Opinion ID: 1191893
Heading Depth: 2
Heading Rank: 1

Heading: Reservation Language

Text: The royalty owners maintain that the district court erred by granting a summary judgment in favor of Equitable Resources. They claim that the reservation language was ambiguous and that the district court should have considered extrinsic evidence to determine the true intent of the contracting parties. Equitable Resources contends that the district court's decision was correct. We agree with Equitable Resources. The reservation language at issue in this case was included in an assignment of an oil and gas lease. An assignment of an oil and gas lease is a contract. See Moncrief v. Harvey, 816 P.2d 97, 103 (Wyo. 1991); Farr v. Link, 746 P.2d 431, 433 (Wyo. 1987). We will, therefore, examine the reservation language in accordance with our general principles of contract interpretation. Id. Our prime focus in construing or interpreting a contract is to determine the parties' intent. Woods Petroleum Corporation v. Hummel, 784 P.2d 242, 243 (Wyo.1989). Our initial inquiry centers on whether the language of the contract is clear or ambiguous. See Treemont, Inc., 886 P.2d at 592. Courts make that determination as a matter of law. Svalina v. Split Rock Land and Cattle Company, 816 P.2d 878, 881 (Wyo.1991). An ambiguous contract is one which has language conveying a double or obscure meaning. Treemont, Inc., 886 P.2d at 592. When the contract language is clear and unambiguous, we secure the parties' intent from the words of the agreement as they are expressed within the four corners of the document. Treemont, Inc., 886 P.2d at 592; Svalina, 816 P.2d at 881. This Court looks at the plain meaning of the words employed in a clear and unambiguous contract to determine the parties' intent. See Woods Petroleum Corporation, 784 P.2d at 243-44. We turn to extrinsic evidence and rules of contract construction only when the contract language is ambiguous and its meaning is doubtful or uncertain. Svalina, 816 P.2d at 881. A disagreement between the parties as to the contract's meaning does not give rise to an ambiguity which justifies the use of extrinsic evidence. Id. The royalty owners contend that the district court erred by refusing to consider extrinsic evidence of the circumstances surrounding the 1970 adoption of the reservation language. They insist that the district court could not determine the parties' true intent without resorting to such evidence. The royalty owners claim that the extrinsic evidence showed that the purpose of the reservation language, which stated that the royalty owners were to be paid on the same basis as the federal government, was to prevent the operator from refusing to pay the royalty owners in an appropriate manner. They insist that, when the assignment was executed, many operators did not properly pay royalty owners. Although the royalty owners' contention is interesting, we agree with the district court that the reservation language was clear and unambiguous and that the use of extrinsic evidence to determine the parties' intent was not justified. The reservation language specifically provided that the royalty owners were to be paid on the same basis as the lessor. This language can only be interpreted as meaning that, if the federal government was paid in accordance with a unit agreement, the unit agreement would also be used to calculate the overriding royalty payments. The district court gave a well reasoned response to the royalty owners' lamentations that it could not ascertain the parties' intent without considering the circumstances surrounding the execution of the assignment. While there surely may be many after-the-fact thoughts and opinions of concern to the purposes, desires, and reasons for adopting the requirement that the overriding royalties be computed and paid on the same basis as the royalty payable to the lessor, such may not be given consideration in this situation since there is nothing about the subject contract that is obscure in its meaning[] because of indefiniteness of expression[] or because a double meaning is present. The royalty owners also claim that we should examine extrinsic evidence for the limited purpose of determining whether the reservation language was clear or ambiguous. This Court has, however, refused in other cases to examine extrinsic evidence to determine whether or not the contract language was ambiguous. The ambiguity which justifies examining extrinsic evidence must exist . . . in the language of the document itself. It cannot be found in subsequent events or conduct of the parties, matters which are extrinsic evidence. The suggestion that one should examine extrinsic evidence to determine whether extrinsic evidence may be examined is circuitous. State v. Pennzoil Company, 752 P.2d 975, 978 (Wyo.1988) (citations omitted and emphasis added). The royalty owners also maintain that there was a latent ambiguity in the contract which justifies the use of extrinsic evidence. They direct us to two cases which discuss the concept of latent ambiguity: Yellowstone Sheep Co. v. Diamond Dot Live Stock Co., 43 Wyo. 15, 297 P. 1107 (1931) and National Enterprises, Inc. v. First Western Financial Corporation, No. 96-2168, 1997 WL 642081 (10th Cir.1997). [1] In Yellowstone Sheep Co., this Court examined an agreement providing for the sale of old ewes. We stated that, although the language of the agreement was apparently clear, a latent ambiguity existed with regard to the identity of the sheep which were conveyed in the agreement. 297 P. at 1114. Because there was a latent ambiguity as to the subject matter of the contract, extrinsic evidence of the parties' negotiations was admissible to explain what was really intended as the subject-matter of their bargain. 297 P. at 1115. In National Enterprises, Inc., the release language included in a settlement agreement was apparently clear on its face; however, the Tenth Circuit Court of Appeals recognized that there was a latent ambiguity as to whether or not the release language applied to a particular note. 1997 WL 642081, at 3. The court determined that the existence of a latent ambiguity concerning the subject matter of the contract made a summary judgment inappropriate. 1997 WL 642081, at 4. The courts in Yellowstone Sheep Co. and National Enterprises, Inc. considered a very specific aspect of contract law. In those cases, the courts were presented with contracts that were apparently clear and unambiguous. Nevertheless, the courts discovered that there were latent ambiguities concerning the subject matters of the contracts. Yellowstone Sheep Co., 297 P. at 1110-15; National Enterprises, Inc., 1997 WL 642081, at 3. The sole issue in the case at bar is the proper method of computing the payments which are due to the royalty owners. There is no question in this case about the identity of the subject matter of the assignment. We do not need to examine extrinsic evidence to determine the interest which was assigned or the interest which was reserved. The concept of latent ambiguity, therefore, is not applicable in this case. The royalty owners also maintain that we must give consideration to the parties' historical performance of the contract in order to determine the parties' intent. It is true that, when a court determines that the contract language is ambiguous, it may consider the parties' historical performance of the contract in order to determine their intent. True Oil Company v. Sinclair Oil Corporation, 771 P.2d 781, 792 (Wyo.1989); Sunburst Exploration, Inc. v. Jensen, 635 P.2d 822, 825 (Wyo.1981); Holliday v. Templin, 56 Wyo. 94, 103 P.2d 408, 413 (1940). We do not, however, look to extrinsic evidence of the parties' historical performance of a contract when the contract language is clear on its face. See True Oil Company, 771 P.2d at 790; Sunburst Exploration, Inc., 635 P.2d at 823-24. The contract language in this case is clear, and we refuse, therefore, to consider the parties' performance of the contract to determine its meaning. We conclude that the district court did not err when it granted a summary judgment in favor of Equitable Resources on its declaratory judgment action.