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Pathfinder Oil & Gas, Inc. v. Great Western Drilling, Ltd.

Supreme Court of Texas

May 24, 2019

Pathfinder Oil & Gas, Inc. and Cathlind Energy, LLC, Petitioners,
Great Western Drilling, Ltd., Respondent Paragraph 1 Paragraph 3

          Argued February 21, 2019

          On Petition for Review from the Court of Appeals for the Eleventh District of Texas



         Pathfinder Oil & Gas, Inc. claims a 25% working interest in certain Permian Basin mineral leases under a letter agreement Great Western Drilling Ltd. contends is unenforceable. On the eve of trial, the parties stipulated that "only" certain issues would be submitted to the jury and that favorable jury findings would "entitle[]" Pathfinder to specific performance in lieu of money damages. Tracking the stipulations, the jury charge included only the specifically enumerated jury issues, which the jury answered in Pathfinder's favor. The trial court rendered judgment awarding specific performance as provided by the parties' agreement, but the court of appeals reversed, retracted the agreed remedy, and rendered a take-nothing judgment.[1] Though the elements of the agreed remedy were not among the issues reserved for the jury's determination, the appeals court held that specific performance was unavailable without a jury finding that Pathfinder was "ready, willing, and able" to perform its obligations under the disputed contract.[2]

         We reverse the court of appeals' judgment. By stipulating as to the "only" issues the jury would have to determine to "entitle[]" Pathfinder to specific performance, the parties eliminated any dispute about whether Pathfinder was "ready, willing, and able to perform."

         I. Background

         In a June 1, 2004 letter (the Letter Agreement), Great Western offered Pathfinder "the right to participate" in the acquisition of specified mineral leases if Pathfinder elected to participate "by checking the appropriate blank [in the Letter Agreement] [and] signing, dating and returning a copy of th[e] letter to Great Western within forty-eight (48) hours . . . ." The Letter Agreement included basic terms for participating in the deal, but further stated that Great Western would "work on the details of a participation agreement for [the] acreage as soon as reasonably possible." Pathfinder elected to participate in the lease acquisition and timely returned a signed and dated copy to Great Western.

         After sparring with Pathfinder over various details in the proposed participation agreement, Great Western withdrew the purchase offer in a faxed letter. Within hours, Pathfinder signed the draft participation agreement and mailed it to Great Western along with a required payment.

         Great Western sued for a declaration that the Letter Agreement was not an enforceable contract, and Pathfinder counterclaimed for breach of contract. The day before trial, the parties agreed to a four-paragraph stipulation that expressly (1) limited the issues to be submitted to the jury; (2) limited Pathfinder's remedy to specific performance and specified the conditions for obtaining that remedy; (3) waived Pathfinder's claim for money damages; and (4) required Pathfinder to nonsuit specific claims. In pertinent part, the stipulation agreement provides:

1. At the trial of this cause . . ., the only issues that will be submitted to the Court and/or jury will be (a) whether the June 1, 2004 Letter Agreement . . . is an enforceable agreement; (b) whether Great Western or Pathfinder breached the Letter Agreement; and (c) Great Western's affirmative defenses of estoppel, failure of consideration, statute of frauds, mutual mistake, anticipatory repudiation, unclean hands, material breach and revocation.
. . . .
3. In the event that the Court or jury finds that [1] the Letter Agreement is an enforceable agreement, [2] Great Western breached the Letter Agreement, and [3] Pathfinder is entitled to recover for Great Western's breach, the following will control the relief awarded to Pathfinder:
a. Pathfinder will be entitled to the remedy of specific performance, requiring Great Western to convey to Pathfinder an undivided 25% of the oil and gas leases . . .; [and]
b. Pathfinder hereby elects the remedy of specific performance and waives its claim [for] money damages . . . .

         At the close of evidence, the trial court instructed the jury in accordance with the written stipulations by submitting five questions pertaining to the three matters delineated in Paragraph 1-contract formation, breach, and affirmative defenses. Question No. 1 inquired whether the June 1, 2004 letter was an agreement to convey a 25% working interest to Pathfinder. Questions No. 2 and No. 3 inquired, respectively, whether Pathfinder and Great Western breached the contract. If both parties breached, Question No. 4 asked who breached first. And if Great Western was the first to breach, Question No. 5 submitted Great Western's anticipatory-repudiation defense.

         At the charge conference, the court denied Great Western's proposed jury question asking whether Pathfinder had, at all times, been "ready, willing, and able to perform the essence of its obligations"-an element of specific performance that is a fact issue when contested.[3] In denying the request, the court explained that the parties' stipulations specified the only findings required and obviated the need for the requested finding.

         The jury answered the first three questions in Pathfinder's favor and did not reach questions four and five, which were conditionally submitted.

         Based on the jury's findings, the trial court rendered judgment for Pathfinder and ordered specific performance in accordance with the relief outlined in Paragraph 3 of the stipulations. Citing Great Western's agreement to "provide a simple calculation of the revenue and expenses" up to the most recent accounting period and "forward the representative proceeds in the amount representing Pathfinder's twenty-five (25%) interest for all historical production, "[4] the court ordered Great Western to pay $3.05 million as net revenue on Pathfinder's working interest plus pre-judgment interest of $729, 252.90. The court also awarded Pathfinder more than $200, 000 in attorney's fees. In a written opinion issued along with the judgment, the court reiterated its understanding of the stipulations, including the required jury findings and the agreed relief.[5]

         Great Western raised three issues on appeal: (1) the Letter Agreement is not an enforceable contract; (2) the trial court's specific-performance order was improper because Pathfinder failed to establish that it was ready, willing, and able to fulfill its contractual obligations; and (3) the trial court improperly awarded damages and prejudgment interest contrary to the parties' stipulations and without supporting evidence.[6] The court of appeals found the second issue to be dispositive and thus did not reach the first and third.[7]

         Notwithstanding the stipulations in Paragraph 1 expressly limiting the issues to be submitted to the jury, the court construed Paragraph 3 as further requiring Pathfinder to establish that "it was entitled to relief as a result of the breach, which encompasses not only a causation element but also the element that it was ready, willing, and able to perform its contractual obligations."[8] Noting Paragraph 3 conditions specific performance on a finding that "Pathfinder is entitled to recover for Great Western's breach," the court reasoned that the stipulations limited the remedy to specific performance but "did not obviate the necessity that Pathfinder prove its entitlement to it."[9] Because Pathfinder failed to conclusively establish or obtain a jury finding that it was ready, willing, and able to perform, the court rendered judgment for Great Western.[10]

         We granted Pathfinder's petition for review, which presents several issues in addition to the proper construction of the stipulation agreement. But because the contract-construction issue is dispositive of the appeal, we do not reach the others and, instead, remand to the court of appeals to consider the unaddressed issues.

         II. Discussion

         Specific performance is an equitable remedy that may be awarded for breach of contract.[11]Although the expediency, necessity, and propriety of equitable relief is a matter for the court, a jury may be required to resolve disputed issues when material facts are contested.[12] Parties can, however, waive their right to proof of a fact[13] or an element of a claim[14] through a written stipulation or one made in open court.[15] When parties stipulate that only certain questions will be tried, all others are thereby waived.[16] Stipulations are binding on the parties, so the duty to enforce valid pretrial stipulations is purely ministerial.[17]

         As we, [18] our courts of appeals, [19] and other state high courts[20] have repeatedly held, stipulations are "contracts relating to litigation, and thus we construe them under the same rules as a contract."[21] The straightforward contract-interpretation question presented here is whether the parties' pretrial stipulations waived or eliminated Pathfinder's burden of proving its entitlement to specific performance.

         A. Standards of Review

         Our "primary objective" in construing contracts is to give effect to the written expression of the parties' intent.[22] As we have often said, in one way or another, "[a] contract's plain language controls, not what one side or the other alleges they intended to say but did not."[23] We therefore look to "[o]bjective manifestations of intent" and, in doing so, we must "'presume parties intend what the words of their contract say' and interpret contract language according to its 'plain, ordinary, and generally accepted meaning' unless the instrument directs otherwise."[24]

         Contract terms cannot be viewed in isolation, however, because doing so distorts meaning. Accordingly, we must "consider the entire writing in an effort to harmonize and give effect to all the provisions of the contract so that none will be rendered meaningless."[25] Consistent with "our long-established precedent that '[n]o one phrase, sentence, or section [of a contract] should be isolated from its setting and considered apart from the other provisions, '" a specific contract provision controls over a general one.[26]

         A written instrument that can be given a certain or definite legal meaning or interpretation is not ambiguous and will therefore be construed as matter of law.[27] "Whether a contract is ambiguous is [also] a question of law for the court to decide by looking at the contract as a whole in light of the circumstances present when the contract was entered."[28] But, while surrounding circumstances may inform the meaning of the words the parties chose to effect their accord even when a contract is unambiguous, [29] "courts may not rely on evidence of surrounding circumstances to make the language say what it unambiguously does not say" or "to create an ambiguity."[30]Circumstantial evidence is merely "an aid in the ...

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