Most states call it a third-party beneficiary contract. Leave it to Louisiana to be different. In Adams v. Chevron USA Inc., the plaintiffs claimed that oilfield pipe-cleaning activities of Chevron and others contaminated their land with NORM. The Grafers owned the land where, pursuant to a lease, the pipes and other equipment were cleaned. Plaintiffs also sought damages from the Grefers for their own alleged negligence.  Adams settled with most of the defendants by a settlement agreement in 2014 but continued to seek damages from the Grafers.

The question: Were the Grefers included in the settlement as released/indemnified parties? No. The appellate court concluded that the trial court erred by disregarding testimony presented at an evidentiary hearing of the actual intent of the parties to the settlement agreement concerning whether the Grefers were or were not to be released.  

Extrinsic evidence of the parties’ intent

Under Louisiana’s extrinsic evidence rule when words of the agreement are clear and explicit and lead to no absurd consequences, no further interpretation may be made in search of the parties’ intent. Compromise agreements are a jurisprudential exception. When a dispute arises as to the scope of a compromise agreement, extrinsic evidence can be considered to determine exactly what differences the parties intended to settle. Intent is determined by reading the compromise instrument in light of the surrounding circumstances at the time of execution of the agreement. 

There was no stipulation pour autrui.

In any state, a contracting party may stipulate a benefit for a third-party who is not named in the contract. In Louisiana it is done via a stipulation pour autrui. Such a stipulation is never presumed.

In the settlement agreement, the definition of released parties was very broad, including indemnitees and indemnitors and any other person for which the named settling defendants may be liable, whether in contract, tort or equity, in connection with or arising from the claims asserted in the litigation. The Grefers were not parties to the agreement, had no hand in drafting it, and did not contribute to the settlement payment.

The settlement agreement failed to meet the criteria for a stipulation pour autrui.

  1. There was no manifestly clear intent to benefit the Grefers. The agreement itself provided that the parties did not intend to make any person a third-party beneficiary nor create a stipulation pour autrui.
  2. There was no certainty as to the benefit bestowed upon the Grefers.
  3. Any benefit for the Grefers was a mere incident of the settlement between the settling defendants and plaintiffs.

The Grefers were not released by the 2014 settlement agreement.

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