Citations
- 241 F.2d 312
Full opinion text
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 Coekburn (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 Coekburn and some of his associates. At that time, and subsequently up to the parting of the ways in January 1950, Coekburn (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 was with the Vance Structure. Coekburn 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. Coekburn 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 obtained 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. Swig-er’s farm-out to Cockburn was in substantially similar form reserving a l/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 trade was to be Cock-burn’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 y