Fort Worth Court of Appeals Voids $950,000 Crane County Asset Sale for Lack of Consideration Due to Buyer's Unfettered Discretion
The Fort Worth Court of Appeals reversed a specific performance order for a $950,000 Crane County oil and gas asset sale, holding that the buyer's "sole discretion" to walk away after due diligence rendered its promise illusory and the letter agreement unenforceable for want of consideration. Applying binding precedent from Culbertson v. Brodsky, the court ruled that absent separate consideration for the option period, Cooper's unlimited discretion to terminate undermined mutuality of obligation.
Background and Transaction Structure
In March 2021, Glenn D. Cooper Oil & Gas, Inc. sent Maverick Natural Resources, LLC a letter offering $950,000 for wells and leases in Crane County, Texas. Maverick signed the letter. The letter provided Cooper with an exclusive right to purchase the properties until April 15, 2021, and contemplated a diligence period during which Cooper would review lease operating statements, well files, title records, financial records, conduct interviews with field pumpers and staff, and perform site inspections. The letter stated that the offer was "wholly contingent" upon Cooper's review and that Cooper would have "sole discretion" to decide whether "to move forward to a closing."
The Dispute Over Enforceability
After the April 15 closing date passed, Maverick decided not to sell the property. Cooper sued Maverick and two related entities for breach of contract, declaratory judgment, and statutory fraud, seeking specific performance of the letter agreement. The Maverick entities defended on the ground that the letter was unenforceable for lack of consideration, arguing that Cooper's "sole discretion" language made its promise to perform illusory. The trial court disagreed and entered summary judgments awarding Cooper specific performance along with costs and attorney's fees. The Maverick entities appealed on five grounds, while Cooper conditionally cross-appealed the dismissal of its statutory fraud claim.
The Court's Analysis on Consideration
The Fort Worth Court of Appeals reversed, applying its binding precedent in Culbertson v. Brodsky, 788 S.W.2d 156 (Tex. App.—Fort Worth 1990). The court held that Cooper's "sole discretion" to walk away from the sale made its promise to perform illusory, and absent separate consideration for this option, the letter was unenforceable. The court explained that for a contract to be enforceable, it must be supported by valid consideration—meaning mutuality of obligation. When a promisor retains the option to terminate the transaction in lieu of performing it, the promise is illusory and does not actually bind the promisor. The court emphasized that when one party retains the option to walk away for a specified period, that party must provide separate consideration for the option. Because Cooper retained unlimited "sole discretion" to decide whether to proceed to closing, Cooper's promise was illusory and the letter agreement lacked the necessary consideration.
Implications for Oil and Gas Transactions
This decision serves as a critical reminder for practitioners structuring oil and gas asset acquisitions that due diligence provisions with unfettered buyer discretion can render the entire agreement unenforceable. To preserve enforceability, buyers seeking option-like flexibility during a diligence period must provide separate consideration for that option right. The court affirmed the partial summary judgment entered against Cooper, reversed and rendered the summary judgments entered against the Maverick entities, and remanded for the trial court's reconsideration of costs and attorney's fees.