El Paso Field Services, L.P. and Gulfterra South Texas, L.P. F/K/A El Paso South Texas, L.P. v. Mastec North America, Inc. and Mastec, Inc.
389 S.W.3d 802
| Tex. | 2012Background
- El Paso Field Services, L.P. purchased and contracted to replace an old eight-inch pipeline from Victoria to Nueces Bay; the contract included risk-allocation provisions that purportedly placed undiscovered underground obstacles on MasTec.
- El Paso provided alignment sheets showing 280 foreign crossings but MasTec discovered many more during construction, increasing costs due to tie-in welds and time.
- MasTec bid low, relying on El Paso’s due diligence in locating crossings; the contract required MasTec to examine the site and assume risk notwithstanding representations by El Paso.
- Exhibits and specifications in Exhibit C required MasTec to confirm crossings and notify the owner before digging, while other contract provisions stated MasTec would complete the work for a fixed lump sum regardless of conditions.
- The trial court entered judgment for El Paso, the court of appeals reversed, and the Texas Supreme Court reinstated the trial court’s judgment determining MasTec bore the risk of undiscovered crossings.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Who bears the risk for undiscovered foreign crossings? | MasTec: El Paso failed due diligence; owner bears risk. | El Paso and MasTec agreed MasTec bears all risks; due diligence is not a warranty. | MasTec bears the risk; contractual allocation stands. |
| Is the due diligence language in Exhibit C meaningful or superseded by all-risks provisions? | MasTec: due diligence limits owner liability. | All-risks clauses control; due diligence is subordinate. | All-risks provisions control; due diligence does not exempt MasTec. |
| Are the contract terms ambiguous, requiring a fact issue on intent? | Treats due diligence as conflict with risk allocation; ambiguity exists. | Terms unambiguous; plain meaning supports MasTec’s assumption of risk. | Contract unambiguous; interpret to allocate risk to MasTec. |
Key Cases Cited
- Lonergan v. San Antonio Loan & Trust Co., 104 S.W.1061 (Tex. 1907) (owner not liable for faulty specifications absent fraud)
- Italian Cowboy Partners, Ltd. v. Prudential Ins. Co. of Am., 341 S.W.3d 323 (Tex. 2011) (interpret contract as whole; enforce freedom of contract)
- City of Dallas v. Shortall, 114 S.W.2d 536 (Tex. 1938) (fixed-sum contracts—no relief for unforeseen difficulties)
- Schlumberger Tech. Corp. v. Swanson, 959 S.W.2d 171 (Tex. 1997) (sophisticated parties may contract to allocate risks)
- Provident Life Ins. & Accident Ins. Co. v. Knott, 128 S.W.3d 211 (Tex. 2003) (contractual allocation of risks and benefits; enforce as written)
- Gym-N-1 Playgrounds, Inc. v. Snider, 220 S.W.3d 905 (Tex. 2007) (freedom to contract; allocate risk by agreement)
- Via Net v. TIG Ins. Co., 211 S.W.3d 310 (Tex. 2006) (due diligence interpreted with contract provisions)
- Thigpen v. Locke, 363 S.W.2d 247 (Tex. 1962) (interpretation of diligence and contract terms)
- Fairfield Ins. Co. v. Stephens Martin Paving, L.P., 246 S.W.3d 653 (Tex. 2008) (strong public policy favoring freedom of contract)