Yucca Min. & Petroleum Co. v. Howard C. Phillips Oil Co.

• Decision Date: 01 November 1961
• Docket Number: No. 6774,6774
• Citation: 1961 NMSC 155,69 N.M. 281,365 P.2d 925
• Parties: YUCCA MINING & PETROLEUM COMPANY, Inc., Plaintiff-Appellant, v. HOWARD C. PHILLIPS OIL COMPANY, a partnership consisting of Howard C. Phillips and Richard Clifton; and Howard C. Phillips, Individually, Defendants-Appellees.
• Court: New Mexico Supreme Court

Page 925

365 P.2d 925

69 N.M. 281

YUCCA MINING & PETROLEUM COMPANY, Inc., Plaintiff-Appellant, v. HOWARD C. PHILLIPS OIL COMPANY, a partnership consisting of Howard C. Phillips and Richard Clifton; and Howard C. Phillips, Individually, Defendants-Appellees.

No. 6774.

Supreme Court of New Mexico.

Nov. 1, 1961.

Perry S. Key, Albuquerque, for appellant.

Rodey, Dickason, Sloan, Akin & Robb, William C. Briggs, Albuquerque, for appellees.

CARMODY, Justice.

Appellant sought damages for breach of an oil well drilling contract and alternatively for rescission and damages. From a judgment denying relief, based generally upon equitable estoppel, this appeal followed.

The issues to be determined relate to the application of the statute of frauds to an oral modification of a written contract, whether a corporation is bound by the actions of its president or director, the substantial evidence rule and the pleading and proof required as to estoppel.

Plaintiff-appellant will be referred to as 'Yucca' and defendants-appellees will be referred to as 'Phillips.'

Summarizing the contract as far as material to the issues: Yucca paid $12,000 to Phillips to drill at least two wells on a lease owned by Phillips. If both were dry holes, no further drilling was contemplated. Appellee was to account for the money used and to assign a one-half interest in the lease to Yucca.

After the first well proved to be a dry hole, Phillips did not render an accounting nor assign the one-half interest. Thereafter, a second well was drilled on other property upon which Phillips merely had drilling rights, which, incidentally, were paid for out of the $12,000. This second well also proved to be unproductive and the money was exhausted.

The real basis of the controversy has to do with whether there was a valid subsequent agreement which modified the original written contract. As to this, there is a broad conflict in the evidence, the Phillips' evidence being to the effect that Yucca's president, one of the members of its board of directors, and a consulting geologist of Yucca's agreed that further drilling after the first dry hole was inadvisable on the original lease and that the second well should be attempted on a different location, somewhat deeper than originally contemplated. To the contrary, Yucca's evidence was almost diametrically opposed, at least as to the modifying of the agreement. It should be mentioned that there never was any assignment by Phillips of the one-half interest, either to the original lease or to the property upon which the drilling rights were obtained, and Yucca's board of directors never approved the drilling of the second well. An accounting of sorts was furnished approximately six months after the abandonment of the second well.

Although Yucca relies on eight points for reversal, and in doing so deveotes some 120 pages of its brief in chief to argument, we do not deem it necessary to specifically answer each point, since that are substantially interrelated.

Yucca initially urges that judgment should have been entered in its favor, because of the breach of the written contract by Phillips. These breaches consisted of Phillips' failure to assign the one-half interest in the original lease and failure to make an accounting, although Yucca also claims that there were certain unauthorized withdrawals from the money advanced, which also operated as a breach.

It would appear that Yucca fails to distinguish between a technical breach and one which goes to the substance of the agreement. Samples v. Robinson, 1954, 58 N.M. 701, 275 P.2d 185 (and authorities cited therein); Kauffman v. Raeder, 8 Cir., 1901, 108 F. 171, 54 L.R.A. 247; Pasquel v. Owen, 8 Cir., 1950, 186 F.2d 263. In Samples v. Robinson, supra, we stated the rule, in part, as follows:

"* * * A rescission is not warranted by a mere breach of contract not so substantial and fundamental as to defeat the object of the parties in making the agreement. Before partial failure of performance of one party will give the other the right of rescission, the act failed to be performed must go to the root of the contract or the failure to perform the contract must be in respect of matters which would render the performance of the remainder a thing different in substance from that which was contracted for." [58 N.M. 701, 275 P.2d 187.]

The trial court specifically found that the agreement as modified was performed by Phillips. The court also found that the delay in making an accounting was not prejudicial to the plaintiff, and that the failure to assign did not damage Yucca and that Yucca impliedly waived the assignment. With respect to the failure to assign, although the trial court did not say so directly, it is quite obvious from the proof that neither the lease nor the operating agreement had any value after the dry holes were drilled, and it would have been rather useless to make an assignment of any interest therein.

Yucca relies on certain of the court's findings, claiming that they are in conflict with those above mentioned; but we do not feel that, considering the findings as a whole as the ultimate facts of the case, there is any conflict in the court's findings. Also, we have fully and carefully considered the evidence offered in the case, and are convinced that the trial court's findings on this subject are based upon substantial evidence. This is true also as to the claimed unauthorized withdrawals when they are considered in light of the trial court's denial of Phillips' cross-complaint which sought reimbursement for charges in excess of the original $12,000.

Yucca next contends that since the original contract involved an interest in land and was in writing, that therefore Phillips' testimony as to subsequent oral modification was inadmissible. As to this, Yucca apparently confuses the rule which prohibits oral testimony with respect to prior or contemporaneous agreements which vary or contradict the terms of a written contract with the rule relating to subsequent oral modification. The so-called 'parol evidence rule,' upon which Yucca relies, applies only to oral agreements prior to or contemporaneous with the written agreement. See, Shoucair v. North British & Mercantile Insurance Co., 1911, 16 N.M. 563, 120 P. 328; Prentice v. Cain, 1921, 27 N.M. 368, 202 P. 121; Timberlake v. Cox Bros., 1935, 39 N.M. 183, 43 P.2d 924; Bell v. Lammon, 1947, 51 N.M. 113, 179 P.2d 757. We are here concerned with an oral modification subsequent to the creation of a written agreement. Where a written contract subsequently has been orally modified by the parties and thereafter substantially performed, the rule for which Yucca contends has no application. Holton v. Reed, 10 Cir., 1951, 193 F.2d 390; Provencio v. Price, 1953, 57 N.M. 40, 253 P.2d 582 Underwood v. Sapir, 1954, 58 N.M. 539, 273 P.2d 741; Kingston v. Walters, 1908, 14 N.M. 368, 93 P. 700. See, also, Kirchner v. Laughlin, 1888, 4 N.M. (Gild.) 386, 17 P. 132.

It would seem to us that there was substantial evidence upon which the trial court would have been justified in finding the oral modification that it did. As stated above, the testimony is in great conflict, but it would seem that in a highly speculative project such as this where all parties were primarily interested in the discovery of oil, that it was for the trial court to determine, from the testimony, the surrounding circumstances and actions of the parties, whether there was a valid modification. It was not until considerably after the second well proved to be dry that any objection was made by Yucca or its representatives. As was stated by the trial court, '* * * Yucca took their chance and got their full play, * * *' and '* * * Yucca both wanted, to use a slang expression 'to have their cake and eat it too,' * * *.' Such an expression coming from an able and highly respected trial judge, who had the opportunity of seeing and hearing the witnesses, certainly tends to show how the trial court felt about the proof offered.

Yucca then urges that the conclusion by the court, that Yucca waived strict performance and was estopped, was error. This would seem to be the true basis upon which Yucca rests its case. Here, again, although the testimony was in conflict, it was such as to support the trial court's finding that the president of Yucca had agreed to the modification of the contract, knew the second well was to be drilled before it was started and knew of the drilling during its course. The trial court's finding is further supported by the proof of knowledge on the part of one of the members of Yucca's board of directors of the drilling of the second well and the evidence that Yucca's consulting geologist was the person who determined where the second well was to be drilled. In addition, there was no showing that Yucca ever objected or ever made a claim that the second well was not to be paid for in accordance with the contract, until the time the complaint was filed some eleven months after the completion of the second dry well.

From these facts alone, the trial court was certainly justified in denying rescission and restitution. The law will not permit a party to sit idly by and await the results which, if favorable, he will receive the benefit of, but if unfavorable, ask rescission. Justheim Petroleum Company v. Hammond, 10 Cir., 1955, 227 F.2d 629; Nelson v. Chicago Mill & Lumber Corporation, 8 Cir., 1935, 76 F.2d 17, 10 A.L.R. 87; Putney v. Schmidt, 1911, 16 N.M. 400, 120 P. 720 (involving fraud).

One who claims the right of rescission must promptly exercise it or same will be waived. Armijo v. Nuchols, 1953, 57 N.M. 30, 253 P.2d 317.

The question of whether a corporation is bound by the actions of its president and other officers and agents, absent action by the board of directors, is a problem that has caused considerable difficulty. See, 2 Fletcher Cyclopedia, Corporations, (Permanent Edition), Sec. 558; 57 Columbia Law...