Preston Exploration Co., LP v. GSF, LLC
669 F.3d 518
5th Cir.2012Background
- Preston and Chesapeake negotiated a sale/purchase of Preston oil and gas leases in 2008, with PSAs executed on October 7–8, 2008 and a November 7, 2008 closing date originally contemplated.
- Exhibits attached to the PSAs, including Exhibit A (lease list) and Exhibit C (assignment form), were referenced and incorporated, with title work continuing after signing.
- A $11,000,000 nonrefundable deposit was paid as part of the PSAs.
- Chesapeake conducted title due diligence and later informed Preston it would not close; Preston sued for specific performance and to recover the deposit, while Chesapeake asserted statute of frauds defenses.
- The district court found the PSAs and attached exhibits did not provide a writing with sufficient description to identify the leases with reasonable certainty, and thus granted Chesapeake summary judgment severing specific performance.
- On appeal, the Fifth Circuit VACATED the district court’s ruling and remanded, holding that the exhibits, when construed with the PSAs as a single transaction, provided sufficient data to identify conveyable leases and that the agreement could be enforceable for those leases recorded in Exhibit C.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the PSAs and attached exhibits satisfy the Texas statute of frauds | Preston: Exhibits provide lease identification with data for conveyance. | Chesapeake: Exhibits were not finalized and cannot be incorporated. | Statute of frauds satisfied; exhibits incorporated and enforceable for conveyable leases. |
| Whether the assignment exhibits can be incorporated despite lack of finalization at signing | Exhibits were intended to be part of the contract and supported by the PSAs. | Exhibits finalized after signing cannot be incorporated. | Exhibits were intended parts of the contract and should be incorporated. |
| Whether the contract is divisible so that some leases may be enforced even if others fail | Divisible contract principles allow enforcement of certain leases meeting the statute. | If defect exists, the whole contract may fail. | Contract is divisible; enforcement limited to leases with recording information. |
Key Cases Cited
- Owen v. Hendricks, 433 S.W.2d 164 (Tex. 1968) (multiple writings may form a single contract)
- Padilla v. LaFrance, 907 S.W.2d 454 (Tex. 1995) (unsigned papers may be incorporated by reference)
- Wilson v. Fisher, 188 S.W.2d 150 (Tex. 1945) (property description may be supplied by reference)
- Westland Oil Dev. Corp. v. Gulf Oil Corp., 637 S.W.2d 903 (Tex. 1982) (divisible contract enforcement when some parts meet the statute)
- Kmiec v. Reagan, 556 S.W.2d 567 (Tex. 1977) (covenants to convey may be enforceable in part)
- Pick v. Bartel, 659 S.W.2d 636 (Tex. 1983) (writing must describe property with reasonable certainty)