Columbia Gas Transmission Corp. v. New Ulm Gas, Ltd.

• Citation: 940 S.W.2d 587
• Decision Date: 13 December 1996
• Docket Number: No. 94-1206,94-1206
• Parties: 40 Tex. Sup. Ct. J. 42 COLUMBIA GAS TRANSMISSION CORPORATION, Petitioner, v. NEW ULM GAS, LTD., Respondent.
• Court: Supreme Court of Texas

Page 587

940 S.W.2d 587

40 Tex. Sup. Ct. J. 42

COLUMBIA GAS TRANSMISSION CORPORATION, Petitioner, v. NEW ULM GAS, LTD., Respondent.

No. 94-1206.

Supreme Court of Texas.

Argued Feb. 13, 1996.

Decided Oct. 18, 1996.

Rehearing Denied Dec. 13, 1996.

Thomas H. Lee, J. Eric Toher, Houston, for petitioner.

Tom W. Reavley, Ray H. Langenberg, Steven Goode, Austin, Charley L. Smith, Beeville, for respondent.

ABBOTT Justice, delivered the opinion of the Court, in which PHILLIPS, Chief Justice, HECHT, CORNYN, ENOCH, SPECTOR, OWEN and BAKER, Justices, join.

This case primarily concerns the proper interpretation of pricing provisions in a gas contract. ¹ The trial court held that the pricing provisions were ambiguous and awarded contract and fraud damages to New Ulm Gas, Ltd. in accordance with a jury verdict. The court of appeals reversed and remanded, determining that the trial court had correctly concluded that the contract was ambiguous, but that evidentiary errors made by the trial court necessitated a remand. 886 S.W.2d 294. We disagree with the appellate court's conclusion that this contract was ambiguous. We reverse the judgment of the court of appeals on the contract claims and render judgment in favor of Columbia Gas Transmission Corporation. We affirm that part of the judgment of the court of appeals remanding New Ulm's fraud claim to the trial court.

Fred Fox acquired oil and gas leases on about 7,000 acres of the New Ulm Field near New Ulm, Texas. He later assigned these leases to various oil companies, reserving an overriding royalty interest to himself. In 1985, Fox acquired a working interest in one part of the New Ulm Field from the Mobil Oil Company, and he formed a limited partnership, New Ulm Gas, Ltd. (New Ulm), to drill a well and produce natural gas from this interest.

The well was subject to a contract entered into in 1980 between Mobil's predecessor, The Superior Oil Company, and Columbia Gas Transmission Corporation. This contract committed Superior and its successors (including New Ulm) to sell gas from the well to Columbia. Sections 3.1.1 and 3.1.3 were the two primary pricing provisions in this contract.

Section 3.1.1 was the initial pricing mechanism and took effect from 1980 through at least December 31, 1984. The pricing mechanisms of section 3.1.3 could then be invoked by either party "[a]t any time after December 31, 1984 and from time to time thereafter." On January 1, 1985, Columbia invoked section 3.1.3. The parties thereafter entered into a series of price agreements pursuant to the provisions of 3.1.3.

In March 1988, New Ulm attempted to re-invoke the pricing mechanisms of 3.1.1. New Ulm contended that, even after Columbia had elected a section 3.1.3 renegotiation, New Ulm could unilaterally change that price by electing the section 3.1.1 price. According to New Ulm, if Columbia then made a good faith determination that the 3.1.1 price did not reflect current market prices, it could re-elect 3.1.3. This scheme would thus create a loop of pricing elections that could continue indefinitely.

Columbia refused to utilize the 3.1.1 prices invoked by New Ulm in March 1988. Columbia contended that it had the option to make the 3.1.3 election anytime after December 31, 1984. Once this election was made, Columbia argued, the only price changing mechanism was the one contained in 3.1.3. Columbia maintained that New Ulm could not unilaterally alter the section 3.1.3 negotiated price by simply electing another price under section 3.1.1. Instead, if the current price determined under 3.1.3 was unacceptable to New Ulm because it no longer reflected the current market price, then New Ulm had the option of renegotiating the price under 3.1.3.

New Ulm then sued Columbia, seeking contractual damages for the period from April 1988 through July 1991. New Ulm also sought damages for allegedly fraudulent statements made by Columbia in 1986 concerning the price of gas. Both parties moved for summary judgment, but the trial court denied their motions on the basis that the contract was ambiguous. Accordingly, a jury trial was held to determine the parties' intent. The jury found for New Ulm and awarded approximately $1.7 million in contract damages, another $2.3 million for damages from Columbia's fraud, and attorney's fees. The trial court rendered judgment on the jury's verdict and Columbia appealed.

The court of appeals agreed with the trial court that the contract was ambiguous and that a fact issue existed regarding the intent of the parties. However, the court of appeals reversed and remanded for a new trial on the basis that the trial court had committed harmful error by improperly excluding certain evidence concerning the parties' intent. Both parties then filed applications for writ of error with this Court.

We hold that the contract is not ambiguous and that section 3.1.1 was no longer a pricing option after Columbia invoked section 3.1.3. Accordingly, New Ulm is not entitled to the contractual damages awarded by the jury. We also conclude that New Ulm's fraud claim must be remanded to the trial court.

I

Whether a contract is ambiguous is a question of law that must be decided by examining the contract as a whole in light of the circumstances present when the contract was entered. National Union Fire Ins. Co. v. CBI Industries, Inc., 907 S.W.2d 517, 520 (Tex.1995); Coker v. Coker, 650 S.W.2d 391, 394 (Tex.1983). A contract is not ambiguous if it can be given a definite or certain meaning as a matter of law. CBI, 907 S.W.2d at 520; Coker, 650 S.W.2d at 393; Universal C.I.T. Credit Corp. v. Daniel, 150 Tex. 513, 243 S.W.2d 154, 157 (1951). On the other hand, if the contract is subject to two or more reasonable interpretations after applying the pertinent rules of construction, the contract is ambiguous, which creates a fact issue on the parties' intent. Daniel, 243 S.W.2d at 157; see also generally CBI, 907 S.W.2d at 520.

An ambiguity does not arise simply because the parties advance conflicting interpretations of the contract. Forbau v. Aetna Life Ins. Co., 876 S.W.2d 132, 134 (Tex.1994); Sun Oil Co. (Delaware) v. Madeley, 626 S.W.2d 726, 727 (Tex.1981). For an ambiguity to exist, both interpretations must be reasonable. See CBI, 907 S.W.2d at 520; see also Glover v. National Ins. Underwriters, 545 S.W.2d 755, 761 (Tex.1977). In this case, we must decide whether there is more than one reasonable interpretation of this contract such that a fact issue was created concerning the parties' intent.

We begin with an examination of the contract language. Section 3 of the contract is entitled "PRICE" and provides, in pertinent part:

The price to be paid by Buyer [Columbia] to Seller [New Ulm] for all gas delivered hereunder, or made available and not taken as herein provided, shall be as follows:

3.1.1 For gas produced, sold and delivered hereunder, or any portion thereof, which the United States Congress, the Federal Energy Regulatory Commission, or any governmental authority having jurisdiction in the premises, ceases or has already ceased to have jurisdiction or exercise control over rates that may be lawfully charged and collected (hereinafter referred to as "deregulated gas"):

(i) Subject to Section 3.1.1(ii) hereof, the initial price shall be Five Dollars and Thirty-Five Cents ($5.35) per MMBtu effective June 1, 1980, and shall be adjusted on the first day of each month thereafter in the manner provided below....

(ii) Seller may request a determination of an alternate price to be paid by Buyer hereunder to be effective on the first day of each calendar quarter and shall remain in effect thereafter until Seller requests a different alternate price. Such request for determination of an alternate price shall be made to Buyer in writing within fifteen (15) days prior to the beginning of the calendar quarter for which such alternate price will be effective and shall designate Seller's election of the alternate price; provided, however, Seller may request a determination of an alternate price within fifteen (15) days following execution of this contract, said alternate price to be effective from execution hereof until Seller requests a different alternate price. The alternate price shall be selected by Seller from the following alternatives:

....

3.1.3 At any time after December 31, 1984 and from time to time thereafter, either Buyer or Seller may request the renegotiation of price to be paid for the gas sold and delivered hereunder, in which case the party making such request must demonstrate in good faith that the price being paid does not reflect the market value of the gas being sold in the area where it is produced or the market value of the gas in the area where it is being consumed. In such case the parties shall review the circumstances and supporting data in a good faith effort to rectify the situation by mutually agreeing to a new price or Seller may seek a third party purchaser for the gas. In the event that a bona fide offer is received by Seller from a third party purchaser, Buyer shall have the option either to match such offer and continue to purchase the gas hereunder or to release the gas at issue. If no bona fide third party purchaser offer is received, then the parties hereto shall try for thirty (30) days to negotiate an acceptable price. If the parties fail to agree on a price, the matter will be referred to arbitration as provided in Section 17 hereunder. During the period of any negotiations or arbitration the gas will continue to be sold and purchased at the price in effect at the time of the notice.

The parties disagree on the effect of this language. Columbia argues that the invocation of 3.1.3 trumps 3.1.1, while New Ulm contends that 3.1.3 and 3.1.1 operate in tandem in a potentially continuous cycle. We believe that New Ulm's interpretation is unreasonable, and that Columbia's interpretation is correct as a matter of law.

Determining a price under section...