SubISSI Holdings, L.P. v. Hilcorp Energy I, L.P. and Hilcorp Energy Company

Citation: Not availableDocket: 04-07-00674-CV

Court: Court of Appeals of Texas; June 25, 2008; Texas; State Appellate Court

Original Court Document: View Document

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SubISSI Holdings, L.P. filed a breach of contract lawsuit against Hilcorp Energy I, L.P. and Hilcorp Energy Co., alleging a violation of a joint operating agreement and seeking specific performance. Hilcorp counterclaimed for a declaratory judgment regarding the same agreement. The trial court denied SubISSI's motion for summary judgment but granted Hilcorp's, leading to SubISSI's appeal, which was ultimately affirmed.

The joint operating agreement included an Area of Mutual Interest (AMI) provision requiring the offering party to notify the receiving party of any mineral interest acquisition in the AMI. The receiving party had thirty days to elect participation, after which the offering party would execute the necessary documents upon payment. Hilcorp, as the offering party, acquired land in the AMI (termed 'Prize Acquisition') and provided SubISSI with the required documents for execution and payment. However, SubISSI failed to return the executed documents or make the requisite payment within the thirty-day period following Hilcorp's notice.

During a meeting on January 22, 2004, SubISSI's principal attempted to deliver a check for payment, but Hilcorp refused it, asserting that SubISSI had forfeited its rights to the Prize Acquisition due to non-compliance with the payment deadline. The court's decision affirmed Hilcorp's position, ruling against SubISSI's claims.

The case involves two main issues: whether Hilcorp had a duty to fulfill a condition precedent for SubISSI and the nature of the 'tender' of assignment. These points are critical in determining when SubISSI was required to make payment to retain its rights in the Prize Acquisition. SubISSI contends that Hilcorp was required to provide a fully executed assignment before any payment obligation arose, arguing that Hilcorp's failure to do so meant the payment timeline was not initiated. Conversely, Hilcorp asserts that both parties had mutual obligations, claiming that the obligation for SubISSI to pay commenced on December 4, 2003, when Hilcorp sent an unexecuted assignment letter. Hilcorp argues that since SubISSI did not tender payment until January 22, 2004, after the thirty-day deadline, SubISSI forfeited its rights. The trial court sided with Hilcorp, leading to SubISSI's appeal.

The standard of review for summary judgment is de novo, requiring that each party demonstrate entitlement to judgment as a matter of law. When cross-motions for summary judgment are filed, the court evaluates all issues and can render a judgment reflecting what the trial court should have decided.

For a breach of contract claim, the plaintiff must establish the existence of a valid contract, their performance or offer of performance, a breach by the defendant, and resultant damages. It is essential for the plaintiff to prove that all conditions precedent for the claim have been met. The determination of a contract's ambiguity is a legal question, where a contract is considered unambiguous if it allows for only one interpretation. A condition precedent is defined as an event that must occur before performance is due or before a breach can occur, and determining its presence requires examining the entire contract to ascertain the parties' intentions. Words like 'if' or 'provided that' may indicate conditions but are not strictly necessary for their existence.

Where the intent of the parties is unclear or a condition results in absurdity, the agreement is interpreted as establishing a covenant instead of a condition. SubISSI claims that Hilcorp was required to 'execute, acknowledge, and deliver' the Prize Acquisition assignment before SubISSI had to pay the purchase price, asserting that this delivery was a condition precedent. However, establishing such a condition precedent necessitates explicit language or evidence of intent in the overall agreement. 

The actual condition precedent is found in the initial provision, which states that if SubISSI elects to acquire its interest, Hilcorp must deliver the assignment, and SubISSI must pay the purchase price. Hilcorp was not obligated to assign the interest, nor was SubISSI required to pay until SubISSI elected to participate. Once that election was made, both parties had concurrent obligations. The contract's language indicates that SubISSI's obligation to pay is contingent upon its election to participate, not on Hilcorp's delivery of the assignment.

Regarding the timing of payment, SubISSI's obligation to pay was not limited to a thirty-day period post-Hilcorp's 'tender' of the assignment, but must occur no later than thirty days after such tender. The critical issue is whether Hilcorp's delivery of a letter and unexecuted assignment constituted a valid tender initiating the thirty-day timeframe. The terms in contracts are interpreted using their ordinary meanings unless specified otherwise. The verb 'tender' is commonly defined as offering in satisfaction of an obligation, and in Texas law, its definition is contextual, relating to whether it pertains to a condition precedent or a concurrent obligation.

In contracts involving successive acts, a breach occurs only if one party fails to perform after the other party has completed their requisite action. Conversely, in contracts with concurrent obligations, a party is in default if the other is ready and willing to perform. The rules surrounding tender do not apply to conditional offers in concurrent conditions, but clarity must be established that the exchange will occur immediately upon the other party's performance. Actual performance is not required; rather, the party must demonstrate an ability to perform. 

In the case of Hilcorp and SubISSI, both parties had concurrent obligations. Hilcorp adequately tendered the assignment of the Prize Acquisition interest in a letter dated December 4, 2003, which outlined the documents for SubISSI’s execution. The letter specified that Hilcorp would fulfill its obligation by delivering the assignment upon receiving the executed originals from SubISSI and was not contingent on payment of the purchase price. SubISSI had thirty days to make payment unless it had a legal excuse.

A tender may be excused if it would be futile or if the other party has repudiated the contract. Courts interpret oil and gas operating agreements as preferential purchase rights, which are unilateral benefits that must be exercised strictly per the contract terms, affirming the importance of timing even when not explicitly stated as "time is of the essence."

Hilcorp did not repudiate the agreement and expressed intent to complete the transaction in a December 4, 2003 letter. Therefore, SubISSI was obligated to pay the purchase price within the specified thirty-day period, and failure to do so precluded SubISSI from seeking specific performance, as tender of payment was a prerequisite for such a remedy. The term "tender" is clearly defined and differs from "deliver," with the latter requiring the grantor to relinquish control of the assignment with the intent for it to take effect as a conveyance. The court concluded that Hilcorp’s action of tendering the assignment, rather than delivering it, was sufficient to trigger SubISSI’s payment obligation. The parties' use of "tender" instead of "deliver" indicated their intent, and there was no ambiguity in the agreement. The trial court's decisions to grant Hilcorp's motion for summary judgment and deny SubISSI's motion were affirmed.