Dresser Industries, Inc. v. Page Petroleum, Inc.

• Decision Date: 04 December 1991
• Docket Number: No. 10-89-147-CV,10-89-147-CV
• Citation: Dresser Industries, Inc. v. Page Petroleum, Inc., 821 S.W.2d 359 (Tex. App. 1991)
• Parties: DRESSER INDUSTRIES, INC. and Houston Fishing Tools Company, Appellants, v. PAGE PETROLEUM, INC., et al., Appellees.
• Court: Texas Court of Appeals

Page 359

821 S.W.2d 359

DRESSER INDUSTRIES, INC. and Houston Fishing Tools Company, Appellants, v. PAGE PETROLEUM, INC., et al., Appellees.

No. 10-89-147-CV.

Court of Appeals of Texas Waco.

Dec. 4, 1991.

Rehearing Denied Jan. 15, 1992.

Kent C. Sullivan, McFall & Sartwelle, P.C., Jennifer Bruch Hogan, Fulbright & Jaworski, Houston, for appellants.

Jess Hall, Jr., Liddell, Sapp, Zivley, Hill & Laboon, Houston, J.G. Adami, Jr., Perkins, Oden, Warburton, McNeill, Adami & Paisley, P.C., Alice, for appellees.

Before THOMAS, C.J., and CUMMINGS and VANCE, JJ.

OPINION

THOMAS, Chief Justice.

Page Petroleum, Inc. and the other owners of a lease sued Dresser Industries, Inc. and Houston Fishing Tools Company for negligently damaging an uncompleted oil well, which resulted in the well being abandoned and the drilling of a replacement well. The jury found that Page ¹, Dresser, and Houston were negligent, attributed 50% of the negligence to Page, 40% to Houston and 10% to Dresser. Dresser and Houston contend they were entitled to a take-nothing judgment because their contracts with Page absolved them from any liability for negligence.

Principal questions relate to whether the provisions relied on by Dresser and Houston are releases or indemnity agreements and whether they bar Page's recovery. We hold that Dresser's provision is an indemnity agreement which only protects it against claims of third parties, not against liability to Page. Therefore, we affirm the judgment against Dresser. However, we hold that Houston is entitled to a take-nothing judgment against Page because its provision is a release of liability. Accordingly, we reverse and reform the judgment to provide that Page take nothing against Houston.

WHAT HAPPENED

Page had drilled the well to a depth of 11,000 feet when it asked Dresser to log and test it. A Page representative signed a document containing the provision Dresser relies on to absolve it from liability. After a piece of equipment Dresser was using to test formations became stuck in the well bore, Page called in Houston to "fish" it out. Page's representative signed the document which Houston claims releases it from all liability. While trying to retrieve the stuck equipment, Houston lost several thousand feet of wireline and drill pipe down the well bore, which could not be dislodged. Page was later forced to abandon the well and drill a replacement well.

CONTENTIONS

The parties disagree whether the provisions require Page to indemnify Houston and Dresser against their own negligence or merely release them from any liability to Page. Interpreting the provisions as requiring indemnity, Page argues that their enforcement is governed by the statutes and rules relating to indemnity contracts. It contends the provisions are unenforceable because (1) they were not conspicuous enough to give fair notice that Page would be obligated to indemnify Houston and Dresser against their own negligence, (2) they violated the express-negligence doctrine, and (3) they violated section 127.003 of the Civil Practices and Remedies Code, which voids any agreement pertaining to an oil or gas well that purports to indemnify a person against his own negligence. See TEX.CIV.PRAC. & REM.CODE ANN. § 127.003(a)(1) (Vernon 1986).

Houston and Dresser interpret the provisions as exculpatory, involving a release of liability rather than requiring indemnity against claims of third parties. Based on findings that Page's representatives were authorized to bind Page to the agreements, Houston and Dresser each filed motions asking the court to disregard the negligence findings and to enter a judgment that Page take nothing.

DISTINGUISHING INDEMNITY FROM RELEASE

A release of liability and an indemnity agreement have unique characteristics that distinguish one from the other. A release surrenders legal rights or obligations between the parties to the agreement. Cox v. Robison, 105 Tex. 426, 150 S.W. 1149, 1155 (1912). A release extinguishes the claim or cause of action as effectively as would a prior judgment between the parties and is an absolute bar to any right of action on the released matter. Hart v. Traders & General Ins. Co., 144 Tex. 146, 189 S.W.2d 493, 494 (1945).

An indemnity agreement arises, however, from a promise by the indemnitor to safeguard or hold the indemnitee harmless against either existing or future loss or liability, or both. Russell v. Lemons, 205 S.W.2d 629, 631 (Tex.Civ.App.--Amarillo 1947, writ ref'd n.r.e.). Rather than extinguishing a cause of action, which is the effect of a release, the indemnity contract creates a potential cause of action in the indemnitee against the indemnitor. Id. If the undertaking is to indemnify against liability, the cause of action matures when the indemnitee incurs liability covered by the agreement. Id. But, if the obligation is to indemnify against loss, damage or injury, the right of action accrues on actual payment of the loss by the indemnitee. Id.

Another significant distinction exists between a release of liability and an indemnity agreement. A release extinguishes any actual or potential claim for liability and injury the releasor might have against the releasee, without regard to the releasee's actual or potential liability to third parties. See Whitson v. Goodbodys, Inc., 773 S.W.2d 381, 383 (Tex.App.--Dallas 1989, writ denied). In contrast, a contract of indemnity does not relate to liability claims between the parties to the agreement but, of necessity, obligates the indemnitor to protect the indemnitee against liability claims of persons not a party to the agreement. Id.

We will examine the provisions with these distinctions in mind, applying the rules governing the interpretation of contracts to determine whether the parties intended the provisions to indemnify or release liability. See Spence & Howe Construction Co. v. Gulf Oil Corp., 365 S.W.2d 631, 632 (Tex.1963) (indemnity); Quebe v. Gulf, C. & S.F. Ry. Co., 98 Tex. 6, 81 S.W. 20, 21-22 (1904) (release). Their intent will be gleaned from the language of the provisions. See City of Pinehurst v. Spooner Addition Water Co., 432 S.W.2d 515, 518 (Tex.1968).

DRESSER PROVISION

Dresser relies on the following provision to relieve it from liability to Page:

3. There are obviously many conditions in and about the well of which we can have no knowledge and over which we can have no control. Therefore, we accept this service order only on condition that we do not guarantee any particular results from services to be performed hereunder. Except where damage or injury is caused by gross or willful negligence on our part, [Page ] shall indemnify [Dresser ] and hold [Dresser ] free and harmless from all claims for personal injuries, including death and damage, including subsurface damage or injury to the well and damages attributable to pollution or contamination and cost of control and removal thereof, alleged to have been caused by our operations under this service order, including claims alleging that injuries or damages were caused by [Dresser's ] negligence, whether such claims are made by [Page ], by [Page's ] employees, or by third parties.

(Emphasis added).

Drawing together the italicized language, the parties unambiguously intended Page to "indemnify [Dresser] and hold [Dresser] free and harmless from all claims for ... subsurface damage or injury to the well ..., including claims alleging that injuries or damages were caused by [Dresser's] negligence, whether such claims are made by [Page], by [Page's] employees, or by third parties." The terms "indemnify" and "hold ... free and harmless" clearly stamp the provision as one of indemnity. Furthermore, Page is expressly obligated to protect Dresser from claims asserted by persons not a party to the agreement--"[Page's] employees and third parties"--which is a distinguishing feature of indemnity.

However, Page also agreed to indemnify Dresser against all claims, regardless of "whether such claims are made by [Page]" or third parties, which if taken literally would require Page to protect Dresser against Page's own liability claims. Such a literal interpretation, however, would create a non sequitur. Logically, Page could release a future claim against Dresser but not indemnify Dresser against such a claim. To conclude otherwise would produce an absurdity: Dresser's indemnity action would mature upon its payment of damages on Page's claim, which then would entitle Dresser to recover those damages from Page. Considering the unambiguous expression of the parties' intent that Page was to indemnify Dresser, inserting Page's name among the parties whose claims were to be indemnified was clearly inadvertent because it lacked any legal significance in the sense in which it was used and was repugnant to the intent of the parties. In the circumstances, the word "Page" can be disregarded as surplusage in interpreting the provision. See Trinity Portland Cement Co. v. Lion Bonding & Surety Co., 229 S.W. 483, 485 (Tex.Comm'n App.1921, judgm't adopted).

Based upon the clearly expressed intent of the parties contained in the language of the document, Dresser's provision is one of indemnity rather than a release of liability.

Dresser pled the provision as an affirmative defense to Page's cause of action, which is based on Dresser's negligence. However, because the parties intended the provision to protect Dresser against claims of third parties, rather than to extinguish any negligence claim Page might have against Dresser, the provision is not an affirmative defense to Page's cause of action. See TEX.R.CIV.P. 94 (listing release as an affirmative defense but not indemnity). Whether the provision can be enforced as an indemnity agreement is an immaterial question and, thus, is not reached. Accordingly, we overrule Dresser's first two points of error, which are based on the contention that the provision is an affirmative defense to Page's cause of action.

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