Face Challenges Confidently

059 Dresser Industries, Inc. v. Page Petroleum, Inc.

Tuesday, September 1st, 2015

Richard F. Brown

The following is not a legal opinion. You should consult your attorney if the case may be of some significance to you.
Dresser Industries, Inc. v. Page Petroleum, Inc., 853 S.W. 2d 505 (Tex. 1993) reviews the effectiveness of contractual language releasing in advance oil well service companies from liability for their own negligence in performing their services. Page drilled a well and hired Dresser to log the well. Dresser’s equipment got stuck, and Houston Fishing was hired to fish the equipment from the well. Houston lost its equipment down the hole. The well was eventually lost. The jury found the damages were caused by Page (50%), Houston (40%) and Dresser (10%). Houston and Dresser sought to avoid liability by the language in their form contracts which released them from any liability for their own negligence. In both contracts, the exculpatory language was tucked away on the reserve side of the contract in uniformly spaced and printed paragraphs.
Held: Fair notice requirements apply to both indemnity agreements and releases, and the contractual provisions in this case were not conspicuous as a matter of law. Although the contractual provisions in the two contracts were different (one an indemnity, the other a release), the Court found that both were an extraordinary shifting the risk – liability for one’s own negligence was shifted in advance to another party. Fair notice requirements would be applied to both types of agreements. Fair notice requirements include the “express negligence doctrine” and the “conspicuousness requirement.” The express negligence doctrine states that a party seeking indemnity from the consequences of that party’s own negligence must express that intent in specific terms within the four corners of the contract. The conspicuous requirement mandates that something must appear on the face of the contract to attract the attention of a reasonable person when he looks at it. When a reasonable person against whom a clause is to operate ought to have noticed it, the clause is conspicuous. For example, language in capital headings, language in contrasting type or color, and language in an extremely short document is conspicuous. If is not conspicuous and the other party does not have actual notice or knowledge of the release or indemnity, that provision will not be enforced. Compliance with the fair notice requirements is a question of law the court, not the jury.
The significance of the case is that it extends the express negligence doctrine and the conspicuousness requirement to requirement to releases and defines the form of contractual provision which will be deemed “conspicuous.” Service companies should obviously reconsider whether their standard contracts give them the intended protection. Draftsmen of all contracts containing similar risk-shifting provisions (operating agreements, farmouts, instruments creating overriding royalties, etc.) must likewise be careful.