Evans Production Corporation, Appellant, v. Don J. Shaw, Appellee.don J. Shaw, Cross-appellant, v. Evans Production Corporation, Cross-appellee, 276 F.2d 313 (5th Cir. 1960)

This action was commenced by Don J. Shaw against the Evans Production Company and was based upon a letter agreement between the parties dated May 28, 1953. The agreement in question, which is set out in full in the margin,¹  provided for the purchase by Shaw of 483 shares of common stock in Evans with the right to re-sell this stock to Evans at a subsequent date.²  The price to be paid by Shaw in the original purchase was specified in the agreement at $106.25 per share, thus making the total original purchase price $51,318.75 for the 483 shares. The price to be paid by Evans for the return of the shares in the event Shaw elected to exercise his option to re-sell was not specified with this same exactitude. Rather, the agreement attempted to set up a method by which that price could be ascertained by reference to the financial condition of the company at the time of the election.

Shaw bought the stock as contemplated by the agreement and, by letter dated January 22, 1957,³  attempted to exercise his right to re-sell. A controversy ensued as to the price which, under the agreement, Evans was obligated to pay for the shares. This controversy was never resolved and eventually resulted in this litigation. The controversy revolves about the interpretation to be given to the following language of the agreement:

"* * * the Company will purchase all of said `stock' at its book value as shown by the Company's annual statement for the year ending March 31 last preceding the date of your request, plus a value of $.50 a barrel for proven oil reserves of the Company."

Shaw took the position that this provision bound Evans to re-purchase the stock at a price to be determined by adding to the book value of the stock fifty cents for each barrel of proven oil reserves belonging to Evans as of January 22, 1957, when he chose to exercise his option to re-sell. Since the proven oil reserves on that date totaled 611,384 barrels, Shaw's position was that the proper re-purchase price for his 483 shares was $452,596.03. Evans, on the other hand, took the position that the repurchase price was to be calculated by first adding fifty cents a barrel for proven oil reserves to the assets of the company as reflected in its annual statement of the March 31 preceding Shaw's election, and, then determining the book value of the 483 shares. Since there were 9667 shares of stock outstanding, this method of calculation produced a price of $81,676.75.

The real gist of the argument, therefore, has been whether Shaw is entitled to the full fifty cents for each barrel of proven oil reserves, as would be the case under his interpretation of the agreement, or is entitled to only 483/9667 of fifty cents for each barrel of proven oil reserves, which would follow from Evans' interpretation.

The district court held that the agreement itself was ambiguous and, consequently, permitted the introduction of extrinsic evidence relating to the circumstances surrounding the execution of the agreement. The case was then submitted to the jury under two special issues, both of which were answered favorably to Shaw.⁴  Evans' motions for judgment notwithstanding the verdict and for a new trial were denied and judgment was entered in favor of Shaw in the amount of $452,596.03. In doing so, the district court rejected Shaw's requests for interest from the date he attempted to re-sell the stock to Evans and for attorneys' fees. Evans appealed from the adverse judgment on the merits. Shaw appealed from the judgment insofar as it denied his request for interest.

Evans' attack on the judgment is three-pronged: first, that the district court erred in holding that the agreement was ambiguous; secondly, that assuming the agreement to be ambiguous, the extrinsic evidence clearly showed that the proper interpretation of the agreement was that advanced by Evans; and, finally, that the district court adopted an entirely erroneous procedure in the submission of the case to the jury. These three contentions will be separately considered.

Upon a consideration of the entire agreement, we conclude that Evans' first contention, i. e., that the language of the agreement unambiguously supports its interpretation, must fail. Indeed, considered alone, the language of the provision for determining price in the event of an election to re-sell (quoted above) might be viewed as unambiguously contra to Evans' interpretation. Evans seeks to have us read the word "plus" in that provision as equivalent to "adjusted by adding," even though it has failed to show us a single instance in which that word was given such a meaning. Such a novel interpretation would be wholly unjustified,⁵  unless required when the re-purchase provision is considered in the context of the whole agreement.⁶ 

In support of its contention that such an interpretation is required, Evans points to two other aspects of the agreement. First, the recital at the outset of the agreement that its purpose was "to enable you [Shaw] to obtain a proprietary interest in the affairs of Evans Production Company" is stressed. Assuming for the moment that this recital is inconsistent with Shaw's interpretation of the agreement, the argument is nevertheless unavailing. For, it ignores the further recital that the stock arrangement was designed "as an incentive for you [Shaw] to work for the best interests of Evans Production Corporation and to assist you in your realization of the results of such efforts." That this second recital is entirely consistent with Shaw's interpretation of the agreement is obvious. Thus, Evans' argument on this point would fail even if the asserted inconsistency with the first recital existed.⁷  It is apparent, however, that no such inconsistency does exist. Quite clearly, the agreement was designed to give Shaw a proprietary interest in the company. The essential question is not the nature of Shaw's interest but, rather, the extent of it.

Evans' next contention is that when clause (1) of the agreement (the re-purchase provision) is read in the light of clause (2), it is apparent that the interpretation it urges is correct. Clause (2) recites that Evans has taken out a policy of insurance upon Shaw's life in the amount of $50,000 and binds Evans to re-purchase the stock, if requested to do so by Shaw's executor or administrator, out of "the insurance proceeds and other money if necessary." Evans argues that the use of the words "if necessary" precludes Shaw's interpretation for, under that interpretation, "other money" would inevitably be necessary. We deem it sufficient to say that we find that argument inconclusive.⁸  Finally, Evans argues that clause (2) renders Shaw's interpretation incredible for, under that interpretation, Shaw's stock would have been worth approximately $200,000 if he had died the very day he signed the agreement, with the result that Evans would have assumed a $150,000 risk on insurance of only $50,000. Again we find the argument unconvincing. Variations between the value of objects insured and the amount of insurance carried thereon are the rule rather than the exception. This Court certainly cannot measure Shaw's interest by Evans' insurance.⁹ 

We conclude, therefore, that the district court was correct in ruling that the agreement did not unambiguously support Evans' interpretation.¹⁰  The admission of extrinsic evidence to aid in the interpretation of the agreement was thus not injurious to Evans.

There was a sharp conflict in the evidence presented to support each of the opposing contentions. Evans attempted, for example, to show that Shaw was quite adequately compensated by his salary and, to this end, introduced considerable testimony tending to minimize the importance and value of Shaw's services to the company. Shaw, on the other hand, attempted to show that, considering his salary alone, he was grossly underpaid for services which his witnesses characterized as highly valuable. The verdict of the jury, of course, resolved this controversy in favor of Shaw. We must, therefore, assume that Shaw was an extremely important employee whose services were worth the price called for by his interpretation of the agreement.¹¹  It is in the light of this now settled fact that the evidence relating to the negotiations which led up to the execution of the agreement here in question must be considered.

No really serious conflict as to the basic facts of the negotiations appears. It is undisputed that Shaw wanted a so-called "¼ carried interest" in the reserves of the company. It is equally undisputed that Evans was reluctant to, and, indeed, finally refused to, give him such an interest. Evans argues that this one fact precludes Shaw's interpretation for that interpretation operates to give Shaw an interest even greater than the ¼ carried interest which he was refused. Here again, however, we are compelled to reject Evans' argument.

The interest contended for here by Shaw is, at most, roughly equal to a ¼ carried interest.¹²  And it clearly appears from the testimony of Evans' president himself that the demand for a ¼ carried interest was refused, not because such an interest would give Shaw too great a financial reward, but because Evans' president felt that the interests of the company would be better served if Shaw did not have that kind of interest.¹³  We therefore conclude that the extrinsic evidence adduced did raise a question of fact for the jury and the district court was correct in refusing to grant Evans' motions for a directed verdict and for judgment notwithstanding the verdict.¹⁴ 

Evans' third and last contention is that the district court submitted the case to the jury under an erroneous procedure. We find this contention wholly without merit. The procedure adopted was that of instructing the jury as to the law governing the case and then submitting to it the ultimate issue as to the proper interpretation of the contract. Such a procedure has long been sanctioned as appropriate where the extrinsic evidence presents a question of fact.¹⁵  Jackson v. King,¹⁶  was reversed, not because of the procedure adopted, but because the instructions given were inadequate. Here, Evans has failed to preserve any objections to the district court's instructions. See Maryland Casualty Co. v. Reid, 5 Cir., 1935, 76 F.2d 30, 33. Without passing upon the adequacy of the instructions given in this case had those instructions been given in the face of proper objection, we hold that they were not so grossly inadequate as to warrant reversal in the absence of such objection.

We conclude, therefore, that the case must be affirmed insofar as Evans' appeal is concerned. There remains only the question of whether the district court should have allowed interest from January 22, 1957, as contended by Shaw in his appeal.

Under the law of Texas, which both parties concede to be controlling on this issue, it is well settled that interest is collectible "as a matter of law if the amount of recovery, whether under a contract or for a tort, depends on conditions existing at the due date, though unascertained and disputed till the time of the trial."¹⁷  Since the measure of recovery in this case, i. e., the book value of the stock plus fifty cents per barrel of proven oil reserves, clearly depended on conditions existing on January 22, 1957, the allowance of interest from that date was mandatory unless the case was removed from the operation of this general rule by the existence of special circumstances.

Evans contends that it was so removed. This contention is based on the fact that Shaw's original demand upon Evans to re-purchase the stock was predicated upon the theory that there were 950,000 barrels of proven oil reserves, whereas, in fact, there were only 775,353 barrels of such reserves at the time. On the basis of this fact, Evans attempts to rely on the decision of the Texas Supreme Court in Ingham v. Harrison,¹⁸  where it was held that where the failure to pay on the due date is due to the fault of the plaintiff in insisting upon unjust claims, interest is not recoverable. In our view, this case is not controlling. For here, the failure to pay cannot, in any proper sense, be attributed to the insistence of Shaw upon unjust claims. He put forth 950,000 barrels as his good faith estimate of the amount of proven oil reserves. Evans then refused to counter this estimate with an estimate of its own, and contended, rather, that Shaw had misconstrued the agreement. Indeed, the fact that disagreement as to the amount of the proven oil reserves was not the cause of the refusal to pay is clearly shown by the fact that, even though the parties were eventually able to enter a stipulation as to the amount of these reserves, the refusal to pay and this litigation persisted. The exception to the general rule laid down in the Ingham case is thus not available to Evans. There being no other theory upon which the operation of this rule is sought to be avoided, we hold that it must apply. The district court was in error in denying Shaw's request for interest from January 22, 1957. The judgment must be modified to grant that request, and it is so

Modified and affirmed.