United States Court of Appeals,
Eleventh Circuit.
No. 95-6142.
Gladys MOORE, Plaintiff-Appellee, Cross-Appellant,
v.
PENNSYLVANIA CASTLE ENERGY CORPORATION, Defendant-Appellant,
Cross-Appellee.
July 31, 1996.
Appeals from the United States District Court for the Northern
District of Alabama. (No. CV 93-C-2092-W), U.W. Clemon, Judge.
Before ANDERSON and COX, Circuit Judges, and RONEY, Senior Circuit
Judge.
ANDERSON, Circuit Judge:
In this diversity case involving Alabama law, Pennsylvania
Castle Energy Corporation ("Penn Castle") appeals from a final
judgment entered in the district court upon a jury verdict in favor
of plaintiff Gladys Moore. The issue raised by Penn Castle on
appeal concerns the introduction of parol evidence to vary the
terms of a written agreement, which Penn Castle claims is complete
and unambiguous. The cross-appeal by Moore raises the issue of the
dismissal of her claim for punitive damages.
Because we conclude that the district court erred in admitting
the parol evidence, we reverse the judgment entered in favor of
Moore. With respect the cross-appeal, we conclude that Moore's
claim for punitive damages was properly dismissed, and we therefore
affirm on that issue.
I. FACTS
Moore owns the surface rights to several hundred acres of land
in Tuscaloosa County, Alabama; however, she does not own the
subsurface minerals and mineral rights. In 1907, Moore's
predecessor-in-interest conveyed by severance deed the title to all
minerals in the land, along with certain rights to use the surface
land in the extraction of the minerals. Penn Castle is the lessee
of the subsurface mineral estate and all rights appurtenant
thereto. Penn Castle acquired this leasehold interest by
assignment from TRW, Inc. ("TRW") in 1990.
Under Alabama law and the terms of the severance deed, TRW had
the right to enter and to make reasonable use of Moore's land to
explore, develop, and produce subsurface minerals, including
coalbed methane gas. See, e.g., Vines v. McKenzie Methane Corp.,
619 So.2d 1305 (Ala.1993). Notwithstanding this right of
reasonable surface use, Penn Castle presented evidence that
producers in the Alabama coalbed methane industry often negotiate
"surface access and surface damage agreements" with surface estate
owners. The purpose of such agreements is to avoid litigation by
compensating surface estate owners for any damage that might be
caused by the use of the surface property in the extraction of
minerals.
In 1983, TRW became interested in drilling several wells on
Moore's property, and in entering a surface access and surface
damage agreement with Moore. As negotiations progressed during the
spring of 1983, TRW representatives met with Moore and spoke to her
by telephone several times. During this period, TRW sent Moore a
map of her property, which indicated the locations of six proposed
gas well drill sites. On August 2, 1983, Moore and her son Gene
Moore met with several TRW representatives at Moore's house, with
the map spread across a table. According to the trial testimony of
Moore and her son, she and the TRW representatives reached an oral
agreement after three hours of negotiation. The parties orally
agreed to the following terms: (1) TRW would never drill more than
six gas wells on Moore's property; (2) TRW would drill these gas
wells in accordance with the six drill sites indicated on the map;
and (3) TRW would never drill a gas well in a fifty-acre field on
the Moore property (the "Field"). These three oral understandings
were not reduced to writing that day.
On the next day, a TRW representative came to Moore's house
and dropped off a proposed written contract. In this proposal, TRW
promised to pay Moore $10,000 in exchange for a "perpetual easement
with the right to construct six (6) drill sites for drilling and
production of coalbed methane gas, construction of necessary access
roads, installation of power lines and gathering systems and other
coalbed methane gas recovery activity...." The $10,000 was to
constitute "full and complete payment for any and all damages to
and/or loss of trees and vegetation, easements and drill sites for
six (6) coalbed methane gas wells." The locations of two of the
six drill sites were specified in the written proposal. With
respect to the four remaining drill sites contemplated, the written
proposal provided as follows:
It is agreed and understood that TRW will discuss with Surface
Owner the easement and drill site locations for the remaining
four (4) coalbed methane gas wells of which TRW has the final
decision for location. Each of the four (4) drill sites will
not exceed one (1) acre and the associated easement for the
four (4) drill sites will not exceed three (3) net acres.
Should additional easement be required, TRW will remunerate
Surface Owner at the rate of Six Hundred Dollars ($600.00) per
net acre.
Moore expressed disagreement about the last sentence of the
above-quoted paragraph, and it was changed to read: "Should
additional easement be required, TRW will remunerate Surface Owner
at a rate to be negotiated per net acre."
On August 5, 1983, Moore and her son met with the TRW
representatives again. After making and initialling a correction
to a description of the location of "Well Site 1" in paragraph two,
Moore signed the proposed contract (hereinafter, the "written
agreement"). The written agreement includes the modified language
in paragraph two, and an attached "Exhibit A," referred to in
paragraph two, which more specifically describes the locations of
the two drill sites and associated easements. The written
agreement does not incorporate or otherwise refer to the map, nor
does it mention TRW's oral promise never to drill more than six
wells. The written agreement also does not mention the oral
promise not to drill in the Field. To the contrary, the written
agreement states that "TRW has the final decision for location"
with respect to the four remaining drill sites contemplated by the
written agreement. Nevertheless, Moore and her son testified that
at the August 5, 1983, meeting, TRW representatives repeated the
oral assurances that TRW would drill its gas wells only in
accordance with the drill sites indicated on the map, and that it
would never drill in the Field. After hearing these oral
assurances, Moore signed the written agreement.
Between December of 1983 and August of 1984, TRW and Moore
executed three supplemental letter agreements, each of which
described an additional drill site on Moore's property (for a total
of five). Although none of the supplemental letter agreements
mentioned the map or the oral promise not to drill on the Field,
all five of the drill sites chosen by TRW roughly corresponded to
the sites on the map, and TRW did not drill on the Field. TRW
completed its drilling on the Moore property in late 1984,
apparently without having chosen a sixth drill site.1
In 1990, TRW assigned its lease to the defendant, Penn Castle.
Beginning in October of 1992, a representative of Penn Castle
contacted Moore in an effort to negotiate additional drill sites.
However, Moore and her son told Penn Castle that they were not
amenable to additional wells. Several subsequent attempts to
negotiate additional drill sites failed. Unable to reach a
compromise, Penn Castle began constructing an access road and drill
pad in the middle of the Field on December 26, 1992.
II. PROCEDURAL HISTORY
On August 24, 1993, Moore filed this action against Penn
Castle in Alabama state court, stating claims for breach of oral
contract and trespass. Penn Castle removed the case to federal
court based on diversity of citizenship. See 28 U.S.C. § 1332.
The case proceeded to trial.
1
However, Moore presented evidence at trial that a drill pad
for a well located on a neighbor's property may have protruded
partly onto the Moore property. Moore argued that this counted
as one of TRW's six wells, making the well drilled by Penn Castle
in the Field the seventh. Penn Castle, on the other hand,
presented evidence to the contrary, and argued that the well in
the Field was only the sixth well.
We need not resolve this controversy in order to decide
this appeal. Construing the facts in the light most
favorable to Moore, we assume arguendo that the well in the
Field constituted the seventh well.
During the trial, the district court admitted evidence of the
oral conversations between Moore and TRW over Penn Castle's
objection that such negotiations were merged into the written
agreement. Penn Castle similarly objected to the admission of the
map into evidence, but the district court overruled the objection.
At a break in the trial testimony, the district court
considered Penn Castle's motion for judgment as a matter of law,
which was based in part on the parol evidence rule. After hearing
argument, the district court denied the motion, concluding "that
there is a latent ambiguity in the contract, in the written
contract, and that it is for the jury to determine whether there
was a separate oral agreement." At the close of all the evidence,
the district court summarily denied the motions for judgment as a
matter of law by Moore and Penn Castle. However, the district
court granted Penn Castle's motion for judgment as a matter of law
as to Moore's claim for punitive damages.
On February 1, 1995, the jury returned a general verdict of
$159,000 in favor of Moore, and the district court entered final
judgment. Penn Castle repeated its arguments to the district court
by filing a Rule 50(b) motion for judgment as a matter of law, or,
in the alternative, a Rule 59 motion for new trial or remittitur.
On February 13, 1995, the district court entered an order summarily
denying Penn Castle's post-judgment motions. Penn Castle filed a
notice of appeal from the $159,000 final judgment entered by the
district court. Moore filed a notice of cross-appeal from the
order of the district court granting Penn Castle's motion for
judgment as a matter of law on her claim for punitive damages.
III. DISCUSSION
We address only one issue on appeal: whether the district
court erred in permitting Moore to present evidence of her alleged
oral agreement with TRW.2 Under Alabama law, once the parties to
a contract have reduced their agreement to writing, all prior
statements, promises, and negotiations are merged into the
resulting written document. See Guilford v. Spartan Food Systems,
Inc., 372 So.2d 7 (Ala.1979) (noting that it is presumed at law
that "all prior negotiations are merged into the written contract,
which purports to cover the entire transaction"). In the absence
of fraud, mistake, or illegality, parol evidence is not admissible
to explain, contradict, vary, add to, or subtract from the express
terms of a complete and unambiguous written agreement. See Lake
Martin/Alabama Power Licensee Assoc., Inc. v. Alabama Power Co.,
Inc., 601 So.2d 942, 945 (Ala.1992).
Moore makes two arguments in support of the district court's
admission of the evidence relating to her alleged oral agreement
with TRW. First, she argues that the parol evidence bar does not
apply because the written document is ambiguous. Second, she
contends that the written document does not reflect the complete
agreement of the parties, and that extrinsic evidence of their
2
This issue is dispositive: Moore's entire case depends
upon the oral promises allegedly made by TRW. Moore does not
argue that Penn Castle breached any term of the written
agreement. In addition, Moore offered no evidence, and makes no
argument, that Penn Castle's use of her land was unreasonable,
and thus not within the common-law right of reasonable use.
Similarly, Moore's trespass claim also depends entirely on the
alleged oral promises. Moore's only argument in support of her
trespass claim is that the breach of the oral agreement
automatically resulted in a trespass to her property.
"true agreement" is therefore admissible. We address each of
Moore's arguments in turn.
A. Is the Written Agreement Ambiguous?
Under Alabama law, extrinsic evidence relating to the alleged
"true intent" of the parties is not admissible if the written
document is clear and unambiguous. See, e.g., Kerrigan v. Sherrer,
535 So.2d 74, 75-76 (Ala.1988) ("[A]bsent a finding of ambiguity,
it was improper for the trial court to consider evidence .. [of the
alleged] true intentions of the parties...."); Darling Shop of
Birmingham v. Nelson Realty Co., 52 So.2d 211 (Ala.1951) ("[I]n the
absence of ambiguity the court cannot interpret the contract but
must take it as it is written."). However, resort to parol
evidence is proper to show that the contract language contains a
"latent ambiguity." Cathbake Investment Co. v. Fisk Electric Co.,
Inc., 700 F.2d 654, 656 (11th Cir.1983) (applying Alabama law).
"An ambiguity is latent when the language employed is clear and
intelligible and suggests but a single meaning, but some extrinsic
fact or extraneous evidence creates a necessity for interpretation
or a choice among two or more possible meanings." Thomas v.
Principal Financial Group, 566 So.2d 735 (Ala.1990). If a latent
ambiguity exists, parol evidence may be admitted for the purpose of
explaining or clarifying the language revealed to be ambiguous, but
not for the purpose of uncovering the parties' alleged "true
intent." See Gafford v. Kirby, 512 So.2d 1356, 1363 (Ala.1987)
(where a latent ambiguity exists, parol evidence is admissible "to
clear up that ambiguity"). As the Supreme Court of Alabama
explained:
Such evidence is received, not for the purpose of importing
into the writing an intention not expressed therein, but
simply with the intention of elucidating the meaning of the
words employed; and in its admission, the line which
separates evidence which aids the interpretation of what is in
the instrument, from direct evidence of intention independent
of the instrument, must be kept steadily in view; the duty of
the court being, to declare the meaning of what is written in
the instrument, not of what was intended to be written.
Gibson v. Anderson, 265 Ala. 553, 92 So.2d 692, 695 (1957)
(quotations omitted).
Whether a written contract is ambiguous is a question of law
for the court, subject to de novo review. Vulcan Painters, Inc. v.
MCI Constructors, Inc., 41 F.3d 1457, 1460 (11th Cir.1995); Wayne
J. Griffin Elec., Inc. v. Dunn Constr. Co., 622 So.2d 314, 316
(Ala.1993). In the instant case, Moore can point to no language in
the written document which is revealed to be ambiguous by the
extrinsic evidence. Nor did the district court point to any such
language, either in its rulings or in its instructions to the jury.
Our review of the written agreement persuades us that there is no
language therein which the extrinsic evidence reveals to be
ambiguous. Moreover, the interpretation urged by Moore is
unreasonable. See Orkin Exterminating Co., Inc. v. F.T.C., 849
F.2d 1354, 1362 (11th Cir.1988) (explaining that "[n]o latent
ambiguity exists unless the contract is actually susceptible to the
meaning contended for by a party" and rejecting an unreasonable
interpretation of a written contract), cert. denied, 488 U.S. 1041,
109 S.Ct. 865, 102 L.Ed.2d 989 (1989). Any interpretation of the
contract prohibiting Penn Castle from drilling in the Field is
unreasonable in light of the plain language of the written
agreement, which leaves to Penn Castle the "final decision for
location" with respect to four of the wells. It is also
unreasonable to interpret the contract as prohibiting Penn Castle
from ever drilling more than six wells on the Moore property. The
obvious purpose of the agreement is to prevent Moore from suing in
tort for any damage caused by the drilling of six wells, not to
eliminate Penn Castle's common-law right to make reasonable use of
Moore's land in the extraction of subsurface minerals. We readily
conclude that the latent ambiguity exception to the parol evidence
rule does not apply.
B. Is the Written Agreement Incomplete?
Moore's second argument in support of the district court's
admission of the parol evidence is that the parties did not intend
the written instrument to embody their complete agreement. "The
parol evidence rule is based upon the idea that a completely
integrated writing, executed by the parties, contains all of the
stipulations, engagements, and promises that the parties intended
to make, and that all of the previous negotiations, conversations,
and parol agreements are merged into the terms of the instrument."
Quimby v. Memorial Parks, Inc., 667 So.2d 1353, 1357 (Ala.1995)
(quoting Alfa Mutual Ins. Co. v. Northington, 561 So.2d 1041, 1044
(Ala.1990)). In light of its purpose, "[t]he parol evidence rule
... does not apply to every contract of which there exists written
evidence, but applies only when the parties to an agreement reduce
it to writing, and agree or intend that the writing shall be their
complete agreement." Hibbett Sporting Goods, Inc. v. Biernbaum,
375 So.2d 431, 434 (Ala.1979) (plurality opinion); see also
Quimby, 667 So.2d at 1357. Accordingly, prior negotiations and
oral conversations merge into a resulting written instrument only
if that instrument was actually intended to contain the parties'
entire agreement. See Hibbett, 375 So.2d at 436 (plurality
opinion); I.H.M., Inc. v. Central Bank of Montgomery, 340 So.2d
30, 33 (Ala.1976) ("[T]here was no error in allowing parol evidence
where there is no doubt that the written instrument was not
intended to reflect the full agreement between the parties.");
Alabama Power Co. v. Pierre, 236 Ala. 521, 183 So. 665 (1938)
("[W]e think the parol agreement admissible upon the theory that it
clearly appears the parties never intended that the written ...
contract should express their full agreement."); Southern Guaranty
Ins. Co. v. Rhodes, 46 Ala.App. 454, 243 So.2d 717, 721 (1971)
("[W]e must determine ... whether it was the intent of the parties
that the written instrument embody all of the prior negotiations
and represent the final jural act, or whether it represented only
a part thereof and it was intended there be an additional,
collateral and separate oral agreement.").
The question whether the parties have assented to a writing
as a complete integration of their agreement is a question of law
for the court, which is subject to the de novo standard of review.
Walley v. Bay Petroleum Corp., 312 F.2d 540, 544 (5th Cir.1963);
Hibbett, 375 So.2d at 435; Hartford Fire Ins. Co. v. Shapiro, 270
Ala. 149, 117 So.2d 348, 353 (1960). To resolve this legal
question, we must examine not only the written instrument itself,
but also the conduct of the parties and the surrounding
circumstances. See Hibbett, 375 So.2d at 435-36 (plurality
opinion); Southern Guaranty Ins. Co. v. Rhodes, 46 Ala.App. 454,
243 So.2d 717, 721 (1971). In Hartford Fire Ins. Co. v. Shapiro,
270 Ala. 149, 117 So.2d 348 (1960), the Supreme Court of Alabama
adopted a three-part test to determine whether a collateral or
separate oral agreement is admissible in addition to a written
agreement:
" "(1) The agreement must in form be a collateral one; (2) it
must not contradict express or implied provisions of the
written contract; (3) it must be one that parties would not
ordinarily be expected to embody in the writing....' "
Id. at 353 (quoting Mitchill v. Lath, 247 N.Y. 377, 160 N.E. 646,
647 (1928)); see also Alabama Farm Bureau Mut. Cas. Ins. Co. v.
Haynes, 497 So.2d 82, 83-84 (Ala.1986) (applying the three-part
test articulated in Hartford ); Southern Guaranty Ins. Co. v.
Rhodes, 46 Ala.App. 454, 243 So.2d 717, 722 (1971) (same).
Examining the written agreement itself, as well as the
surrounding circumstances, we conclude that the written instrument
was intended to be a complete integration of the parties'
agreement. Therefore, the alleged oral agreement between Moore and
TRW merged into the written document as a matter of law. Several
considerations persuade us to reach this conclusion.
First, we note that the written agreement itself is a formal
document that appears to embody all the terms of the parties'
agreement with respect to the six wells, as opposed to an informal
memorandum not purporting to be complete. Cf. I.H.M. v. Central
Bank of Montgomery, 340 So.2d 30, 33 (Ala.1976) (parol evidence
held admissible because document at issue was intended only as an
3
informal, preliminary memorandum of agreement). Also, Moore
3
Moore points out that the written document does not contain
an integration, or merger, clause, which states that the written
studied the written document and insisted upon certain changes
before she agreed to sign it, which indicates that she recognized
the importance of the written document in governing the parties'
relationship. Moore's conduct also indicates that she had the
opportunity to require TRW to put its alleged oral promises in
writing.
Second, with respect to TRW's alleged oral promises relating
to the location of the wells, we note that the written agreement
directly addresses that same subject. The written agreement
specifically describes the location of two wells, and provides that
"TRW has the final decision for location" of the remaining four
document expresses the complete agreement of the parties and that
all prior negotiations are merged into the written document.
Basically, an integration clause "is a portion of a particular
contract that restates the rationale of the parol evidence rule
within the terms of the contract." Environmental Systems, Inc.
v. Rexham Corp., 624 So.2d 1379, 1383 (Ala.1993). The presence
or absence of an integration clause may be a significant,
although not a conclusive, factor in ascertaining whether the
parties intended the written instrument to be a complete
integration. See, e.g., Chandler v. Lamar County Bd. of Educ.,
528 So.2d 309, 313 (Ala.1988) (citing the absence of an
integration clause as one reason for the court to examine parol
evidence); Colafrancesco v. Crown Pontiac-GMC, Inc., 485 So.2d
1131, 1133 (Ala.1986) (citing the presence of a merger clause as
a reason to exclude parol evidence). See also II Farnsworth on
Contracts § 7.3, at 204-07 (1990). Stated differently, the
absence of a merger clause does not preclude a finding that a
written contract constitutes an integration of the parties'
entire agreement. See, e.g., Jake C. Byers, Inc. v. J.B.C.
Investments, 834 S.W.2d 806, 813 (Mo.App.1992) ("The existence of
a merger clause may be a strong indication the writing is
intended to be complete, but its existence is not necessarily
determinative. More important, the absence of a merger clause is
likewise not determinative; the writing still may be complete on
its face.") (citations omitted); Braten v. Bankers Trust Co., 60
N.Y.2d 155, 468 N.Y.S.2d 861, 456 N.E.2d 802 (1983) ("In the
absence of a merger clause, as here, the court must determine
whether or not there is an integration by reading the writing in
light of surrounding circumstances, and by determining whether or
not the agreement was one which the parties would ordinarily be
expected to embody in the writing.") (quotation omitted).
wells. The alleged oral agreement that TRW would drill its wells
only in accordance with the sites indicated on the map, and that
TRW would never drill in the Field, is inconsistent with this
language. If the parties wished to confine TRW to the drill sites
shown on the map, then presumably they would have described all six
sites (rather than just two) in the written agreement, and they
would not have left the location of four of the sites to TRW's
absolute discretion.
Third, we find that TRW's alleged oral promise never to drill
more than six wells on the Moore property is not collateral to the
written agreement, and therefore that this promise also merged into
the written agreement. The purpose of the written agreement was to
define the parties' rights and obligations with respect to TRW's
contemplated extraction of methane gas from the Moore property.
Accordingly, any forfeiture of TRW's common-law right to drill more
than six wells would reasonably be expected to appear in the
written document. Although Moore agreed to accept $10,000 as full
payment for any damage which might be occasioned by TRW's
construction and operation of six coalbed methane gas wells,
nowhere in the written agreement does TRW trade away its common-law
right to drill additional wells, if drilling such additional wells
is reasonably necessary to extract the methane gas. We conclude
that the parol evidence rule bars the admission of TRW's alleged
oral promise never to drill more than six wells.
Before concluding, we pause to distinguish Hibbett Sporting
Goods, Inc. v. Biernbaum, 375 So.2d 431 (Ala.1979), a case upon
which Moore relies in her brief. In Hibbett, a plurality of the
Alabama Supreme Court reversed a trial judge's exclusion of
testimony of an oral non-competition agreement between a lessor, a
retail shopping center, and its lessee, a sporting goods store.
Their lease, which included a merger clause, did not contain a
covenant not to compete, and expressly stated that "there were no
"restrictive covenants or exclusives in favor of Lessee.' " Id. at
434. However, the existence of the oral agreement was not
disputed, and both parties stipulated that the lease was not a true
and complete expression of their agreement. Id. at 436. Thus, the
court reasoned that "[t]he parol evidence rule ... is based on the
assumption that the written contract contains the full and exact
agreement of the parties; but where admittedly it does not, the
reason for the rule ceases." Id.
Hibbett is distinguishable from the case at bar, because Penn
Castle does not concede the validity of the alleged oral agreement.
Rather, Penn Castle maintains that the written documents express
the entire agreement of the parties, and that the alleged oral
agreement was merged. For that reason, Hibbett does not support
the district court's admission of parol evidence in this case. See
Intercorp., Inc. v. Pennzoil Co., 877 F.2d 1524, 1531 (11th
Cir.1989) (distinguishing Hibbett in a case where the parties
disputed the validity of the oral agreement); Hurst v. Nichols
Research Group, 621 So.2d 964, 968 (Ala.1993) (same).
IV. CONCLUSION
Without the parol evidence admitted by the district court,
Moore's breach of contract and trespass claims fail as a matter of
Alabama law. Accordingly, the judgment of the district court that
was entered upon the jury verdict in favor of Moore is REVERSED.
We REMAND the case to the district court for judgment to be entered
for Penn Castle.
With respect to Moore's cross-appeal, the judgment of the
district court dismissing her punitive damages claim is AFFIRMED.