Petro Source Partners, Ltd. v. 3-B Rattlesnake Refining (1990), Ltd.

905 S.W.2d 371, 1995 WL 472300
CourtCourt of Appeals of Texas
DecidedSeptember 13, 1995
Docket08-93-00225-CV
StatusPublished
Cited by16 cases

This text of 905 S.W.2d 371 (Petro Source Partners, Ltd. v. 3-B Rattlesnake Refining (1990), Ltd.) 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
Petro Source Partners, Ltd. v. 3-B Rattlesnake Refining (1990), Ltd., 905 S.W.2d 371, 1995 WL 472300 (Tex. Ct. App. 1995).

Opinion

OPINION

LARSEN, Justice.

Appellee, 3-B Rattlesnake Refining (1990), Ltd. (Rattlesnake), sued Appellants, Petro Source Partners Ltd. and Petro Source Corporation (Petro Source) for breach of an oral contract, fraud, tortious interference with a contract, and breach of the duty of good faith and fair dealing. Petro Source counterclaimed against Rattlesnake for fraud. Trial was to a jury. The jury found all claims in favor of Rattlesnake and awarded $245,-823.84 in actual damages and $750,000 in *373 exemplary damages against Petro Source. We reverse and render.

FACTUAL BACKGROUND

During late May or early June of 1992, Bill Watson (Watson), owner of Rattlesnake, called Tom Brown (Brown), the local general manager of Petro Source, in an attempt to sell approximately 12,000 barrels of crude oil. Due to financial difficulties, Rattlesnake was unable to operate its refinery. Rattlesnake needed to sell the crude oil it had on hand in order to raise operating cash and to pay existing creditors. Brown and Watson reached a tentative agreement for Petro Source’s purchase of the oil. Petro Source’s legal department refused to approve the deal because of a possible bulk transfer problem 1 and an outstanding federal tax lien on all of Rattlesnake’s property. Brown and Watson continued negotiating in hopes of finding a mutually acceptable solution to the title problems. The parties decided to bring Sandhills Petroleum, Inc. (Sandhills) into the transaction. Rattlesnake was to sell the oil to Sand-hills and Sandhills would then sell the oil to Petro Source.

The purpose of running the transaction through Sandhills is the crux of this lawsuit. At trial, Watson first testified that Brown orally represented that if Rattlesnake ran the oil transaction through Sandhills, Rattlesnake would be promptly paid regardless of any title problems. Later, Watson essentially recanted and admitted that no one at Petro Source ever explicitly represented that Rattlesnake would be paid regardless of whether Rattlesnake conveyed clear title to the oil. Watson continued to maintain, however, that Petro Source represented by omission that it would pay Rattlesnake through Sandhills regardless of liens on the oil because Petro Source knew about the title problems, but allegedly failed to state that it would not pay for the oh if Sandhills was unable to deliver clear title. Rattlesnake contended at trial that this representation constitutes an oral contract between it and Petro Source which Petro Source breached by failing to pay Rattlesnake through Sand-hills in spite of existing liens in the oh. Rattlesnake also based its fraud and good faith and fair dealing claims on Petro Source’s alleged failure to follow through on this same representation. Petro Source, on the other hand, asserted that both parties understood that Sandhills’ purpose was to work with Rattlesnake to clear the title problems. Brown testified that Petro Source never represented, nor did it ever intend, that it would pay Rattlesnake for the oil unless Sandhills and Rattlesnake were able to clear the title problems.

On July 7,1992, Rattlesnake and Sandhills signed a written contract for sale of the oil from Rattlesnake to Sandhills. The contract made Sandhills’ duty to pay Rattlesnake dependent upon Sandhills’ receipt of payment from Petro Source. The Sandhills/Rattle-snake contract also required Rattlesnake to warrant title to oil delivered pursuant to the contract. Sandhills and Petro Source entered into a written contract dated August 12,1992 for the sale of the oil from Sandhills to Petro Source. The Sandhills/Petro Source contract required Sandhills to warrant title to the oil. By the end of July, the oil was delivered through Sandhills to Petro Source.

On July 28, 1992, James Burke, a Vice President of Petro Source, sent a letter to Dennis Dickerson, President of Sandhills, stating that Petro Source could not pay Sandhills for the oil until Sandhills obtained a bulk sale certificate from Rattlesnake. The certificate Petro Source requested provided that the IRS and certain other of Rattlesnake’s known creditors were aware of and consented to the sale. The certificate further provided that Rattlesnake had no secured or unsecured creditors other than those listed on the certificate. Watson signed but did not return the certificate, stating that the representations in the certificate would be false because the listed creditors had not consented and because Rattlesnake had various unsecured creditors who were not listed on the certificate. Apparently relying on the title requirements in the *374 written contracts, Petro Source had already sold the oil and found itself in possession of the proceeds from the sale of potentially encumbered oil.

After demand by Sandhills, Petro Source and Sandhills settled their contract. Petro Source paid Sandhills for the trucking charges Sandhills had incurred as part of the transaction, and for the profit Sandhills would have realized had the transaction been completed. Having thus satisfied Sandhills and taken it out of the transaction, Petro Source and Rattlesnake began to negotiate directly on about August 11, 1992 when Rattlesnake’s attorney demanded payment for the oil from Petro Source. Petro Source refused to make payment to Rattlesnake without satisfactory proof of clear title. On August 13, 1992, Katherine Dodds, an attorney in Petro Source’s legal department, faxed a letter to Rattlesnake’s attorney offering Rattlesnake six options to resolve the dispute, including interpleading the disputed funds into the registry of the court or arranging to pay Rattlesnake’s creditors directly. Rattlesnake refused all proposals and continued to insist on direct payment or return of the oil.

On August 14, 1992, the day after Petro Source’s offer of the six options, Rattlesnake filed its lawsuit against Petro Source for breach of contract, fraud, conversion, tortious interference with contract, and breach of the duty of good faith and fair dealing. Rattlesnake later dropped its conversion claim. Rattlesnake did not serve Petro Source until September 11, 1992. On October 2, 1992, Petro Source timely filed its answer in the original suit, and simultaneously filed a separate interpleader action paying $219,145.37 into the registry of the court. The $219,-145.37 represented Petro Source’s calculation of the funds that would have gone to Rattlesnake on the Rattlesnake/Sandhills contract. Petro Source named Rattlesnake, the IRS, and all other creditors of Rattlesnake as parties and potential claimants. The IRS removed Petro Source’s interpleader suit to federal district court. Petro Source filed a plea in abatement in this suit requesting an abatement until the federal district court determined the interpleader issues. The trial court refused to abate this action.

Meanwhile, Rattlesnake took no part in the interpleader action and even stipulated in this lawsuit that Petro Source was entitled to a credit in the amount of the interpleaded funds against any judgment Rattlesnake obtained against Petro Source, yet Rattlesnake continued this lawsuit against Petro Source involving the very same funds. See Petro Source Partners, Ltd. v. 3-B Rattlesnake Refining (1990) Ltd., 827 F.Supp. 1265, 1267 (W.D.Tex.1993). This lawsuit was tried to a jury verdict before the federal district court disposed of Petro Source’s interpleader action.

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Bluebook (online)
905 S.W.2d 371, 1995 WL 472300, Counsel Stack Legal Research, https://law.counselstack.com/opinion/petro-source-partners-ltd-v-3-b-rattlesnake-refining-1990-ltd-texapp-1995.