El Paso Natural Gas Co. v. Minco Oil & Gas Co.

964 S.W.2d 54, 139 Oil & Gas Rep. 92, 1998 Tex. App. LEXIS 2208, 1997 WL 873697
CourtCourt of Appeals of Texas
DecidedApril 8, 1998
Docket07-96-0210-CV
StatusPublished
Cited by45 cases

This text of 964 S.W.2d 54 (El Paso Natural Gas Co. v. Minco Oil & Gas Co.) is published on Counsel Stack Legal Research, covering Court of Appeals of Texas primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
El Paso Natural Gas Co. v. Minco Oil & Gas Co., 964 S.W.2d 54, 139 Oil & Gas Rep. 92, 1998 Tex. App. LEXIS 2208, 1997 WL 873697 (Tex. Ct. App. 1998).

Opinions

QUINN, Justice.

El Paso Natural Gas Company (El Paso) appeals from a final judgment awarding Min-eo Oil & Gas Company (Mineo) and Charles F. Doombos, as trustee for the Charles F. Doombos Revocable Trust, (Doombos) damages against it. Through three points of error, El Paso raises questions regarding unconscionability, breached duty of good faith, and the sufficiency of the evidence. By cross-point, Doornbos decries the trial court’s refusal to find that the life of a particular contract was extended past its original term. We reverse in part and affirm in part.

Background

The dispute revolves around take-or-pay gas purchase agreements executed in 1979 (1979 Agreements) by El Paso, and the predecessors of Doornbos, and Mineo.1 Under [59]*59these agreements, Doornbos and Mineo dedicated to El Paso all the natural gas which could be produced from their properties located in Hemphill County, Texas. In turn, El Paso agreed to purchase a specified minimum quantity (80% “of the aggregate maximum delivery capacity of the Seller’s wells”) per day. If it failed to purchase same or if it bought an amount less than the minimum quantity, then El Paso was obligated to pay Doornbos and Mineo the difference between the amount actually taken and the minimum quantity it was required to take; thus, arose the concept of take-or-pay.

For several years after the 1979 Agreements were executed, all parties performed as expected. Then, the natural gas market began to experience change in the mid-1980’s. To put it mildly, gas prices fell substantially. Soon El Paso realized that to continue acquiring the gas as required under the 1979 Agreements would be unprofitable and, in time, it obtained from Mineo and Doornbos various amendments to the Agreement. Those amendments (referred to as the Amendatory Agreements) retroactively altered El Paso’s take-or-pay obligation from 80% to 50% of the sellers’ “aggregate daily producing ability” for the period of January 1, 1982, through December 1984, and from 80% to 60% for the period “from and after January 1, 1985,” through the end of the contract term. So too was the buyer granted the right to unilaterally reduce the price it paid for the gas.2 Finally, if the buyer decided to reduce the price to a level unacceptable to Mineo and Doornbos, the two producers had the chance to end “this Agreement” but only after all obligations due El Paso were satisfied.

In addition to the foregoing amendments, approximately 80 other contracts were executed between the parties over the remaining terms of the 1979 Agreements. These other contracts (referred to herein as the Monthly Releases) 1) released El Paso from its monthly obligation to take-or-pay, 2) extended to Mineo and Doornbos the opportunity to sell their gas on the spot market during the pertinent period often at a lesser price, and 3) gave El Paso the option to reduce its annual take-or-pay obligation by the amount of gas they sold on the spot market or to simply ignore its obligation for the month covered by the contract.

In time, Mineo grew dissatisfied with its relationship with El Paso and requested that it be ended. Consequently, in November of 1988 the two entities signed a letter (the November Termination Letter) terminating the 1979 Agreement and releasing each other of any and all claims or causes of action which they may have had against each other.3 Several more years passed before El Paso obtained, in February of 1991, two termination letters (February Termination Letters) from Doornbos and his predecessors in interest. They, like the November Termination Letter, also purported to waive “[a]ll past liabilities that might exist between the parties.”

More time passed before Mineo and Doornbos learned that others had begun asserting take-or-pay claims against El Paso. Thus, they too joined the fray and sued the company to recover sums equal to the take- or-pay obligations thought due them under the unamended 1979 Agreements. Though the causes of action averred were numerous, only three concern us for they were the claims upon which the court awarded dam[60]*60ages. The first is breach of contract. As to this allegation, it was determined that El Paso failed to perform its take-or-pay obligations as per the original 1979 gas purchase agreements. However, before recovery could be had upon that claim, the court had to set-aside the Amendatory Agreements, Monthly Releases, and the November and February Termination Letters. It did so by first holding all of them unconscionable. Then, it concluded that all but the February Termination Letters were obtained by El Paso in violation of its duty of good faith. As a result, El Paso was ordered to pay Mineo and Doombos damages equal to the amount of gas which it agreed to take-or-pay for under the unamended 1979 Agreement.

On appeal, the true issue is not whether El Paso breached the 1979 Agreements. Rather, it concerns whether the other contracts and releases were properly voided so that the claim of breached contract could be pursued. And, of paramount importance is whether the November and February Termination Letters were properly negated. Again, they released El Paso from all claims and liability. So, if they remained binding, it mattered not whether any of the other Agreements were avoidable.

Point of Error One — Unconscionability

In its first point of error, El Paso attacks the trial court’s decision to avoid the release agreements on the basis of unconscionability. It posits that same were not unconscionable as a matter of law. So too does it argue that the court’s “Findings of Fact/Conclusions of Law Nos. 5-16,” which purportedly involved unconscionability, were legally or factually insufficient.4 We sustain the point.

A. Controlling Law

As per the Texas Business and Commerce Code, a court may refuse to enforce a contract which it holds unconscionable. Tex. Bus. & Com.Code Ann. § 2.302(a) (Vernon 1994). Yet, a problem arises in determining what is encompassed within the theory. Those who codified the concept into section 2.302 did not deign to define it; nevertheless, we are not without guidance. Both the commentary following the provision and the writings of our judicial brethren provide assistance. See Lockhart Sav. & Loan Ass’n v. RepublicBank Austin, 720 S.W.2d 193, 195 (Tex.App.—Austin 1986, writ refd n.r.e.) (stating that while the comments accompanying each section of the Business and Commerce Code are not law, they nevertheless are persuasive authority concerning the legislature’s intent).

1. Standard of Review

We are told that the ultimate question as to whether an agreement is unconscionable is one of law. Id. at § 2.302, cmts. 1 & 3; Pony Express Courier Corp. v. Morris, 921 S.W.2d 817, 820 (Tex.App.—San Antonio 1996, no writ). This suggests that our review of the matter is de novo. Yet, it cannot be forgotten that the decision of whether some agreement is or is not unconscionable is dependent upon the existence of facts which allegedly illustrate unconsciona-bility. And, as to the existence of those facts, our review is not de novo.

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Cite This Page — Counsel Stack

Bluebook (online)
964 S.W.2d 54, 139 Oil & Gas Rep. 92, 1998 Tex. App. LEXIS 2208, 1997 WL 873697, Counsel Stack Legal Research, https://law.counselstack.com/opinion/el-paso-natural-gas-co-v-minco-oil-gas-co-texapp-1998.