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Carter Baron Drilling v. Badger Oil Corp., 581 F. Supp. 592 (1984)

The common law parol-evidence rule generally prohibits contractual parties from introducing extrinsic evidence to vary or contradict the unambiguous terms of an agreement. In Carter Baron Drilling versus Badger Oil Corporation, the court considered whether extrinsic evidence of trade usage and course of dealing is admissible under Colorado law.

Carter Baron Drilling and Badger Oil Corporation signed a contract under which Carter would provide equipment and labor to drill a gas and oil well for Badger. Badger would pay Carter for its services. The contract named Badger the operator and named Carter as the contractor. Badger claimed to have told Carter that Knee Hill Energy, Incorporated, owned the well and would be paying Badger to operate it. Thus, Badger would pay Carter from the proceeds Badger received from Knee Hill. Once the drilling operation was underway, Badger had trouble collecting payment from Knee Hill. Carter contacted Knee Hill directly to try to obtain payment. Knee Hill continued missing payments to Badger, and Badger ultimately resigned as the operator. Because Badger didn’t receive compensation from Knee Hill, Badger didn’t pay Carter the outstanding balance for Carter’s services. Carter demanded payment from Badger.

After Badger refused, Carter sued for breach of contract. Carter asserted that the parties’ contract unambiguously required Badger to pay Carter regardless of whether Badger received payment from Knee Hill. Badger responded that it had no contractual obligation to pay Carter. Badger argued that it was merely acting as Knee Hill’s agent and never received payment from Knee Hill. In support of its argument, Badger sought to introduce extrinsic evidence of trade usage and course of dealing. This evidence could show that the common understanding within the oil and gas industry, and the parties’ understanding under the contract, was that the owner of a well, not the operator, was ultimately responsible for paying contractors. Carter argued that the evidence was inadmissible parol evidence and moved for summary judgment.

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