Title: BHP Petroleum Co., Inc. v. Okie

State: wyoming

Issuer: Wyoming Supreme Court

Document:

BHP Petroleum Co., Inc. v. Okie1992 WY 108836 P.2d 873Case Number: 91-14Decided: 08/28/1992Supreme Court of Wyoming
BHP PETROLEUM COMPANY, 
INC.,

 Appellant 
(Defendant),

v.

Margaret Daniel OKIE and 
Bill Daniel,

 Appellees (Plaintiffs).

Appeal from District 
Court, FremontCounty, D. Terry Rogers, 
J.

Lawrence A. 
Yonkee and Tom C. Toner of Redle, Yonkee & Toner, Sheridan, Neil J. Short, 
Casper, and Paul F. Hultin and David A. Bailey of Parcel, Mauro, Hultin & 
Spaanstra, P.C., Denver, Colo., for appellant.

J.N. Murdock and 
Mark W. Gifford of Reeves, Murdock, Lewis & Gifford, and Houston G. Williams 
of Williams, Porter, Day & Neville, Casper, for 
appellees.

Before MACY, 
C.J., and THOMAS, CARDINE, URBIGKIT* and GOLDEN, JJ.

* Chief Justice at time of 
oral argument.

MACY, Chief 
Justice.

[¶1]      Appellant BHP 
Petroleum Company, Inc. appeals from the lower court's judgment and decree 
ordering BHP to pay a "differential royalty" out of production from the Bighorn 
2-3 well as a remedy for its breach of a contract with Appellee Margaret Daniel 
Okie.1

[¶2]      We 
reverse.

[¶3]      BHP raises the 
following issues:

     1. Did the District 
Court fail to make findings and conclusions on the issue of the appropriate 
remedy as required by W.R.C.P. 52(a)?

     2. May the contracts 
be partially rescinded?

     3. Were the elements 
required for rescission proven by the Plaintiffs?

     4. By ordering payment 
of a "differential royalty" has the court rewritten the contract between the 
parties?

     5. Does this 
"differential royalty" constitute an impermissible penalty and a forfeiture of 
BHP property?

     6. Are the conclusions 
that BHP's conduct constituted a bad faith breach of the contract clearly 
erroneous?

7. Is the decree awarding 
a "differential royalty" based on the exercise of a sound 
discretion?

[¶4]      This controversy 
concerns the breach of an agreement between Mrs. Okie and BHP, the unit operator 
of the Madden Deep Unit, a federal oil and gas unit located in Fremont and Natrona Counties, Wyoming. In 1970, Mrs. Okie committed her 
minerals to the Madden Deep Unit in exchange for a unique consent agreement 
giving her, among other things, the right to participate in decisions affecting 
development of the unit. The agreement worked satisfactorily for both Mrs. Okie 
and a succession of unit operators until June 1988 when BHP failed to inform 
Mrs. Okie that it was proposing a 4,000-acre participating area2 around the Bighorn 2-3 well rather 
than the 2,560-acre area Mrs. Okie expected.3

[¶5]      An increase in 
the participating area acreage from 2,560 acres to 4,000 acres would have 
significant monetary repercussions for both Mrs. Okie and BHP. Although disputed 
at trial and perhaps oversimplified here, an increase in the participating 
area's acreage would mean fewer wells to drill because a single well would cover 
a larger area.4 If an additional well did not have 
to be drilled, BHP could conceivably save its approximately 9.2 percent share of 
the drilling costs or almost $2 million on a well costing $20 million to drill. 
On the other hand, a larger participating area would dilute Mrs. Okie's unit 
royalty percentage. For Mrs. Okie, using today's gas prices, a 2,560-acre 
participating area would have meant estimated annual royalty payments of 
$226,000, whereas a 4,000-acre participating area would result in projected 
annual payments of $215,000, or a difference of $11,000 per year.

[¶6]      In May 1988, the 
Bighorn 2-3 well had been completed, and initial well pressure tests indicated 
that it would be a prodigious gas producer. Mrs. Okie and other interested 
parties understood that a 2,560-acre participating area would be used for the 
well. However, on the basis of the encouraging well test results, Gil Kutchins, 
a representative of one of the larger working interests, approached the Bureau 
of Land Management about using a 4,000-acre participating area. Darryl Watts, 
the BLM's petroleum engineer for the Rawlins district, indicated that he would 
be receptive to a 4,000-acre participating area.

[¶7]      Acting upon 
Watts' positive response, Kutchins suggested to Patrick Martin, a land manager 
for BHP, that BHP should move quickly to apply for the larger participating area 
because Watts was to be transferred shortly and 
the incoming engineer might not be as "reasonable." In early June, Martin 
telephoned Watts and obtained assurances that Watts would review the application for a 4,000-acre 
participating area before he transferred from the BLM's Rawlins office on July 
5th. In a facsimile transmitted on June 22nd, BHP notified the working interest 
owners of its intent to apply for a 4,000-acre participating area and explained 
that the application was being expedited so as to secure approval before 
Watts' departure. This facsimile was not 
transmitted to either Mrs. Okie or her representatives, nor were they informed 
in any other manner of BHP's decision to apply for a 4,000-acre participating 
area prior to BHP actually filing the application.

[¶8]      On June 24, 1988, 
BHP submitted the formal 4,000-acre application to the BLM's office in Rawlins 
and sent a copy of the application to Mrs. Okie's representatives. On July 6th, 
the BLM's district office approved BHP's application. Mrs. Okie appealed the 
approval of the 4,000-acre area to the state director of the BLM who ordered the 
district office to reconsider its approval. The district office reaffirmed its 
initial approval, whereupon, in a second appeal, the state director found no 
justification for the 4,000-acre area and ordered the district office to amend 
its original decision to require a 2,560-acre participating area.

[¶9]      Two days before 
the state director made his final decision, Mrs. Okie brought this suit, 
alleging that BHP breached the consent agreement by not allowing her to 
participate in the proposal to enlarge the participating area. In her complaint, 
Mrs. Okie sought damages and declaratory relief, declaring that her proceeds of 
production from the Bighorn 2-3 well should be apportioned on a lease basis 
rather than on a unit royalty percentage. At the pretrial conference, Mrs. Okie 
waived her claim for damages.5

[¶10]   The trial court agreed with Mrs. 
Okie, finding that BHP had materially breached the agreement in bad faith and 
that Mrs. Okie was entitled to equitable relief. In its decree, the district 
court granted Mrs. Okie a "differential royalty" to "be computed by taking the 
difference between six and one-quarter percent (6.25%) (`lease royalty') of the 
value of all production from . . . the Bighorn 2-3 well . . . and that royalty 
otherwise paid to the Plaintiffs under the Unit Agreement for production from 
such well (`unit royalty')." The decree also restored BHP to its position prior 
to its June 1988 breach by allowing BHP to retain a portion of the well drilling 
costs for the Bighorn 2-3 well before making any differential royalty payments 
to Mrs. Okie. 

[¶11]   The precise monetary impact of the 
lower court's decree cannot be determined because gas prices fluctuate, actual 
production is unknown, and the well will remain shut in until a plant is built 
to remove the hydrogen sulfide. Although somewhat speculative, BHP, using 
relatively conservative figures, calculated Mrs. Okie's royalty payments under 
the decree. As already discussed, Mrs. Okie's annual unit royalty payment for a 
2,560-acre participating area would be about $226,000. If Mrs. Okie were paid on 
a lease basis, she would receive approximately $570,000 in annual royalty 
payments. This additional $344,000 per year ($570,000 minus $226,000) would be 
paid by BHP.

[¶12]   On appeal, BHP does not question 
the lower court's finding that it breached the agreement. Instead, BHP's 
arguments address whether the lower court's remedy was proper and whether BHP's 
breach was in bad faith. Therefore, our analysis is premised upon the assumption 
that BHP did breach the agreement.

[¶13]   The lower court found that Mrs. 
Okie was "entitled to equitable relief as a result of the breach of contract." 
The court's findings of fact and conclusions of law do not specify what type of 
equitable relief was being granted. Both parties appear to view the relief as a 
partial rescission. Whether the equitable relief granted was a rescission, 
partial rescission, or some other equitable remedy, a basic tenet of equitable 
relief is that Mrs. Okie must, as a threshold matter, show that she had no 
adequate remedy at law. Farmers' State Bank v. Northern Trust Co., 39 Wyo. 46, 270 P. 163 (1928); Knaebel v. Heiner, 663 P.2d 551 (Alaska 
1983).

[¶14]   Mrs. Okie offers several reasons 
why she had no adequate remedy at law for BHP's breach. First, she contends that 
merely awarding the costs of her administrative appeal to her would not be 
adequate compensation because, even without the consent agreement, she had the 
right to pursue an administrative review of the BLM's decision. Second, she 
claims that the agreement had an intangible uniqueness which could not be bought 
in the market-place and was a substantial loss which could not be adequately 
compensated for except through equitable relief. Finally, she argues that, given 
BHP's repeated breaches of the agreement, it would be likely that she will be 
forced to bring multiple suits to effectuate her legal remedy.

[¶15]   Generally, the legal remedy for a 
breach of contract is the award of damages designed to place the plaintiff in 
the same position in which he would have been had the contract been fully 
performed, less proper deductions. Robert W. Anderson Housewrecking and 
Excavating, Inc. v. Board of Trustees, School District No. 25, Fremont County, Wyoming, 
681 P.2d 1326 (Wyo. 1984); Panhandle Eastern 
Pipe Line Company v. Smith, 637 P.2d 1020 (Wyo. 1981). We fail to understand why 
receiving damages would not place Mrs. Okie in the same position she would have 
been in had the agreement been fully performed.

[¶16]   Our position is reinforced by the 
trial testimony of Mrs. Okie's nephew, Appellee Bill Daniel:

     Q. Okay. My question 
to you, Mr. Daniel, is after the time you had submitted your comments and had 
met with the personnel at the Bureau of Land Management, had made your views 
known to them concerning your interpretation of data about the size of the PA 
for the Big Horn 2-3, how were you harmed?

     A. The data that was 
not given to us in a timely fashion to allow us to get to the regulator before 
he made his decision resulted in us being harmed in having to go through the 
appeals.

     Q. So that's your 
harm? You had to go through the appeals?

     A. That's part of the 
harm, yes.

     Q. What else? How else 
have you been harmed?

     A. Well, as far as 
this application is concerned, we have not received - we didn't receive any 
information prior to its submission so we could be part of that process before 
the decision was made, and that's definitely a harm. 

     Q. Okay. Now, you got 
the result that you wanted in the first instance, did you not?

     A. We did.

     Q. You got the 
2560?

     A. We did.

     Q. Okay. My question 
to you: Other than the costs associated with these appeals, how have you been 
harmed?

     A. I think the main 
way we've been harmed is that Mrs. Okie's consent agreement no longer has the 
same interpretation by the operator that it did prior to the 24th day of June, 
1988.

     Q. Well, the agreement 
hasn't changed, has it?

     A. No.

[¶17]   If BHP's breach of the agreement 
forced Mrs. Okie to appeal the decision of the BLM's district office, she could 
recover the costs of an appeal plus any sums expended for technical assistance. 
In her brief, Mrs. Okie claims that recovering the costs of her appeal was no 
remedy because, even without the agreement, she had a right to pursue an 
administrative appeal. It was true that she had a right to pursue an 
administrative appeal regardless of the agreement, but without the agreement 
Mrs. Okie would not be able to recover for having to appeal the decision of the 
BLM's district office. Thus, by recovering the costs of her appeal, Mrs. Okie 
would be compensated for the breach of her agreement.

[¶18]   Mrs. Okie's claim that damages for 
the loss of such a unique agreement would be speculative and could not 
adequately compensate her must also fail. Mrs. Okie's own expert witness 
testified at trial that having the consent agreement enhanced Mrs. Okie's 
mineral interests by five to ten percent. If BHP's breach meant a loss in the 
agreement's value, Mrs. Okie could show the monetary value of her loss through 
similar expert testimony and recover that amount from BHP.

[¶19]   Mrs. Okie's final claim, that she 
will have to bring subsequent lawsuits to enforce the agreement, assumes that 
the agreement will not be complied with in the future. To support this 
assumption, Mrs. Okie points out that, on two occasions after the June 1988 
breach, BHP again breached the agreement. First, in July 1989, BHP applied for 
an 8,500-acre participating area, sending Mrs. Okie's representatives a copy of 
the application just ten days before it was submitted to the BLM. Second, in 
April 1990, Mrs. Okie's representatives were denied access to a working interest 
owners' meeting.

[¶20]   Evidence of these subsequent 
breaches was contested at trial and on appeal because the breaches were never 
included in the complaint or added by amendment. However, for the sake of 
argument, we will assume that BHP continued to breach the agreement after Mrs. 
Okie initiated this suit. When a plaintiff will have to repeatedly bring suit to 
effectuate his legal remedy, equity may provide relief. DAN B. DOBBS, HANDBOOK 
ON THE LAW OF REMEDIES §§ 2.5 and 5.6 (1973). The problem with this argument is 
that BHP ceased to be the operator of the Madden Deep Unit on October 1, 1990. 
No evidence exists to indicate that the new operator will not fully comply with 
the agreement. If Mrs. Okie will not be forced to repeatedly sue to enforce the 
agreement, the award of damages should be an adequate remedy for BHP's 
breach.

[¶21]   Mrs. Okie was entitled to receive 
damages for BHP's breach of the agreement; however, at the pretrial conference 
she chose to waive any claim for damages. Whatever Mrs. Okie's motivations were 
in waiving her claim for damages, she realized that it would be a calculated 
risk which, unfortunately for her, now means that she cannot recover for BHP's 
breach.

[¶22]   Our holding that Mrs. Okie had an 
adequate remedy at law is dispositive of the remaining issues raised by 
BHP.

[¶23]   Reversed.

URBIGKIT, 
J., 
filed an opinion concurring in the result in which GOLDEN, J., joined.

CARDINE, 
J., 
filed an opinion concurring in part and dissenting in 
part.

URBIGKIT, Justice, concurring in 
the result, in which GOLDEN, Justice, joins.

[¶24]   The district court, after a 
thoroughly developed case had been prepared by extensive discovery and followed 
by a comprehensive and extended trial, entered findings of facts and conclusions 
of law in ninety-three enumerated sections, all preparatory to the entry of the 
judgment from which this appeal is taken. The historical facts related in the 
findings are, in general, not challenged by appellees in this 
appeal.

[¶25]   After factually finding that there 
had been variant violations of contractual rights of appellees Mrs. Okie and Mr. 
Daniel as royalty interest owners by appellant BHP Petroleum as unit operator, 
the district court continued in its findings:

[¶26]   80. Mrs. Okie and Daniel have 
incurred expenses and expended considerable effort in protecting their 
expectancies under the Consent. Those include the charges for professional 
services of Mr. Guess, Mr. Parks and Dr. Stinson. In addition, Mrs. Okie and 
Daniel have suffered a loss in the value of their royalty interests as a result 
of BHP's actions. That loss will not be restored with BHP's future adherence to 
the terms of the Consent.

[¶27]   81. The actions of BHP in not 
allowing plaintiffs to attend working interest owners' meeting or to provide 
adequate notice of proposals made to the BLM were in direct violation of the 
Consent Agreement and were done in bad faith.

[¶28]   82. While the Consent is an Oil and 
Gas Agreement, the usual and general rules of construction apply to it. In 
construing the Consent, the cardinal principle is to ascertain the intent of the 
parties as exhibited in the language that the parties have used. The Consent 
Agreement in this case is unambiguous and the language of the Agreement controls 
the intent of the parties.

[¶29]   83. The intent of the parties as 
expressed in the Consent, is to provide Mrs. Okie with an opportunity to 
participate in proposals which affect her interests before decisions are made on 
those issues by an administrative authority. The Consent requires that Mrs. Okie 
be provided with an opportunity to present her objections, recommendations and 
additions to any plan of development or participating area application before an 
actual decision is made by the administrative authority. This intent is clearly 
provided in the third sentence of paragraph 7 wherein it is contemplated that no 
administrative decisions will be made until Mrs. Okie, after 15 days, has had an 
opportunity to present her objections and recommendations to the Supervisor who 
will then submit the question for decision to the Director of the USGS. Although 
the BLM has replaced the USGS as the appropriate administrator, that 
substitution does not displace the intent of the parties.

[¶30]   84. Based upon the relations of the 
parties, the course of negotiations and subsequent course of conduct between 
Mrs. Okie and the operator in applying the Consent, the following intent is 
established:

a. The plaintiffs were to 
be advised of those participating area applications which affected their 
interests before the proposed participating area was considered by the USGS or 
BLM.

b. The plaintiffs were to 
be given a reasonable opportunity to participate in the formulation of proposed 
participating area applications affecting their interests before the proposed 
participating area was considered by the USGS or BLM.

c. The plaintiffs were to 
be given access to all relevant information that was used or useable in the 
proposed participating area application affecting their interests before the 
proposed participating area was considered by the USGS or BLM.

d. The plaintiffs were to 
be given a reasonable opportunity to provide the operator with their objections 
or recommendations to the proposed participating area application affecting 
their lands before the proposed participating area was considered by the USGS or 
BLM.

e. The plaintiffs' 
recommendations and objections, if any, were to be given bona fide consideration by the operator 
before the proposed participating area was considered by the USGS or 
BLM.

f. The plaintiffs were to 
be permitted a reasonable opportunity to present their objections, 
recommendations or additions to any formal participating area application that 
was made to the USGS or BLM.

g. The operator was not 
to oppose the plaintiffs' submission of objections, recommendations and 
additions, either directly or indirectly.

h. The plaintiffs were to 
be given a minimum of 15 days to prepare and present any objections, additions 
or recommendations, to the USGS or BLM regardless of whether that time was 
provided before or after the formal participating area application was submitted 
to the USGS or BLM.

i. The plaintiffs were to 
be advised of any participating area proposals affecting their interests, 
whether written or oral, made by the operator to any working interest 
owner.

j. The plaintiffs were to 
be advised of any participating area proposals affecting their interests, 
whether written or oral, made by the operator to the USGS or BLM.

k. With regard to any 
operating proposal pertaining to the development or nondevelopment of portions 
of the unit area containing lands or interests owned by plaintiffs ("Operating 
Proposal"), plaintiffs were to be advised of such proposals made to any working 
interest owners, regardless of whether the proposal was in writing or simply 
conveyed orally.

l. With regard to 
Operating Proposals, the plaintiffs were to be advised of such proposals before 
the subject of the proposals was considered by the USGS or BLM.

m. With regard to 
Operating Proposals, the plaintiffs were to be given a reasonable opportunity to 
participate in the formulation of the those proposals before the subject of 
those proposals was considered by the USGS or BLM.

n. With regard to 
Operating Proposals, the plaintiffs were to be given a reasonable opportunity to 
participate in the formulation of those proposals before the subject of those 
proposals was finally decided by the working interest owners.

o. With regard to 
Operating Proposals, the plaintiffs were to be given access to all relevant 
information that was used or useable in the Operating Proposal.

p. The plaintiffs were to 
be given a reasonable opportunity to provide the operator with objections or 
recommendations to the Operating Proposal before the subject of the Operating 
Proposal was considered by the USGS or BLM.

q. The plaintiffs were to 
be given a reasonable opportunity to provide the operator with objections or 
recommendations to the Operating Proposal before the subject of the Operating 
Proposal was decided by the working interest owners.

r. The plaintiffs['] 
recommendations and objections, if any, were to be given bona fide consideration by the operator 
before the subject of the Operating Proposal was considered by the BLM or 
USGS.

s. The plaintiffs['] 
recommendations and objections, if any, were to be given bona fide consideration by the operator 
before the subject of the Operating Proposal was finally decided by the working 
interest owners.

t. The plaintiffs were to 
be permitted the opportunity to present their objections, recommendations and 
additions to any formal Operating Proposal made to the USGS or BLM.

u. With regard to 
Operating Proposals, the operator was not to oppose directly or indirectly 
plaintiffs' submission of its objections, recommendations and additions to the 
USGS or BLM.

v. The plaintiffs were 
given the right to attend any technical meeting or working interest owner 
meeting at which Operating Proposals were discussed or decisions might be 
made.

w. The plaintiffs were 
given the right to attend any technical meeting or working interest owner 
meeting at which any participating area application affecting their interests 
was discussed or decisions might be made.

 

[¶31]   85. BHP's actions through June 24, 
1988 concerning the 4,000 acre Application constitute a breach of the 
Consent.

[¶32]   86. BHP's breach in that regard was 
a substantial and material one. Cheyenne Mining and Uranium Co. v. Federal 
Resources Corp., [694 P.2d 65], supra at 73-75 (Wyo. 1985) and Restatement of Contracts, 
Second, Section 241, at p. 237. The breach deprived Mrs. Okie and Daniel of the 
benefit of the bargain which they reasonably expected. The actions of BHP do not 
permit Mrs. Okie and Daniel to be adequately compensated for that part of the 
benefit of which they have been deprived. Nor is it likely that BHP will attempt 
to cure its breach. Finally, as discussed in a later context, BHP's breach of 
the agreement does not comport with standards of good faith and fair 
dealing.

[¶33]   87. BHP's actions in failing to 
provide Mrs. Okie and Daniel with notice of its proposal to initiate an 8,500 
acre Application as provided to the working interest owners in BHP's letter of 
May 23, 1989 is a breach of the terms of the Consent. That breach is a material 
and substantial one as it likewise deprives Daniel and Mrs. Okie of the benefit 
of the Consent which they are entitled to reasonably expect. Nor is there any 
means to adequately compensate them for that breach. Likewise, there is little 
or no likelihood that BHP will cure the defect at this point.

[¶34]   88. BHP has further breached the 
terms of the Consent in its actions to exclude Daniel, Mrs. Okie and their 
representatives from the working interest owners' meetings and technical 
meetings which have been held by BHP. That breach is likewise material and 
substantial for the reasons stated above.

[¶35]   89. BHP owed to Mrs. Okie and Mr. 
Daniel the duty of good faith and fair dealing in BHP's performance of the 
Consent. Cheyenne Mining and Uranium Co. v. Federal Resources Corp., supra; 
Restatement of Contracts, Second, Section 205; 5 Williams and Meyers, Oil and 
Gas Law, Sections 801-805, at p. 1-28.3. At a minimum the duty of good faith 
requires that the performing party to make reasonable efforts to effectuate the 
purpose of the agreement. The actions of Mr. Martin in failing to notify Mrs. 
Okie and Mr. Daniel of the events which occurred prior to June 24, 1988 
constitutes an evasion of BHP's required performance under the Consent if not a 
deliberate intention to thwart the purpose of the Consent. Restatement of 
Contracts, Second, Section 205 Comment d at p. 100. Likewise, BHP has breached 
its duty of good faith and fair dealing owed to the plaintiff through its 
actions of May 23, 1989 and July 17, 1989. Those actions reinforce and establish 
the motive, plan and purpose of BHP in frustrating the reasonable expectations 
of Mr. Daniel and Mrs. Okie under the Consent. Finally, the Court finds that 
BHP's actions in excluding plaintiffs and their representatives from technical 
and working interest owners' meetings likewise breach BHP's duty of good faith 
and fair dealing.

[¶36]   90. BHP began a course of bad faith 
beginning in June of 1988 which has been clearly and convincingly demonstrated 
by the evidence.

[¶37]  91. Plaintiffs are entitled to equitable 
relief as a result of the breach of contract by defendant BHP, and plaintiffs 
are not barred by the doctrines of unclean hands, waiver or 
estoppel.

[¶38]  92. The Court makes all other findings 
of fact necessary to support a judgment herein.

[¶39]  93. The court reserves the right to make 
further findings of fact and conclusions of law based on the evidence prior to 
the entry of a final judgment herein.

[¶40]   The judgment followed, granting 
equitable relief by partial rescission and restoration:

     1. Defendant BHP 
Petroleum Company, Inc., its successors and assigns ("BHP") hereafter, in 
accordance with the further terms of this Judgment and Decree, shall pay to the 
Plaintiffs, Margaret Daniel Okie and Bill Daniel, their successors, heirs and 
assigns a royalty ("BHP's differential royalty obligation") which shall be 
computed by taking the difference between six and one-quarter percent (6.25%) 
("lease royalty") of the value of all production from that certain well 
designated as the Bighorn 2-3 well located in the NW 1/4 of the SE 1/4 of 
Section 3, Township 28 North, Range 90 West, 6th P.M. and that royalty otherwise 
paid to the Plaintiffs under the Unit Agreement for production from such well 
("unit royalty");

     2. The obligation to 
pay BHP's differential royalty obligation shall constitute a lien upon BHP's 
working interests in the Madden Deep Unit (a federal oil and gas unit located in 
Fremont and Natrona Counties, Wyoming, designated as Number 14-08-00018874, as 
expanded and approved by the United States Department of Interior, Bureau of 
Land Management, March 21, 1986) and that any successor or assign to BHP's 
working interests shall take BHP's interests subject to the obligation imposed 
by this Judgment and Decree;

     3. BHP shall be 
restored to its position prior to its June, 1988 breach of the 1970 Okie 
agreement by its retention of the appropriate proportion (lease royalty 
percentage (6.25%) less unit royalty percentage (2.478%) or 3.772%) of the well 
costs for the Bighorn No. 2-3 well ($19,800,000) or Seven Hundred Forty-Six 
Thousand Eight Hundred Fifty-Six Dollars ($746,856); such amount to be retained 
by BHP, its successors or assigns from BHP's differential royalty obligation 
before any payment from BHP's differential royalty obligation is made to the 
Plaintiffs, their successors, heirs or assigns;

     4. Plaintiffs' unit 
royalty shall not be affected by this Judgment and Decree[.]

[¶41]   It is recognized that direct breach 
of contract damages of approximately $50,000 were incurred by appellees as 
litigative costs. Those expenses were incurred during appellees' successful 
administrative agency efforts before the Bureau of Land Management resulting in 
reversal of appellant's request to increase the department's well site 
participating area. This administrative reversal was accomplished by appellees 
in appeal through a state director's review. However, that claim to legal 
damages to recover those litigative expenses was procedurally waived by 
appellees during the district court proceeding with apparent election to pursue 
the equitable remedy involving a greater ultimate recovery interest.

[¶42]   With those direct litigative 
expenses in the administrative appeal not presented in this appellate review, 
the majority rests its decision for reversal of the district court on a 
determination of fact that an adequate remedy at law (at least in part waived 
during litigation) existed and that, consequently, no right to the district 
court's rescission remedy was properly available. I cannot agree with that 
approach which substitutes this court as a fact finding tribunal when the trial 
decision was made by the district court based on extensive evidence produced in 
trial. I will, however, concur in the result on the basis that the partial 
rescission, as a matter of law, was not available and the remedy granted 
exceeded rescission restoration which would have been the appropriate equitable 
relief. Consequently, I concur only with the result in the majority 
decision.

[¶43]   In first concept, we are required 
to consider whether the adequate remedy at law decision is a factual 
determination or a question of law. It is an established generic concept that 
utilization of rescission as an equitable remedy is subject to the 
unavailability of an adequate remedy at law. Farmers' State Bank of Riverton v. 
Northern Trust Co., 39 Wyo. 46, 270 P. 163 
(1928); Knaebel v. Heiner, 663 P.2d 551 (Alaska 1983). I do not find that general rule 
nor those cases factually dispositive for our present appellate resolution.1 

[¶44]   The basic Wyoming law was 
established in Farmers' State Bank of Riverton where the appellate issue was the 
denial by the trial court of a cancellation of a guarantee agreement which had 
been resolved by the trial court in a factual decision. This court there 
said:

The right of rescission 
and cancellation is not an absolute right, and rests in the sound discretion of 
the court, and that discretion should be exercised with caution, so that no 
material injustice will be produced by granting cancellation. * * * And the 
general rule is well settled that, in the absence of some independent ground of 
equitable jurisdiction, the relief of rescission and cancellation will not, with 
some possible exceptions not applicable here, be granted for a mere breach of 
contract, at least where there is an adequate remedy at law for damages, and the 
burden to prove the inadequacy of the remedy at law rests upon the party asking 
the cancellation.

Farmers' State 
Bank of Riverton, 39 Wyo. at 56, 270 P.  at 166.

[¶45]   This present court conversely finds 
district court error in decision granting equitable relief by an appellate court 
factual decision that a legal remedy could be adequate. The other case cited in 
the majority, Knaebel, 663 P.2d 551, is consistent with the view I take. In that 
case, a denial of rescission by the trial court was reversed and the case was 
remanded to the trial court to determine, as a matter of fact, whether legal 
damages would be an adequate remedy. The Alaska Supreme Court 
stated:

     Appellees contend that 
Knaebel is not entitled to seek equitable rescission because: (1) Knaebel has an 
adequate remedy at law, (2) Knaebel seeks equity with "unclean hands," and (3) 
Knaebel did not, before seeking rescission, return to RAA the proceeds he 
received pursuant to the reorganization agreement.

     We decline to 
adjudicate the merits of these defenses as the trial court is best qualified to 
make such determinations.

Knaebel, 663 P.2d  at 553. In support of the statement, the Alaska Supreme Court cited Cowan 
v. Chalamidas, 98 N.M. 14, 644 P.2d 528, 529 (1982), which, in a not so unusual 
concept, authenticated: "It is elementary that factfinding is a matter entirely 
within the province of the trial court * * *."

[¶46]   I find it unnecessary and even 
undesirable to attempt to factually resolve the issue of the adequacy of the 
legal damages contrary to the finding of fact adopted by the district court. In 
my perception, the granted remedy of partial rescission should provide our 
dispositive analysis. In answer to that issue, I find the district court's 
resolution to have been improvident and in error for two separate 
reasons.

[¶47]   I would not find partial rescission 
to be available for only the well site and its participating area as a portion 
of the entire leasehold which is included in the unitized area. Furthermore, the 
remedy provided is more than rescission when it places the litigant in a 
position far superior to what damage had been sustained as a result of the 
appellant's conduct constituting the breach of the contract.

[¶48]   I confine my conclusions to the 
complicated facts of this case and do not anticipate that partial rescission 
cannot ever be applied to part of a unitized oil and gas lease.2 In this case, the decision was also 
improper as a matter of law where the litigant had not lost value or 
compensation for any production from either their entire lease or from this 
particular well. No production equals no loss in royalty payment. Likewise for 
the same reason, granting a larger royalty interest for the future when no 
present royalty interest has been lost or diminished cannot be considered to be 
restoration of the status quo.

[¶49]   Obviously, we consider here 
equitable rescission as prospective since legal rescission as existent has not 
occurred. See the discussion in Knaebel, 663 P.2d  at 554 and Fryer v. Campbell, 48 Wyo. 122, 43 P.2d 994 (1935). The more 
specific discussion is found in Anderson v. Bell, 70 Wyo. 471, 485-86, 251 P.2d 572, 576 (1952) (quoting 12 C.J.S., Cancellation of Instruments, § 5 at 945), 
which considers the specific difference:

     "The remedy of 
rescission in equity must not, however, be confused with the rescission of a 
contract by a party thereto, as they are essentially different; in the latter 
case by his rescission or repudiation of the contract a party merely gives 
notice to the other party that he does not propose to be bound by the contract; 
whereas in the former case a court of equity grants rescission or cancellation, 
its decree wipes out the instrument, and renders it as though it does not 
exist."

Legal rescission differs 
in constituting a recognition of an existent status3 while equitable rescission is an 
anticipatory judicial remedy.4 In this case, since no election to 
rescind was made by the contracting party based on a contended breach, we are 
called to consider equitable rescission as a judicial remedy. See Mad River Boat 
Trips, Inc. v. Jackson Hole Whitewater, Inc., 818 P.2d 1137 (Wyo. 1991) and Mad River Boat Trips, Inc. v. Jackson Hole 
Whitewater, Inc., 803 P.2d 366 (Wyo. 1990).

     It is a generally 
applied rule that an integrated or indivisible contract cannot be rescinded in 
part. Holden v. Dubois, 665 P.2d 1175 (Okla. 1983). The right to rescind must be 
exercised in toto and the contract must stand in all of its provisions or fall 
altogether. State Farm Fire & Cas. Co. v. 
Sevier, 272 Or. 278, 537 P.2d 88 (1975); Whatcom Builders Supply Co. v. H.D. 
Fowler, Inc., 1 Wn. App. 665, 463 P.2d 232 (1969); 17A Am.Jur.2d Contracts § 548 
(1991). It is obvious that the issue here, determinable as a matter of law, is 
whether the contested agreement from which the breach arose is subject to 
division into definable different segments for each well that might be drilled 
within the entire leasehold estate. See Sherman v. Medicine Shoppe Intern., Inc., 581 F. Supp. 445 (E.D.Pa. 1984). 

[¶50]   That contention is presented by a 
request for partial rescission relating to the application of the underlying 
agreement to a portion of the property covered by the agreement. This claim 
advances a right to secure a greater royalty interest in the separate well 
within a participating area while the basic agreement between the parties 
otherwise remains in full effect. Under the circumstance presented, I would not 
accept a legal conclusion granting partial rescission for the royalty interest 
owner to retain benefit from the general unitization agreement and 
simultaneously granting a greater interest in the participating area and 
involved well than was provided by written documentation. Holden, 665 P.2d 1175. 
In a guarantee contract context, this court has identically identified the rule: 
"The evidence herein decisively shows that the parties were relying upon the 
contract involved herein and upon nothing else and the plaintiffs cannot now 
rely upon part of the contract and repudiate the rest to the prejudice of the 
defendant." McKenzie v. Neale Construction Co., 75 Wyo. 175, 186, 294 P.2d 355, 359 (1956). See also Evans v. Brubaker, 207 Okla. 42, 247 P.2d 511 (1952).

[¶51]   For a similar reason, the increased 
mineral interest result of the district court's order goes beyond restoration to 
something akin to punitive damage by providing an increased ownership to the 
litigant. I find no justified legal basis for the judgment granted within the 
general concept of equitable rescission, which as a theory of the law only 
justifies restoration to the status quo "as nearly as can be" when compared to 
this case. Here, no real restoration is required since no actual diminution of 
the mineral estate in production royalty payment has occurred.

[¶52]   The rule has been stated by this 
court:

     An essential part of 
the rescission of a contract is the restoration of the parties to status quo. 17 
Am.Jur.2d Contracts § 152. The rule of restoration is one of justice and equity 
not procedure and, therefore, must be reasonably applied and construed. 
Id.

"It is the 
general rule that a party seeking to rescind a contract must return the opposite 
party to the position in which he was prior to entering into the contract. 
However, this is not a technical rule, but rather it is equitable and requires 
practicality in readjusting the rights of the parties. The standard used is 
`substantial restoration of the status quo.' How this is to be accomplished, or 
indeed whether it can, is a matter which is within the discretion of the trial 
court, under the facts as found to exist by the trier of the fact." (Citations 
omitted.) Smith v. Huber, 
Colo. App., 666 P.2d 1122, 
1124-1125 (1983).

Walter v. 
Moore, 700 P.2d 1219, 1228 (Wyo. 1985).

[¶53]   Obviously, the significant increase 
of appellees' royalty interest by transfer from the share owned by the operator 
appellant was more than restoration of the status quo. Consequently, I would 
find an abuse of discretion in the provision for relief granted to the 
appellees. See Mad River Boat Trips, Inc., 818 P.2d 1137; Mad River Boat Trips, 
Inc., 803 P.2d 366; Hagar v. Mobley, 638 P.2d 127 (Wyo. 1981); Gaido v. Tysdal, 
68 Wyo. 490, 235 P.2d 741 (1951).

[¶54]   I agree with the decision of the 
majority that the judgment of the district court should be reversed, but on a 
basis different from the one presented in the majority anchored in rejection and 
redetermination of the finding of fact adopted by the district court. 
Consequently, I only concur in the result.

 
 

CARDINE, Justice, concurring in 
part and dissenting in part.

[¶55]   I agree that the trial court should 
not have granted partial recision in this case, since Mrs. Okie's proper remedy 
was damages. Unlike the majority, however, I would remand to the trial court for 
a determination of the damages to be awarded her.

     I. Procedural 
Concerns

[¶56]   I part company with the majority in 
its implication that Mrs. Okie's "waiver" of damages below leaves her without a 
remedy. The majority takes the position that Mrs. Okie waived damages and is 
stuck with that waiver. However, the record shows that Mrs. Okie's waiver was an 
election of a remedy as distinguished from a real "waiver" for which 
consideration is given or which causes detrimental reliance by the other party. 
Since we determine only that her elected remedy, partial recision, was 
ineffective, and make no determination against her on any other theory, our 
decision should not preclude subsequent proceedings for damages.

Where there is really but 
one remedy and not a choice, recourse to one remedy which proves futile does not 
preclude thereafter successfully invoking a second more appropriate 
remedy.

Coronado Oil Co. 
v. Grieves, 603 P.2d 406, 413 (Wyo. 1979), 
citing Roberts v. Roberts, 62 Wyo. 77, 94, 162 P.2d 117, 122 (1945). See 
also 5A A. Corbin, Corbin on Contracts § 1218 (1964) (election of unavailable 
remedy does not bar subsequent suit, even if first suit carried to judgment, 
provided that court only determines unavailability of remedy).

[¶57]   To require Mrs. Okie to file 
another suit would be a waste of judicial resources. Everything but the proper 
relief has already been determined by the trial court and is not disturbed here. 
The trial court had before it evidence sufficient to convince a majority of this 
court that damages were the appropriate relief in this case. The proper remedy 
is to remand for determination of damages.

[¶58]   Review of the trial record shows 
that although damages were waived, extensive proof of damages was presented by 
both sides. George Parks testified, over BHP's objection, to the additional 
value of Mrs. Okie's royalty interest based on the consent agreement. Both 
George Parks and Roy Guess testified that an "Exhibit 64" reflected the expenses 
Mrs. Okie incurred as the result of their participation in the BLM appeal. 
(Exhibit 64 was apparently never entered into evidence.) Donald Leo Stinson 
estimated that the consent agreement enhanced the Okie interests by five to ten 
percent, and that Mr. Daniel and Mrs. Okie would lose $750,000.00 to 
$1,500,000.00 if they lost the unique value of the consent agreement. BHP 
elicited testimony from Mr. Daniel about the increase in value he would receive 
from his royalty interest if his proceeds from the 2-3 well were treated on a 
lease basis. BHP also asked Mr. Daniel to detail the harm he had suffered, as 
noted in the majority opinion. BHP further presented the testimony of Patrick 
Martin, who compared the plaintiffs' projected annual royalty receipts from 2-3 
based on a 4,000 acre circle, a 2,560 acre circle, and a lease basis. Finally, 
BHP mentioned in closing a damage figure of $25,000, based on the BHP appeals, 
to show why partial recision was improper.

[¶59]   Wyoming Rule of Civil Procedure 
54(c) allows the trial court to fashion appropriate relief where, as here, a 
party has shown entitlement to it:

     Except as to a party 
against whom a judgment is entered by default, every final judgment shall grant 
the relief to which the party in whose favor it is rendered is entitled, even 
if the party has not demanded such relief in his pleadings. [emphasis 
added]

[¶60]   This rule has had broad 
application. It is not confined to situations where a party later asserts a 
theory he omitted in the pleadings; rather, it allows the trial court to award 
relief never contemplated by either party. See Walton v. Atlantic Richfield Co., 
501 P.2d 802, 805 (Wyo. 1972) (trial court not bound by legal theories asserted 
by parties; may grant relief to which prevailing party is entitled, whether or 
not pled); and cf. Illinois Physicians Union v. Miller, 675 F.2d 151, 158 (7th 
Cir. 1982) (court could award unrequested damages in declaratory judgment 
proceeding (but compare the federal Declaratory Judgment Act with W.S. 1-37-101 
et seq.)); Nab v. Hills, 92 Idaho 877, 452 P.2d 981, 987-88 (1969) (reformation 
of contract granted although not requested by defendants); Fireside Marshmallow 
Co. v. Frank Quinlan Const. Co., 199 F.2d 511 (8th Cir. 1952) (fact that both 
parties treated action as one for enforcement of contract did not prevent court 
from granting recision based on proof at trial).

[¶61]   Now that the trial court is no 
longer under the erroneous perception that equitable relief is available and 
appropriate, it can grant relief in damages on remand. Our rules give us the 
power to remand for correction of such errors.

     A judgment rendered or 
final order made by a district court may be reversed in whole or in part, 
vacated or modified by the Supreme Court for errors appearing on the 
record.

W.R.A.P. 
1.04.

     When a judgment or 
final order is reversed, either in whole or in part, in the district court, or 
the Supreme Court, the court reversing the same shall proceed to render such 
judgment as the court below should have rendered, or remand the cause to the 
court below for such judgment or such proceedings as the reviewing court may 
direct. [emphasis added]

W.R.A.P. 
7.03.

Cf. also Allen 
v. Allen, 550 P.2d 1137, 1144 (Wyo. 1976) (supreme court could modify decree 
of restitution to provide for reconveyance in order to avoid need for another 
action for specific performance after remand).

[¶62]   On remand, I would instruct the 
trial court to hold a hearing at which both parties could present further 
evidence on the damage issue. The hearing is needed not only to allow Mrs. Okie 
to present further testimony, but also because BHP objected to testimony on 
damages presented below; thus BHP would suffer undue prejudice if a judgment for 
damages were entered under W.R.C.P. 54(c) without a further hearing. In short, I 
would remand to allow Mrs. Okie to pursue her damage remedy, subject to BHP's 
right to present rebuttal evidence.

     II. Calculation of 
Damages

[¶63]   The majority does not decide what 
the proper measure of damages should be. It mentions the costs of Mrs. Okie's 
appeals to the BLM but also "damages for the loss of such a unique agreement." 
Maj. op. at 877. Obviously, the amount of damages would differ significantly 
depending on which of these measures were adopted.

[¶64]   The damage remedy requested in Mrs. 
Okie's complaint is similar to the partial recision rejected by this court, only 
with retrospective application. Mrs. Okie requested "damages [which] are the 
difference between the amount of proceeds Margaret Okie and Bill Daniel would 
receive under the First Revision Permitting Enlargement and that which they 
would have received solely on the basis of the Lease."

[¶65]   Damages for breach of contract are 
designed to put the injured party in the position she would have been if the 
other party had performed, less proper deductions. Robert W. Anderson Housewrecking and Excavating, Inc. v. Board of 
Trustees, School Dist. No. 25, 681 P.2d 1326, 1333 (Wyo. 1984). The injured 
party should receive compensation commensurate with her loss and no more. 
Andersen v. Corbitt, 777 P.2d 48, 52 (Wyo. 
1989); Hunt v. Thompson, 19 Wyo. 523, 120 P. 181, 184, reh'g denied 20 Wyo. 523, 122 P. 624 (1912).

[¶66]   The following case discusses the 
amount of damages to be awarded for breach of a unitization agreement. Massey v. 
Gulf Oil Corp., 508 F.2d 92 (5th Cir. 1975), cert. denied 423 U.S. 838, 96 S. Ct. 67, 46 L. Ed. 2d 57 (1975), reh'g denied 510 F.2d 1407 (1975). In Massey, the 
operator's breach involved "high grading" the unit (extracting only the oil most 
easily and least expensively available). Damages were calculated based on loss 
of royalties due to the improper management. Massey, at 96, n. 4.

[¶67]   In this case, there has been no 
loss of royalties. However, Mrs. Okie claims to have lost the special value of 
her royalty interest. She argues that the special terms of the consent agreement 
are worthless if they can be disregarded at will by the operator. As the 
majority points out, to the extent that Mrs. Okie's analysis is based on the 
possibility of future harm rather than past breach, it may safely be disregarded 
because BHP no longer operates the unit and the new operator will hopefully be 
cautioned not to repeat the harm. Thus, we must treat the consent agreement as 
if it retained its full value; only injury arising from past breach is at 
issue.

[¶68]   It seems clear that the damages 
Mrs. Okie suffered here from BHP's breach of contract were the costs of her 
appeals through the BLM. Had the breach not occurred, she would have been able 
to present her objections before the larger unit plans were approved. She might 
not have needed to take appeal. Therefore, I would hold that she is entitled to 
recover from BHP these costs which are related to her appeals, and the costs of 
this appeal as well.

 FOOTNOTES

1 The combined mineral 
interests of Mrs. Okie and her nephew, Appellee Bill Daniel, are referred to as 
simply Mrs. Okie's interests.

2 A participating area 
within the unit represents an area known or reasonably estimated to be 
productive in oil and gas in paying quantities.

3 The Bighorn 2-3 well was 
a massive undertaking, costing $19.8 million and requiring more than a year to 
drill to a depth of over 24,000 feet. The well is presently shut in because the 
gas is "sour." A plant must still be built at an estimated cost of $40 million 
to remove the hydrogen sulfide.

4 At trial, BHP argued 
that a larger participating area does not necessarily mean fewer wells because 
additional in-fill wells may be necessary to completely drain the 
reservoir.

5 The pretrial conference 
order describes Mrs. Okie's waiver as a withdrawal of certain causes of action. 
Whether her action is labeled as a withdrawal or as a waiver, it is clear that 
Mrs. Okie initially sought damages in her complaint but abandoned her claim for 
damages shortly before trial. Since the Wyoming Rules of Civil Procedure 
entitled Mrs. Okie to seek equitable and legal relief in the alternative, it is 
unclear why she chose to waive her damages claim. 

FOOTNOTES for Concurring 
Opinion

1 It is apparent from a 
review of the texts and cases that the bland broad statement is in application 
frequently overbroad. One text, 27 Am.Jur.2d Equity § 86 (1966), states that 
"[t]here has been much discussion and some statements that are too broad 
regarding the effect upon the jurisdiction of a court of equity and the relief 
to be granted by it, of the existence or absence of a legal remedy, or remedy at 
law." (Footnote omitted.) 27 Am.Jur.2d, supra, § 87 (footnotes omitted) 
states:

     So far as the effect of a legal remedy is 
concerned, there must, in order to exclude the jurisdiction of equity, be a 
remedy at law and, in addition, that remedy must be adequate. The general rule, 
subject to certain exceptions hereinafter discussed, is that if the law affords 
a remedy and that remedy is adequate, the cause may not be made the basis of a 
suit in equity. In other words, the broad, although not universally exclusive, 
rule is that equity will not intervene where there is an adequate remedy at 
law.

The text of 27 Am.Jur.2d 
in succeeding sections discusses the multiform exceptions. See 27 Am.Jur.2d 
supra, §§ 88 through 99.

     In any event, it is 
clear that the implementation of the legal relief preclusive rule is factually 
based for the individual case decision and the legal remedy is a negative 
limitation on the exercise of equitable jurisdiction. 27 Am.Jur.2d, supra, § 
87.

2 I do not ignore the 
citations provided by appellees relating to cases where the court considered 
canceling the undeveloped portion of an oil and gas lease property for contended 
violation by the lessee of the implied covenant for development. I do not find 
those cases to be antithetical to a non-partial rescission principle generally 
existent in the law nor factually compelling precedent here where the 
development of the area has been pursued at great cost and no production has yet 
been possible in advance of the construction of a major desulfurization gas 
processing plant. See, for example, the cases examining the undeveloped property 
lease forfeiture issue included among those cited by appellees. Spaeth v. Union 
Oil Co. of California, 710 F.2d 1455 (10th Cir. 1983), cert. denied 476 U.S. 1104, 106 S. Ct. 1946, 90 L. Ed. 2d 356 (1986); Sinclair Oil & Gas Co. v. 
Masterson, 271 F.2d 310 (5th Cir. 1959), cert. denied 362 U.S. 952, 80 S. Ct. 864, 4 L. Ed. 2d 870 (1960); Magnolia Petroleum Co. v. Wilson, 215 F.2d 317 (10th 
Cir. 1954); Byrd v. Bradham, 280 Ark. 11, 655 S.W.2d 366 (1983); Jones v. 
Interstate Oil Corp., 115 Cal. App. 302, 1 P.2d 1051 (1931); Harris v. Morris 
Plan Co., 144 Kan. 501, 61 P.2d 901 (1936); 
McMahan v. Boggess, 302 S.W.2d 592 (Ky. 1957); 
Vetter v. Morrow, 361 So. 2d 898 (La. App. 
1978); Beer v. Griffith, 61 Ohio St.2d 119, 399 N.E.2d 1227 (1980); Amerada Petroleum 
Corp. v. Sledge, 151 Okla. 160, 3 P.2d 167 (1931).

3 Meyer v. Ludvik, 680 P.2d 459 (Wyo. 1984); North American Uranium, 
Inc. v. Johnston, 77 Wyo. 332, 316 P.2d 325 
(1957); Gaido v. Tysdal, 68 Wyo. 490, 235 P.2d 741 (1951).

4 Mad River Boat Trips, 
Inc. v. Jackson Hole Whitewater, Inc., 818 P.2d 1137 (Wyo. 1991); Mad River Boat 
Trips, Inc. v. Jackson Hole Whitewater, Inc., 803 P.2d 366 (Wyo. 1990); Walter 
v. Moore, 700 P.2d 1219 (Wyo. 1985); Hagar v. Mobley, 638 P.2d 127 (Wyo. 1981); 
Cady v. Slingerland, 514 P.2d 1147 (Wyo. 1973); Fryer, 43 P.2d 994; Farmers' 
State Bank of Riverton, 270 P. 163.