authority, labor
disputes, war or any other cause not
enumerated herein but which is beyond the reasonable
control of the Party whose performance is affected, then
the performance of any such obligation is suspended during
the period of, and only to the extent of, such prevention or
hindrance, provided the affected Party exercises all
reasonable diligence to remove the cause of force majeure.
The requirement that any force majeure be remedied with all
reasonable diligence does not require the settlement of
strikes, lockouts or other labor difficulties by the Party
contract provided for $500, 000 in liquidated damages to
ConocoPhillips if Olmos failed to timely commence drilling
operations. Because the parties "acknowledge[d] that
actual damages would be difficult to ascertain, " they
agreed that "the amount of [liquidated damages] is
reasonable, and that [liquidated damages] are not intended to
be a penalty." Olmos's parent company, Terrace
Energy Company ["Terrace"], guaranteed Olmos's
the contract was executed, changes in the global supply and
demand of oil caused the price of oil to drop significantly.
The entity that Olmos intended to handle the financing for
the ConocoPhillips drilling project backed out. Other sources
of financing also became unavailable. Without financing for
its project, Olmos informed ConocoPhillips that it was unable
to meet the drilling deadline. Olmos attempted to invoke the
force majeure clause to extend the drilling deadline.
disputed the applicability of the force majeure clause and
sued both Olmos and Terrace [herein collectively,
"Olmos" unless specified otherwise]. It sought a
declaration that Olmos's claim did not constitute a valid
force majeure event and that Terrace owed $500, 000 in
"maximum liquidated damages" under the
"default" provision of the parties' agreement.
ConocoPhillips also sought attorney's fees.
responded by asserting the affirmative defenses of force
majeure and unenforceable penalty and bringing a counterclaim
moved for summary judgment, arguing that it established each
element of its breach-of-contract claim as a matter of law
and disproved Olmos's claims and affirmative defenses as
a matter of law. It moved for attorney's fees under the
contract and under Sections 37.009 and 38.001 of the Civil
Practice and Remedies Code. See Tex. Civ. Prac.
& Rem. Code Ann. §§ 37.009 (West 2015)
(allowing award of attorney's fees in
declaratory-judgment actions); 38.001(8) (West 2015)
(allowing award of attorney's fees in breach-of-contract
actions). The trial court granted ConocoPhillips summary
judgment, and Olmos appeals.
OF SUMMARY JUDGMENT
three issues on appeal, Olmos challenges the propriety of the
trial court's ruling on ConocoPhillips's motion for
summary judgment, contending as follows:
1. Under a correct understanding of the law, fact issues
precluded summary judgment on Defendants' invocation of
the Farmout Agreement's "Force Majeure" clause.
2. Fact issues also precluded summary judgment regarding
whether the "Maximum Liquidated Damages" sought by
ConocoPhillips constituted an unenforceable penalty.
3. ConocoPhillips is not entitled to attorneys' fees
against [Olmos] as a matter of law.
Standard of Review
review a trial court's ruling on a motion for summary
judgment de novo. Travelers Ins. Co. v. Joachim, 315
S.W.3d 860, 862 (Tex. 2010). To prevail on a traditional
summary judgment motion, the movant bears the burden of
proving that no genuine issues of material fact exist and
that it is entitled to judgment as a matter of law.
Tex.R.Civ.P. 166a(c); Mann Frankfort Stein & Lipp
Advisors, Inc. v. Fielding, 289 S.W.3d 844, 848 (Tex.
plaintiff moves for summary judgment on its cause of action,
it must prove each element of that cause of action. MMP,
Ltd. v. Jones, 710 S.W.2d 59, 60 (Tex. 1986) (per
curiam); Cleveland v. Taylor, 397 S.W.3d 683, 696-97
(Tex. App.-Houston [1st Dist.] 2012, pet. denied). To defeat
a plaintiff's motion for summary judgment with an
affirmative defense, the defendant must bring forth evidence
sufficient to raise a genuine issue of material fact on each
element of its affirmative defense. Brownlee v.
Brownlee, 665 S.W.2d 111, 112 (Tex. 1984);
Anglo-Dutch Petrol. Int'l, Inc. v. Haskell, 193
S.W.3d 87, 95 (Tex. App.-Houston [1st Dist.] 2006, pet.
denied). The defendant is not required to prove its
affirmative defense as a matter of law; raising a material
fact issue is sufficient to defeat summary judgment. See
Brownlee, 665 S.W.2d at 112; Anglo-Dutch
Petrol., 193 S.W.3d at 95.
asserted as an affirmative defense to ConocoPhillips's
breach-of-contract claim that the force majeure clause in the
parties' farmout agreement was triggered when Olmos was
unable to obtain project financing, thereby excusing its
nonperformance. ConocoPhillips obtained summary judgment that
the force majeure provision was inapplicable by arguing that
force majeure protection is not available unless the
triggering event is, first, unforeseeable and, second,
something other than a mere economic hardship.
Rules of contract interpretation
construing a written contract, the primary concern is to
ascertain and give effect to the parties' intentions as
expressed in the document. Italian Cowboy Partners, Ltd.
v. Prudential Ins. Co. of Am., 341 S.W.3d 323, 333 (Tex.
2011); Frost Nat'l Bank v. L & F Distribs.,
Ltd., 165 S.W.3d 310, 311-12 (Tex. 2005). We begin with
the contract's language. Italian Cowboy, 341
S.W.3d at 333. Contract terms are given their plain,
ordinary, and generally accepted meanings unless the contract
itself shows that the terms were used in a technical or
different sense. Valence Operating Co. v. Dorsett,
164 S.W.3d 656, 662 (Tex. 2005).
contracts include terms that have common law significance. A
term's common-law meaning will not override the
definition given to a contractual term by the contracting
parties. See Provident Life & Accident Ins. Co. v.
Knott, 128 S.W.3d 211, 217-19 (Tex. 2003). The rules of
contract interpretation require that the contracting
parties' intent be determined based on the language
included in their contract, not by "definitions not
expressed in the parties' written agreements."
Id.; see Zurich Am. Ins. Co. v. Hunt Petrol.
(AEC), Inc., 157 S.W.3d 462, 466 (Tex. App.-Houston
[14th Dist.] 2004, no pet.) ("Regardless of its
historical underpinnings, the scope and application of a
force majeure clause depend on the terms of the
contract."). However, we may consider common law rules
to "fill in gaps" when interpreting force majeure
clauses. Sun Operating Ltd. P'ship v. Holt, 984
S.W.2d 277, 283 (Tex. App.-Amarillo 1998, pet. denied).
foreseeability of force majeure events is rooted in the
common law of the force majeure doctrine, the question
presented is whether the trial court properly considered the
foreseeability of changes in the oil and gas market when
determining the applicability of the force majeure clause in
Is Market Change a Force Majeure Event?
contends that the trial court erred as a matter of law in
accepting ConocoPhillips's invitation to apply a
"traditional conception of force majeure, [i.e., a
showing of unforeseeability] rather than to apply the plain
language of [the force majeure clause]." ConocoPhillips
counters that a foreseeable event cannot qualify as force
majeure under the "catch-all" provision of this
force majeure clause. We agree with ConocoPhillips for two
reasons. First, it is unreasonable to interpret the
"catch-all" provision as broadly as suggested by
Olmos. Second, application of the ejusdem generis doctrine
compels the conclusion that a decline in oil and gas prices
is not the sort of event covered by the force majeure clause.
We discuss each reason, respectively.
Foreseeability Properly Limits "Catch-all"
has, indeed, been a debate regarding whether common-law
notions of foreseeability have any place in the
interpretation of modern-day force majeure clauses. The Third
Circuit and the Fifth Circuit have reached differing results
regarding whether, and under what circumstances, a showing of
unforeseeability is required to show a force majeure event.
Gulf Oil Corp., v. Fed. Energy Regulatory
Comm'n, 706 F.2d 444, 454 (3rd Cir. 1983), the court
required a showing of unforeseeability, even though the
alleged force majeure event was specifically listed in the
force majeure clause. The contract at issue in Gulf
Oil involved a warranty to deliver a certain quantity of
gas per day, and the force majeure clause specifically
defined a force majeure event to include "breakage or
accidents to machinery or lines of pipe, [and] the necessity
for making repairs to or alterations of machinery or lines of
pipe." Id. at 448 n.8. Focusing on the nature
of warranty contracts, the Third Circuit concluded that, even
though mechanical repairs were a listed force majeure event,
the party claiming application of the force majeure clause
also had to show that the mechanical repairs were
"unforeseeable and infrequent." Id. at
Fifth Circuit reached the opposite result in Eastern. Air
Lines v. McDonnell Douglas Corp., 532 F.2d 957 (5th Cir.
1976). In Eastern Air Lines, McDonnell Douglas
contracted to manufacture planes for Eastern by a certain
date. Id. at 963. When McDonnell Douglas was unable
to perform in a timely manner, it sought to invoke the force
majeure clause, which excused delays occasioned by "any
act of government, [or] governmental priorities."
Id. at 992. McDonnell Douglas argued that "most
of the delays were caused by the rapid military buildup
occasioned by the war in Vietnam" and that "the
Government asked the aviation industry to accord specific
military projects priority over civilian production."
Id. at 964. The Fifth Circuit noted that
"[e]xculpatory provisions which are phrased merely in
general terms have long been construed as excusing only
unforeseen events which make performance impracticable."
Id. at 990. However, because the parties had
specifically addressed the risk that performance "would
be delayed by governmental acts, priorities, regulations or
orders, " McDonnell Douglas did not have to also show
that its defense was limited to unforeseeable events.
Id. at 992.
this Court is not called upon to determine whether Gulf
Oil or Eastern is correctly decided. Both of
those cases involved the situation in which the alleged force
majeure event was specifically listed in the force
majeure clause. In this case, the alleged force majeure
event-a downturn in the oil and gas market- is not listed in
the force majeure clause. Instead, Olmos argues that it is
applicable through the "catch-all" provision that
includes "any other cause not enumerated herein but
which is beyond the reasonable control of the Party whose
performance is affected." Thus, the question we must
decide is whether this "catch-all" provision
includes events that are foreseeable, such as a fluctuation
in the oil and gas market that affects a party's ability
to obtain financing.
believe that it does not, and we have held so in a similar
case on at least one other occasion. In Valero
Transmission Co. v. Mitchell Energy Co. , 743 S.W.2d
658, 660 (Tex. App.-Houston [1st Dist.] 1987, no writ),
Mitchell Energy agreed to sell, and Valero agreed to purchase
and take, all gas produced from certain lands for a
twenty-year period. The contract included a force majeure
provision that excused performance "due to causes beyond
[a party's] reasonable control." Id. at
663. Valero sought to invoke the force majeure clause to
excuse its performance, arguing that "it had only slight
control over the price it had to charge for its gas, and that
neither party could control downstream market demand for gas
at the high contract price." Id. A significant
change in market price was not specifically listed as a force
majeure event. See id. This Court held that, because
the downturn in the market was foreseeable, it was not an
event that would trigger the force majeure clause.
Id. at 663-64.
A force majeure clause does not relieve a contracting party
of the obligation to perform, unless the disabling event was
unforeseeable at the time the parties made the contract. An
economic downturn in the market for a product is not such an
unforeseeable occurrence that would justify application of
the force majeure provision, and a contractual obligation
cannot be avoided simply because performance has become more
economically burdensome than a party anticipated.
Indeed, the uncertainty of future market prices is often the
motivation for entering into a long-term contract. The
primary purpose of a price agreement is to fix the price and
consequently to avoid the risk of price fluctuation. Thus, a
sudden or significant change in price, or the fact that one
of the parties may gain or lose during a particular period of
the contract, is not sufficient to constitute an
extraordinary, unforeseeable event that would excuse
performance under the force majeure clause.
Valero, 743 S.W.2d at 663-64 (citations omitted).
is consistent with Kodiak 1981 Drilling Partnership v.
Delhi Gas Pipeline, Corp., 736 S.W.2d 715, 716, 720-21
(Tex. App.-San Antonio 1987, writ ref'd n.r.e.), which
held that there was no unforeseeability requirement when a
specified force majeure condition-a "partial or
entire failure to gas supply or market"-occurred that
excused performance. The San Antonio court quoted Eastern
Air Lines in concluding that "when the promissor
has anticipated a particular event by providing for it in a
contract, he should be relieved of liability for the
occurrence of such event regardless of whether it was
foreseeable." Id. at 721 (quoting Eastern
Air Lines, 532 F.2d at 992.
agree that when parties specify certain force
majeure events, there is no need to show that the occurrence
of such an event was unforeseeable. This is consistent with
the holdings in Eastern Air Lines and
Kodiak. See also Perlman v. Pioneer Ltd.
P'ship, 918 F.2d 1244, 1247-48 (5th Cir. 1990)
(holding force majeure clause that specified "inability
to obtain governmental permits" did not require showing
unforeseeability when performance was hindered by inability
to obtain permits without expensive hydrology testing);
Rowan Cos. v. Transco Expl. Co., 679 S.W.2d 660, 664
(Tex. App-Houston [1st Dist.] 1984, writ ref'd n.r.e.)
(holding, without discussing foreseeability, that parties had
defined fire as force majeure event).
not the case here, and those cases do not control the outcome
of this case. An inability to obtain financing because of a
downturn in the oil and gas industry is not listed as a force
majeure event in the contract. The question thus, is whether
it is included in the "catch-all" provision. To
require a showing of unforeseeability for a
"catch-all" provision, such as the one here, is
consistent with the cases Olmos cited.
Eastern Air Lines acknowledges that
"[e]xculpatory provisions which are phrased merely in
general terms have long been construed as excusing only
unforeseen events which make performance impracticable."
532 F.2d at 990. The court then discussed the doctrine of
impracticality as it relates to force majeure as follows:
The rationale for the doctrine of impracticability is that
the circumstance causing the breach has made performance so
vitally different from what was anticipated that the contract
cannot reasonably be thought to govern. However, because the
purpose of a contract is to place the reasonable risk of
performance on the promisor, he is presumed, in the absence
of evidence to the contrary, to have agreed to bear any loss
occasioned by an event which was foreseeable at the time of
contracting. Underlying this presumption is the view that a
promisor can protect himself against foreseeable events by
means of an express provision in the agreement.
Therefore, when the promisor has anticipated a particular
event by specifically providing for it in a contract, he
should be relieved of liability for the occurrence of such
event regardless of whether it was foreseeable.
E. Air Lines, 532 F.2d at 991-92 (internal citations
omitted). The court concluded that, "[w]hen a risk has
been contemplated and voluntarily assumed . . .
foreseeability is not an issue and the parties will be held
to the bargain they made." Id. at 992. One
commentator has summarized the Eastern Air Lines
holding as follows: "If an event is foreseeable, parties
should protect themselves through explicit provisions. If a
party does so protect itself, it should not then have to bear
the burden of proving that the event was unforeseeable."
Jay D. Kelley, So What's Your Excuse? An Analysis of
Force Majeure Claims, 2 Tex. J. Oil Gas & Energy L.
91, 104 (2007).
when, as here, the alleged force majeure event is not
specifically listed-i.e., the party did not protect itself
through an explicit provision-and the alleged force majeure
event is alleged to fall within the general terms of the
catch-all provision, it is unclear whether a party has
contemplated and voluntarily assumed the risk. Thus, we find
it appropriate to apply common-law notions of force majeure,
including unforeseeability, to "fill the gaps" in
the force majeure clause. See Sun Operating, 984
S.W.2d at 283. Because fluctuations in the oil and gas market
are foreseeable as a matter of law, it cannot be considered a
force majeure event unless specifically listed as such in the
dispense with the unforeseeability requirement in the context
of a general "catch-all" provision would, in our
opinion, render the clause meaningless because any
event outside the control of the nonperforming party
could excuse performance, even if it were an event that the
parties were aware of and took into consideration in drafting
the contract. For example, in this contract, the parties
agreed that "[Olmos] will bear one hundred percent
(100%) of the risks, costs, and expenses to drill and
complete or plug and abandon all Earning Wells drilled in
accordance with this agreement . . . ." Reading the
force majeure clause as Olmos requests us to would shift the
risks associated with completing the well to ConocoPhillips
despite the parties' clear intention that Olmos bear that
risk. We agree with the commentator who stated that "it
is generally not advisable to negate the foreseeability
requirement with respect to the catch-all definition inasmuch
as this may result in an overly broad definition of force
majeure." Kelley, supra, at 115.
there is no specific provision in the force majeure clause
making a downturn in the oil and gas market a force majeure
event, and a "catch-all" provision generally
requires a showing of unforeseeability, which Olmos did not
and cannot make, we hold that the trial court did not err in
concluding, as a matter of law, that Olmos's failure to
perform was not excused by the force majeure clause of the
contract. See Kel Kim Corp. v. Cent. Mkts., 519
N.E.2d 295, 296 (N.Y. 1987) (holding that, in absence of
specific clause, nonperforming party's inability to
obtain insurance because of liability insurance crisis did
not fall within "catch-all" provision because
problem could have been foreseen and guarded against in
contract); Langham-Hill Petrol., Inc v. S. Fuels
Co., 813 F.2d 1327, 1329-30 (4th Cir. 1987) (holding
that "catch-all" provision did not excuse
obligation to purchase fuel oil in wake of significant drop
in oil prices because to do so would negate risks allocated
by parties in fixed-price contract).
case, Olmos agreed to bear the risks and costs associated
with drilling the wells. It was aware that it would need to
obtain financing to be able to successfully perform its
contractual duties. However, it took no steps to condition
its performance on the availability of such financing, nor
did it specifically define its inability to obtain financing
as a force majeure event. Olmos could have protected itself
from downturns in the oil and gas market by specifically
addressing it in the contract, but it failed to do so. We
will not read the "catch-all" provision of the
force majeure clause so broadly that it relieves Olmos of
liability because of a circumstance that it was aware of, but
took no steps to specifically address in the contract.
The Doctrine of Ejusdem Generis
second reason for concluding that a market downturn is not a
force majeure event involves application of the doctrine of
ejusdem generis.When more specific items in a list are
followed by a catch-all "other, " the doctrine of
ejusdem generis teaches that the latter must be limited to
things like the former Ross v St Luke's Episcopal
Hosp, 462 S.W.3d 496, 504 (Tex 2015); In re
Elliott, 504 S.W.3d 455, 475 & n48 (Tex App-Austin
2016, original proceeding) (Pemberton, J, concurring)
(applying ejusdem generis canon to definition of
"legal action" in statute). That canon provides
that when "general words follow an enumeration of two or
more things, they apply only to . . . things of the same
general kind or class specifically mentioned." Antonin
Scalia & Bryan A. Garner, Reading Law: The
Interpretation of Legal Texts 199 (2012); see also
Hilco Elec. Coop., Inc. v. Midlothian Butane Gas Co.,
111 S.W.3d 75, 81 (Tex. 2003) (applying "rule of ejusdem
generis, which provides that when words of a general nature
are used in connection with the designation of particular
objects or classes of persons or things, the meaning of the
general words will be restricted to the particular
Eastern Air Lines, the force majeure clause excused
performance "due to causes beyond Seller's control
and not occasioned by its fault or negligence, including but
not being limited to" a list of specified events. 532
F.2d at 988. The court was invited, but declined, to apply
the doctrine of ejusdem generis because, by using the term
"including but not being limited to" in the clause,
"the parties intended to excuse all delays coming within
the general description regardless of their similarity to the
listed excuses." Id. at 989.
contrast, this case does not include language similar to
"including but not being limited to" in the force
majeure clause. Thus, the reasons for the Eastern Air
Lines court's refusal to apply the doctrine of
ejusdem generis are not present here.
this case is more like Seitz v. Mark-O-Lite Sign
Contractors, Inc., 510 A.2d 319, 321-22 ( N.J.Super. Ct.
Law Div. 1986), in which the court considered whether a broad
"catch-all" force majeure clause could be construed
to apply to events different from those specifically
enumerated in the clause. The court, applying the rule of
ejusdem generis, concluded that "only events or things
of the same general nature or class as those specifically
enumerated" excused a party's non-performance.
Id. at 321. As such, an employee's disability
was not in the same class as labor strikes, fires, floods,
earthquakes, war, or acts of God. Id.; see also
Kel Kim., 519 N.E.2d at 296-97 (holding plaintiff's
inability to obtain insurance did not fall within
"catch-all" because not similar to "labor
disputes, inability to procure materials, failure of utility
service, restrictive governmental laws or regulations, riots,
insurrection, war, adverse weather, [or] Acts of God").
hold, as a matter of law, that an economic downturn in the
oil and gas industry is not like the other events specified
in the contract as force majeure events. In this case, the
specific terms "fire, flood, storm, act of God,
governmental authority, labor disputes, war" are
followed by the general term "any other cause not
enumerated herein but which is beyond the reasonable control
of the Party whose performance is affected." Applying
the doctrine of ejusdem generis, the general phrase "any
other cause not enumerated herein" must be limited to
the types of events specified before, i.e., "fire,
flood, storm, act of God, governmental authority, labor
disputes, [&] war."
specified events involve natural or man-made disasters
(fires, floods, storms, act of God), governmental actions
(governmental authority and war), and labor disputes. These
events, while perhaps foreseeable, occur with such
irregularity that planning for them and allocating the risks
associated with such would be difficult absent a force
majeure clause. However, changes in commodities markets and
the resulting ability of a party to obtain financing occur
regularly and could easily be dealt with in a specific
contractual allocation of risks. Indeed, here, Olmos was
aware that its ability to perform would be contingent on
obtaining financing, but it did not condition its performance
on such. In fact, the parties agreed to the contrary that
Olmos would bear the risks associated with the drilling of
the well, including, presumably, its ability to obtain
Conclusion Regarding Force Majeure Event
events listed in the "catch-all" provision of this
contract require a showing of unforeseeability, which Olmos
did not do, and because a change in the oil and gas market
making it impossible for Olmos to obtain financing is not
like the other force majeure events listed in the contract,
we conclude that Olmos, as a matter of law, did not raise a
fact issue as to its affirmative defense. As such, the trial
court properly granted ConocoPhillips' motion for summary
judgment on its breach-of-contract claim.
we overrule Olmos's first issue on appeal.