EP Operating Co. v. MJC Energy Co.

• Decision Date: 23 June 1994
• Docket Number: No. 13-92-643-CV,13-92-643-CV
• Citation: 883 S.W.2d 263
• Parties: 129 Oil & Gas Rep. 125 EP OPERATING COMPANY, a Limited Partnership, and Enserch Exploration, Inc., Appellants, v. MJC ENERGY COMPANY, Appellee.
• Court: Texas Court of Appeals

Page 263

883 S.W.2d 263

129 Oil & Gas Rep. 125

EP OPERATING COMPANY, a Limited Partnership, and Enserch Exploration, Inc., Appellants, v. MJC ENERGY COMPANY, Appellee.

No. 13-92-643-CV.

Court of Appeals of Texas Corpus Christi.

June 23, 1994.

Rehearing Overruled July 28, 1994.

Randall C. Grasso, Dallas, Robert Q. Keith, Keith & Weber, Johnson City, for appellants.

Jacks C. Nickens, William H. Knull, III, Susan K. Pavlica, Mayer, Brown & Platt, Houston, for appellee.

Before KENNEDY, GILBERTO HINOJOSA and FEDERICO G. HINOJOSA, Jr., JJ.

OPINION

GILBERTO HINOJOSA, Justice.

This case involves the sufficiency of a series of letters to satisfy the statute of frauds requirements for a contract for the sale of an interest in certain oil and gas leases.

Jones & Mitchell, Inc., formerly known as MJC Energy Company (MJC), originally made a May 1, 1989, written offer to purchase certain oil and gas working interests owned by EP Operating Company and Enserch Exploration, Inc. (Enserch). Following extensive negotiation and the exchange of correspondence, an Enserch representative on September 29, 1989, orally accepted the offer as modified by a provision for indemnification of Enserch with regard to certain pending litigation. However, Enserch later that day canceled the agreement when its management decided not to accept the deal.

MJC then sued Enserch for specific performance and damages for breach of contract. Enserch answered and pled the statute of frauds as an affirmative defense. After a jury trial which resulted in findings of a contract between MJC and Enserch, the trial court granted judgment for MJC ordering Enserch to convey the property in question and allowing MJC to recover damages for delay in performing and attorney's fees. Enserch brings a single point of error on appeal complaining that the agreement is unenforceable under the statute of frauds. MJC brings two cross-points complaining that the trial court erred in denying its motion for sanctions and in calculating its attorney's fees. We reverse and render judgment in favor of Enserch.

We first address Enserch's point that the written correspondence between the parties fails to satisfy the statute of frauds requirement for a memorandum of the contract. The correspondence in the present case consists of:

(1) An initial written purchase offer from MJC president James Mitchell to Enserch land manager Michael Altobelli dated July 26, 1989, which contained a space at the bottom for Enserch to sign.

(2) An August 16, 1989, letter from Gary Jungo, senior vice president of Enserch, acknowledging receipt of the offer but declining acceptance due to pending litigation concerning the property in question under the following terms:

"While amenable to a sale of its interests along the same general terms as discussed in your July 26, 1989 proposal, at this time, we feel that the pending litigation constitutes a temporary bar to the consummation of any such arrangement.

"At such time as this temporary bar is removed, we would be very interested in pursuing the negotiation of a sale on the same general terms as proposed."

(3) An August 22, 1989, fax from Enserch to MJC of the August 16, 1989, letter from Jungo, which also included a copy of an August 22, 1989, internal "transmittal memo" from the Enserch Land Administration Department Contracts Section to the Enserch Acquisition Department which stated in pertinent part, "Re: Acquisition/Sale Agreement, Dated: 07/26/89, Seller: EP Operating Company, Buyer: MJC Energy Co." and "Enclosed for your handling are 2 duplicate originals of the referenced agreement executed by EPOC. Please forward to the appropriate party/parties." The transmittal memo was signed by James Teringo, a lawyer in Enserch's contracts section.

(4) A September 27, 1989, fax to MJC from Altobelli concerning a proposed indemnification provision. MJC had sent a three-paragraph proposed modification of the original written offer with regard to indemnification in connection with the pending litigation. Enserch had made some corrections to the proposal substituting a certain term ("closing date" for "effective date") and faxed the corrected page back to MJC. The corrected page was unsigned, but the fax also included the following introductory note signed by Altobelli: "Jim [Mitchell]--Let me know what you think."

Based on this evidence and testimony at trial concerning the parties' negotiations, the jury found that Enserch agreed to sell the property in question to MJC pursuant to MJC's letter to Enserch of July 26, 1989, as modified by Enserch's proposed indemnification provision.

The statute of frauds requires a contract for the sale of real estate, or a memorandum of such agreement, to be (1) in writing and (2) signed by the person to be charged with the promise or agreement or by someone lawfully authorized to sign for him. Tex.Bus. & Com.Code Ann. § 26.01 (Vernon 1987). Specifically, the sale of a working interest in an oil and gas lease is a real property interest which must be evidenced by such a written agreement or memorandum sufficient to comply with the statute of frauds. See McFarlane v. Clevenger, 665 S.W.2d 819, 825 (Tex.App.--Corpus Christi 1983, writ ref'd n.r.e.).

The statute of frauds requires the written agreement or memorandum to be complete within itself in every material detail and to contain all of the essential elements of the agreement so that the contract can be ascertained from the writings without resort to oral testimony. Cohen v. McCutchin, 565 S.W.2d 230, 232 (Tex.1978); Crowder v. Tri-C Resources, Inc., 821 S.W.2d 393, 396 (Tex.App.--Houston [1st Dist.] 1991, no writ).

Such a memorandum is required by the Statute of Frauds, not for the purpose of obtaining a contract in writing, but merely to furnish written evidence, signed by the party to be charged, of the obligation to be enforced against him. Therefore, a valid memorandum of the contract may consist of letters and telegrams signed by the party to be charged and addressed to his agent or the other party to the contract, or even to a third party not connected with the transaction. Adams v. Abbott, 151 Tex. 601, 254 S.W.2d 78, 80 (1952); Joiner v. Elrod, 716 S.W.2d 606, 609 (Tex.App.--Corpus Christi 1986, no writ); American Bank of Waco v. Thompson, 660 S.W.2d 831, 833 (Tex.App.--Waco 1983, writ ref'd n.r.e.); Central Power and Light Co. v. Del Mar Conservation District, 594 S.W.2d 782, 790 (Tex.Civ.App.--San Antonio 1980, writ ref'd n.r.e.); Taggart v. Crews, 521 S.W.2d 703, 708 (Tex.Civ.App.--San Antonio 1975, no writ); Howell v. Bowden, 368 S.W.2d 842, 846 (Tex.Civ.App.--Dallas 1963, writ ref'd n.r.e.).

In the present case, the written correspondence does not satisfy the statute of frauds. The three documents signed by representatives of Enserch and upon which MJC relies for a writing are Jungo's letter, Teringo's memo, and Altobelli's fax note.

The Jungo letter unambiguously indicates that it is not an acceptance of the purchase offer, but at most an invitation to continue negotiations at the conclusion of the pending litigation. The Altobelli fax note is also clearly not an acceptance of the whole agreement but merely a suggested change in the language of one part of the proposal which was then under negotiation.

This leaves the Teringo memo, which admittedly suggests that Enserch had executed an agreement with MJC concerning the property in question. However, the alleged agreement is clearly not evidenced by the Jungo letter, nor was any other such agreement enclosed with the Teringo memo. If a true written agreement exists as referenced by the Teringo memo, we can only guess what its terms may be, as it was not presented as an exhibit in the trial court. ¹ Nor is the Teringo memo itself a writing sufficient to show that MJC's original offer was merely accepted by Enserch without further modification or changes. Any such assumption, moreover, would be inconsistent with the jury finding that the contract included Enserch's proposed indemnification provision.

A memorandum like the present Teringo memo which merely alludes to the existence of a separate contract but does not give sufficient details of the terms of that contract is insufficient to satisfy the statute of frauds. See Wynnewood State Bank v. Brigham, 434 S.W.2d 874, 878 (Tex.Civ.App.--Texarkana 1968, writ ref'd n.r.e.); see also Collins v. Allied Pharmacy Management, Inc., 871 S.W.2d 929, 933-34 (Tex.App.--Houston [14th Dist.] 1994, n.w.h.) (where memorandum indirectly implies, but does not specifically state, a critical term (three-year employment), the writing is insufficient to satisfy the statute of frauds).

We acknowledge some similarity between the present case and the Joiner case decided by this Court some years ago. In that case, the written offer contained a provision which required execution and delivery before a certain date or the offer was automatically revoked. The parties orally agreed to extend the execution date and the party sought to be charged sent both his signed acceptance of the offer and a telegram referencing the execution of the contract. Although the signed contract appeared invalid as having been executed beyond the period for acceptance, when considered in connection with the telegram suggesting a valid execution, this was held sufficient to satisfy the statute of frauds in showing an acceptance pursuant to the agreement to extend the date for execution and delivery. Thus, when a telegram references the written contract as having been executed and returned by the party sought to be charged, this telegram may be considered in conjunction with the written contract itself as a part of the required memorandum evidencing the agreement. See Joiner, 716 S.W.2d at 609.

However, unlike Joiner, in the present case we have no sure indication of the terms of the agreement that Enserch supposedly executed, nor is there any other memorandum in the present...