Texas Supreme Court refuses to look beyond the contract language to determine a party’s obligations

April 3, 2018

The Texas Supreme Court recently declined to look beyond an agreement’s clear language to trigger one party’s obligations. This was despite the other party’s insistence that pre-contract negotiations proved that the obligations had to be triggered. As a result, the other party did not get the performance that it thought was included in its bargain.

In URI, Inc. v. Kleberg County, the parties entered into an agreement in which URI could resume its uranium-mining operations, provided URI restored water quality in certain wells. At the time the agreement was formed, data suggested that multiple wells would meet the criteria to qualify for restoration. However, later data showed that no wells met the criteria. Kleberg County argued that URI should be required to restore wells based on the earlier data and not the later data.

The Texas Supreme Court disagreed, finding that the agreement was unambiguous as to URI’s obligations. Under the parol-evidence rule, facts and circumstances surrounding a unambiguous contract’s execution can be used to determine the context and meaning of the contract language, but cannot be used to augment, alter, or contradict the contract’s terms. Here, the parties’ expectation that the data would show that some wells’ water was suitable for specified uses before mining was extrinsic evidence that contradicted the agreement’s language requiring actual data showing that the water met the criteria to trigger URI’s restoration obligation. The Court therefore determined the parties’ intent based on the unambiguous language in the agreement, even though that language excused URI from performing any well restorations prior to resuming its mining activities and despite Kleberg County’s expectations.

This case illustrates the importance of carefully drafting contract provisions, particularly when one party’s obligations are conditioned on facts that will not be fully known until a later date.

URI, Inc. v. Kleberg Cty., No. 16-0336, 2018 Tex. LEXIS 253 (Tex. Mar. 23, 2018).

This blog entry was written by Eric Etheridge and Jason Cagle.

Challenges to overall enforceability of a contract can be determined by an arbitrator

October 17, 2017

The parties to a dispute entered into an informal written settlement agreement, which contemplated execution of a more-formal settlement agreement later. The informal settlement agreement stated that “any disagreement result[ing] from negotiation and completion of this documentation” would be submitted to arbitration. One party argued the informal settlement agreement was wholly unenforceable because it was not approved by that party’s Board of Directors.

The court of appeals analyzed whether the arbitrator or the trial court should decide whether the entire informal settlement agreement was enforceable. The parties’ dispute concerned a challenge to the enforceability of the entire contract, rather than a challenge specifically to the arbitration provision. Under these circumstances, the court held that the arbitrator should decide whether the contract is enforceable.

It seems rather ironic that the parties are required to use the arbitration process, as set forth in the agreement, to determine whether the agreement (which contains the arbitration clause) is indeed enforceable. On the other hand, if a party challenged only the enforceability of the arbitration clause (but not the enforceability of the entire contract), most cases have held that a court should decide that dispute.

The attached information is general in nature, is presented for discussion purposes only, and may not reflect current legal developments, nor fully explore all potential areas of this topic. The information included should not be relied upon or construed as legal advice and is not a substitute for obtaining legal advice from an attorney. No legal representation is undertaken or implied with the distribution of this information.