Texas Gas Utilities Company v. Barrett
460 S.W.2d 409, 36 Oil & Gas Rep. 685, 14 Tex. Sup. Ct. J. 98 (1970)
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Rule of Law:
A contract is supported by valid consideration and does not lack mutuality of obligation when there is an exchange of promises, even if one party's promise to perform is limited by exculpatory clauses, so long as that party remains bound to perform under some circumstances.
Facts:
- On January 17, 1964, S. A. Barrett, John Barrett and James Beavers entered into a five-year agricultural lease for farm properties.
- In March 1964, Associated Oil and Gas Company, the predecessor to Texas Gas Utilities Company, constructed a five-mile pipeline costing over $100,000 to service these properties.
- On April 21, 1964, the Barretts and Beavers signed a five-year contract with Associated for natural gas to fuel irrigation pumps on the leased land.
- The contract required them to pay an annual minimum fee regardless of their actual gas usage.
- Article VI of the contract stated that the company did not guarantee a continuous supply of gas and assumed no obligation regarding the quantity or quality delivered, but would endeavor to supply the customers' requirements.
- Sometime after signing the contract but before January 1, 1965, the Barretts and Beavers were evicted from the leased farm properties by their lessors.
- On January 1, 1965, Associated Oil and Gas Company assigned the contract to Texas Gas Utilities Company.
Procedural Posture:
- Texas Gas Utilities Company sued S. A. Barrett, John Barrett, and James Beavers in a Texas trial court to recover minimum payments due under the gas service contract.
- Following a jury trial, the trial court granted the defendants' motion for judgment and entered a take-nothing judgment against Texas Gas Utilities Company.
- Texas Gas Utilities Company, as appellant, appealed to the Texas Court of Civil Appeals (an intermediate appellate court).
- The Court of Civil Appeals affirmed the trial court's judgment, holding that the contract was unenforceable for lack of mutuality of obligation.
- Texas Gas Utilities Company, as petitioner, sought review from the Supreme Court of Texas (the state's highest court).
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Issue:
Does a natural gas supply contract lack mutuality of obligation, and is therefore unenforceable, when it contains clauses stating the supplier does not guarantee a continuous supply and assumes no obligation regarding the quantity or quality of gas delivered?
Opinions:
Majority - Steakley, Justice
No, the natural gas supply contract does not lack mutuality of obligation and is therefore enforceable. The rule of mutuality of obligation is essentially a requirement for valid consideration, which is satisfied by the exchange of promises. Here, the gas company promised to deliver available natural gas and make reasonable provisions for a continuous supply, while the customers promised to pay for the gas and meet minimum payment obligations. The exculpatory clauses in Article VI did not eliminate the gas company's obligation entirely; they merely qualified it. The company was still bound to deliver available gas and would be liable for a breach if it failed to do so for reasons not specified in the exculpatory clauses. This reciprocal exchange of binding promises constitutes sufficient consideration to form an enforceable contract.
Analysis:
This decision reinforces the modern judicial trend of upholding contracts against technical defenses such as a lack of mutuality. The court clarifies that mutuality is not a distinct, rigid requirement but is satisfied by the presence of valid consideration, which can be found in the mutual exchange of promises. The ruling establishes that even contracts containing significant exculpatory clauses that limit one party's performance are enforceable, provided some genuine obligation to perform remains. This precedent gives greater certainty to commercial agreements, particularly in industries like energy where supply can be inherently variable, by ensuring that service contracts with minimum payment terms are not easily voided.
