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Texas law permits parties to conclusively agree that, as between themselves, no partnership will exist unless certain conditions are satisfied.
For the purpose of distributing crude oil, Energy Transfer Partners, L.P. petitioners and Enterprise Products Partners, L.P., respondents, entered into three written agreements to explore the vitality of converting a natural gas pipeline, owned by petitioner but leased long term by respondent, into one which could carry crude oil. The project, which would also extend the length of the pipeline, would require a massive investment from the parties and committed customers to pay the tariff to justify the investment. In each of the three agreements, the parties reiterated their intent that neither party be bound to proceed until each company’s board of directors approved the execution of a formal contract and definitive terms of the agreement were specified. These agreements stated in no uncertain terms that unless those conditions were met, no joint venture or partnership would be formed. Petitioner initiated a suit contending that despite the disclaimers in the parties' written agreements, they had formed a partnership to market and pursue a pipeline through their conduct, and respondent breached its statutory duty of loyalty by pursuing the new pipeline project with another company. The jury answered yes to the question that petitioner and respondent had created a partnership but answered no to the question that respondent had complied with its duty of loyalty. The court of appeals reversed and rendered the judgment for respondent. Petitioner then filed this petition for review.
Did the appellate court err in reversing the trial courts judgment?
The court found that in petitioners' action alleging that they had formed a partnership and that respondents breached the statutory duty of loyalty, the appellate court's judgment in favor of respondents was proper because Texas law permitted parties to conclusively agree that, as between themselves, no partnership would exist unless certain conditions were satisfied, and the parties made such an agreement. Parties could conclusively negate the formation of a partnership under Tex. Bus. Orgs. Code Ann. ch. 152 through contractual conditions precedent and the current parties did so as a matter of law but there was no evidence that respondents waived the conditions. The court then affirmed the judgment of the court of appeals.