Court Opinion

ID: 5072143
Source: CourtListenerOpinion
Date Created: 2021-10-01 10:48:41.199718+00
Date Added: 2024-06-11T08:19:52.697352
License: Public Domain

COLLEY, Justice,
dissenting.
I agree with the majority decision withdrawing our original opinion delivered in this cause on December 18, 1987, but I cannot agree to the affirmance in this case. I would reverse the judgment and, because the case was tried on the wrong theory, remand the case for a new trial in the interest of justice.
*223The case was tried on the theory that the contract embodied in the “Agreed Judgment”3 and, in particular, the language defining “payout,” as set forth in paragraph 1, was unambiguous. Neither party at trial pleaded ambiguity, and it is fair to say that the ambiguity issue was not tried by consent. The parties at oral argument agreed and, indeed represented to this court, that the language of the contract defining “payout” was unambiguous. After a careful study of the entire contract, I am unable to agree that the language defining payout, considered in light of the circumstances surrounding the entry of the judgment, is susceptible of but one certain or definite legal interpretation.
Perhaps the clearest explanation of ambiguity in respect to contract interpretation was made by the court in Lewis v. East Texas Finance Co., 136 Tex. 149, 146 S.W.2d 977, 980 (1941), where the court wrote,
If a written contract is so worded that it can be given a certain or definite legal meaning or interpretation, it is not ambiguous. It follows that parol evidence is not admissible to render a contract ambiguous, which, on its face, is capable of being given a definite certain legal meaning. This rule obtains even to the extent of prohibiting proof of circumstances surrounding the transaction when the instrument involved, by its terms, plainly and clearly discloses the intention of the parties, or is so worded that it is not fairly susceptible of more than one legal meaning or construction. (Emphasis added.)
The foregoing exposition was quoted with approval in Sun Oil Co. v. Madeley, 626 S.W.2d 726, 731-732 (Tex.1981). In Ideal Lease Service v. Amoco Production Co., 662 S.W.2d 951, 953 (Tex.1983), the court remarked, “We agree that the intention of the parties is the primary concern of the courts in interpreting a contract, but, unless ambiguous, we must discern that intent from the contract itself. Ohio Oil Co. v. Smith, 365 S.W.2d 621 (Tex.1963).” (Emphasis added.)
The trial court’s interpretation of the payout formula, as recited in the agreed judgment, when subjected to the “reasonably intelligent person” standard enunciated in City of Pinehurst v. Spooner Addition Water Co., 432 S.W.2d 515 (Tex.1968), is clearly wrong. The so-called agreed judgment, when so tested, yields not one but two reasonable interpretations of payout. Despite its lofty goal, “to forever settle all disagreements and claims between [Krafve and O’Keeffe],” it fails to do so. When reviewed from its four corners, its disjointed contents provide language reasonably supporting the interpretation of payout espoused by each party to the appeal. The subjective intent of the parties thereto defies discovery, and the trial court’s interpretation is incorrect, as indeed it would be, had it favored Krafve’s interpretation.
In support of my conclusion that the language of the contractual judgment purporting to provide a formula for determining when payout has occurred, I need only observe that several “reasonably intelligent persons,” including the trial judge, the competing expert witnesses, the parties themselves, and counsel radically disagree as to the parties subjective intentions regarding payout as expressed in the judgment.4
In City of Pinehurst, the parties on appeal agreed that a city ordinance effecting a contract was unambiguous. The court wrote, “We agree with the parties that the [ordinance provisions] are unambiguous.” Id. at 517. (Emphasis added.) Then the court proceeded to review the trial court’s interpretation by adopting and applying the “reasonably intelligent person” standard found in Restatement of Contracts § 230 (1932) which reads in part:
[T]he standard of interpretation of an intergration, except where it produces an ambiguous result, ... is the meaning *224that would be attached to the [writing] by a reasonably intelligent person acquainted with all operative usages and knowing all the circumstances prior to and contemporaneous with the making of the [contract], other than oral statements by the parties of what they intended it to mean.
The majority in this case has concluded that since the parties “agree that the [judgment] as a whole and the [provisions describing payout] in particular are unambiguous,” the intention of the parties “must be determined as a matter of law by the court from the plain language of the [judgment].” (Emphasis added.) I respectfully disagree. Allison v. National Union Fire Ins. Co., 734 S.W.2d 645 (Tex.1987), cited by the majority, may stand for the proposition that our review of the judgment below, resting as it does, on the trial court’s legal determination that the agreed judgment was unambiguous, is limited to a determination of whether that interpretation, tested by the “reasonably intelligent person” standard is correct, but certainly the rule in Allison does not make this court a captive of the conclusions of either the parties or the trial court.
The majority states that O’Keeffe’s expert witness’ interpretation of a portion of the language found in paragraph 1 of the agreed judgment, reading “all ordinary, necessary and reasonable expenses incurred by [Orbit] in producing the income” to mean ordinary, necessary and reasonable expenses, directly attributable to the production of revenue from the oil and gas properties was correctly adopted by the trial court.5 In reaching this conclusion, the majority ignores language appearing in the text of the contract reading,
The corporation shall not incur any expense during [the interval before payout] without O’Keeffe’s approval.... Notice of expenses shall be the monthly financial statement of [Orbit] and Authority for Expenditures (AFE’s)_ Any objection [by O’Keeffe] to an expense must be stated within thirty (30) days of the notice of such expense, otherwise the right to object is waived [by O’Keeffe]. (Emphasis added.)
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6. No interest shall be charged O’Keeffe on the liabilities chargeable against his interest as provided for in Paragraph No. 1 hereof, unless interest is charged to Orbit as the result of a change in the law of the State of Montana regarding severance taxes, in which event, O’Keeffe shall bear his pro rata portion.
The record reveals that O’Keeffe made no timely objections to the expenses reflected in the monthly statements sent him by Orbit except perhaps to one matter not material here. The evidence demonstrates that the AFE’s are written notices sent by a unit operator to all working interest owners when unusually large expenses are incurred by the operator for repairs, reworking operations, or equipment purchases, etc. for the unit well or wells in order to maintain or increase production. The contractual judgment provides that notice of expenses “shall be” the monthly financial statements and the AFE’s. It is undisputed that the monthly financial statement sent by Orbit included a salary paid to Krafve, at least in part, for geological work and studies made by him in the Divide Field. The trial court’s judgment disallows the cumulative sums of Krafve’s salary along with other expenses claimed by Krafve.
In a nutshell, the majority upholds the trial court's judgment limiting the phrase “the sum of all ordinary, necessary and reasonable expenses incurred by [Orbit] in producing the income” to what the majority refers to as expenses directly incurred in producing the working interest income *225from the Divide Field.6 In so doing the majority misreads the judgment in light of the record before the trial judge. No form of the word direct appears in the agreed judgment, and the phrase used, when read and considered along with the entire contract, is not susceptible of but one clear, definite and certain legal meaning; and thus, in my view, no “reasonably intelligent person” familiar with the “operative usages” of the words traditionally used in oil and gas contracts, and “knowing all the circumstances” surrounding the entry of the contractual judgment would conclude after a review of the instrument before this court, that O’Keeffe’s working interest income was subject only to payment of his pro rata share of the character of expenses described in a standard operating agreement such as the one involved in the Divide Field.
Because I am so persuaded, I would reverse the judgment. Further, because I am also persuaded that the agreed judgment is patently ambiguous, I would remand the cause for retrial to determine the true meaning intended by the parties in their use of the language found in the payout formula as to the character of expenses chargeable against O’Keeffe’s interest in Orbit.
APPENDIX A
AGREED JUDGMENT
On this the 24th day of November, 1982, the parties through their attorneys appeared in open court and announced that in full and final settlement of the above entitled and numbered cause the parties have reached an agreement to be made the Judgment of this Court.
The Court finds that the parties have reached an agreement which the parties believe is reasonable, fair and equitable to all of the parties concerned.
The Court further finds that the parties, by requesting the Court to enter this Order, wish to forever settle all disagreements and claims between and among the parties.
The Court finds that Robert M. O’Keeffe is the owner of fifty (50) per cent of the stock of Orbit Ventures, Inc.
The Court further finds that the agreement entered into by the parties is a fair, equitable and reasonable resolution of all disagreements and claims of the parties.
IT IS ORDERED, ADJUDGED AND DECREED that:
1. Orbit Ventures, Inc. shall make a pro rata in-kind distribution of all oil and gas properties owned by the corporation as of November 30, 1981, to Robert M. O’Keeffe upon payout; payout being when the amount of production revenue attributable to O’Keeffe’s interest shall equal O’Keeffe’s pro rata share of the corporation’s outstanding liabilities as of November 30, 1981, plus the sum of all ordinary, necessary and reasonable expenses incurred by the corporation in producing the income during the period beginning November 30, 1981, and ending with the date of the in-kind distribution. The corporation shall not incur any expense during the aforementioned period without O’Keeffe’s approval, which shall not be unreasonably withheld. Notice of expenses shall be the monthly financial statement of the corporation and Authority for Expenditures (AFE’s). All disputes concerning the reasonableness of any such expenditure shall be subject to one arbitration at the time of payout and before the distribution with each party choosing one arbitrator and the two choosing a third arbitrator. The decision of the majority shall be binding on both parties and the losing party shall pay all costs and expenses of arbitration. Any objection to an expense must be stated within thirty (30) days of the notice of such expense, otherwise the right to object is waived. Orbit may proceed with the proposed expenditure before a decision has been reached by arbitration. The determination of the amount of the outstanding liabilities as of November 30,1981, shall be made by Fred Bunker within ten (10) days *226hereof. The computation of the corporation’s assets and liabilities shall be made without regard to those oil and gas properties which must be assigned to John Gal-lacher upon the payment and satisfaction of all debts attributable to John Gallacher reversionary interest.
2. All of the stock owned by R.M. O’Keeffe is and shall be redeemed effective on the date of the in-kind distribution as agreed upon in Paragraph 1 hereof.
3. A conditional assignment of O’Keeffe’s interest in the corporation’s oil and gas properties shall be executed by Orbit and delivered to Citizens First National Bank of Tyler, Texas, as trustee to be delivered to O’Keeffe at the time of the in-kind distribution provided for in Paragraph 1 hereof. O’Keeffe’s stock in the corporation shall be transferred to Citizens First National Bank of Tyler, Texas, as trustee subject to a pledge agreement to be signed within ten (10) days after this date which stock shall be delivered to Orbit or its appointee at the time of the in-kind distribution as provided for by Paragraph 1 hereof. O’Keeffe’s stock while held in trust may not be voted unless Orbit is in breach of this agreement.
4. The corporation, through its officers, shall use their best efforts to furnish O’Keeffe a financial statement by the 30th of each month applicable to the payout provided for by Paragraph No. 1 hereof and shall furnish such other information reasonably necessary for O’Keeffe to determine his payout balance.
5. In the event Orbit is placed in bankruptcy, receivership or other creditors proceeding O’Keeffe’s interest in the corporation’s oil and gas properties shall be delivered to him immediately unless prohibited by law.
6. No interest shall be charged O’Keeffe on the liabilities chargeable against his interest as provided for in Paragraph No. 1 hereof, unless interest is charged to Orbit as the result of a change in the law of the State of Montana regarding severance taxes, in which event, O’Keeffe shall bear his pro rata portion. Any dispute over interest expense incurred, if objected to, shall be determined by the Court.
7. Oil and gas properties as that term is used here includes the corporation’s leases, wells, plants and equipment located at Divide Area, Sheridan County, Montana; and Southwest Talco Area, Franklin County, Texas.
8. The parties shall execute any and all documents necessary to effectuate and enforce this Judgment.
9. The parties shall pay their own attorneys’ fees and all costs of suit are adjudged against the parties by whom incurred.
10. All relief prayed for and not specifically granted herein is denied.

. A complete copy thereof is attached hereto as Appendix “A.”

. I am fully cognizant of the rule that mere disagreement of the parties per se does not create an ambiguity when one does not otherwise exist.

. In fact, the trial judge made no such express conclusions of law, but it does appear that the judgment below' does rest upon that expert testimony that the language used clearly expressed the parties’ intention that such expenses were limited to those expenses commonly delineated in a standard operating agreement between working interest owners in leases pooled or combined to form one or more production units.

. The net income to Orbit from its working interest in the Fannin County Southwest Talco Field is not involved because Orbit was not the operator of that property.