Lohse v. Atlantic Richfield Co., 11099

• Decision Date: 09 June 1986
• Docket Number: No. 11099,11099
• Citation: 389 N.W.2d 352
• Parties: Lester J. LOHSE, Roy W. Lohse, Vernon Lohse, Ada Bagley, Ila Mae Gilbert, Loyal J. Lohse, and Esther Lohse, Plaintiffs and Appellants, v. ATLANTIC RICHFIELD COMPANY, Defendant and Appellee. Civ.
• Court: North Dakota Supreme Court

Page 352

389 N.W.2d 352

Lester J. LOHSE, Roy W. Lohse, Vernon Lohse, Ada Bagley, Ila Mae Gilbert, Loyal J. Lohse, and Esther Lohse Plaintiffs and Appellants, v. ATLANTIC RICHFIELD COMPANY, Defendant and Appellee.

Civ. No. 11099.

Supreme Court of North Dakota.

June 9, 1986.

Pringle & Herigstad, Minot, for plaintiffs and appellants; argued by James E. Nostdahl.

Fleck, Mather, Strutz & Mayer, Bismarck, for defendant and appellee; argued by Jane Fleck Romanov.

ERICKSTAD, Chief Justice.

The plaintiffs, members of the Lohse family, appeal from a summary judgment dismissing their action against Atlantic Richfield Company (ARCO) for enforcement of an alleged oral agreement to lease approximately 4,000 mineral acres owned by the Lohses. We affirm.

The evidence, viewed in the light most favorable to the Lohse family [e.g., Gowin v. Hazen Memorial Hosp. Ass'n, 349 N.W.2d 4, 8 (N.D.1984) ], indicates that during 1982, ARCO commenced an oil and gas leasing program in Williams and Divide counties. ARCO sent several landmen to the area, and each was assigned a different working area to secure leases. The landmen were authorized by ARCO to negotiate within specified limits the bonus, royalty, and primary term of the oil and gas leases. ARCO's landmen were generally offering a $200 per acre bonus, 1/8th to 3/16ths royalty, and a three to five year primary term for the leases.

During the fall of 1982, Lester Lohse, acting on behalf of the Lohse family, contacted Kathy Schroeder, an ARCO landman, about the possibility of leasing the family's mineral acres. Lohse gave Schroeder land descriptions and Schroeder told Lohse she would forward them to Greg Yates, the landman responsible for leasing in the area where the family's acreage was located. During November 1982, Lohse met with Yates at a Williston hotel. According to Lohse, the meeting took place in the hotel lobby and lasted "not over ten minutes." Their conversation is described by Lohse in his deposition testimony:

"[By Mr. Lohse] A. ... I introduced myself, he introduced himself. And he said 'I'm leasing for Atlantic Richfield in Williams County and I'm leasing up in the Rock Island Township area, and,' he said, 'we are paying $200 an acre.' He volunteered this. I didn't ask him.

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"A. And he said, 'We are paying $200 an acre, three-year lease, three-sixteenths royalty.' And I said, 'That's a hell of a good lease. I'll take it.'

"[By Ms. Romanov] Q. At that time did you discuss your acreage, your lands?

"A. Yes, I told him approximately the number of acres that we were talking about.

"Q. And how many acres was that?

"A. I said, 'It's approximately 4,000 acres.'

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"A. ... And I said to him, 'Most of this land is in Rock Island, but some of it is in the township adjoining it, Ellisville, there's a little in Big Stone and there's 720 acres in Dublin.'

"Q. Did you discuss what sections in what townships?

"A. We just discussed the townships. And he said, 'That's fine. That's fine.' ... He said, 'We'll take that. And,' he said, 'if you have any friends and neighbors, tell them that I'm interested and I'll take theirs too.'

"Q. So did you provide Mr. Yates with any kind of map or plat of your lands?

"A. I asked him if--at the time if he had the papers that Kathy Schroeder brought to Denver and he said he had, but he also asked me to send him some more, which I did. So he was quite familiar with the land that I was talking about as far as leasing.

* * *

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"Q. What other--what else did you discuss besides the term, royalty and bonus?

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"A. We discussed the length of time to get a contract, the checks before the end of the year. The reason being, we were talking about approximately $800,000 in lease money. And I said to Mr. Yates, 'Would it be possible to get these contracts done so that half of the money could be taken in '82 before the first of the year, the other half taken after January 1?' And he said, 'Yes, that's possible.'

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"Q. Did you discuss anything else besides deferring the bonus and getting leases to sign prior to the end of the year with Mr. Yates at that time?

"A. No, I don't believe so. He told me the area he was leasing in and he told me what they paid and the conditions. I told him the townships where the land was located and approximately 4,000 acres that was (sic) open for lease."

According to Lohse, Yates said he would forward ARCO's lease forms when he verified title to the minerals. Lohse claims that following his meeting with Yates, he received offers from other landmen and lease brokers to lease the mineral acres, but he turned them down. According to Lohse, the other offers ranged from $100 to $175 per acre bonus.

After several weeks had passed without receiving ARCO's lease forms, Lohse made a number of phone calls to Yates at ARCO's Denver office. According to Lohse, Yates would tell him either that the leases had been drafted and would be forwarded to him as soon as they were ready, or that the leases were already in the mail. Lohse never received the leases and in March 1983, he visited ARCO's Denver office. Yates was not in the office at the time and another landman told Lohse that he would investigate the matter. Shortly after the visit, ARCO informed Lohse that Yates was no longer employed by the company and that ARCO was not interested in leasing the Lohse family minerals. In the meantime, the demand for oil and gas leases in the area had declined, and Lohse was unable to lease the minerals.

The Lohse family brought this action seeking "enforcement of [ARCO's] agreement to lease by payment of the bonus amount of $780,000," and, in the alternative, "damages in the amount of $780,000 for [the Lohses'] losses." The Lohses also sought exemplary damages in excess of $780,000. The Lohses alleged fraud and claimed ARCO was estopped from denying the validity of the alleged oral agreement. ARCO defended on the grounds that no legally enforceable agreement existed between the parties, that Yates had no authority to lease the minerals, and that enforcement of the alleged oral agreement was barred by the statute of frauds. The district court granted ARCO's motion for summary judgment and this appeal followed.

It is undisputed that oil, gas, and mineral leases constitute conveyances of interests in real property, and as such, are subject to the provisions of the statute of frauds, Sec. 9-06-04, N.D.C.C. See Petroleum Exchange v. Poynter, 64 N.W.2d 718, 722 (N.D.1954). There is no written documentation of the alleged oral lease agreement in this case, and thus, the statute of frauds would normally operate to render the purported agreement invalid. The Lohses, however, assert that ARCO is barred from raising the statute of frauds defense because of its allegedly fraudulent failure to reduce the lease to writing, and because the elements of promissory and equitable estoppel are present.

The Lohses' claim of fraud is premised on the provisions of Sec. 9-06-03, N.D.C.C., which provides:

"9-06-03. Written contract prevented by fraud--Oral contract enforceable.--When a contract which is required by law to be in writing is prevented from being put into writing by the fraud of a party thereto, any other party who by such fraud is led to believe that it is in writing and acts upon such belief to his prejudice may enforce it against the fraudulent party."

The Lohses assert that the elements of this statute have been satisfied because Yates assured Lohse that the leases had been drafted and mailed, and because Lohse rejected other lease offers in reliance on ARCO's representations.

In order to invoke the provisions of Sec. 9-06-03, N.D.C.C., one must, under the express terms of the statute, first establish the existence of an oral "contract." A contract, be it oral or written, "requires an offer, and acceptance of that offer, and mutual acceptance and understanding of the offeror and offeree as to the terms of the legally enforceable obligation thus incurred." Cargill, Inc. v. Kavanaugh, 228 N.W.2d 133, 138 (N.D.1975). In Mag Construction Company v. McLean County, 181 N.W.2d 718, 721 (N.D.1970), this court stated:

"To be valid and enforceable, however, a contract must be reasonably definite and certain in its terms so that a court may require it to be performed. Morey v. Hoffman, 12 Ill.2d 125, 145 N.E.2d 644 (1957). It must spell out the obligations of each of the parties with reasonable definiteness. Indefiniteness as to any essential element of the agreement may prevent the creation of an enforceable contract. Hansen v. Snell, 11 Utah 2d 64, 354 P.2d 1070 (1960). Thus contracts must be definite enough to enable a court to ascertain just what is required of the respective parties in the performance thereof. Courts will not uphold agreements which are indefinite and uncertain as to the obligations imposed upon the parties thereto. Richards v. Oliver, 162 Cal.App.2d 548, 328 P.2d 544 (1958).

"Where an agreement is so uncertain and incomplete as to any of its essential terms that it cannot be carried into effect without new and additional stipulations between the parties, it will be held to be invalid. Druar v. Ellerbe & Co., 222 Minn. 383, 24 N.W.2d 820 (1946).

"... Therefore, where one party to a contract retains the right to determine the extent of his performance, his promise has been held to be too indefinite for reasonable enforcement. Knox v. Ffoulke, Sup., 73 N.Y.S.2d 650 (1947)."

ARCO asserts that the oral lease agreement between Lohse and Yates was not sufficiently certain and complete as to its essential terms to constitute an enforceable contract because the only terms agreed upon were the royalty, bonus, and primary term. ARCO contends that other essential terms, such as deferred bonus payments, the matter of a Pugh clause, pooling and unitization powers, surface damage, and delay rental payments, remained for further negotiation. The Lohses assert that the "missing...