Pierce v. Marland Oil Co. of Colorado

• Decision Date: 20 May 1929
• Docket Number: 12003.
• Citation: 86 Colo. 59,278 P. 804
• Parties: PIERCE et al. v. MARLAND OIL CO. OF COLORADO.
• Court: Colorado Supreme Court

278 P. 804

86 Colo. 59

PIERCE et al. v. MARLAND OIL CO. OF COLORADO.

No. 12003.

Supreme Court of Colorado

May 20, 1929

Rehearing Denied June 10, 1929.

Department 1.

Error to District Court, City and County of Denver; Julian H Moore, Judge.

Action by William A. Pierce and another against the Marland Oil Company of Colorado. Judgment of nonsuit, and plaintiffs bring error.

Affirmed.

Benjamin Griffith and A. A. Lee, both of Denver (M W. Spaulding, of Denver, on petition for rehearing), for plaintiffs in error.

George C. Manly and Everett E. Trout, both of Denver, for defendant in error.

ADAMS J.

Pierce and McCall, plaintiffs below, brought action against Marland Oil Company of Colorado to recover damages for alleged breach of contract, to which several defenses were interposed, one of which was that there was no contract between the parties. The court held that, although extensive negotiations had been carried on, nevertheless there was no completed contract. On this ground, defendant's motion for nonsuit was granted at the close of plaintiffs' testimony, and judgment against plaintiffs for dismissal of the action and for costs was accordingly entered. Pierce and McCall, the plaintiffs will be referred to as vendors, and the Marland Oil Company defendant, as the producer.

Ambrosia lake structure, in McKinley county, New Mexico, had or was supposed to have had valuable oil and gas potentialities, of an undeveloped character. Vendors had exclusive leasehold interests in or about the place, and the producer, a large company engaged in the producing and marketing of oil and gas, also held leases on or interests in other lands there, among which was included the southwest quarter of section 13, township 15 north, range 10 west. Section 14, same township and range, referred to in the complaint hereafter mentioned, lies to the west of and immediately adjacent to section 13.

The contentions of the parties can best be told by excerpts from the pleadings. The vendors' complaint was filed on June 30, 1926. Plaintiffs allege, in effect, that on April 7, 1926, they were the owners of certain oil and gas mining leases, dated February 9, 1925. One was from Ka-nus-wat, Indian allottee No. 150, as lessor, to plaintiffs, as lessees, and covered the northeast quarter of above section 14. The other was from Hot-tez-pah, Indian allottee No. 151, as lessor, to plaintiffs, as lessees, and covered the southeast quarter of the same section. Both leases were approved by the Secretary of the Interior of the United States. The complaint alleges that on July 10, 1925, the plaintiffs made and executed, and in December, 1925, delivered, an assignment of their interest in and to said leases to Orson L. Early, of Whittier, Cal., but that under the assignments plaintiffs reserved an overriding royalty of 2 per cent. of all the oil and gas over and above the royalty to be paid to the United States government. The leases in evidence show the royalty reserved to the United States to be 12 1/2 per cent., for the use and benefit of the Indians.

Complainants further allege that on April 7, 1926, they made and entered into a contract in writing with the producer, under the terms of which the latter offered and agreed to commence operations for the drilling of an oil and gas well, to be located on the southwest quarter of the above-mentioned section 13, for and in consideration of the relinquishment by vendors to producer of an overriding royalty in the east half of said section 14, then and there owned by vendors; that the offer was accepted by vendors and the contract made on April 7, 1926; that by the terms of the agreement it was specifically promised that producer would commence drilling operations, weather conditions permitting, on or before May 1, 1926; that vendors were at all times and are able, ready, and willing to execute and deliver said relinquishment, and to perform the terms and conditions imposed on them, and that they attach to the complaint a relinquishment of the 2 per cent. royalty; that weather conditions permitted; that vendors demanded performance, but that the producer has failed and refused, and still fails and refuses, to comply with the agreement.

The complaint also shows that vendors were the owners of other oil and gas leases and royalties, on lands specifically described, adjacent to or in the close neighborhood of said section thirteen, and that, if defendant had commenced drilling operations and complied with its part of the contract, such royalty and leasehold interests of the plaintiffs, on May 1, 1926, would have been and still would be of the actual or market value of $16,360, but that, by reason of the producer's failure as above, said leases and royalties were rendered wholly valueless, and still are of no market value whatsoever. Plaintiffs prayed judgment for the amount above named.

General and special demurrers to the complaint were overruled and the producer answered. It denied vendors' allegations, and alleged that negotiations between the parties were not consummated into a definite, certain, and positive agreement, or any agreement at all; that the terms of the alleged agreement were subsequently altered and rescinded by further negotiations, and that the negotiations were always open, unexecuted, and unconsummated; that there was no meeting of the parties' minds; that certain conditions precedent were not performed by vendors, in that they failed to relinquish, in due form, the overriding royalty of 2 per cent., which they were required to do before any drilling obligation by the producer ever existed or was created, and that the condition thereby failed; that Pierce, one of the vendors, represented that he owned such overriding royalty, but that on April 7, 1926, the two Indian leases were held by and vested in Orson L. Early, subject to the approval of the Secretary of the Interior, and were then subject to defeasance for failure to pay rentals as provided in the leases; that plaintiffs were not the owners of the said leases on April 7, or May 1, 1926, and that because of defects in title therein the producer could not legally nor with security enter into such drilling operations; that vendors failed to correct the defects in title, and thereby precluded producer from complying with the purported agreement or at all; and that the purported damage claimed is too general, speculative, and remote to be actionable.

1. We have designed treated the plaintiffs as vendors, because, by their own averments, they were to have conveyed a certain 'overriding royalty' in an oil and gas mining lease to the producer, in consideration of which the latter, so the vendors claim, was to have commenced drilling on adjoining land. Rents and royalties are profits issuing out of the land. When they are to accrue, they are a part of the estate remaining in the lessor. United States v. Noble, 237 U.S. 74, 80, 35 S.Ct. 532, 59 L.Ed. 844.

2. Did the vendors prove the contract alleged to have been made? They sought to do so by letters and telegrams. We have held, and the rule is still extant, that a completed contract may be so evidenced. Marti-Matter Co. v. Thomas, 70 Colo. 478, 202 P. 703; Carlsen v. Hay, 69 Colo. 485, 195 P. 103; Barrett v. Book Cliff R. Co., 70 Colo. 441, 201 P. 1026.

3. In the Marti-Matter Co. Case, supra, we said, at page 481 of the reported decision (70 Colo. 202 P. 704): 'The correspondence shows a settled intent and purpose on the part of the defendants to abide by and carry out the agreement in the manner and form as therein expressed. Indeed, the whole transaction was definitely and specifically set out in writing, and the correspondence establishes a completed agreement on the part of the defendants to sell and the plaintiff to buy. Plainly their minds had met on the terms and conditions of purchase and sale.' In the instant case, however, the above elements are wanting. The Barrett Case, supra, declares that it is not important that all the terms be set out in one instrument, if the intent to contract may be clearly inferred. And in Carlsen v. Hay, supra, we said that neither custom nor reason require minute details in proposals and acceptance. These statements, however, do not dispense with the necessity for the meeting of minds on essential conditions of the contract. Warvelle on Vendors (2d Ed.) vol. 1, §§ 100 and 101; Gill Mfg. Co. v. Hurd (C. C.) 18 F. 673; Mayer v. McCreery, 44 Hun, 628.

One of the points on which the minds of the parties did not meet was the settlement of rents accrued or about to accrue on the Indian leases, which were subject to defeasance for failure of payment. Another most important disparity between the parties' minds is made manifest in the difference between the property interest which the vendors allege in their complaint the producer was to get, and that which the producer expected to acquire as a condition to drilling. It comes out in the letters and telegrams. One of the letters from Yingling, producer's representative, to Pierce, one of the vendors, indicated that the producer expected a lease from California parties (Early or some one else) on the east half of 14, but Yingling complained that the royalties were too high; that it would mean 16 1/2 per cent.--that is, 12 1/2 to the Indians, 2 per cent. overriding royalty to the California parties, which they demanded, and another 2 per cent. to vendors. The latter thereupon offered by wire to release or assign their 2 per cent. to the producer. But this left the assignment of the California interests still to be obtained by the producer, and it has not been obtained. Vendors have ignored this in their complaint. The producer has met it by denial of the contract alleged to have been made. In other words,...