Headington Royalty, Inc. and Headington Energy Partners, LLC v. Finley Resources, Inc., Finley Production Co. L.P. and Petro Canyon Energy, LLC ( 2023 )

Supreme Court of Texas
══════════
No. 21-0509
══════════
Finley Resources, Inc., Finley Production Co., L.P. and Petro
Canyon Energy, LLC,
Petitioners,
v.
Headington Royalty, Inc. and Headington Energy Partners, LLC,
Respondents
═══════════════════════════════════════
On Petition for Review from the
Court of Appeals for the Fifth District of Texas
═══════════════════════════════════════
Argued November 30, 2022
JUSTICE DEVINE delivered the opinion of the Court, in which
Chief Justice Hecht, Justice Lehrmann, Justice Blacklock, Justice
Busby, Justice Bland, Justice Huddle, and Justice Young joined.
JUSTICE BOYD filed a concurring opinion.
This appeal involves a dispute over the interpretation of a release
provision in an agreement exchanging mineral interests. The trial court
held that contract language releasing claims against a named entity’s
“predecessors” barred the releasor’s recovery against an unaffiliated and
unrelated “predecessor in title.” The court of appeals reversed and
rendered judgment that, as used in the release agreement, the term
“predecessors” refers only to corporate predecessors. Construing the
term in context, we agree with the court of appeals and affirm its
judgment.
I
The underlying breach-of-contract and negligence suit arises from
the alleged termination of a 1966 oil-and-gas lease (the Arrington Lease)
covering interests in a tract of land in Loving County, Texas (the Loving
County Tract). Over the years, various assignments and conveyances
resulted in horizontal severance of the mineral rights. Headington
Royalty, Inc. and Headington Energy Partners, LLC (collectively,
Headington) ultimately acquired the deep rights while Finley
Resources, Inc. and Finley Production Co., L.P. (collectively, Finley)
ultimately acquired the shallow rights. At some point, Finley Resources
also became the operator of record for two wells producing oil from the
shallow zone (the Arrington Wells).
Headington alleges it lost its mineral rights under the Arrington
Lease due to nonproduction from the Arrington Wells. According to
Headington, the Arrington Lease terminated as to both the deep and
shallow rights no later than March 31, 2017, because the wells stopped
producing in paying quantities and neither party engaged in other
lease-perpetuating operations. Headington claims that Finley’s
persistent failure to provide Headington with contractually required
notices and well data left Headington in the dark about both the
impending and actual termination of the mineral lease.
Petro Canyon Energy, LLC entered the picture in June 2017
when it acquired a top lease from W.I.R.C., LLC for the entirety of the
2
Loving County Tract (the WIRC Lease). The top lease would become
valid only when the Arrington Lease expired.1 So to determine if that
event had occurred, counsel for Petro Canyon’s affiliate, Double Eagle
Development, sent a letter to Finley requesting well revenue and
expense information for the preceding eighteen-month period.
The following month, Headington began its own inquiry into the
Arrington Lease’s status. Headington’s legal counsel sent a letter to
Finley, requesting production of “complete and current data and
information” about Finley’s operations. The letter was not so subtle in
intimating that Headington was prepared to take legal action if Finley
failed to comply. The next day, Finley Resources, as operator of the
Arrington Wells, dispatched a responsive letter to Headington Energy’s
land department, declaring Finley’s intent to plug and abandon the
wells and offering Headington an opportunity to step into its shoes as
well operator. Headington concedes that, by this point, it was already
contemplating litigation, and on August 2, its attorneys issued a written
demand that Finley produce any information showing the Arrington
Lease had not already terminated.
The issue now on appeal arises in connection with a series of
unusual transactions that followed Headington’s August 2 demand
letter.
First, in August 2017, Finley and Petro Canyon collaborated to
resolve any doubt about the Arrington Lease’s continuing subsistence.
A top lease is “[a] lease granted on property already subject to an
1
oil-and-gas lease. Generally, any rights granted by a top lease . . . are valid
only if the existing lease ends.” BLACK’S LAW DICTIONARY (11th ed. 2019).
3
To that end, Finley assigned its Arrington Lease interests, if any, to
Petro Canyon via a Quitclaim Assignment and executed an affidavit
confirming the absence of production and any other well operations since
January 1, 2017. In return, Petro Canyon agreed to (1) “assume and
perform, any and all of [Finley’s] liabilities and obligations, or alleged or
threatened liabilities and obligations” under the Arrington Lease and
(2) indemnify Finley “against any and all claims, losses, damages . . . or
judgments . . . [for] any and all [alleged or threatened] liabilities and
obligations . . . arising out of . . . ownership or operation of the
[Arrington Lease].” Although the Quitclaim Assignment bore an
August 31 effective date, it was not filed in the public record until
October 31.
In the meantime, Headington was separately negotiating with
Petro Canyon to acquire the WIRC Lease for the asserted purpose of
mitigating losses ensuing from termination of its deep-rights interests
under the Arrington Lease. Acquisition of the WIRC Lease would allow
Headington to expand its interests in the Loving County Tract to include
both the deep and shallow rights but at a lower net-revenue interest
than it held under the Arrington Lease. In exchange, Headington
offered to convey the deep rights in another tract of land to Petro
Canyon.
While the acreage-swap negotiations were ongoing, Petro
Canyon’s affiliate—Double Eagle—became the operator of record for the
Arrington Wells, as reported in public filings on September 5. A week
later, Headington’s counsel informed Headington’s vice president in a
voicemail message that Finley had “assigned [its] interest in the lease
[and] the wellbore to . . . Petro Canyon or Double Eagle.” A few days
4
after that, Petro Canyon proposed that, as part of the acreage-swap
agreement, the parties would execute mutual releases pertaining only
to the Loving County Tract.
Further negotiations and some tinkering of the release language
culminated in the execution of an acreage-swap agreement on October 3,
2017, that memorialized Petro Canyon’s agreement to convey the WIRC
Lease to Headington as to the entirety of the Loving County Tract. A
mirror release provision in the agreement broadly provided that
[Headington] waives, releases, acquits and discharges
Petro Canyon and its affiliates and their respective officers,
directors, shareholders, employees, agents, predecessors
and representatives for any liabilities, claims, demands,
causes of action or obligations, of whatever kind or
character, including, without limitation, breach of contract,
negligence, strict liability, indemnity or contribution that
[Headington] has or may have in the future, whether
asserted or unasserted, known or unknown, fixed or
contingent, related in any way to the Loving County Tract;
provided, however, that the foregoing release shall not
apply to any obligations arising under this agreement.2
The well-plugging and restoration liability Petro Canyon had previously
assumed was, however, expressly carved out:
Notwithstanding the above, the above release does not
cover, and Petro Canyon agrees to accept, plugging and
restoration liability existing prior to the date hereof on the
Loving County Tract with respect to, and only with respect
to, the [Arrington Wells].
Finley was not named in the release or elsewhere in the acreage-swap
agreement. Nor were Headington’s putative claims against Finley
2 Emphases added.
5
mentioned.3 The agreement referenced the Arrington Wells for the
limited purpose of excluding restoration and well-plugging liability from
the scope of the releases but did not refer to the Arrington Lease at all.
Less than six months after executing the acreage-swap
agreement, Headington sued Finley seeking $54.4 million in damages
for breach of contract and, in the alternative, negligence and negligent
misrepresentation.4 Headington asserted that Finley’s noncompliance
with contractual notice and disclosure obligations caused Headington to
lose its mineral interests when the Arrington Lease terminated due to
nonproduction from the Arrington Wells. Finley’s answer asserted,
among other things, the affirmative defenses of release, waiver, and
third-party beneficiary to the acreage-swap agreement.5
As Finley’s potential indemnitor under the Quitclaim
Assignment, Petro Canyon intervened, seeking a declaration that the
release bars Headington’s claims against Finley as a “predecessor” to
Petro Canyon or Double Eagle. Like Finley, Petro Canyon alleged that,
with knowledge of Finley’s assignment to Petro Canyon, Headington
3 The acreage-swap agreement identified a pending legal dispute over
ownership of the Loving County Tract by style, cause number, and judicial
tribunal, but that litigation involved entirely different entities. See 623 S.W.3d
480, 486 (Tex. App.—Dallas 2021) (quoting the provisions of the acreage-swap
agreement identifying pending litigation between W.I.R.C., LLC and Dallas
Petroleum Group LLC).
4 Damages alleged include (1) the expenditures required to secure the
acreage swap; (2) the difference between the net revenue under the original
lease (87.5%) and the new lease (75%); (3) exemplary damages; and
(4) attorney’s fees for breach of contract.
5 See TEX. R. CIV. P. 94 (listing and defining affirmative defenses).
6
had released Petro Canyon and its “predecessors” from all claims
“related in any way to the Loving County Tract.”
In cross-motions for summary judgment on the affirmative
defenses, the parties framed the controlling question as whether
Headington’s broad release of “Petro Canyon and its affiliates and their
respective . . . predecessors” for all claims and causes of action that are
“related in any way to the Loving County Tract” extinguished
Headington’s claims against Finley.
For the most part, the parties locked horns over the meaning of
“predecessors.” Finley’s and Petro Canyon’s separately filed
summary-judgment motions tracked one another in asserting that
“predecessor” simply means “one who precedes another in office or
position,” making the release applicable to Finley as a
(1) predecessor-in-title to Petro Canyon under the Quitclaim
Assignment, (2) predecessor-in-interest to Petro Canyon based on its
assumption of Finley’s liabilities and obligations under the Arrington
Lease, and (3) predecessor well operator to Petro Canyon’s affiliate,
Double Eagle. Headington’s summary-judgment motion argued that, as
used in the release, “predecessors” unambiguously refers only to the
corporate predecessors of Petro Canyon and its affiliates. Headington
also disputed whether Finley was actually a predecessor to Petro
Canyon in any of the ways it claimed.
After much back and forth between the parties, the trial court
sided with Finley and Petro Canyon, ruling that the term “predecessors”
in the release unambiguously “includes an entity that is a predecessor
in title to the subject property interest,” like Finley. Following
interlocutory orders denying Headington’s summary-judgment motion
7
and granting Finley’s and Petro Canyon’s motions, the court rendered a
final take-nothing judgment.
A divided court of appeals reversed, rendered judgment that the
release did not bar Headington’s claims against Finley, and remanded
for further proceedings.6 The court held that (1) categorical releases
must be narrowly construed; (2) the meaning of “predecessors” is
contextually constrained by words unambiguously “describ[ing]
predecessors within the corporate composition or structure of Petro
Canyon and its affiliates”; (3) neither parol evidence nor surrounding
circumstances could broaden the release’s narrower use of the term; and
(4) Finley was not a released party because it was neither specifically
identified in the release nor a corporate predecessor of Petro Canyon or
Double Eagle.7 Viewing releases as effecting a “forfeiture” of claims, the
court declined to construe the contract language “in a manner that
favors forfeiture” absent language compelling the conclusion that it “can
be construed in no other way.”8 Finley’s waiver and
third-party-beneficiary defenses, which turned on its proffered
construction of the release, failed for essentially the same reasons.9
The dissent would have held Finley was released as Petro
Canyon’s “predecessor” because “Finley’s identity and its connection
6 623 S.W.3d at 484.
7 Id. at 490-96.
8 Id. at 490, 494.
9 Id. at 496-98. Petro Canyon also moved for summary judgment on its
declaratory-judgment counterclaim, but the court of appeals held the claim
was improper because it was identical to and duplicative of the affirmative
defenses. Id. at 499. Petro Canyon has not appealed the adverse ruling.
8
with the activity for which Petro Canyon signed this Release—the
transfer of mineral interests in the Loving County Tract—are not in
doubt.”10 In determining that the ordinary meaning of “predecessors”
was not limited to corporate-level entities and did not exclude
predecessors in title,11 the dissent considered not only “the intentions of
the parties as expressed in the agreement” but also “the context of the
circumstances surrounding [the acreage-swap agreement], including the
events leading to its formation, the relationships of the parties, [and]
each party’s motivations for entering the agreement.”12
On petition for review, the primary issue is the proper
construction of the term “predecessors.”
II
The summary-judgment motions involve legally distinct
affirmative defenses, but for each, the dispositive question is the same:
whether “predecessors,” as used in the acreage-swap agreement,
includes Finley such that Headington’s claims against Finley arising
from the Arrington Lease’s alleged termination were released or waived
when Headington contracted with Petro Canyon to acquire the WIRC
Lease. Because this issue presents a question of law raised on
cross-motions for summary judgment, we must determine all questions
under a de novo standard of review and render the judgment the trial
court should have rendered.13
10 Id. at 507 (Partida-Kipness, J., dissenting).
11 Id. at 505-06.
12 Id. at 500.
13 Merriman v. XTO Energy, Inc., 407 S.W.3d 244, 248 (Tex. 2013).
9
A
At issue here is an agreement to surrender legal rights and
obligations as part of a bargained-for exchange.14 Although a release
“operates to extinguish [a] claim or cause of action” and is “an absolute
bar to any right of action on the released matter,”15 the court of appeals
mischaracterized it as effecting a “forfeiture.” A release involves a
voluntary relinquishment, while a forfeiture connotes a consequence
imposed as a penalty.16
Even so, to avoid unintentionally losing valuable rights against
unnamed—and perhaps unknown—wrongdoers, we have long said that
a release will discharge only those persons “named” or identified “with
such descriptive particularity” that their identity or connection to the
released claims “is not in doubt.”17 “[The] requirement of specific
14 Dresser Indus., Inc. v. Page Petroleum, Inc., 853 S.W.2d 505, 508 (Tex.
1993).
15 Id.See Forfeiture, BLACK’S, supra note 1, at 792 (defining “forfeiture” as
16
a “divestiture of property without compensation[;] loss of a right, privilege, or
property because of a crime, breach of obligation, or neglect of duty[; or]
destruction or deprivation of some estate or right because of the failure to
perform some contractual obligation or condition”); see also, e.g., NCAA v.
Jones, 1 S.W.3d 83, 85 (Tex. 1999) (characterizing “forfeiture of individual
records, performances and awards[;] forfeiture of team victories, records,
performances and awards[;] and forfeiture of receipts from any competition in
which the ineligible athlete participated” as “penalties”).
Duncan v. Cessna Aircraft Co., 665 S.W.2d 414, 420 (Tex. 1984); see
17
McMillen v. Klingensmith, 467 S.W.2d 193, 196 (Tex. 1971) (adopting the
“named” or “specifically identified” standard the Court subsequently applied
in Duncan). Although first articulated in cases involving multiple tortfeasors,
we have rejected the notion that the descriptive-particularity requirement is
limited to that context. Angus Chem. Co. v. IMC Fertilizer, Inc., 939 S.W.2d
10identification is not met unless the reference in the release is so
particular that ‘a stranger could readily identify the released party.’”18
Finley is not named in the release or even the acreage-swap
agreement, so whether the release encompasses Finley comes down to
the meaning of a single word. A release is a contract, so we construe it
as such.19 When a contract’s meaning is disputed, our primary objective
is to ascertain and give effect to the intentions the parties have
objectively manifested in the written instrument.20 Because objective
intent controls, our focus is on the contract’s language.21 Here, the word
“predecessors” carries its plain, ordinary, and generally accepted
meaning because the acreage-swap agreement does not define it or use
it in a technical or specialized way.22
That does not mean, however, that the word must carry every
meaning to which it is naturally susceptible. Rather, “a primary
138, 139 (Tex. 1997) (stating that the rule from McMillen “is not limited to [the
multiple tortfeasor] context”).
18 Duncan, 665 S.W.2d at 419-20 (clarifying that the requirement of
specific identification adopted in McMillen applies to those persons identified
“with such descriptive particularity” that “‘a stranger could readily identify the
released party’”).
19 Williams v. Glash, 789 S.W.2d 261, 264 (Tex. 1990).
20 URI, Inc. v. Kleberg County, 543 S.W.3d 755, 763 (Tex. 2018).
21 Id. at 763-64.
22Id.; see DeWitt Cnty. Elec. Coop. v. Parks, 1 S.W.3d 96, 101 (Tex. 1999)
(contract language carries its plain and grammatical meaning unless doing so
would defeat the parties’ intent).
11
determinant of meaning” is context.23 For that reason, language that
might evoke multiple meanings if read in isolation will often be made
more precise by its contextual use.24 On the other side of the coin, even
if context does not narrow meaning, mere breadth of a disputed term
does not perforce equate to ambiguity.25 An unmodified term that
“‘invokes many different definitions’” could, of course, be so broad “‘in
the abstract’” that it is vague and ambiguous,26 but a contract is
ambiguous only if it is subject to more than one reasonable
interpretation after the pertinent rules of construction have been
applied.27 If contract language can be given a certain or definite legal
meaning when considered as a whole, and in light of the objective
23Brown v. City of Houston, 660 S.W.3d 749, 754 (Tex. 2023) (quoting
Antonin Scalia & Bryan A. Garner, Reading Law: The Interpretation Of Legal
Texts 167 (2012)).
24 URI, 543 S.W.3d at 764 (recognizing that words are “imperfect”
implements of communication that often “cannot be assigned a rigid meaning,
inherent in themselves”; instead, “their meaning turns upon use, adaptation
and context as they are employed to fit various and varying situations”
(quoting State of Cal. Dep’t of Mental Hygiene v. Bank of Sw. Nat’l Ass’n, 354
S.W.2d 576, 579 (Tex. 1962))).
Cf. Pa. Dep’t of Corr. v. Yeskey, 524 U.S. 206, 212 (1998) (observing
25
that a statute’s application in situations not expressly anticipated
demonstrates breadth, not ambiguity).
Cadena Comercial USA Corp. v. Tex. Alcoholic Beverage Comm’n, 518
26
S.W.3d 318, 327 (Tex. 2017) (quoting the court of appeals’ opinion approvingly).
27Italian Cowboy Partners, Ltd. v. Prudential Ins. Co. of Am., 341
S.W.3d 323, 333 (Tex. 2011).
12
circumstances surrounding its execution, the contract is not ambiguous
and must be construed as a matter of law.28
B
Finley and Petro Canyon take a broad view of the release’s
language and contend that, as a matter of law, we must as well because
neither the contract language nor the circumstances surrounding the
release’s execution support limiting that term to “corporate”
predecessors. In their view, the release includes all forms of
predecessors given (1) the term’s ordinary meaning as “one who
precedes”; (2) the absence of any modifier; (3) the release’s otherwise
broad and encompassing language; and (4) surrounding circumstances
that confirm Headington’s actual or constructive notice of Finley’s
relationship to Petro Canyon, Double Eagle, and the Loving County
Tract. Citing the nature of the underlying transaction, they further
contend “predecessors” naturally refers to predecessors in title and must
do so here because the acreage-swap transaction involved an exchange
of title with a named corporate entity (Petro Canyon) that (like its
affiliate, Double Eagle) has no corporate predecessor.
Headington takes a narrower view of the disputed term and says
the court of appeals’ analysis was correct because (1) the meaning of
“predecessors” is informed by its antonym; (2) “successors” of a business
entity classically refers to legal succession, such as by merger or
consolidation; and (3) by including “predecessors” in a categorical list of
28Coker v. Coker, 650 S.W.2d 391, 393 (Tex. 1983); see Mem’l Med. Ctr.
v. Keszler, 943 S.W.2d 433, 434 (Tex. 1997) (“[T]he interpretation of [an
unambiguous] release is to be decided by the court as a question of law.”).
13
entity-related groups, that is exactly how the release uses the term.
Headington further argues that, contextually, “predecessors” cannot
refer to precedent well operators because the release expressly excludes
liability for plugging the Arrington Wells. Nor could the term refer to
the Arrington Lease itself because the acreage-swap agreement
transfers rights only under the WIRC Lease without ever mentioning
the Arrington Lease. Finally, while collateral indemnification
obligations may have motivated Petro Canyon to secure a release for
Finley, Headington says a party’s subjective intentions cannot alter the
meaning of clear and unambiguous contract language. What is more
compelling from Headington’s perspective is that, as an objective
matter, the acreage-swap agreement was executed by sophisticated
entities with legal representation, and if it had been their true intention
to release Finley, the agreement could have explicitly said so.
On appeal, both sides contend that the acreage-swap agreement
is unambiguous as to the scope of the released parties, but if it is not,
they take divergent views about how to resolve any ambiguity.
Headington argues that ambiguity would be fatal to Finley and Petro
Canyon based on the “descriptive particularity” requirement, but Finley
and Petro Canyon argue that, like any other contract, ambiguity must
be resolved by a fact finder who may rely on extrinsic evidence. Because
we conclude that the release is not ambiguous as to the meaning of
“predecessors,” we do not address the matter.
C
In broad-form fashion, the release describes what is being
released as any and all claims and causes of action, past or present,
known or unknown, that are “related in any way to the Loving County
14
Tract.”29 Breach-of-contract and negligence claims, like those asserted
in this lawsuit, are expressly included among them, and Headington’s
claims are unquestionably related to the Loving County Tract.
The release identifies who is being discharged as “Petro Canyon
and its affiliates and their respective officers, directors, shareholders,
employees, agents, predecessors and representatives.” By this
categorical language, Petro Canyon and Headington indisputably
extended the release’s benefits to classes of unnamed individuals and
entities.30 While the classes are not so inherently broad or unlimited as
to fail for want of descriptive particularity,31 the identity of the
constituent class members—which will necessarily be established with
extrinsic evidence—turns on the meaning of the categorical terms. The
acreage-swap agreement does not define any of them.
Commonly understood, “predecessor” could fairly embrace all the
capacities Finley claims to hold. Case law does not provide a general
definition of the term, but it broadly means someone who precedes
29See Keck, Mahin & Cate v. Nat’l Union Fire Ins. Co., 20 S.W.3d 692,
698 (Tex. 2000) (holding that broad-form releases covering “all demands,
claims or causes of action of any kind whatsoever” met the requirement that
the release must “mention” the claim to effectively release it).
30See Duncan v. Cessna Aircraft Co., 665 S.W.2d 414, 422 (Tex. 1984)
(holding that “general, categorical release clauses” are not impermissible but
must be “narrowly construe[d]”).
31 Cf. id. at 419 (release of “any other corporations or persons
whomsoever responsible” lacked the degree of specificity required to release a
defendant who fell within its scope but was not otherwise named in the
release).
15
another.32 For that reason, it is not uncommon for the term to be used
casually as a shorthand for “predecessor in title” or “predecessor in
interest.”33
Often, “predecessor” is defined referentially to its antonym,
“successor,”34 which, comparatively speaking, has been a more frequent
focus of the jurisprudence. “The term ‘successor’ in common parlance
has many meanings.”35 In its broadest sense, “successor” means
“anyone who follows.”36 But as is usually the case, the intended breadth
32 Predecessor, BLACK’S, supra note 1, at 1426 (“Someone who precedes
another, esp. in an office or position . . . An ancestor.”); accord, e.g., NEW
OXFORD AMERICAN DICTIONARY at 1376 (3d ed. 2010) (“[A] person who held a
job or office before the current holder . . .; a thing that has been followed or
replaced by another.”).
33 See generally Teal Trading & Dev., LP v. Champee Springs Ranches
Prop. Owners Ass’n, 593 S.W.3d 324, 328-29 (Tex. 2020) (using “predecessor”
as shorthand for “predecessor in title”); Myrad Props., Inc. v. LaSalle Bank
Nat’l Ass’n, 300 S.W.3d 746, 748 (Tex. 2009) (using “predecessor” as shorthand
for “predecessor in interest”); Othen v. Rosier, 226 S.W.2d 622, 625-28 (Tex.
1950) (generally referring to the petitioner’s “predecessors in title” as his
“predecessors”).
34See, e.g., Predecessor, MERRIAM-WEBSTER’S COLLEGIATE DICTIONARY
at 977 (11th ed. 2020) (“[O]ne that precedes; esp: a person who has previously
occupied a position or office to which another has succeeded.”); WEBSTER’S
THIRD NEW INTERNATIONAL DICTIONARY at 1785 (2002) (“[A] person who has
previously occupied a position or office to which another has
succeeded . . .; something that has been followed or displaced by another.”).
Int’l Ass’n of Machinists, Lodge No. 6 v. Falstaff Brewing Corp., 328
35
S.W.2d 778, 781 (Tex. App.—Houston 1959, no writ).
36 Id.; see Successor, MERRIAM-WEBSTER’S, supra note 34, at 1247
(“[O]ne that follows; esp: one who succeeds to a throne, title, estate, or office.”);
accord BLACK’S, supra note 1, at 1732 (“1. Someone who succeeds to the office,
rights, responsibilities, or place of another; one who replaces or follows a
predecessor. 2. A corporation that, through amalgamation, consolidation, or
16
is context-dependent. “In the classic sense of the term, the ‘successor’ of
a business entity is not an assignee, but rather refers to rights and
obligations transferred by merger, consolidation, or other legal
succession.”37 The term has also been defined as applying to “one who
takes the place that another has left, and sustains the like part or
character”38—that is, one who has stepped into the shoes of another and
assumed the same role or function even without the existence of a formal
or legal relationship with the predecessor.39 Given the range of potential
other assumption of interests, is vested with the rights and duties of an earlier
corporation.”).
Black’s Law Dictionary does not include any sub-entries or
sub-definitions for “predecessor in title,” “predecessor in interest,” or
“corporate predecessor,” but it does have numerous separate entries for specific
kinds of “successors.” The entry for “successor in interest” defines the term as:
“Someone who follows another in ownership or control of property. A successor
in interest retains the same rights as the original owner, with no change in
substance.” BLACK’S, supra note 1, at 1732.
37 Broadway Nat’l Bank v. Yates Energy Corp., 631 S.W.3d 16, 25 n.5
(Tex. 2021) (citing Enchanted Ests. Cmty. Ass’n v. Timberlake Improvement
Dist., 832 S.W.2d 800, 802 (Tex. App.—Houston [1st Dist.] 1992, no writ)); see
Int’l Ass’n of Machinists, 328 S.W.2d at 781 (holding that an asset purchaser
was not bound to the seller’s contract with a labor union; although the common
understanding of “successor” “means anyone who follows,” it means something
different when applied to corporations); see also Farm & Home Sav. Ass’n v.
Strauss, 671 S.W.2d 682, 685 (Tex. App.—Dallas 1984, no writ) (in the context
of the particular transaction, “successors” was a “term of art” that did “not
encompass the third party purchasers of a parcel of land”).
38 Enchanted Ests., 832 S.W.2d at 802.
39 See Augusta Ct. Co-Owners’ Ass’n v. Levin, Roth & Kasner, 971
S.W.2d 119, 126 (Tex. App.—Houston [14th Dist.] 1998, pet. denied) (a
“successor” “contemplates an assumption of both rights and obligations or
‘stepping into the shoes’ of another”); Enchanted Ests., 832 S.W.2d at 802-03(plaintiff was a “legal successor” and third-party beneficiary of contract based
on evidence that the plaintiff had assumed rights and obligations and was
17
applications, the precise meaning in a particular contract must largely
depend on the use and context in which the term is employed.40
When reading a contract, or anything really, the intended
meaning of a word is informed by its grammatical use.41 Finley and
Petro Canyon would have us read “predecessors” as referring to the
“Loving County Tract” and, therefore, composed of predecessors in title,
interests, or well operations with respect to that property. But
“predecessors” grammatically refers back to the entities released—Petro
Canyon and its affiliates. The “Loving County Tract” refers back to, and
limits, the claims released but it does not define the releasees. The
syntactic use of “predecessors” thus connotes a prior connection to the
corporate entities themselves, not the land.
This understanding of the disputed term is also congruent with
the release’s inclusion of it in a list of entity-related words. “[T]he basic
authorized to step into the shoes of a nonaffiliated entity who had contracted
with the defendant); see also Great Am. Ins. Co. v. Primo, 512 S.W.3d 890,
893-94 (Tex. 2017) (rejecting the appeals court’s limitation of “succeeds to the
interest” as referring only to “a ‘successor’ in the corporate-transaction sense,”
and holding an insurance company succeeded to a homeowners association’s
interest under an assignment).
40 Thompson v. N. Tex. Nat’l Bank, 37 S.W.2d 735, 739 (Tex. Comm’n
App. 1931, holding approved) (“The exact meaning [of successor] as applied to
a contract wherein the word is used must depend largely on the kind and
character of the contract, its purposes and circumstances, and the context.”);
see Pathfinder Oil & Gas, Inc. v. Great W. Drilling, Ltd., 574 S.W.3d 882, 889
(Tex. 2019) (isolating words in a contract distorts meaning); URI, Inc. v.
Kleberg County, 543 S.W.3d 755, 764 (Tex. 2018) (observing that “word[s] can
carry subtle—and significant—differences in meaning when applied to
different situations”).
41 DeWitt Cnty. Elec. Coop. v. Parks, 1 S.W.3d 96, 101 (Tex. 1999)
(contract language bears its plain grammatical meaning unless doing so would
defeat the parties’ intent).
18
principle that words are given meaning by their context” includes the
more specific concept that, when words are associated in a context that
suggests they share a common quality, “they should be assigned a
permissible meaning that makes them similar” but consistent with their
ordinary meaning.42 Finley and Petro Canyon concede, as they must,
that officers, directors, shareholders, and employees share the trait of
being related, in one way or another, within the corporate structure of
the released corporate entities. But they assert that “agents” and
“representatives” do not similarly share that quality with the other
words in the list, so it would be improper to circumscribe the breadth of
those words or “predecessors” based on some purported commonality.
On that, we cannot agree.
As undefined terms, “agent” and “representative” carry their
ordinary meaning. An agent is one who “consent[s] to act on the
principal’s behalf and subject to the principal’s control” when the
principal has “authoriz[ed] . . . the agent to act on his behalf.”43
Likewise, a “representative” is “one that represents another as agent,
deputy, substitute, or delegate usu[ally] being invested with the
42 Antonin Scalia & Bryan A. Garner, Reading Law: The Interpretation
of Legal Texts 49, 195-98 (2012) (discussing contextual canons including the
associated-words canon, also known as noscitur a sociis, meaning “it is known
by its associates”); see Flagship Credit Corp. v. Indian Harbor Ins. Co., 481 F.
App’x 907, 911-12 (5th Cir. 2012) (describing the associated-words canon as “a
traditional means of limiting statutory or contract words from being given
every conceivable meaning” that has been employed by Texas courts when
considering whether a contract is ambiguous).
43 Cmty. Health Sys. Pro. Servs. Corp. v. Hansen, 525 S.W.3d 671, 691
(Tex. 2017); Agent, BLACK’S, supra note 1, at 79 (“Someone who is authorized
to act for or in place of another; a representative.”).
19
authority of the principal.”44 All of the categories in the list share the
quality of being authorized to act, in some way or another, on behalf of
the entities; unrelated predecessors in title, interest, or well operation
do not. Finley has a precedent relationship to the Loving County Tract,
but it does not have a precedent business connection with or relationship
to Petro Canyon or its affiliate, Double Eagle, and one simply could not
reasonably discern from anything in the acreage-swap agreement that
Headington intended to release its claims against Finley.45
In these proceedings, the parties have made much ado about the
“circumstances surrounding” the acreage-swap transaction and how
they bear on the meaning of the release’s language. To be fair, we have
said that, even when an agreement is unambiguous, context that
informs the meaning of contract language includes “objectively
determinable facts and circumstances that contextualize the parties’
transaction.”46 But that’s not an invitation to backdoor parol evidence
of subjective intent, like the parties’ motivations for entering the
agreement. Rather, “[i]n the same way that dictionary definitions, other
44 Representative, MERRIAM-WEBSTER’S, supra note 34, at 1057; accord
WEBSTER’S THIRD NEW INTERNATIONAL DICTIONARY, supra note 34, at 1926
(“[S]tanding for or in the place of another: acting for another or others:
constituting the agent for another esp. through delegated authority.”);
BLACK’S, supra note 1, at 1557 (“Someone who stands for or acts on behalf of
another.”).
45 See Italian Cowboy Partners, Ltd. v. Prudential Ins. Co. of Am., 341
S.W.3d 323, 333 (Tex. 2011) (a contract is ambiguous if it is reasonably
susceptible to more than one reasonable interpretation after application of
pertinent rules of construction, but it is not ambiguous “[if] it can be given a
certain or definite legal meaning or interpretation”).
46 URI, Inc. v. Kleberg County, 543 S.W.3d 755, 757-58 (Tex. 2018).
20
statutes, and court decisions may inform the common, ordinary meaning
of a statute’s ambiguous language, circumstances surrounding the
formation of a contract may inform the meaning of a contract’s
unambiguous language. But courts may not rely on evidence of
surrounding circumstances to make the language say what it
unambiguously does not say.”47
Commercial setting, trade custom, and trade usage are objective
surrounding circumstances that may shed light on the meaning of
contract language.48 In this case, no trade custom or usage is asserted
to apply here, but we would, for example, consider as informative the
subject matter of the acreage-swap agreement being a land transaction.
Likewise, courts may consider the sophistication of the parties and the
participation of legal counsel, which carry an expectation that the
parties were aware of what to bargain for and understood the terms of
their written agreement.49 In that regard, there is a significant omission
47 First Bank v. Brumitt, 519 S.W.3d 95, 110 (Tex. 2017).
48 URI, 543 S.W.3d at 768.
49See James Constr. Grp., LLC v. Westlake Chem. Corp., 650 S.W.3d
392, 403 (Tex. 2022) (“Texas courts regularly enforce unambiguous contract
language agreed to by sophisticated parties in arms-length transactions.”);
Transcor Astra Grp. S.A. v. Petrobas Am., Inc., 650 S.W.3d 462, 473-74 (Tex.
2022) (“Whether a reliance disclaimer is effective in any given case depends on
the contract’s language and the totality of the surrounding circumstances,”
including representation by counsel, sophistication of the parties, and
knowledge of the industry (internal quotation marks omitted)); Energy
Transfer Partners, L.P. v. Enter. Prods. Partners, L.P., 593 S.W.3d 732, 738
(Tex. 2020) (“Texas courts regularly . . . reject legal claims that are artfully
pleaded to skirt unambiguous contract language, especially when that
language is the result of arm’s-length negotiations between sophisticated
business entities.”).
21
in the agreement: Finley is not named in the agreement or the release
despite the looming threat of litigation and Headington’s proximal
demand for information bearing on termination of the Arrington Lease.
In comparison, the acreage-swap agreement mentions a pending legal
dispute over ownership of the Loving County Tract with a notable degree
of specificity.50
But even considering all this, use of surrounding circumstances
is subject to a hard stop: such evidence cannot contradict, change,
enlarge, or supplement the contract language and, instead, may only
give the parties’ chosen words “a meaning consistent with that to which
they are reasonably susceptible,” that is, to elucidate the meaning of the
words the parties employed—and nothing else.51 “As we have often
stated in one way or another, ‘[u]nderstanding the context in which an
agreement was made is essential in determining the parties’ intent as
expressed in the agreement, but it is the parties’ expressed intent that the
court must determine.’”52 So while the surrounding circumstances may
assist interpreting the release’s language, they can neither change what
the contract says nor create an ambiguity.53 Because the acreage-swap
agreement, construed as a whole, unambiguously narrows the scope of
what has the potential to be a very broad term, evidence of the
surrounding circumstances cannot enlarge its meaning.
50 See supra note 3.
51 URI, 543 S.W.3d at 765, 769.
52 Id. at 765 (alteration in original) (quoting Anglo–Dutch Petroleum
Int’l, Inc. v. Greenberg Peden, P.C., 352 S.W.3d 445, 451 (Tex. 2011)).
53 Id.22
Although we hold that “predecessors” bears the narrower
meaning Headington ascribes to it, this conclusion does not derive from
any rule requiring releases to be construed “narrowly” or from a want of
“descriptive particularity.” Instead, it follows from the plain meaning of
the term as constrained by the linguistic and grammatical context in
which it is used.
D
Having concluded that Headington did not release its Loving
County Tract claims against Finley, the affirmative defenses of
third-party beneficiary and waiver also fail. Though status as a
third-party beneficiary of a contract is not necessarily aligned with
questions about the identity of the released parties,54 in this case there
is no daylight between Finley’s third-party-beneficiary and release
claims.
The waiver defense also hinges on the release’s application to
Headington’s claims against Finley. Because the release does not
encompass Finley, there is no express waiver, as the court of appeals
held. Neither Finley nor Petro Canyon argued implied waiver in the
lower courts. Now, they assert that because waiver is a question of
intent, we must also examine whether Headington’s conduct, viewed in
light of the surrounding facts and circumstances, is “unequivocally
inconsistent with claiming [a known] right.”55 Other than executing the
54First Bank v. Brumitt, 519 S.W.3d 95, 102-04 (Tex. 2017) (setting out
standards for a nonparty to claim a contract’s benefits).
55See Teal Trading & Dev., LP v. Champee Springs Ranches Prop.
Owners Ass’n, 593 S.W.3d 324, 334-35 (Tex. 2020).
23
release in the acreage-swap agreement, neither Finley nor Petro Canyon
identifies any conduct on Headington’s part that is inconsistent with its
pursuit of the contract and tort claims asserted in this lawsuit. Nor is
any such conduct readily apparent from the surrounding facts and
circumstances, as reflected in the record.56 Accordingly, the waiver
defense fares no better than the others.
III
Because Finley is neither named as a released party nor included
within a category of released persons and entities, Headington is
entitled to summary judgment on the affirmative defenses of release,
waiver, and third-party beneficiary. We therefore affirm the court of
appeals’ judgment and remand the case to the trial court for further
proceedings.
John P. Devine
Justice
OPINION DELIVERED: May 12, 2023
56 See Jernigan v. Langley, 111 S.W.3d 153, 156 (Tex. 2003) (“[F]or
implied waiver to be found through a party’s actions, intent must be clearly
demonstrated by the surrounding facts and circumstances. There can be no
waiver of a right if the person sought to be charged with waiver says or does
nothing inconsistent with an intent to rely upon such right.” (internal citation
omitted)).
24