Language Edges Custom in SCOTX Farmout Case

AUSTIN – Continuing its deference to the plain language in a contract, a narrow majority of the Texas Supreme Court rejected a $27.7 million contract-breach and fraud verdict in a closely watched dispute over assignment of drilling rights under an oil and gas “farmout” agreement.

The court split 5-4 on the issue of whether industry custom and use should be considered in interpreting the contract, with the majority rejecting evidence of industry custom to import an obligation that does not exist in the contract.