A common misconception exists that pre-printed terms and conditions on a job ticket do not rise to the level of a legal contract. This view is not correct. Terms and conditions can and will be enforced by Texas courts. Such enforcement could pose a serious liability risk in an oilfield services relationship that is not governed by a master contract. In many cases, especially those involving smaller operators and service companies, the terms and conditions included on a service company's job ticket are the only provisions that constitute the contractual relationship between the two parties. The liability risk can be avoided, or at the very least mitigated, if the two parties have entered into a master service agreement. Master service agreements are normally formal agreements that have been fully negotiated by the two sides, thus providing a greater degree of certainty when attempting to resolve future issues. In the absence of a master service agreement though, operators need to be diligent in recognizing the provisions included in the terms and conditions and ensure their employees are aware of them before signing a job ticket.
Disputes based on the validity of a party's terms and conditions have recently been addressed by Texas courts. Operators should not underestimate the risk-allocating provisions included in these terms and conditions as they might expose the operator to unnecessary liability.
The Supreme Court of Texas has held that terms in a contract must be conspicuous in order to be enforceable.In re Bank of Am., N.A., 278 S.W.3d 342, 344 (Tex. 2009). Further, Courts have singled out provisions such as indemnities because "indemnification of a party for its own negligence is an extraordinary shifting of risk."Dresser Indus., Inc. v. Page Petroleum, Inc., 853 S.W.2d 505, 508 (Tex. 1993). The Dresser court held that indemnity provisions must meet the conspicuous requirement that dictates "that something must appear on the face of the [contract] to attract the attention of a reasonable person when he looks at it." Id. (quoting Ling & Co. v. Trinity Sav. & Loan Ass'n, 482 S.W.2d 841, 843 (Tex.1972)). In many oilfield service contracts, the job tickets will include the service company's terms and conditions on the back of the ticket. In order for the terms and conditions on the job ticket to hold up in the face of future legal disputes, a service company must make clear that the job ticket includes the terms and conditions of the contractual agreement. This can be done in a number of ways including bold faced font that indicates what the job ticket represents, or language on the front of the job ticket that lays out the indemnities or warranties that a service company is seeking. Employees of an operator need to look for these indications and make sure they read the terms and conditions carefully before signing a job ticket.
Operators also need to focus on whether the terms and conditions are as specific and clear as possible. The more specific the terms and conditions are, the more likely they will be enforceable. The Dresser court explained this requirement through the express negligence doctrine, which 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." Id. (quoting Ethyl Corp. v. Daniel Const. Co., 725 S.W.2d 705, 707–08 (Tex.1987)). Operators, therefore, should be aware that it will be difficult to argue they did not understand the scope of the terms and conditions if the job ticket includes specific provisions. It is factors that like these that might be difficult for an agent to assess, and thus lend to the importance of drafting a master service agreement before doing business with a service company.
Another issue that has been especially relevant in determining the validity of terms and conditions is whether the party that signs a job ticket is authorized to bind the operator. This issue was addressed in a recent Appellate Court decision that considered whether an employee of a party hired by an operator to manage drilling operations had the "authority to sign [an] indemnity provision on behalf" of the operator with a third-party service company. Expro Americas, LLC v. Sanguine Gas Exploration, LLC, 351 S.W.3d 915, 920 (Tex. App. 2011). The Court determined that actual authority can be either expressed or implied, with the latter existing "only as an adjunct" to the former. Id. Express authority requires an examination of "the principal's words and conduct relative to the agent." Id. The Court found a fact issue related to the company agent's authority because neither party "conclusively established" what authority the agent did or did not have. Id. at 927. Based on the Court's ruling in Expro, it is important to be clear when allocating authority to an employee that is tasked with signing job tickets. Operators need to "conclusively establish" whether employees (or agents) have the authority to bind them to risk-allocating provisions included within a service company's terms and conditions.
Ultimately, operators should get into the regular practice of always entering into a master service agreement before hiring a service company. This practice will allow operators to avoid unfavorable terms and conditions as well as shift responsibility for assessing terms and conditions from their employees to their attorneys.