590 S.W.3d 471
Tex.2019Background
- Barrow-Shaver (farmee) and Carrizo (farmor) negotiated a drill-to-earn farmout for part of a Parkey lease; the final letter agreement required "express written consent of Carrizo" before Barrow-Shaver could assign its rights.
- Earlier drafts had language that consent "shall not be unreasonably withheld," but Carrizo’s negotiator deleted that phrase; Carrizo’s negotiator also orally told Barrow-Shaver several times that Carrizo would consent to future assignments.
- Barrow-Shaver spent $22 million drilling a well (unsuccessful) and received a $27M assignment offer from Raptor; Carrizo refused to consent and instead offered to sell its interest to Barrow-Shaver for $5M (an offer Barrow-Shaver did not accept).
- Barrow-Shaver sued for breach of contract, fraud, and tortious interference; the jury awarded Barrow-Shaver about $27.7M, but the court of appeals reversed.
- The Texas Supreme Court reviewed whether (1) the consent provision unambiguously allowed Carrizo to refuse consent for any reason, and (2) Barrow-Shaver could justifiably rely on Carrizo’s oral assurances despite the written agreement.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the consent-to-assign clause should be read to prohibit Carrizo from unreasonably withholding consent | Barrow-Shaver: clause is silent on reasons to withhold consent; industry custom and negotiations show a reasonableness limitation | Carrizo: clause is unambiguous; requiring "express written consent" imposes no duty and allows withholding for any reason | Held: Unambiguous; Carrizo may withhold consent unqualifiedly; no reasonableness duty implied |
| Whether extrinsic evidence (drafts, negotiations, industry custom) may inform the clause's meaning | Barrow-Shaver: prior drafts/industry custom admissible to supply meaning | Carrizo: parol evidence rule bars using negotiations to vary an unambiguous writing | Held: Parol evidence bars substantive negotiation drafts; industry custom cannot add an immaterial term to an unambiguous contract |
| Whether a covenant of good faith or reasonableness should be implied into the consent clause | Barrow-Shaver: imply duty not to withhold consent unreasonably | Carrizo: no underlying obligation exists for good-faith duty to attach | Held: No special relationship; no implied covenant or reasonableness standard inserted |
| Whether Barrow-Shaver could justifiably rely on oral promises that Carrizo would consent (fraud claim) | Barrow-Shaver: relied on Laufer’s repeated assurances when signing the written agreement | Carrizo: reliance unjustified because the written agreement directly contradicts oral promises; red flags existed | Held: Reliance unjustified as a matter of law—oral promises directly contradicted the unambiguous writing and red flags negated justifiable reliance |
Key Cases Cited
- Murphy Expl. & Prod. Co.–USA v. Adams, 560 S.W.3d 105 (Tex. 2018) (principles for ascertaining parties’ intent from contract language)
- El Paso Field Servs., L.P. v. Mastec N. Am., Inc., 389 S.W.3d 802 (Tex. 2012) (if contract has definite legal meaning, it is construed as a matter of law)
- Orca Assets G.P., L.L.C. v. JPMorgan Chase Bank, N.A., 546 S.W.3d 648 (Tex. 2018) (reliance on oral representations contradicted by unambiguous written terms is unjustifiable as a matter of law)
- Fischer v. CTMI, L.L.C., 479 S.W.3d 231 (Tex. 2016) (material vs. immaterial terms; when supplementation by usage is permitted)
- National Union Fire Ins. Co. v. CBI Indus., Inc., 907 S.W.2d 517 (Tex. 1995) (extrinsic evidence may not be used to vary clear, absolute contractual language)
- Sun Oil Co. v. Madeley, 626 S.W.2d 726 (Tex. 1981) (courts settle the meaning of contracts and may consider surrounding facts only to inform ambiguous language)