Sherry Radack, Chief Justice.
This 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 provision.
TEC 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 deadline.
The 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:
The 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
After 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.
ConocoPhillips 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.
Olmos responded by asserting the affirmative defenses of force majeure and unenforceable penalty and bringing a counterclaim for repudiation.
ConocoPhillips 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.
PROPRIETY OF SUMMARY JUDGMENT
In three issues on appeal, Olmos challenges the propriety of the trial court's ruling on ConocoPhillips's motion for summary judgment, contending as follows:
A. Standard of Review
We 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. 2009).
When a 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,
B. Force Majeure
Olmos 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.
1. Rules of contract interpretation
In 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).
Sometimes 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).
Because 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 this case.
2. Is Market Change a Force Majeure Event?
Olmos 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
a. Foreseeability Properly Limits "Catch-all" Provisions
There 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.
In 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 454.
The 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.
However, 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.
We believe that it does not, and we have held so in a similar case on at
Valero, 743 S.W.2d at 663-64 (citations omitted).
Valero 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.
We 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).
Such is 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
Indeed, 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:
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).
However, 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 contract.
To 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
Because 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., 70 N.Y.2d 900, 524 N.Y.S.2d 384, 519 N.E.2d 295, 296 (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).
In this 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.
b. The Doctrine of Ejusdem Generis
Our 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 & n.48 (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 designation").
In 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
In 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.
Instead, this case is more like Seitz v. Mark-O-Lite Sign Contractors, Inc., 210 N.J.Super. 646, 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., 524 N.Y.S.2d 384, 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").
We 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."
The 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 financing.
3. Conclusion Regarding Force Majeure Event
Because 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.
Accordingly, we overrule Olmos's first issue on appeal.
C. Liquidated Damages
The contract provided for liquidated damages as follows:
In its second issue on appeal, Olmos contends that the trial court erred in granting summary judgment because of its affirmative defense that the liquidated damages sought by ConocoPhillips were an unenforceable penalty.
In FPL Energy, LLC v. TXU Portfolio Management Co., the Texas Supreme Court discussed the enforceability of liquidated damages as follows:
426 S.W.3d 59, 69-70 (Tex. 2014). "While the question may require a court to resolve certain factual issues first, ultimately the enforceability of a liquidated damages provision presents a question of law for the court to decide." Id. at 70. The party asserting that a liquidated-damages clause is a penalty provision bears the burden of pleading and proof. Garden Ridge, L.P. v. Advance Int'l., Inc., 403 S.W.3d 432, 438 (Tex. App. — Houston [14th Dist.] 2013, pet. denied) (citing Phillips, 820 S.W.2d at 789; TEX. R. CIV. P. 94).
Olmos does not challenge the first prong of the two-prong test. Instead, it argues that a fact issue exists on whether, given the market conditions at the time of breach, ConocoPhillips's actual damages from non-drilling bear any relationship to the $500,000 specified in the contract. Specifically, Olmost argues that "the parties' `estimate' of ConocoPhillips' damages [at the time the parties agreed to the liquidated damage provision] does not tell us the amount of its `actual damages incurred' today."
However, we must determine whether a liquidated-damage provision is a reasonable forecast of actual damages by considering the time of contracting, not the time of breach. See FPL Energy, 426 S.W.3d at 71 ("We view the reasonableness of the forecast from the time of contracting." E.g., Mayfield v. Hicks, 575 S.W.2d 571, 576 (Tex. Civ. App. — Dallas 1978, writ ref'd n.r.e.); accord RESTATEMENT (SECOND) OF CONTRACTS § 356 cmt. b (1981) (identifying time of making contract
Accordingly, we overrule issue two.
D. Attorney's Fees
In its third issue on appeal, Olmos contends that the trial court erred by rendering joint and several liability against Olmos and Terrace for attorney's fees. Specifically, Olmos contends that, while Terrace can be liable for attorney's fees, Olmos, a limited liability company, cannot. See TEX. CIV. PRAC. & REM. CODE § 38.001 ("A person may recover reasonable attorney's fees from an individual or corporation... if the claim is for ... an oral or written contract").
We agree. Olmos is not an individual or a corporation; it is a limited liability company.
Nevertheless, ConocoPhillips alleges that it was also entitled to recover attorney's fees under section 37.009 of the Texas Civil Practices and Remedies Code
ConocoPhillips sought a declaration that Olmos's "claim of a force majeure
Because ConocoPhillips's breach-of-contract claim and declaratory-judgment claim are not independent claims, we sustain Olmos's third issue.
There being no statutory basis for assessing attorney's fees against Olmos, we modify the judgment inasmuch as it makes Olmos jointly and severally liable with Terrace for the attorney's fees awarded to ConocoPhillips. We affirm the judgment as modified.
Brown, J., dissenting.
Harvey Brown, Justice.
These parties negotiated and executed a contract with a force majeure provision for suspending contractual obligations during a period in which a party's performance is "prevented or hindered." The contract does not say that an event must have been unforeseeable to suspend performance; nonetheless, one of the parties, ConocoPhillips, has argued that such a limitation should be read into the contract because, at common law, the term "force majeure" included the notion of unforeseeability. ConocoPhillips reads our Court's 1987 decision in Valero Transmission Co. v. Mitchell Energy Corp. to support this interpretation.
I dissent because the Texas Supreme Court has repeatedly told us that it is this state's policy to enforce contracts as they are written.
Texas contract-interpretation law requires parties to include in their contracts those terms they desire and courts to interpret their contracts as written. When we start inserting unwritten terms into contracts, inconsistent holdings result. Legal commentators are left to try to reconcile our holdings to understand when terms might be added in similar or distinguishable contexts. In the area of force majeure and foreseeability, this has led some commentators to theorize that case holdings can be reconciled by focusing on the type of contract and whether a particular risk was allocated such that it cannot qualify as a force majeure,
Following this mandate achieves consistency without burden. If parties wish to limit the scope of their negotiated force majeure provisions to require that an event must have been unforeseeable to excuse performance, it is not difficult to insert that single adjective into their written agreements so that their contracts say what the parties intended.
Because the Court takes an approach counter to established contract-interpretation rules and engrafts a term not found in the parties' contract, I respectfully dissent.
The Parties' Force Majeure Provision
The parties' contract is a farmout agreement. "A farmout agreement is an assignment
The parties' farmout agreement contains an excused delay provision, which the parties' termed a "force majeure" clause. Article 31 provides as follows:
(Emphasis added.) Thus, the parties included within the force majeure protections of their contract "any" cause that "prevented or hindered" contract compliance that is "beyond the reasonable control of the Party whose performance is affected." They did not include any language requiring that an event be unforeseeable to qualify as a force majeure event.
General Principles of Contract Interpretation
In construing a written contract, the primary concern is to ascertain and give effect to the parties' intentions as expressed in the document.
If under these rules a contract can be given a certain or definite legal meaning or interpretation, then it is unambiguous.
Objective, extrinsic evidence of "facts and circumstances" may provide context to the transaction, though.
In short, "we may neither rewrite the parties' contract nor add to its language."
We also must not read a force majeure section or phrase within it in isolation; the contract must be read as a whole.
Force Majeure as a Theory and a Contract Term
The term "force majeure" dates back more than a century.
Case law reveals that parties generally choose to excuse delayed performance for events that are (1) beyond a party's reasonable control, (2) unforeseeable, or (3) both.
Is Consistent with This Approach
ConocoPhillips argues that Valero requires that we imply a requirement of unforeseeability into the parties' contract even if it is not expressly included within the force majeure provision. I disagree that Valero requires the engrafting of an unstated term into these parties' contract. That opinion, instead, does what contract-interpretation principles dictate, which is to consider the nature of the parties' contract and its language as a whole to determine whether the claimed force majeure was part of the assigned risk such that it could not qualify as a force majeure event.
In Valero, a natural gas pipeline company, Valero, unsuccessfully sought to be excused from its contractual obligation to purchase gas by arguing that a significant downturn in the natural gas market qualified as an event "beyond its reasonable control" to invoke force majeure protections under its fixed-price supply agreement
Valero is consistent with standard contract-interpretation principles, including that contracts be analyzed as a whole and in a way that does not leave some aspects of the agreements meaningless.
The Third Circuit's holding in Gulf Oil, which was cited in Valero, is similar. In Gulf Oil, the court construed a warranty contract that contained a force majeure clause.
Giving consideration to the parties' entire contract, and not limiting itself to the force majeure provision in isolation, the Third Circuit rejected the supplier's argument.
The Third Circuit repeatedly emphasized that its holding was based on the warranty nature of the supply contract and the absence of any contractual limitation on the source of gas to be supplied.
In my view, interpretation of the force majeure provisions in Valero and Gulf Oil was tied to the contracts' warranty nature. To the extent the cases discuss foreseeability, it is in the context of analyzing, first, whether the disrupting event that one party sought to qualify as a force majeure was actually the contingency contemplated by the parties when they assigned risk, and, second, whether the nature of the contract was such that broader contractual obligations prevent this type of event from excusing performance. The foreseeability analysis was a practical evaluation of the parties' agreement as a whole to determine whether the identified event was within the contract's assignment of risk such that the risk could not qualify as a force majeure.
The foreseeability analysis was not, as ConocoPhillips contends and the Court holds, a pronouncement that common law doctrinal aspects of force majeure engraft a general unforeseeability requirement into force majeure agreements (or at least the catch-all clause of the force majeure provision) even without contract language to support such a requirement.
ConocoPhillips Failed to Meet Its Summary Judgment Burden to Disprove, As a Matter of Law, TEC's Affirmative Defense of Force Majeure
ConocoPhillips brought a breach-of-contract claim against TEC and sought liquidated damages. ConocoPhillips moved for and prevailed on its summary-judgment motion, arguing that it established all elements of its breach-of-contract claim and, along with it, disproved TEC's affirmative defense of excused-delay protections as a matter of law.
To defeat ConocoPhillips's motion for summary judgment, TEC was required to bring forth evidence sufficient to raise a genuine issue of material fact on its force majeure affirmative defense.
In my view, summary judgment in ConocoPhillips's favor on the inapplicability of the force majeure provision was error for three related reasons. First, as discussed above, the force majeure provision does not explicitly include an unforeseeability requirement to invoke its protections, and the established rules of contract-interpretation do not support adding to the parties' contract such a term they did not include.
Second, the force majeure provision, when read in light of the general understanding of the terms the parties did choose to include, is unambiguous in the scope of its excused-delay protections. It excuses delay when a party has been "prevented or hindered" from performing either "by reason of fire, flood, storm, act of God, governmental authority, labor disputes, [and] war" or "any other cause not enumerated herein but which is beyond the reasonable control of the Party whose performance is affected." The former includes particular events; the latter is broader, but is not without its own limits because the parties restricted other cause to only causes that are "beyond the reasonable control" of the party. These terms contain no ambiguity.
ConocoPhillips elected to set the standard of "hindered" for the qualifying obstacle. Dictionary definitions of hinder include "to keep back; restrain; get in the way of; prevent; stop" and "to make difficult for; thwart; impede; frustrate."
Moreover, during the period of hindrance, the contract is not terminated; instead, it is "suspended" until the hindrance is lifted. The parties' election to allow the contract to be suspended, which in effect extended their obligations, also suggests a low threshold before the clause applies. Parties may choose to include excused-delay provisions, like this, because of the varying effect of a failure to perform. Typically, when a party fails to act under a contract, the party is in breach, and the other party is excused from further performance.
In conclusion, there is no evidence from the terms of the remainder of the parties' agreement or the nature of the agreement itself to support injecting an otherwise unagreed-to term into their agreement. On the contrary, the combination of both low thresholds counsels against interpreting the parties' agreement to require a higher standard of unforeseeability.
The trial court and this Court accept ConocoPhillips's argument that TEC could not avail itself of the force majeure clause as a matter of law because the clause silently, but by implication, incorporated the common law requirement that a force majeure event be unforeseeable. I disagree for three reasons. First, the court's injection of additional terms is inconsistent with well-established Texas contract-interpretation rules. Second, the use of the word hinder in the force majeure clause and the parties' decision that the excuse applies not only to terminate a party's performance obligation but to suspend it suggests that the parties did not agree to a narrow and restrictive unforeseeability requirement. Third, the general nature of this contract is very different from the warranty contracts on which ConocoPhillips relies. Therefore, I respectfully dissent.