The plain, ordinary, and generally accepted meaning of a word doesn’t mean “anything goes”. It depends on context, says the Supreme Court of Texas in Finley Resources Inc. v.  Headington Royalty Inc., a dispute over the meaning of “predecessors”. For the underlying facts see our post on the court of appeals decision.

The release

The release in an acreage-swap agreement between Petro Canyon Energy and Headington said that “Headington [ releases, etc.] Petro Canyon and its affiliates and their respective officers, directors, shareholders, employees, agents, predecessors and representatives… [for all claims, etc.]… related in any way to the Loving County Tract.”

The parties carved out Petro Canyon’s agreement to plug the wells and restore the property. Finley was not named anywhere in the agreement.

The discussion

Headington sued Finley for $54 million in damages related to Finley’s operation of wells on the Arrington lease on the Loving County Tract. The question: Did “predecessors” include Finley such that Headington’s claims against Finley arising from termination of the Arrington lease were released?

A release will discharge only those persons “named” or “identified” “with descriptive particularity” and that their identity or connection to the released claims “is not in doubt”. Stated another way, could a stranger readily identify the released party?

The court gave “predecessors” its plain, ordinary, and generally accepted meaning. But it wasn’t that simple. The word need not carry every meaning to which it is naturally susceptible. A primary determinant of meaning is context, said the court.

Finley/Petro Canyon’s broad view was that the release included all forms of predecessors given:

  • the ordinary meaning as one who precedes,
  • the absence of a modifier,
  • otherwise broad and encompassing language, and
  • surrounding circumstances. Thus, “predecessors” naturally referred to predecessors in title.

Headington’s narrow view:

  • the meaning was informed by its antonym;
  • “successors” of a business entity classically refers to legal succession such as merger or consolidation and;
  • by including “predecessors” in a categorical list of entity-related groups, that is how the release uses the term.
  • Also contextually, predecessors could not refer to preceding well operators because the release expressly excluded liability for plugging the Arrington wells.

The release described what was being released: claims related in any way to the Loving County Tract; and who was being discharged: by categorical language the parties intended to extend the benefits to classes of unnamed individuals and entities. The identity of constituent class members turned on the meaning of the categorical terms.  

The court acknowledged the “predecessor” often is shorthand for predecessor-in-title. So, the court asked, what is the grammatical use? “Predecessors” grammatically referred back to the entities released. The syntactic use of “predecessors” connoted a prior connection to corporate entities themselves and not the land.

The court concluded with respect to surrounding circumstances that even when an agreement is unambiguous, context that informs the meaning of the language includes objectively determinable facts and circumstances that contextualize the transaction.

Finley was not named in the agreement despite the looming threat of litigation and Headington’s proximal demand for information bearing on termination of the Arrington lease. Evidence of surrounding circumstances cannot contradict, change, enlarge or supplement the contract language and instead may only give the chosen words a meaning consistent with that to which they are reasonably susceptible.

The result

“Predecessors” bore the narrower meaning Headington ascribed to it. but that followed not from any rule requiring leases to be construed narrowly or for want of descriptive particularity, but rather from the plain meaning of the term as constrained by the linguistic and grammatical context in which it was used.

Your musical interlude.