By Joanna Nelson

Preston Exploration Co., L.P. v. GSF, L.L.C., Cause No. 10-20599, 2012 U.S. App. LEXIS 1873 (5th Cir. Tex. Feb. 1, 2012)

The Fifth Circuit recently vacated a judgment in the U.S. District Court for the Southern District of Texas, holding that the lower court had improperly conflated “two distinct principles – whether parties come to a meeting of the minds as to the subject matter of a contract with whether a writing’s legal description is sufficient to meet the statute of frauds.” Preston Exploration Co., L.P. v. GSF, L.L.C., Cause No. 10-20599, 2012 U.S. App. LEXIS 1873, *12 (5th Cir. Tex. Feb. 1, 2012). The parties’ dispute involved uncompleted exhibits to three Purchase and Sales Agreements (“PSAs”) entered into for the sale/purchase of certain oil and gas leases. Id. at *2. The exhibits, which were specifically referenced and incorporated into the PSAs, included a document “describing oil & gas leases to be conveyed and a reference to a different exhibit as the document setting out the form of the assignments to be delivered at closing. Id. at *4. The Seller, who had executed all three PSAs without complaint despite the PSAs providing for payment of a non-refundable deposit that amounted to $11 million, ultimately refused to close on the sale. Id. This suit followed.
After a three-day bench trial, the District Court determined that exhibits to the PSAs “did not contain enough information to be statute of frauds compliant” and that “the exhibits were not finalized at the time the PSAs were executing . . . [and thus] could not be incorporated into the PSAs.” Id. at *5. Without the exhibits, the District Court held that PSAs were not enforceable because they did not furnish “the means or data by which to identify the leases to be conveyed with reasonable certainty.” Id. at *5-6. The District Court also held that the Seller was not entitled to a return of the $11 million down payment, which holding was not challenged on appeal. Id. at *6.
The Fifth Circuit disagreed with the District Court on enforceability because “the PSAs do contain some indication of what is to be conveyed . . . [and] specifically provide that [Seller] is to convey all of Seller’s right, title and interest in and to all oil and gas leases as defined in Exhibit A.” Id. at *9-10. Internal quotes and brackets omitted. The Fifth Circuit noted that the “assignment documents could not be final at the signing of the PSAs because it was clearly intended by the parties that title work remained to be completed” and that the “PSAs specifically include provisions for curing title defects and for adjusting the contract price for any title defects which could not be cured.” Id. at *11. The “PSAs clearly reflect the intention of the parties and a recognition that there was still some title work to be done before a final determination could be made as to the leases which would ultimately be conveyed.” Id. The District Court thus “misconstrued this lack of finality as to the assignment documents as evidence that there was no meeting of the minds as to the subject of the contract.” Id. at *11-12. If, however, there had been no meeting of the minds, “there would be no contract whatsoever and the statute of frauds issue would be moot.” Id. at *12.
Because the intentions of the parties were clear by the terms of the PSAs and the “attached exhibits were all part of the same transaction and should be construed together,” the lack of finality of the exhibits did not prevent their consideration as part of the contracts to convey the property. Id. at *14-15. Though limiting enforcement of the PSAs to “those leases identified by recording information,” the Fifth Circuit held that the Buyer “may obtain specific performance” of the PSAs and remanded the case for “proceedings consistent with this opinion.” Id. at *15-16.