ORDER DENYING MOTION FOR PARTIAL SUMMARY JUDGMENT
KANE, District Judge.
Plaintiff, Carter Baron Drilling, brought this action for breach of contract against the defendant, Badger Oil Company. The contract was executed on a standardized International Association of Drilling Contractors form on June 24, 1981. Carter Baron was styled the “contractor” and Badger Oil was styled the “operator.” The contract obligated Carter Baron “to furnish the equipment and labor to drill (a well for Badger Oil)
in search of oil or gas on a daywork basis.” In return, Paragraph 4 provided that “Operator shall pay contractor” specified amounts for mobilization, for demobilization, for moving the rig, plus a payment for each day’s operations.
At the time the contract was signed, Badger allegedly explained to Carter Baron that the working interest in the well was owned by Knee Hill Energy, Inc., and that as Knee Hill had no staff to operate the well, it had retained Badger to operate it on behalf of Knee Hill. Andersen Deposition at 28; Roemer Deposition at 19.
Drilling commenced in August 1981. In September of that year Badger allegedly first experienced difficulty in collecting money from Knee Hill. It informed Carter Baron that this was the reason why payments for the drilling work were in arrears. Carter Baron allegedly discussed the matter directly with Knee Hill. Hilliard Affidavit ¶ 5c. This state of affairs continued until January 1982 when Badger resigned as operator because of continued difficulty in obtaining money from Knee Hill. Badger alleges both that Carter Baron repeatedly told Badger that it would seek payment for its expenses from Knee Hill and that it never sought to collect from Badger.
In January 1982 Badger resigned as operator. Carter Baron sent no further invoices to Badger, but instead dealt directly with Knee Hill. McAdam Deposition at 74; Hilliard Affidavit 11 6g. Following Badger’s resignation as operator, Carter Baron was paid no money by Badger but was paid approximately $950,000 on its account on the Chrisman No. 1 well by Knee Hill and the other working interest owners. MeAdam Deposition at 67.
On July 22, 1982, Carter Baron demanded payment from Badger. When Badger refused to pay, this suit was initiated. The plaintiff, Carter Baron, now moves for summary judgment on the issue of Badger’s liability for breach of contract. The main thrust of this motion is that the clause of the contract that reads “operator shall pay to the contractor” is unambiguous. The defendant’s position is that as it was acting solely as Knee Hill’s agent, it was under no duty to pay Carter Baron if Knee Hill did not provide it with funds. The defendant wants to introduce extrinsic evidence to prove this.
The intent of the parties to a contract is determined primarily from the language of the instrument itself. Extrinsic evidence is only admissible to prove intent when there is an ambiguity in the terms of the contract.
Radiology Prof. Corp. v. Trinidad Area Health,
195 Colo. 253, 577 P.2d 748 (1978);
McNichols v. City and County of Denver,
120 Colo. 380, 209 P.2d 910 (1949). Written contracts that are free from ambiguity are enforced because they express the intention of the parties.
American Mining Co. v. Himrod-Kimball Mines Co.,
124 Colo. 186, 235 P.2d 804 (1951).
I find no ambiguity in the phrase “operator shall pay contractor” since the identity of the operator and the contractor is established in an earlier paragraph of the contract. Badger, however, contends that the
function
of an operator is open to debate. This is irrelevant because the issue is who is liable to pay for work performed. This is a question of identity, and function is only relevant if identity is in doubt. The cases cited by Badger do not aid its position. In
McNichols v. City and County of Denver,
120 Colo. 380, 209 P.2d 910 (1949) the issue arose of whether funds originating from a sale of bonds authorized for “improving, extending and equipping the Denver General Hospital” could be used for a building for the Bureau of Public Welfare. The Colorado Supreme Court held that the word “hospital” had a clear meaning that did not encompass public welfare services. Therefore the use of the funds for such services was improper. By looking at the function of a hospital the court was able to determine the identity of the proper recipient of the funds. The word “operator” does not have as clear a meaning as the word “hospital,” but the identity of the operator in this case is incontrovertible and so a determination of his function is not as relevant as in the
McNichols
case.
The case of
American Mining Co. v. Himrod-Kimball Mines Co.,
124 Colo. 186, 235 P.2d 804 (1951) also fails to support Badger’s position. That case involved the interpretation of a contract to grant a
lease. The Colorado Supreme Court approved the admission of parol evidence because the contract relied on was not final or complete. Significantly, the contract did not contain the names of all parties, 235 P.2d at 807, whereas the contract in this case names the parties. Badger also cites
Fink v. Montgomery Elevator Co.,
161 Colo. 342, 421 P.2d 735 (1966) in support of its position. The court in
Fink
stated that:
The law is that any ambiguity in an instrument whereby it is sought to hold a purported agent personally liable, can be explained by parol evidence. In such a situation the court will take the entire contract into consideration, not the signature alone.
See Fricke v. Belz,
237 Mo. App. 861, 177 S.W.2d 702 (1944) (other citations omitted).
The ambiguity in that case arose from the fact that the names of both the purported principal and the agent appeared in the contract. The
Fricke
case, cited in the
Fink
case, emphasized that if only one signature appeared on the contract, there would be no ambiguity as to who was responsible. 177 S.W.2d at 706. In this case only the Badger Oil Co., through its Vice-President, Lamar Roemer, signed the contract.
A more difficult question is whether the alleged acts and statements of the parties during the life of the contract, and the usage of the trade, qualified the express payment term “operator shall pay to contractor.” I must first consider whether evidence of these extrinsic elements is admissible at all.
Before the adoption of the Uniform Commercial Code in Colorado
the Colorado courts took the position that evidence of custom and usage was not admissible to vary the terms of an unambiguous contract.
See, e.g., Burt v. Craig,
146 Colo. 173, 177-78, 360 P.2d 976-79 (1961);
Zimbelman v. Hartford Fire Ins.
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ORDER DENYING MOTION FOR PARTIAL SUMMARY JUDGMENT
KANE, District Judge.
Plaintiff, Carter Baron Drilling, brought this action for breach of contract against the defendant, Badger Oil Company. The contract was executed on a standardized International Association of Drilling Contractors form on June 24, 1981. Carter Baron was styled the “contractor” and Badger Oil was styled the “operator.” The contract obligated Carter Baron “to furnish the equipment and labor to drill (a well for Badger Oil)
in search of oil or gas on a daywork basis.” In return, Paragraph 4 provided that “Operator shall pay contractor” specified amounts for mobilization, for demobilization, for moving the rig, plus a payment for each day’s operations.
At the time the contract was signed, Badger allegedly explained to Carter Baron that the working interest in the well was owned by Knee Hill Energy, Inc., and that as Knee Hill had no staff to operate the well, it had retained Badger to operate it on behalf of Knee Hill. Andersen Deposition at 28; Roemer Deposition at 19.
Drilling commenced in August 1981. In September of that year Badger allegedly first experienced difficulty in collecting money from Knee Hill. It informed Carter Baron that this was the reason why payments for the drilling work were in arrears. Carter Baron allegedly discussed the matter directly with Knee Hill. Hilliard Affidavit ¶ 5c. This state of affairs continued until January 1982 when Badger resigned as operator because of continued difficulty in obtaining money from Knee Hill. Badger alleges both that Carter Baron repeatedly told Badger that it would seek payment for its expenses from Knee Hill and that it never sought to collect from Badger.
In January 1982 Badger resigned as operator. Carter Baron sent no further invoices to Badger, but instead dealt directly with Knee Hill. McAdam Deposition at 74; Hilliard Affidavit 11 6g. Following Badger’s resignation as operator, Carter Baron was paid no money by Badger but was paid approximately $950,000 on its account on the Chrisman No. 1 well by Knee Hill and the other working interest owners. MeAdam Deposition at 67.
On July 22, 1982, Carter Baron demanded payment from Badger. When Badger refused to pay, this suit was initiated. The plaintiff, Carter Baron, now moves for summary judgment on the issue of Badger’s liability for breach of contract. The main thrust of this motion is that the clause of the contract that reads “operator shall pay to the contractor” is unambiguous. The defendant’s position is that as it was acting solely as Knee Hill’s agent, it was under no duty to pay Carter Baron if Knee Hill did not provide it with funds. The defendant wants to introduce extrinsic evidence to prove this.
The intent of the parties to a contract is determined primarily from the language of the instrument itself. Extrinsic evidence is only admissible to prove intent when there is an ambiguity in the terms of the contract.
Radiology Prof. Corp. v. Trinidad Area Health,
195 Colo. 253, 577 P.2d 748 (1978);
McNichols v. City and County of Denver,
120 Colo. 380, 209 P.2d 910 (1949). Written contracts that are free from ambiguity are enforced because they express the intention of the parties.
American Mining Co. v. Himrod-Kimball Mines Co.,
124 Colo. 186, 235 P.2d 804 (1951).
I find no ambiguity in the phrase “operator shall pay contractor” since the identity of the operator and the contractor is established in an earlier paragraph of the contract. Badger, however, contends that the
function
of an operator is open to debate. This is irrelevant because the issue is who is liable to pay for work performed. This is a question of identity, and function is only relevant if identity is in doubt. The cases cited by Badger do not aid its position. In
McNichols v. City and County of Denver,
120 Colo. 380, 209 P.2d 910 (1949) the issue arose of whether funds originating from a sale of bonds authorized for “improving, extending and equipping the Denver General Hospital” could be used for a building for the Bureau of Public Welfare. The Colorado Supreme Court held that the word “hospital” had a clear meaning that did not encompass public welfare services. Therefore the use of the funds for such services was improper. By looking at the function of a hospital the court was able to determine the identity of the proper recipient of the funds. The word “operator” does not have as clear a meaning as the word “hospital,” but the identity of the operator in this case is incontrovertible and so a determination of his function is not as relevant as in the
McNichols
case.
The case of
American Mining Co. v. Himrod-Kimball Mines Co.,
124 Colo. 186, 235 P.2d 804 (1951) also fails to support Badger’s position. That case involved the interpretation of a contract to grant a
lease. The Colorado Supreme Court approved the admission of parol evidence because the contract relied on was not final or complete. Significantly, the contract did not contain the names of all parties, 235 P.2d at 807, whereas the contract in this case names the parties. Badger also cites
Fink v. Montgomery Elevator Co.,
161 Colo. 342, 421 P.2d 735 (1966) in support of its position. The court in
Fink
stated that:
The law is that any ambiguity in an instrument whereby it is sought to hold a purported agent personally liable, can be explained by parol evidence. In such a situation the court will take the entire contract into consideration, not the signature alone.
See Fricke v. Belz,
237 Mo. App. 861, 177 S.W.2d 702 (1944) (other citations omitted).
The ambiguity in that case arose from the fact that the names of both the purported principal and the agent appeared in the contract. The
Fricke
case, cited in the
Fink
case, emphasized that if only one signature appeared on the contract, there would be no ambiguity as to who was responsible. 177 S.W.2d at 706. In this case only the Badger Oil Co., through its Vice-President, Lamar Roemer, signed the contract.
A more difficult question is whether the alleged acts and statements of the parties during the life of the contract, and the usage of the trade, qualified the express payment term “operator shall pay to contractor.” I must first consider whether evidence of these extrinsic elements is admissible at all.
Before the adoption of the Uniform Commercial Code in Colorado
the Colorado courts took the position that evidence of custom and usage was not admissible to vary the terms of an unambiguous contract.
See, e.g., Burt v. Craig,
146 Colo. 173, 177-78, 360 P.2d 976-79 (1961);
Zimbelman v. Hartford Fire Ins. Co.,
92 Colo. 536, 545-46, 22 P.2d 866, 869-70 (1933). However, since its adoption,
parol evidence of usage of trade, course of dealings and course of performance can be introduced to explain or supplement a contract. Colo.Rev.Stat. 4-2-202.
In addition, Colo.Rev.Stat. 4-1-205(4) provides that
The express terms of an agreement and an applicable course of dealing or usage of trade shall be construed wherever possible as consistent with each other; but when such construction is unreasonable, express terms control both course of dealing and usage of trade and course of dealing controls usage of trade.
Thus § 4-1-205(4) has assumed the role of a quasi-parol evidence rule for evidence of usage of trade and course of dealings.
The new test, however, is consistency rather than ambiguity. Evidence that is reasonably consistent with the express terms of an agreement is admissible.
See Budget Systems, Inc., v. Seifert Pontiac, Inc.,
40 Colo.App. 406, 579 P.2d 87 (1978).
See also Thrifty Rent-a-Car System v. Chuck Ruwart Chevrolet, Inc.,
500 P.2d 172 (Colo.App.1972) (parol evidence of oral agreement by dealer to pay rebates was admissible despite apparent inconsistency with the terms of a written chattel mortgage);
Board of Trade of San Francisco v. Swiss Credit Bank,
597 F.2d 146, 148 (9th Cir.1979) (ambiguity is not necessary to admit usage evidence). But evidence which contradicts or negates the terms of a written agreement is inadmissible.
See MacGregor v. McReki,
30 Colo.App. 196, 494 P.2d 1297 (1971).
The courts which have considered the admissibility of evidence of course of performance, course of dealing and usage of trade have been liberal in their determinations-of what is consistent with the express terms of a contract. In what is perhaps the leading case,
Columbia Nitrogen Corp. v. Royster Co.,
451 F.2d 3 (4th Cir. 1971), Royster signed a contract to sell phosphate to Columbia. The contract terms set out the price that would be charged by Royster and the amount to be sold. The contract did not provide for price declines. When the price of nitrogen fell drastically, Columbia refused to accept the full amount of nitrogen specified in the contract. At trial, Columbia offered to prove that the quantity specified in the contract was merely a projection to be adjusted according to market forces. The district court refused to admit this evidence. The Fourth Circuit reversed, holding that the express quantity term could reasonably be construed as consistent with a usage that such terms would be mere projections. It reasoned that the contract did not expressly state that evidence of usage and dealings would be excluded;
that the contract was silent on the adjustment of price or quantities in a declining market; and that the parties had deviated from similar express terms in earlier contracts in times of market decline.
The Fifth Circuit Court of Appeals has admitted evidence of custom and usage that is inconsistent with express terms on the theory that such evidence does not contradict the contract, but places the court in the position of the parties when they made the contract and enables the court to appreciate the words used by the parties.
Chase Manhattan Bank v. First Marion Bank,
437 F.2d 1040, 1048 (5th Cir.1971). That case involved a multi-bank loan to a debtor. This loan was partly secured by shares in the debtor company. A subordination agreement, which was entered into after the original loan agreement, incorporated into it, and by its terms to last for 18 months, provided that Chase Manhattan Bank was to be preferred to the extent of one dollar a share because of its extra loan
to the debtor. When First Marion Bank sold its shares after the 18 month period and refused to pay any compensation to Chase, Chase sued. Chase sought to introduce evidence of a course of dealing or usage of trade indicating that the parties did not intend to limit the duration of the subordination agreement to 18 months. Relying on U.C.C. 1-205(4) as implicitly authorizing the admission of evidence of usage and dealings in these circumstances,
the court admitted the evidence. The court reasoned that “unless a judge considers a contract in the proper commercial setting, his view is apt to be distorted or myopic, increasing the probability of error.”
Id.
at 1046. The court was not concerned that “[sjuch evidence might disclose ambiguities within the provisions of the agreement....”
Id.
at 1047. If the written contract were determined to be ambiguous or uncertain, then “parol evidence of the intent and purposes of the parties in making the contract [is] admissible for construction.”
Id.
at 1048.
In
Nanakuli Paving & Rock Co. v. Shell Oil Co., Inc.,
664 F.2d 772 (9th Cir. 1981) Nanakuli contracted to buy asphaltic paving materials from Shell at “Shell’s Posted Price at time of delivery.” When the oil crisis hit in 1973-74 the price of asphalt increased. Nanakuli sued Shell for failing to protect it against price increases. Nanakuli won a jury verdict, but the district court judge granted a judgment n.o.v. in favor of Shell. The Court of Appeals reversed, holding that evidence of usage and course of dealings may be used to “qualify” (or cut down) an agreement as long as it did not negate it entirely.
A total negation of “Shell’s Posted Price at time of delivery” would have resulted from allowing the buyer, Nanakuli to set the price. Price protection during times of price increases, by contrast, was merely an unstated exception to the general rule. “Such a usage forms a broad and important exception to the express term, but does not swallow it entirely.”
Id.
at 805.
Other courts have been less generous in their interpretations of consistency. In
Southern Concrete Services, Inc. v. Mable-ton Contractors, Inc.,
407 F.Supp. 581 (N.D.Ga.1975),
aff’d per curiam,
569 F.2d 1154 (5th Cir.1978) the court refused to allow evidence of trade usage to show that contract quantity specifications were not mandatory on either buyer or seller: “A construction which negates the express terms of the contract by allowing unilateral abandonment of its specifications is patently unreasonable.” 407 F.Supp. at 585. The court’s concern was twofold. First, it believed that permitting evidence of custom and course of dealing would deprive contracts of their utility as a means of assigning the risks of the market. Second, despite U.C.C. § 2-202, it believed that major departures from the express terms of a contract should be agreed to in writing.
The Seventh Circuit Court of Appeals has also adopted a strict interpretation of the word “consistent” in relation to admission of evidence of additional terms. In
Luria Bros. & Co. v. Pielet Bros. Scrap Iron,
600 F.2d 103 (7th Cir.1979), the contract was for a sale of scrap steel. The defendant failed to deliver. When sued, he claimed that it was understood that he only had to deliver the steel if he obtained it from a particular source. The court rejected the proffered evidence as being inconsistent with the written contract.
This court will follow
Columbia, Chase
and
Nanakuli
rather than the more restrictive approach of
Southern Concrete
and
Luria.
The relevant portions of the U.C.C. and the drafter’s comments suggest that this was the desired result.
Cf. Kirst,
Usage of Trade and Course of Dealing: Subversion of the UCC Theory,
1977 U.Ill. L.Forum 811. The admission of evidence of course of performance, course of dealing and usage of trade presents none of the dangers that the parol evidence rule was intended to guard against. Trade usage cannot be manipulated as long as the court requires the usage to be definite and widespread.
See Nanakuli, supra,
at 803-04. A course of performance and a course of dealings, as opposed to oral statements of agreements and proof of the subjective intent of the parties, is objectively verifiable.
See Eskimo Pie Corp. v. Whitelawn Dairies, Inc.,
284 F.Supp. 987, 991-92 (S.D.N.Y. 1968). There is thus little danger of perjury. And finally, documents usually bear witness to a course of performance or a course of dealings. This eliminates the problem of inaccurate memory accomplishing a revision of a Contract-
Contrary to the fear expressed in
Southern Concrete,
I do not believe that this decision will affect the utility of contractual arrangements. It has long been recognized in the legal world that words do not have a fixed, precisely-ascertained meaning. Regardless of how strict the construction given to an instrument, it is difficult for the draftsman to achieve his purpose with accuracy and fullness.
See
J.B. Thayer,
A Preliminary Treatise on Evidence
428-29 (1898).
The phrase “operator shall pay to contractor” is clear and unambiguous. The test proposed by
Nanakuli
is whether the usage evidence negates the written contract in which case it is inadmissible, or merely qualifies it, in which case it is admissible. A complete negation of this term is “operator shall not pay contractor.” It is merely a qualification of the term to say “operator shall pay contractor unless operator is not himself paid by the working interest owners.” The reasoning in
Chase
is relatively easy to satisfy. Under that case even contradictory terms are admissible if they arise out of a course of performance or a usage of trade.
Columbia Nitrogen,
however, involved a more detailed analysis of the facts. In this case, as in
Columbia Nitrogen,
there is no express statement that evidence of course of performance and usage is to be excluded; the contract is silent on the operator’s liability for the contractor’s expenses in the event that the operator is not paid by the owners of the well; and there are allegations of a course of performance under this contract by which the parties deviated from the express term that the operator was to pay the contractor.
Having decided that evidence of a course of performance and usage of trade is, as a matter of law, admissible under the circumstances of the present case, I turn now to the issue of whether Badger has proffered sufficient evidence to withstand Carter Baron’s motion for partial summary judgment. It is well established that summary judgment will not be granted when there exists a genuine issue as to a material fact.
Adickes v. S.H. Kress & Co.,
398 U.S. 144, 90 S.Ct. 1598, 26 L.Ed.2d 142 (1970). The fact in dispute is Badger’s intention to pay Carter Baron’s drilling expense if Badger itself is not paid by the owners of the well. One commentator has pointed out that:
Questions of the parties’ intentions concerning an asserted trade usage or course of dealing will not always require a jury determination. If the evidence fails to show a practice is regularly observed, the judge can exclude the evidence because it does not show a course of dealing or usage of trade as defined in the Code. If the members of the trade confirm an actual usage but do not support the assertion that the usage applies to the particular facts in litigation, the judge will exclude evidence of the usage as irrelevant.
Kirst,
Usage of Trade and Course of Dealing: Subversion of the UCC Theory,
1977 U.Ill.L.Forum 811, 839.
Badger has proffered evidence to the effect that in the oil and gas industry, an ‘operator’ of a drilling well is not ultimately liable for debts to the contractor who drills the well. The President of Badger Oil, Clayton Hilliard, has stated that:
It has always been and is the custom and standard practice in the oil and gas industry that, notwithstanding the fact that an operator may sign a service or supply agreement for a well, the working interest owners, and not the operators (except to the extent that the operator is a working interest owner) are primarily and ultimately responsible for payment of all debts and expenses incurred as a result of such agreements. That custom and practice in the oil and gas industry pertains to the Rocky Mountain region and has been recognized by all suppliers and service companies on all wells in which Badger has been associated, with the sole exception of Carter Baron Drilling on the Chrisman No. 1 well.
Hilliard Affidavit ¶ 5. The Vice-President of Badger Oil, Lamar Roemer, supports this:
[I]t was clearly understood by all parties that the money to pay Carter Baron would come from Knee Hill and the other working interest owners. It is also my understanding that the term “operator” in the oil and gas industry signifies that such person is acting for the benefit of and as the agent for the working interest owners.
Roemer Affidavit 114.
Badger has also offered evidence of a course of performance of the contract that
can be seen as a reflection of the intent of the parties and as a practical construction of the payment clause.
See Lubrication & Maintenance, Inc. v. Union Resources Co., Inc.,
522 F.Supp. 1078, 1081 (S.D.N.Y. 1981). When irregularities in the payments began, Carter Baron looked to Knee Hill, not Badger, for payment. During the year from the execution of the contract until the time Carter Baron first demanded payment from Badger, Carter Baron received roughly $1.2 million directly from Knee Hill. Hilliard Affidavit 116f; McAdam Deposition at 67. Badger alleges that Carter Baron made no effort to collect payment from Badger for several months after Badger wrote to Carter Baron notifying it of its withdrawal as operator. Badger also alleges that Carter Baron listed its account on the Chrisman No. 1 well in the name of Knee Hill Energy, not Badger Oil.
Carter Baron, on the other hand, has presented affidavits from three individuals experienced in the oil industry. All state that the custom and practice in the oil industry is that a company which signs a drilling contract as operator is liable to the drilling contractor, regardless of the relationship between the operator and other working interest owners. Heiser Affidavit ¶ 8, 12; Watson Affidavit 118, 12; Head-stream Affidavit 11 8, 12.
Summary judgment should not be awarded when an issue turns on credibility.
Eagle v. Louisiana & S. Life Ins. Co.,
464 F.2d 607 (10th Cir.1972). Nor should summary judgment be used to require the parties to litigate by affidavit.
Smoot v. Chicago, Rock Island & Pac. R.R. Co.,
378 F.2d 879 (10th Cir.1967). Even though Badger has produced no disinterested experts to buttress its position, I do not find its evidence incredible. As Carter Baron itself states, it is customary for many parties to own working interests in a well, usually in differing percentages. Furthermore, the ownership of a well often changes after the drilling contract is signed. A drilling contractor’s job is thus enormously simplified if a single operator collects money from the working interest owners and pays the contractor. One interpretation of this arrangement is that it is intended to
simplify
the contractor’s job, rather than to reapportion the ultimate risk of loss.
Badger should therefore be given the opportunity to prove that it was under no duty to pay Carter Baron without first being paid by the working interest owners.
The motion for partial summary judgment is denied.