Placid Oil Company v. Humphrey

• Decision Date: 13 June 1957
• Docket Number: No. 16249.,16249.
• Citation: 244 F.2d 184
• Parties: PLACID OIL COMPANY, Appellant, v. J. A. HUMPHREY, G. E. Hall, A. Pollard Simons and William D. McBee, Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

244 F.2d 184 (1957)

PLACID OIL COMPANY, Appellant, v. J. A. HUMPHREY, G. E. Hall, A. Pollard Simons and William D. McBee, Appellees.

No. 16249.

United States Court of Appeals Fifth Circuit.

May 3, 1957.

Rehearing Denied June 13, 1957.

Ralph B. Shank, Shank, Dedman & Payne, Dallas, Tex., for appellant, Placid Oil Co.

Lanham Croley and Donald G. Canuteson, Dallas, Tex. (of Golden, Croley, Howell, Johnson & Mizell, Dallas, Tex.), for appellees, J. A. Humphrey and G. E. Hall.

Fred G. Gannon, Dallas, Tex., for appellee, William D. McBee.

H. Bascom Thomas, Jr., Bowyer, Gray, Thomas, Crozier & Harris, Dallas, Tex., for appellee, A. Pollard Simons.

Before HUTCHESON, Chief Judge, and BORAH and TUTTLE, Circuit Judges.

TUTTLE, Circuit Judge.

This is an appeal from a judgment by the court without a jury in a suit for damages based on an anticipatory breach of a contract to pay $25,000 as a contribution under a "Dry Hole Contribution Letter Agreement."

The principal questions are: (1) whether the doctrine of anticipatory breach is applicable in Texas to a contract to pay a fixed sum upon the completion and abandonment of a dry hole if there was no initial mutuality of obligation between the parties; (2) whether there was in fact an anticipatory breach by the promisor; and, if the first two questions are answered in the affirmative, (3) what is the correct measure of damages. Supplemental questions are whether the contract did impose mutual obligations on the parties initially and whether, assuming recovery could not be had for a breach of the contract, a recovery could be had for quantum meruit. In the view we take of the case it is not necessary for us to reach these subsidiary questions.

This case is reported at 142 F.Supp. 246. In the able and well reasoned opinion of the district court the facts are set out in detail, and they will not be repeated here except insofar as is necessary to an understanding of our discussion of the legal principles. So, too, do we adopt much that is said by the trial court in its reasoning. With its judgment we fully concur.

Appellant agreed that if appellees would drill a test well for oil or gas on property owned or leased by them, and, if after taking it to a depth of 10,000 feet or to the oil creek sand of Ordivician age (whichever is the lesser depth) the well proved to be a dry hole¹ appellant would pay as a "dry hole contribution" the sum of $25,000. The drilling continued, as found by the trial court on ample evidence, strictly in accordance with the contract to a depth of 10,025 feet. Thereupon appellees' agent approached appellant to sound it out as to whether it was satisfied that the hole was in fact a dry hole. The trial court expressly found that this did not amount to a demand by appellees for the payment of the $25,000, which would of course not be due unless and until the well should be plugged and abandoned. Appellant deferred replying for twenty-four hours, during which time appellees permitted the drilling rig to lie idle at the well site. Thereafter, on July 28, 1955, appellant sent a telegram to appellees² stating that a certain type of testing must be carried out by appellees as to eight different horizons and that the failure to test at these horizons in the manner specified would be "a material breach of agreement and a forfeiture of all your rights under same."

The trial court found that immediately after receiving this telegram appellees excluded appellant from the rig and denied further information as to the drilling operation to appellant and otherwise treated this telegram as an anticipatory breach of the contract. Thereupon, after consultation with their counsel, appellees decided to extend the well to a depth of 10,250 feet. At a depth somewhat lower than the 10,025-foot level oil was encountered in sufficient quantities to cause appellees to complete it as a producing well.³

The trial court found that the requirements set out in the telegram were not in accordance with the contract and that it would have cost a minimum of $75,000 for the appellees to have completed the tests as demanded in the telegram. It was undisputed that the cost of the drilling to appellees up to the time of the receipt of the telegram was approximately $121,000. It was also undisputed that the cost of plugging the well would have been $2,000.

The trial court reasoned that appellant's telegram was tantamount to saying: "Unless you complete the additional testing in the manner herein stated (which, as stated above, would cost at least $75,000) we will not pay the $25,000 even though you plug the hole and abandon it in accordance with the contract." Finding, as it did, that the additional testing was not required by the original contract but was a very substantial modification of its terms, the trial court held that this was a complete and unambiguous renunciation of the contract and amounted to an anticipatory breach. This, the court held, "destroyed" the contract at the moment it was treated as a breach by the other parties. The court held that they did so, as evidenced by their immediate exclusion of appellant's agent from the rig and the denial of information to him thereafter. The court further held that the anticipatory breach destroyed the contract completely at that point of time and there was no further obligation on the part of appellees to plug and abandon the well. They were at liberty either to abandon it or to use it in any manner they saw fit, including further drilling against the prospect that this procedure would be productive of oil or gas at a lower depth. He found that the only obligation of appellant under the contract was to pay $25,000; that upon its breach of the contract the damages to appellees were represented by the difference between the agreed amount and the $2,000, which it would have cost appellees to carry out their agreement had the contract not been breached. He therefore gave judgment to appellees in the sum of $23,000.

Appellant does not seriously contend that the doctrine of anticipatory breach does not exist under the Texas law. In arguing limitations on the doctrine, in fact, it concedes that it is applicable in a proper case. The trial court and appellees rely heavily on Pollack v. Pollack, Tex.Com.App., 46 S.W.2d 292. This case fully supports the trial court's determination that the doctrine of anticipatory breach is no stranger to the Texas law. It also identifies Texas with a minority view to the effect that the doctrine is not restricted to those cases where the contract is still fully executory on both sides. See also Kilgore v. Northwest Texas Baptist Educational Ass'n, 90 Tex. 139, 37 S.W. 598, and Moore v. Jenkins, 109 Tex. 461, 211 S.W. 975.

Appellant cites no Texas authorities for the precise proposition that the doctrine of anticipatory breach does not apply to such a breach of the obligation of a promisor whose promise becomes binding only if acted upon by the other party, as distinguished from a promise that is given in exchange for a promise by the other party. Cases of other jurisdictions are cited which raise some question as to the application of the doctrine in the case of a unilateral agreement. These cases are not persuasive except for the proposition that no part of a promise is binding and no breach of it is actionable unless and until it is supported either by a corresponding promise or by performance by the other party. No reason is perceived why a party whose promise is supported only by the performance of the other party should not be held to the same strict accountability for the breach of his contract as is one whose promise is supported by the agreement of the other party. Even assuming, although we do not hold, that this letter agreement did not create mutual obligations, initially there can be no doubt but that when appellees undertook to drill the well strictly in accordance with the specifications, appellant became bound to carry out its undertaking in precisely the same manner as if the contract expressly obligated appellees to drill the well in the first place. Such being the case, the liabilities of both parties became fixed by the terms of the contract, and if either violated its terms by clearly and unequivocally stating that it would not carry them out, such conduct would amount to an anticipatory breach under Texas law.

Of course, for such conduct by the promisor, the appellant here, to amount to such a breach, its announcement must be unequivocal. Englehart v. Volunteer State Life Ins. Co., Tex.Civ. App., 195 S.W.2d 798; see also Moore v. Jenkins, 109 Tex. 461, 211 S.W. 975; Kilgore v. Northwestern Texas Baptist Educational Association, 90 Tex. 139, 37 S.W. 598. We must then consider whether the action of the parties here made of this telegram an anticipatory breach within these requirements.

We think the trial court correctly construed the telegram and the actions of the parties as a plain, unequivocal announcement by Placid Oil Company that even though appellees did what was still required for them to do under the contract — that is plug and abandon the well — it would still not carry out its agreement to pay the $25,000 unless appellees in addition undertook the extensive and costly tests at the eight horizons which had already been subjected to all the testing required under the original agreement. This placed appellees in a real dilemma. They could have at once plugged the well and have removed the rig and thus have abandoned their $121,000 hole, fully realizing that they had been told that they would thus not be entitled to the $25,000 payment from Placid, or, relying upon their knowledge that the additional requirements were improperly asserted and that the refusal by Placid was a breach of the contract, they could treat it as a breach and consider anew whether they would risk drilling operations to attempt to salvage something out of the theretofore dry hole.

Under the...