Case Title: Komarek v. Cole

Citation: 381 P.2d 773, 94 Ariz. 94

Docket Number: 

State: arizona

Court: Arizona Supreme Court

Date: 1963-05-22T00:00:00Z

Document:
94 Ariz. 94 (1963) 381 P.2d 773 A.W. KOMAREK and Edith Komarek, husband and wife, Appellants, v. F.P. COLE, T.A. Blanton, Olive L. Hall as Executrix and Elmer E. Yoeman as Executor of the Estate of Irving F. Hall, Deceased, W.N. Damron and James L. Vease, Appellees. No. 7016. Supreme Court of Arizona. In Division. May 22, 1963. Rehearing Denied June 11, 1963. *95 Udall & Udall, Tucson, for appellants. Cusick, Watkins & Frey, Tucson, for appellees. FRED J. HYDER, Judge of Superior Court. The defendant Komarek, appellant herein (hereafter called Komarek), owned certain oil leases in the State of Texas. During the first six months of 1956 certain oral negotiations were conducted between Komarek and plaintiff Cole culminating in an assignment on August 10, 1956, by Komarek of an undivided one-eighth interest in said oil leases to each of the plaintiffs Cole, Blanton, Hall and Damron. Komarek retained the remaining one-half interest in said leases. This transaction will hereinafter be referred to as "Deal No. 1." On September 5, 1956, in Tucson, Arizona, a meeting was had between Komarek and all Deal No. 1 plaintiffs; and a written agreement entitled, "Operating Agreement" was read and executed by all parties, after which each of Deal No. 1 plaintiffs issued to Komarek an individual check for $5,000.00 for a total of $20,000.00. On September 17, 1956, Komarek assigned an undivided one-eighth interest in certain other oil leases to each of the plaintiffs Cole, Blanton, Hall and Vease. Komarek retained the remaining one-half interest in these oil leases, and on September 17, 1956, these plaintiffs and Komarek executed an Operating Agreement identical to the Operating Agreement in Deal No. 1. This transaction will hereafter be referred to as "Deal No. 2." Subsequent to the execution of the Operating Agreement in Deal No. 2, each of Deal No. 2 plaintiffs issued a check to Komarek for $5,000.00 for a total of $20,000.00. Under the agreements an oil well was to be drilled under Deal No. 1, and another under Deal No. 2. The Operating Agreements, identical in form, provided among other things that an exploratory oil well would be drilled on the block of leases attached to the Operating Agreement and that the operator, Komarek, should bill the non-operators, the plaintiffs, for their respective shares of expenses. The following are the pertinent identical provisions of the Operating Agreements: After both Deal No. 1 and Deal No. 2 were consummated by the parties and the Operating Agreements executed, Komarek began drilling an oil well on land covered by Deal No. 1 oil leases and demanded of Deal No. 1 plaintiffs that each make a pro rata payment for drilling costs. This oil well resulted in a dry hole. A dry hole report was made by the drilling contractor on November 16, 1956. Thereafter on February 15, 1957, Deal No. 2 plaintiffs gave written notice to cancel Deal No. 2 Operating Agreement and filed a complaint for the return of $5,000.00 to each. Deal No. 1 plaintiffs sued, (joining Deal No. 2 plaintiffs in an amended complaint) claiming that they had paid more than their share of the drilling costs on Deal No. 1 and were entitled to a return of the excess. The actual drilling costs incurred in Deal No. 1 were $17,192.80. Komarek counterclaimed against Deal No. 1 plaintiffs, demanding that they each pay one-eighth of the drilling costs, and counterclaimed for damages against Deal No. 2 plaintiffs, claiming that they had wrongfully terminated their Operating Agreement. No hole was drilled on Deal No. 2 property. After a trial without a jury, the court entered judgment finding for defendant Komarek with regard to Deal No. 1 and finding for plaintiffs with regard to Deal No. 2. Judgment was entered accordingly, and Komarek appeals from that portion of the judgment finding for plaintiffs with regard to Deal No. 2. Deal No. 1 plaintiffs cross-appeal on the finding and judgment of the court with respect to Deal No. 1. *99 All plaintiffs took the position their initial $5,000.00 each was to cover drilling and the evidence shows that at a meeting where all plaintiffs were present Komarek maintained that the $5,000.00 each had paid was for their shares in the leases, and the operating agreements provided each should pay an additional pro rata amount for drilling; that plaintiffs told Komarek to continue drilling and he did so. Komarek maintained this conduct on plaintiffs' part in effect estopped them from further claiming they were not obligated to pay drilling costs over and above the initial $5,000.00 each contributed. Komarek complains that the court admitted parol testimony to change the terms of the written agreements over timely objection thereto, which formed the only basis for the judgment for Deal Number 2 plaintiffs. This consisted of testimony by all of the plaintiffs that it was their intent that the $5,000.00 initially given to defendant Komarek was to be used solely and only for the drilling of the wells. The authorities are legion that parol evidence may be used to explain an ambiguous contract, but in the absence of fraud or mistake it may not be used to change, alter or vary the express terms in a written contract. McNeil v. Attaway, 87 Ariz. 103, 348 P.2d 301 (1959); Cashion v. Bank of Arizona, 30 Ariz. 172, 245 P. 360 (1926); S.H. Kress & Co. v. Evans, 21 Ariz. 442, 189 P. 625 (1920). In this case, no issue of fraud or mistake was raised and the agreements were plain and unambiguous. It is perfectly clear from a reading of the Operating Agreement in both deals that the drilling expenses were to be borne by the parties in proportion to the interests owned by each in the attached leases, i.e. one-eighth by each plaintiff. The court erred in admitting parol evidence to the contrary, the effect of which could only prejudice Komarek. Komarek complied with all material portions of the Operating Agreement. He gave each Deal No. 1 investor an estimate of the drilling costs on the first well. This was done in a letter to each of the Deal No. 1 plaintiffs, setting forth the estimate of the drilling costs and demanding payment of their proportionate shares. Deal No. 2 plaintiffs attempted to cancel the Operating Agreement pursuant to the following clause which is contained therein: The basis of their claim of breach is that their payment of $5,000.00 each were to be used for drilling. Their only supporting evidence is that parol testimony which we have pointed out was inadmissible. Hence there was no competent evidence adduced justifying cancellation of Deal No. 2 Operating Agreement. Nor did Komarek adduce any evidence of damages against Deal No. 2 plaintiffs, as alleged in Count Two of his counterclaim. This being so, the attempted cancellation was ineffectual and Komarek was entitled to retain the $5,000.00 each paid by Deal No. 2 plaintiffs, but not to damages from them. The trial court found for the defendant Komarek and against the Deal No. 1 plaintiffs on their complaint, and consequently for Komarek on his counterclaim against them. The express basis for this finding was that these plaintiffs were estopped by their conduct subsequent to the execution of the Operating Agreements, as shown by parol evidence, the admission of which we have indicated was error. However, we have held that where under the facts a trial court could only come to one legal conclusion, and has reached the correct one, although for the wrong reason, we will affirm its judgment.[1] According to our holding that the operating agreements were plain and unambiguous, Komarek was entitled to recover from the Deal No. 1 plaintiffs the pro rata share of expenses in drilling the well, in the amount of $2,149.10 each. The judgment of the trial court is affirmed as to that part relating to plaintiffs' first cause of action and to the defendant Komarek's counterclaims and reversed as to plaintiffs' second cause of action, and the trial court is directed to enter judgment in accordance with this decision. JENNINGS and LOCKWOOD, JJ., concurring. [1] Day v. Wiswall, 381 P.2d 217 (Arizona).