Bu-Vi-Bar Petroleum Corporation v. Krow

• Decision Date: 04 April 1930
• Docket Number: No. 176.,176.
• Citation: 40 F.2d 488
• Parties: BU-VI-BAR PETROLEUM CORPORATION v. KROW et al.
• Court: U.S. Court of Appeals — Tenth Circuit

40 F.2d 488 (1930)

BU-VI-BAR PETROLEUM CORPORATION v. KROW et al.

No. 176.

Circuit Court of Appeals, Tenth Circuit.

April 4, 1930.

Edward P. Marshall, of Tulsa, Okl. (Charles O'Connor and J. J. D. Cobb, both of Tulsa, Okl., on the brief), for appellant.

John H. Cantrell, of Tulsa, Okl. (A. J. Biddison, Harry Campbell, and Valjean Biddison, all of Tulsa, Okl., on the brief), for appellees.

Before COTTERAL, PHILLIPS, and McDERMOTT, Circuit Judges.

PHILLIPS, Circuit Judge.

A. D. Krow, S. S. Mohrman and Wade Z. Paxton brought this action against the Bu-Vi-Bar Petroleum Corporation to recover damages for the breach of a contract to drill an oil and gas well. The parties entered into an oral contract by which the defendant agreed to drill an oil and gas well to the Wilcox sand, on the SW¼, Sec. 15, Township 23, Range 5. This well was to be commenced within fifteen days after the completion of a well which the defendant was then drilling, known as the Redd well, and which was, in fact, completed March 20, 1927. The plaintiffs were to assign to the defendant, within ten days from August 2, 1926, good and sufficient oil and gas leases covering the NE¼, S½NW¼ and the N½SW¼, Sec. 15, Township 23, Range 5. The plaintiffs also were to deliver to the defendant "dry hole" contribution agreements from the Pure Oil Company for $3,000, from the Magnolia Petroleum Company for $2,500 and from Thomas B. Slick for $500. Thereafter, and on August 2, 1926, the defendant, through J. Garfield Buell, as its president, addressed a letter to the plaintiffs in which it set forth substantially the terms of the oral contract, excepting such letter omitted to state the depth to which the well was to be drilled. The plaintiffs endorsed the word "accepted" on the letter and signed their names thereto.

At the time the contract was entered into, Mohrman and Paxton held a lease from Glover covering the S½NW¼, Sec. 15, and had contracted for two leases, one from Mary E. Paxton, covering the NE¼, Sec. 15, and one from Melinda C. McFadden, covering the SW¼, Sec. 15. The Paxton and McFadden leases had been delivered in escrow to the Bank of Commerce, of Ralston, Oklahoma. The escrow agreements provided that the leases should be delivered to the lessees upon commencement of an oil and gas well in the SW¼, Sec. 15, and that the lessees should commence such well on or before August 20, 1926.

At the time of the making of the oral contract, plaintiffs advised the defendant that the McFadden and Paxton leases were in escrow and could not be delivered until the oil well had been spudded in on Sec. 15. On August 12, Krow, in compliance with a request of the defendant, took the Paxton and McFadden leases to the office of the defendant, where the latter examined the leases, made photostatic copies thereof and then returned the originals to Krow. At the same time, assignments of these leases were delivered to and accepted by the defendant, with full knowledge of the escrow agreements. An assignment of the Glover lease was delivered to the defendant on August 28, 1926. This assignment was retained by the defendant until March 23, 1927, when the defendant mailed it to Mohrman.

Shortly after the contract was entered into, a "dry hole" contribution agreement for $500 was secured from Slick and delivered to the defendant. The Pure Oil Company advised plaintiffs that if Buell would communicate with such company it would agree to a contribution of $3,000. Defendant was advised of such fact by plaintiffs. After the contract was made, the defendant and the plaintiffs agreed that, should the Magnolia Petroleum Company be unwilling to make a "dry hole" contribution, plaintiffs should make such contribution.

The plaintiffs testified that they were at all times, after August 2, 1926, able, ready and willing to provide "dry hole" contributions to the extent of $6,000 and that the defendant never made a request for such "dry hole" contributions.

By a sufficient writing and for a consideration of $175 paid by the plaintiffs, the time to commence the well under the Paxton escrow was extended to May 1, 1927. On August 7, 1926, by a sufficient writing, the time to commence the well under the McFadden escrow was extended to November 1, 1926. On October 30, 1926, by a sufficient writing, McFadden further agreed to extend the time to commence the well, in consideration of the payment of $25.00 per month, payable in advance, until the well should be commenced. This agreement provided that it should "expire February 1st, 1927." Plaintiffs paid and McFadden accepted payments of $25.00 per month for each month to and including March, 1927. By accepting the payment for March, McFadden impliedly extended the time for drilling the well to and including April 1, 1927.

In August, 1926, Buell told Paxton and Mohrman to secure extensions so as to keep the leases alive. In October, 1926, Buell told Mohrman to have Krow construct a pond to provide water for drilling the well and to send the bill to the defendant. In November, Buell inquired of plaintiffs whether they knew of any one who could drill the well. Plaintiffs suggested one Donahue. Buell requested Krow to have Donahue get in touch with Buell. Thereafter, Buell had negotiations with Donahue for the drilling of this well to the Wilcox sand, but did not reach a final agreement with Donahue. In December, 1926, Mohrman told Buell that plaintiffs were expending moneys to keep the leases alive and Buell assured Mohrman that when the defendant had finished with the Redd well it would start work on the well in Section 15. Early in 1927, Buell told Mohrman that defendant was experiencing some difficulty in completing the Redd well and plaintiffs were at liberty to secure some other person to drill the well in Section 15. Mohrman replied that plaintiffs were looking to defendant to drill such well. On March 22, 1927, Buell told Mohrman that the conditions of the oil market were such as not to warrant the drilling of a wildcat well and that the defendant was not going to drill the well under its contract with plaintiffs. The same day, Krow telegraphed the defendant that he had just learned the defendant had completed the Redd well but was not inclined to drill the well under its contract with plaintiffs; that he hoped defendant would start work under the contract at once. On March 23, Buell telegraphed Krow that he did not believe it advisable to start a wildcat well under existing conditions in the oil industry; that he had advised Mohrman on several occasions that plaintiffs were free to secure another person to drill the well; and that he did not consider plaintiffs bound under the contract.

On April 1, 1927, Krow telegraphed Buell as follows:

"J. Garfield Buell.

"Your contract to drill a well on the southwest quarter of fifteen township twenty-three range five is about to expire. I have spent large sums of money on this contract and expect you to drill this well. Advise me at once when you will start work on this well.

"A. D. Krow."

The defendant made no response to the telegram of April 1. Plaintiffs then permitted the McFadden lease to lapse.

Plaintiffs established that the cost of drilling a well to the Wilcox sand would have been between twenty and twenty-five thousand dollars.

By proper motions, both at the close of plaintiffs' evidence and at the close of all the evidence, counsel for the defendant questioned the sufficiency of the evidence to sustain a verdict in plaintiffs' favor. These motions were overruled.

The court instructed the jury that, if it should find for the plaintiffs, the measure of damages should be the reasonable cost of drilling the well, less the expense of casing and permanent improvements that usually remain in a well when it comes in as a producer. Proper exceptions were saved to this instruction.

The jury returned a verdict for $10,000 in favor of the plaintiffs. Judgment was rendered thereon and the defendant has appealed.

When defendant repudiated the contract, plaintiffs had an election of remedies as follows: (a) To rescind the contract and recover the value of any performance rendered. (b) To treat the repudiation as an immediate breach and sue at once for any damages which plaintiffs had sustained. (c) To treat the contract as binding and wait until the time for its performance and thereafter bring an action on the contract for its breach. United Press Ass'n v. National Newspaper Ass'n (C. C. A. 8) 237 F. 547, 553; Acme Mfg. Co. v. Arminius Chemical Co. (C. C. A. 4) 264 F. 27; Canada Atl. & P. S. S. Co. v. Flanders (C. C. A. 1) 165 F. 321; Golden Cycle Min. Co. v. Rapson Coal Min. Co. (C. C. A. 8) 188 F. 179.

Counsel for the defendant contend that the telegram of April 1, 1927, constituted an election by plaintiffs to treat the contract as still binding; that the agreements to deliver the leases and the "dry hole" contribution agreements were conditions precedent; that the plaintiffs failed to perform such conditions and permitted the McFadden lease to terminate before the time defendant was required to commence the drilling of the well, under the terms of the contract; and that, because thereof, the contract was discharged and defendant released from liability thereunder.

One party to a contract, who is entitled to demand performance of a condition precedent, may waive such performance by acts evidencing such intention, especially where the other party changes his position in reliance upon such waiver. Finlay v. Swirsky, 103 Conn. 624, 131 A. 420, 424; California Raisin Growers' Ass'n v. Abbott, 160 Cal. 601, 117 P. 767, 770; Ashland Coal, etc., Co. v. Hull Coal, etc., Corp., 67 W. Va. 503, 68 S. E. 124; 13 C. J. p. 671; 2 Elliott on Contracts, §§ 1654, 1858, 1860; 5 Elliott on Contracts, §§ 4321, 4175.

We assume, without deciding, that the agreement to assign the leases, within ten days from August 2, 1926, was a condition precedent.

The defendant knew, at the time the...