Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not *

be published and is not precedent except under the limited circumstances set forth in 5TH CIR.

R. 47.5.4.

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

No. 08-11123

XTRIA LLC

Plaintiff - Appellant

v.

TRACKING SYSTEMS INC

Defendant - Appellee

Appeal from the United States District Court 

for the Northern District of Texas

Before JOLLY, DeMOSS, and PRADO, Circuit Judges.

DeMOSS, Circuit Judge:*

This contract case, governed by Texas law, requires the Court to determine

whether a settlement agreement between Xtria LLC (“Xtria”) and Tracking

Systems, Inc. (“Tracking Systems”) is ambiguous. Because the district court

erroneously concluded that the agreement is ambiguous, we reverse and remand.

I.

Tracking Systems sold Xtria a data management system known as the

eLiens Notification System. As part of their sales agreement, Xtria agreed to

United States Court of Appeals

Fifth Circuit

F I L E D

October 1, 2009

Charles R. Fulbruge III

Clerk
No. 08-11123

2

pay Tracking Systems a portion of any profit Xtria received if it resold the eLiens

system. Later, in an effort to market the eLiens system, Xtria entered into a

sales representation agreement with Tracking Systems’ affiliate International

Insurance Alliance, Inc. (“IIAI”). Pursuant to their agreement, IIAI was to act

as Xtria’s non-exclusive sales agent in exchange for commissions.

In 2005, Xtria sold the eLiens system, triggering Xtria’s obligation to pay

Tracking Systems a portion of the profits. A dispute soon arose between the

parties as to the amount Xtria owed pursuant to their sales agreement. After

mediation, the parties entered into a “Settlement Agreement and Release” (the

“Settlement Agreement”). That agreement is the subject of this dispute.

Under the Settlement Agreement, “TSI” released, covenanted not to sue

and forever discharged Xtria “from and against all manner of action . . . relating

to or arising from (i) the TSI-Xtria Agreement, and/or (ii) any oral or other

written agreement between TSI and Xtria entered into prior to the Effective

Date.” TSI was defined under the agreement to include Tracking Systems and

its affiliates. However, only Tracking Systems and Xtria were parties to the

agreement.

After the effective date of the Settlement Agreement, IIAI filed an

arbitration proceeding against Xtria alleging that Xtria breached their sales

representative agreement. Xtria demanded that Tracking Systems cause IIAI

to dismiss the arbitration pursuant to the Settlement Agreement. Tracking

Systems refused. Consequently, Xtria sued Tracking Systems for breach of the

Settlement Agreement.

In its complaint, Xtria reasoned that because IIAI was an affiliate of

Tracking Systems, the Settlement Agreement released Xtria from all liabilities

arising from the agreement between Xtria and IIAI and provided a covenant that

IIAI would not sue Xtria. Xtria alleged that Tracking Systems breached the

Settlement Agreement by allowing IIAI to initiate and maintain the arbitration
No. 08-11123

3

proceeding against Xtria. Tracking Systems moved to dismiss alleging that

Xtria stated a claim against IIAI but had failed to state a claim for breach of

contract against Tracking Systems. Tracking Systems surmised that it had no

duty under the contract to prevent IIAI from initiating a suit against Xtria. In

deciding the motion to dismiss, the district court determined that the Settlement

Agreement was ambiguous. The court found that the Settlement Agreement

could be construed to impose an obligation on Tracking Systems to prevent IIAI

from initiating or maintaining an arbitration proceeding. But, the agreement

could also be construed to provide a defense for Xtria against any claim by IIAI,

rather than an affirmative obligation on Tracking Systems to control its affiliate.

The matter proceeded to a bench trial to determine whether the parties

intended for Tracking Systems to prevent its affiliates from initiating, or to

cause its affiliates to dismiss, a suit against Xtria. The district court found that

Xtria failed to prove that the parties intended for Tracking Systems to control

IIAI and thus, failed to prove breach of the Settlement Agreement. Xtria

appealed the district court’s judgment in favor of Tracking Systems.

II.

The question before the Court is whether the Settlement Agreement

between Xtria and Tracking Systems is ambiguous. “Whether a contract is

ambiguous is a question of law for the court to decide.” Barnard Constr. Co. v.

City of Lubbock, 457 F.3d 425, 428 (5th Cir. 2007) (citing Coker v. Coker, 650

S.W.2d 391, 394 (Tex. 1983)). Accordingly, we review the question of whether

the contract is ambiguous de novo. Id. at 427. 

Settlement agreements are subject to the general principles of contract

construction. See Texas v. Am. Tobacco Co., 463 F.3d 399, 407 (5th Cir. 2006).

In interpreting a contract, a court’s primary concern is ascertaining the parties’

intent. Nat’l Union Fire Ins. Co. v. CBI Indus., Inc., 907 S.W.2d 517, 520 (Tex.

1995). If a contract “is so worded that it can be given a certain or definite legal
No. 08-11123

4

meaning or interpretation, then it is not ambiguous and the court will construe

the contract as a matter of law.” Coker, 650 S.W.2d at 393. However, when the

language in the contract is “susceptible to two or more reasonable

interpretations” an ambiguity exists. Enter. Leasing Co. of Houston v. Barrios,

156 S.W.3d 547, 549 (Tex. 2004) (citing Am. Mfrs. Mut. Ins. Co. v. Schaefer, 124

S.W.3d 154, 157 (Tex. 2003)). Only when an ambiguity exists may the court

consider parol evidence to determine the parties’ true intent. Nat’l Union Fire

Ins., 907 S.W.2d at 520.

An ambiguity in a contract can be either “patent” or “latent.” A

patent ambiguity is evident on the face of the contract while a latent

ambiguity arises when a contract which is unambiguous on its face

is applied to the subject matter with which it deals and an

ambiguity appears by reason of some collateral matter. If a latent

ambiguity arises, parol evidence is admissible for ascertaining the

true intentions of the parties as expressed in the agreement. The

classic example of a latent ambiguity cited by a variety of

authorities is a contract that calls for goods to be delivered to the

“green house on Pecan Street” when there are, in fact, two or more

green houses on Pecan Street.

Am. Tobacco Co., 463 F.3d at 409 (internal citations and quotations omitted). 

III.

In the instant case, the district court in essence held that a latent

ambiguity existed as to what obligations Tracking Systems assumed under the

Settlement Agreement. Specifically, the court found that when applied to

Tracking Systems’ affiliates the agreement could be read to either (1) obligate

Tracking Systems to control its affiliates or (2) provide a defense in the event

that an affiliate sued Xtria. 

The pertinent langauge is as follows:

1.3 Tracking Systems, Inc.: The term “TSI” means the Nevada

Corporation, . . . its past, present and future affiliates and their

predecessors and successors . . . and any companies, affiliates,
No. 08-11123

5

corporations, entities or associations that it does or may hereafter

own, control, operate, manage or direct.

3.1 Release by TSI:

3.1.1 TSI does hereby release, remise, covenant not to sue and

forever discharge: (a) Xtria . . . as follows: from and against all

manner of action . . . relating to or arising from (i) the TSI-Xtria

Agreement, and/or (ii) any oral or other written agreement between

TSI and Xtria entered into prior to the Effective Date.

Having reviewed the Settlement Agreement as a whole, we believe that

the Settlement Agreement is not latently ambiguous. Tracking Systems and

Xtria are the only parties to the agreement. Under the agreement, Xtria agreed,

among other things, to pay Tracking Systems in exchange for Tracking Systems’

assurance that “TSI” would release and covenant not to sue Xtria. Tracking

Systems made an unqualified, unconditional promise that its affiliates would

release Xtria and not sue relating to any previous agreement made between

Xtria and Tracking Systems’ affiliates. Although the agreement is silent as to

how Tracking Systems might fulfill its commitment (e.g. control its affiliates)

or how a breach of the agreement may be remedied (e.g. an affirmative defense

may be raised in response to an affiliate’s suit, or indemnification by Tracking

Systems), the agreement is not ambiguous as a result of the silence. Imprecision

is not tantamount to ambiguity. See Landry’s Seafood Rests., Inc. v. Waterfront

Cafe, Inc., 49 S.W.3d 544, 549 (Tex. App.—Austin 2001, pet. dism’d). Whether

the parties intended a certain course of performance or remedy for breach is

irrelevant because the promise by Tracking Systems can be fulfilled without

further clarification. Accordingly, the agreement is not latently ambiguous. See

Ludwig v. Encore Med., L.P., 191 S.W.3d 285, 290 (Tex. App.—Austin 2006, pet.

denied) (a latent ambiguity exists “when the contract appears to convey a
No. 08-11123

6

sensible meaning on its face, but it cannot be carried out without further

clarification”). 

Tracking Systems urges us to hold that either Tracking Systems did not

assume an obligation under the Settlement Agreement to control its affiliates or

the agreement is ambiguous as to whether Tracking Systems assumed such an

obligation. To support its argument, Tracking Systems points to the lack of an

explicit provision obligating Tracking Systems to control its affiliates or any

provision indicating that Tracking Systems was acting on behalf of its affiliates.

Tracking Systems further argues that it “would not make sense” that Tracking

Systems would obligate itself to control affiliates whose activities it could not

direct. 

Tracking Systems’ arguments are unavailing. We do not hold that the

Settlement Agreement explicitly obligated Tracking Systems to control its

affiliates. Rather, we conclude that Tracking Systems promised that its

affiliates would not sue Xtria. One who promises to “produce a result for which

it is necessary to obtain the co-operation of third persons” generally assumes the

risk that the third party may not comply. Toyo Cotton Co. v. Cotton

Concentration Co., 461 S.W.2d 116, 118 (Tex. 1971) (quoting 6 CORBIN ON

CONTRACTS § 1340 (1962)). Although it may be unwise to covenant on behalf of

an entity one cannot actually control, an agreement should be enforced as

written, “without regard to whether [the parties] contracted wisely.” CMS

Partners, Ltd. v. Plumrose USA, Inc., 101 S.W.3d 730, 733 (Tex.

App.—Texarkana 2003, no pet.). 

IV. 

For the reasons set forth above, we reverse the district court’s

determination of ambiguity and remand to the district court for further

proceedings on the issues of breach and damages.

REVERSED AND REMANDED.