Petroleum Financial Corporation v. Cockburn, 16192.

• Decision Date: 14 February 1957
• Docket Number: No. 16192.,16192.
• Citation: 241 F.2d 312
• Parties: PETROLEUM FINANCIAL CORPORATION, Appellant, v. H. C. COCKBURN and Cockburn Oil Corporation, Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

241 F.2d 312 (1957)

PETROLEUM FINANCIAL CORPORATION, Appellant, v. H. C. COCKBURN and Cockburn Oil Corporation, Appellees.

No. 16192.

United States Court of Appeals Fifth Circuit.

January 16, 1957.

Rehearing Denied February 14, 1957.

Thaddeus G. Benton, New York City, Ben H. Schleider, Jr., Dillingham & Schleider, Houston, Tex., for appellant.

J. L. Webb, W. H. Colbert, Houston, Tex., for appellees.

Before CAMERON, JONES and BROWN, Circuit Judges.

JOHN R. BROWN, Circuit Judge.

Petroleum Financial Corporation, the successor and beneficiary of a claimed contract made for it by its mastermind Benton, a lawyer — oil lease broker — promoter based in New York, appeals from the District Court denial of its claim of breach of contract by Cockburn (or his family corporation), a Texas oil operator and trader.

Putting cart before the horse, a brief outline of prior negotiations and surrounding circumstances is essential for an intelligent consideration of the question whether the writings declared on were, or are, a contract, and if so, whether standing alone, or upon attempted application of the terms, an ambiguity existed sufficient to allow resort to and use of this very parol evidence.

Benton, as a trader, or for like-minded clients, was interested in finding Texas oil deals for investment of New York venture capital which, in a world of high taxes, tax write-offs and the hopes of depletion allowance, was then readily attracted by the lure of wildcat operations. About October 1949 he met and had extensive discussions with Cockburn and some of his associates. At that time, and subsequently up to the parting of the ways in January 1950, Cockburn (or his agent Stone) submitted propositions on at least three areas, one of which — the Vance Structure, Edwards County, Texas — was the subject of the alleged contract involved here.

Not uncommon in these operations where the object is to bring together one who has, or can procure, acreage, (mineral leases) and the one, or many, who will supply the large risk capital required, the transaction is marked by great informality amongst a stratified succession of interested parties, each of whom cuts off a slice (e. g., overriding royalty, etc.) then sells all or a part of the rights to another.

So it was¹ with the Vance Structure. Cockburn neither owned nor claimed to own any mineral leases in the area. The leases were, to Benton's knowledge, owned by others, at least one of whom, Hunt Oil Company, was clearly identified in view of the preoccupation with the "Allison" well on the Hunt tract. Cockburn had, however, the substantial prospect of acquiring an interest since he had made a trade (apparently then oral only) with Swiger. Swiger, a geologist knowing of the area and the information reflected in the Allison well, previously plugged and abandoned by Hunt, had obtained² a farm-out, at least from Hunt, with some assurances that the other lessees would follow.

By identical language in each Farm-Out Letter to Swiger, the lessee agreed to "assign to you without warranty of title said oil, gas and mineral leases upon the following terms and conditions * * *." These were: on or before February 1, 1950, (a) commence reworking the Allison well by setting pipe and acidizing in a bona fide effort to make it a producer, or (b) commence operations for a new well within a specified area and a good faith prosecution of drilling to a specified depth. The lessees reserved a specified overriding royalty. Swiger's farm-out to Cockburn was in substantially similar form reserving a 1/16th override (from which he was to pay prior overrides) and, referring to the farm-outs from Hunt and the other lessees, provided: "I agree to assign to you on receipt of assignment from Hunt and Globe, et al * * * the oil and gas leases * * * indicated on the attached plat * * * on the following terms and conditions * * *."

Carrying it one step further, the Cockburn-Benton trade³ was to be Cockburn's means of laying off part of the risk of the uncertain, but potentially high, cost of the work-over or drilling of the new well. And, of course, Benton contemplated the same process. For he, as had Cockburn before him, and Swiger before Cockburn, on the expectation that when the work-over (or new well) operation was completed, he would get, by assignment, his ½ interest in the leases, in turn agreed to sell approximately 2/3rds of that interest to Bancroft Mitchell & Co. at a price of $25,000.00. The $25,000.00 for the Cockburn phase was thus to come from Bancroft Mitchell & Co. leaving approximately 1,000 acres which Benton planned to sell, in whole or in part, to still others.

Indeed, it is this last step — planned sales to others — which Benton claims Cockburn's breach made impossible. This, he asserts, brought about his damage measured in terms of what he would have received in such sales.

In this process Benton had had extended discussions in Houston and this was followed by further conferences with agent Stone in New York City in early December 1949, at which time ownership and geophysical maps, geologist's reports and data were furnished by Stone. Benton was fully informed that Cockburn had the trade on a farm-out which required work-over operations on the Allison well (or commencement of a new well) on or before February 1, 1950.

It was in this setting that the telegrams were exchanged which Benton claimed became the sole contract.

The first, and principal one, was that of December 24, 1949.⁴ The reply⁵ of December 26 was not an acceptance as it proposed a substantial variation in the size of the casing, 10 Tex. Jur., Contracts § 23; Antwine v. Reed, 145 Tex. 521, 199 S.W.2d 482; Garrett v. International Milling Co., Tex.Civ. App., 223 S.W.2d 67. Benton claims this was cured by his reply⁶ of December 27.

Cockburn (through Stone) looked on this exchange as merely a confirmation of the general trade⁷ which had been so long discussed. In one of the many contemporaneous long-distance telephone conferences between Stone and Benton then going on, the two agreed that January 3 would be the date for "closing." Then followed the letter⁸ (December 31, 1949) from Benton to Cockburn which proved such a bombshell which was, the District Judge described it, the first intimation that the parties had radically different ideas on what had been agreed to.

Benton's position, there spelled out, required the following action on January 3, 1950:

By Benton:

(a) Payment $2,000.00 cash.

(b) Surrender to Cockburn of Bancroft Mitchell's firm commitment to pay to Cockburn, on or before March 1, 1950, $23,000.00 in exchange for assignments from Cockburn

By Cockburn:

(a) Delivery of copies of assignments of leases into Cockburn

(b) Title opinion showing existing merchantable title in Cockburn as assignee of leases.

Cockburn's understanding coincided with Benton's as to Benton's January 3 obligations to (a) pay $2,000.00 cash, (b) surrender Bancroft Mitchell's firm⁹ commitment. But Cockburn insists, no action was required by him on January 3. Performance required of Cockburn was completion of the work-over (or drilling of the new well) and when and as done (but not before) he would be entitled to the $23,000.00 upon delivery of a merchantable title to an undivided ½ interest in the leases. This was, of course, no trivial, formal difference since to Benton, Cockburn was warranting a present title subject to a defeasance while, as Cockburn saw it, he was agreeing only to transfer, in the future, a merchantable title as one of the conditions to Benton's payment of the $25,000.00.

Cockburn, immediately rejecting the Benton construction, throughout the ten days of negotiations¹⁰ in Houston precipitated by it, continued his willingness to carry out the trade by which Benton would acquire an undivided ½ interest in the leases when and as the farm-out conditions were met. This ended by Benton, presumably as a prelude to litigation, peremptorily demanding evidence of assignments of merchantable title into Cockburn, and Bancroft Mitchell & Co. requesting the refund of the $2,000.00 check which Cockburn had deposited at Benton's urging. Cockburn, faced then with losing the whole farm-out or financing¹¹ it altogether, made a trade for a ¼ undivided interest with Johnson at a price which for a ½ interest would have netted $30,000.00.

On this issue which became so crucial to the parties, what did the assumed "contract" provide? At the outset of this inquiry, it is plain that there were no express provisions spelling it out. The opening phrase (telegram December 24, note 4, supra), agreeing to "purchase * * * merchantable title to" an undivided ½ interest taught only that such title had to be delivered on the day of final payment. All are in agreement that if found at all, it must be in these words:

"* * * YOU TO ACCEPT $2000 JANUARY 3RD AND FIRM COMMITMENT OF BANCROFT

MITCHELL AND CO ONE WALL ST NEW YORK TO PAY THE $23000 ON OR BEFORE MARCH 1 1950 UPON DELIVERY ASSIGNMENTS TO US YOU TO PROMPTLY DELIVER TITLE OPINION SHOWING GOOD MERCHANTABLE TITLE COPIES LEASES AND ASSIGNMENTS TO YOU * * *"

Starting with the impregnable premise that it is to be measured by what Cockburn received, not what Benton sent, the District Court concluded that some punctuation was indispensable to an intelligent divination of this Morseanic riddle and by a period,¹² he completely separated the words referring to actions on January 3 from those relating to assignments of leases. This made it clear that title in Cockburn and evidence of it, in the form of copies of assignments and title opinions, would not be required until Cockburn sought payment of the $23,000.00. Benton, shifting the period five words¹³ so that the phrase "* * * you to promptly deliver title opinion" stands alone, contends that the obligation "to promptly deliver" could refer only to January 3 and if obliged to do this, it was, at least, an implied representation that Cockburn...