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And You Thought Your Thanksgiving was Bad . . .


Question: A written agreement between the parties required a written and executed agreement before a contract was formed. Despite this, were a series of emails between parties confirming a deal enough to create a binding agreement?

Answer: No. If a separate agreement makes it clear that the parties do not intend to enter into a contract until a fully executed purchase and sale agreement is executed, then emails are not enough to form a contract.

The Story

I had a good Thanksgiving, but a group of investors a few years ago had a very bad Thanksgiving.  In fact, it was so bad, they lost a $230 million deal over the holiday.

Eighteen people and entities were investors in hundreds of millions of dollars’ worth of oil and gas leases in the Texas Panhandle. The investor group decided to develop and sell these leases, so they hired a broker to advertise and manage the sale. All potential purchasers entered into a confidentiality agreement that had the following clause:

No obligation. Parties hereto understand that unless and until a definitive agreement has been executed and delivered, no contract or agreement providing for a transaction between the parties shall be deemed to exist and neither party will be rendered any other legal obligation of any kind whatsoever with respect to such transaction by virtue of this or any written or oral expression thereof, except, in the case of this agreement, for the matters specially agreed to herein. For purposes of this agreement, the term “definitive agreement” does not include an executed letter of intent or any other preliminary written agreement or offer, unless specifically so designated in writing and executed by both parties.

Two primary bidders made bids for the assets—Le Norman Operating, LLC (“LNO”) and Jones Energy. After lengthy negotiations and submittal of a proposed purchase and sale agreement from LNO, no deal was reached for the sale of the assets. The sellers then made an offer to only sell 67% of the assets instead of all of the assets. Le Norman, a principal for LNO, sent sellers an email on behalf of LNO with a proposal offering to purchase 67% of the assets for $230 million. The deadline to accept LNO’s offer was 5:00 P.M. on the Tuesday before Thanksgiving. The sellers considered LNO’s proposal and agreed to sell to LNO. The seller’s representative emailed Le Norman that they were:

“on board to deliver 67% subject to a mutually agreeable PSA. We were calling to discuss next steps and timing. Chalker, et al [ the sellers] will be turning a PSA tonight to respond to your last draft.”

Later that night, a representative of the sellers handling the sale emailed the investors that he had

“notified Le Normal prior to the 5:00 PM deadline that we had the 67% interest committed to sell and are on board for moving forward with finalizing the PSA and the additional documents associated with the Transaction.”

The representative emailed LNO a revised purchase and sale agreement and mentioned that he was taking a few days off for Thanksgiving. One of the sellers sent an email to one of LNO’s investors congratulating them on winning the bid. Likewise, Jones Energy emailed the sellers stating that they heard they had “lost the bid.”

But then, Jones Energy moved forward with presenting a competing offer. For various reasons, the sellers decided on Thanksgiving Day that they preferred the new Jones Energy offer to the LNO offer. The day after Thanksgiving, all of the sellers confirmed via a ballot that they wanted to sell to Jones Energy. They executed a purchase and sale agreement with Jones Energy the following Wednesday.

Meanwhile, LNO has no idea this is happening. The same day that sellers executed the purchase and sale agreement with Jones Energy, LNO sent a marked-up purchase and sale agreement to sellers to review. When Le Norman learned that the sellers had decided to sell to Jones Energy instead of LNO, he was understandably upset. He demanded that the sellers honor the deal established with LNO through their email exchanges. The Sellers refused.

The Lawsuit

As a result, LNO sued the sellers for breach of contract arguing that sellers had already reached an agreement to sell to LNO before Thanksgiving through the emails that were exchanged. Both parties filed motions for summary judgment as to why they should win the lawsuit as a matter of law.

The trial court found for the sellers holding that there was no agreement with LNO because executing a purchase and sale agreement was expressly made a prerequisite before any agreement could be reached. LNO appealed, and the court of appeals reversed holding that whether an agreement had been reached through the emails was a fact issue, so the case needed to be tried. The sellers then appealed to the Texas Supreme Court.

And the Answer is . . .

The Texas Supreme Court reversed the appellate court and agreed with the trial court. The sellers and Jones Energy won and LNO lost. The Court noted that because of the ease and proliferation of correspondence through emails, parties draft clauses like the one in the confidentiality agreement to protect themselves from exactly this sort of situation. A signed purchase and sale agreement was an agreed prerequisite to the parties entering into a binding agreement. Since no purchase and sale agreement was ever executed between sellers and LNO, there is no agreement. Likewise, the emails between sellers and LNO do not show a clear and unequivocal intent that the parties intended to waive the prerequisite of a having a signed purchase and sale agreement. LNO is out of luck.

The Lesson

The lesson, once again, is that words in contracts matter. Unfortunately, there are too many examples where words in contracts contradict the parties’ actions and emails creating unrealistic expectations. Read your agreements to understand what they say and make sure you are complying with them. Otherwise, you may have as a bad a Thanksgiving as the members of Le Norman Operating, LLC.

Scot Pierce, Esq. is a trial lawyer and transactional attorney.  Click on his picture for his profile page.

Disclaimer: This post contains general opinions and analysis, is solely for educational purposes, and should not be treated as advice for any specific case.

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