Texas Gas Utilities Company v. S.A. Barrett

Brief Fact Summary.

Company 1 contracted to supply company 2 and certain individuals with a minimum amount of natural gas.  Company 1's contract was eventually assigned to company 3.  Company 2 and certain individuals lost their lease on the property, and a question of whether the contract remained enforceable arose.

Synopsis of Rule of Law.

"[If a] writing embodies an exchange of obligations of value of each contracting party, reciprocally or mutually induced", the contract is enforceable.

Facts.

The Petitioner, Texas Gas Utilities Company (the "Petitioner"), brought suit against the Respondents, S.A. Barrett, John Barrett and James Beavers (the "Respondents").  A contract was entered into on April 21, 1964 between the Petitioner's predecessor-assignor, Associated Oil and Gas Company ("Associated"), and the Respondents.  The assignment occurred on January 1, 1965.  The term of the contract was five years with an option to renew for another five years.  The purpose of the contract was to provide the Respondents with natural gas for use in water well pumps on farm properties they held an agricultural lease on.  The lease was dated January 17, 1964.  The contract required the Respondents to make an annual minimum payment per engine that they installed to pump water.  Associated installed a five mile pipeline in March 1964, at a cost of $100,000, to deliver the natural gas.  Deliveries of which began on April 6, 1964.  The Respondents, prior to the date of the assignment, were evicted from the leased properties.  The contract between the Petitioner and the Respondents does not discuss such a contingency.  However, the contract does include a provision obligating the Petitioner to supply gas unless one of various contingencies occurs.  The contract also provides that the Petitioner had to "endeavor to supply" the contracted upon amounts of natural gas.  A disclaimer stated that the Petitioner disclaims any obligation "regarding the quantity or quality of the gas delivered hereunder, or the continuity of service."  The trial court granted the Respondents motion for judgment on the jury verdict and as a matter of law.  The court of appeals affirmed the lower court's ruling, and found that the Petitioner did not have an obligation to furnish gas because the "contract was unenforceable as lacking in mutuality of obligation."

Issue.

Is the contract void due to lack of mutuality of obligation?

Held.

No.  The court first observed that mutuality of obligation is necessary, because if either party is not bound, neither is bound.  In other words, there must be valid consideration.  If not, there is no valid contract.  The court quoted [Texas Farm Bureau Cotton Ass'n v. Stovall] which spoke about mutuality of obligation and observed "Reduced to its last analysis, the rule is simply that a contract must be based upon a valid consideration, and that a contract in which there is no consideration moving from one party, or no obligation upon him, lacks mutuality, is unilateral, and unenforceable. * * * It is quite elementary that the promise of one party is a valid consideration for the promise of the other party."  Also based on [Clement v. Producers' Refining Co.], the court observed "where no other consideration is shown, mutual obligations by the parties to the agreement will furnish a sufficient consideration to constitute a binding contract." 
•    The court finds that the agreement between the Petitioner and the Respondent is binding.  "The writing embodies an exchange of obligations of value of each contracting party, reciprocally or mutually induced." Specifically, "[t]he gas company was bound to deliver natural gas to the various water well delivery points specified in the contract; to make reasonable provisions to insure a continuous supply of natural gas; to endeavor to supply the requirements of respondents; and to install the necessary metering equipment at its own expense. Respondents were in turn bound to pay for the gas delivered to their wells upon their order and to pay the minimum charges provided in the contract."  The court observes that these mutual obligations are not voided because of the exculpatory language used in the contract.  The Petitioner was bound to deliver natural gas unless certain enumerated contingencies occurred.  
•    The court observed:  "[t]he extent of the exculpatory clause is that the gas company assumed no obligation–made no guarantee–either that gas would always be available or that gas of a particular quality would always be available. It was bound, however, to supply Available natural gas to respondents…"

Discussion.

This case offers a unique insight into how courts will look beneath the face of a contract and really try to get at the intent of the parties.  Here, based on the disclaimer alone, it looked like the Petitioner's really had not obligation, but based on the surrounding circumstances and other language in the contract, in fact they did.