Watkins v. Petro-Search, Inc., PETRO-SEARC

• Decision Date: 18 October 1982
• Docket Number: INC,PETRO-SEARC,No. 82-1142,82-1142
• Citation: 689 F.2d 537
• Parties: J. B. WATKINS, Plaintiff-Appellant, v., et al., Defendants-Appellees. Summary Calendar.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 537

689 F.2d 537

J. B. WATKINS, Plaintiff-Appellant, v. PETRO-SEARCH, INC., et al., Defendants-Appellees.

No. 82-1142

Summary Calendar.

United States Court of Appeals Fifth Circuit.

Oct. 18, 1982.

D. Pat Long, Amarillo, Tex., for plaintiff-appellant.

Underwood, Wilson, Sutton, Berry, Steim & Johnson, John Mozola, Amarillo, Tex., for defendants-appellees.

Appeal from the United States District Court for the Northern District of Texas.

Before GEE, RANDALL and TATE, Circuit Judges.

TATE, Circuit Judge:

This is a Texas diversity case. This litigation involves the interpretation of a letter agreement, including a determination as to whether it is ambiguous so as to permit extrinsic evidence in aid of its interpretation. By the letter agreement, the defendant ("Petro-Search")'s predecessor in title had agreed to "maintain" a salt-water disposal well owned by the plaintiff Watkins. This litigation resulted when the salt-water well failed and became unrepairable. The district court rejected the plaintiff Watkins' contention that, under the terms of the agreement, the defendant Petro-Search was required to repair or replace the failed well. ¹ Watkins appeals, urging that the district court erred in so construing the agreement, and also contending that extrinsic evidence supports its interpretation of the contract. ²

We affirm, finding that, in the light of the surrounding circumstances, the agreement unambiguously did not require replacement of a failed well, further noting that (even if admissible) the extrinsic evidence does not prove such an agreement.

Legal Principles Applicable

The decision of this appeal involves the application of Texas law to the interpretation of a contract and, where permissible, to the admission of parol evidence in aid of its construction. The applicable principles may be summarized as follows:

Where an unambiguous writing has been executed between the parties, the courts will enforce the intention of the parties as expressed or apparent in the writing; in such instance, the instrument alone will be deemed to express the intention of the parties, for it is objective, not subjective, intent that controls. Sun Oil Company v. Madeley, 626 S.W.2d 726, 731 (Tex. 1981). However, when a question relating to the construction of a contract or its ambiguity is presented, the court is to take the wording of the contract in the light of the surrounding circumstances, in order to ascertain the meaning that would be attached to the wording "by a reasonably intelligent person acquainted with all operative usages and knowing all the circumstances prior to and contemporaneous with the making of the integration, other than oral statements by the parties of what they intended to mean." Id. "If, in the light of the surrounding circumstances, the language of the contract appears to be capable of only a single meaning, the court can then confine itself to the writing." Id.

A contract is ambiguous when it is reasonably susceptible to more than one meaning, in the light of the surrounding circumstances and after applying established rules of construction. Richland Plantation Company v. Justiss-Mears Oil Co., 671 F.2d 154, 156 (5th Cir. 1982) (citing Texas decisions); see also Pennzoil Company v. Federal Energy Regulatory Com'n, 645 F.2d 360, 388 (5th Cir. 1981) cert. denied, --- U.S. ----, 102 S.Ct. 1000, 71 L.Ed.2d 293 (1982). The determination of whether or not a contract is ambiguous in the light of its wording and the surrounding circumstances is a question of law (although, once the contract is found to be ambiguous, the determination of the parties' intent through the extrinsic evidence is a question of fact). Id.

The Letter Agreement

The letter agreement was executed on April 14, 1970, between the plaintiff Watkins and the defendant Petro-Search's predecessor in title and obligation (Katex Oil Company). Katex had need of a disposal well to dispose of salt water from producing wells on two nearby leases, and the letter agreement by its terms permitted Katex to use Watkins' disposal well (also used by him for salt water from his own nearby producing wells), in return for maintaining it without cost to Watkins.

The complete terms of the agreement, as set forth in the 1970 letter to Watkins by Katex and accepted by him, were:

Katex Oil Company is disposing of excess water produced from their Howard and Marvin Leases in your Douglas # 1 Well.

In consideration of the use of your well Katex Oil Company will maintain your well to meet the specifications of the Texas Railroad Commission.

Both parties alternatively contend both that the agreement unambiguously sets forth the intention contended by them and also that the parol evidence supports their respective constructions. The precise issue involved is whether, when the well became unworkable due to natural deterioration or other non-fault of Katex (or its successor, Petro-Search), the latter was required to restore the well to workability before terminating the agreement and restoring the well to Watkins.

The opposing constructions of the agreement may be summarized as follows:

Watkins, the owner of the well, contends that Petro-Search's obligation to "maintain" the well "to meet the specifications of the Texas Railroad Commission," the regulatory agency, evidences that at all times prior to termination of the agreement, Petro-Search was required to maintain the well-in dictionary terms, to "keep the well in good working order" or to "preserve the well from lapse, decline, or failure" so as to meet "the specifications" (i.e., "any requirements") of the regulatory agency. Since the agency would not permit the use of a water well without replacement of the ruptured or deteriorated tubing, Watkins argues, therefore Petro-Search did not maintain the well as required by the agreement. Watkins thus contends that the formal termination of the agreement only after the well had failed does not excuse it from its liability to keep the well in good working order (to "maintain" it) during the existence of the agreement. Watkins in brief states that the terms of the agreement are inconsistent with Petro-Search's position that under the contract it was "authorized to allow or permit the subject well to deteriorate from good working order to a state of total disrepair."

To the contrary, Petro-Search argues that the agreement does not set forth any agreement to replace the 33-year-old well when it failed in 1978. Petro-Search agrees that, under the terms of the agreement, it was indeed required to maintain the well (keep it in good working order), including compliance with the regulatory agency's requirements (without which the well would be closed down), so long as it was exercising its "use" of the well as contractually authorized. Petro-Search contends, however, that it had the contractual right to terminate the agreement at any time, whether or not the well met agency requirements at that time, ³ and that, in any event, upon termination of the agreement it was not required to repair usual wear and tear or natural breakdowns...