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Parties Involved:
Frank A. Ladd
Appellant
Raydon Exploration, Inc.
Appellee
Dudley R. Stanley
Appellant

Document Text:

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PUBLISH 

UNITED STATES COURT OF APPEALS 

TENTH CIRCUIT 

RAYDON EXPLORATION, INC., 

an Oklahoma Corporation, 

Plaintiff-Appellee, 

v. 

FRANK A. LADD, an Individual, 

and DUDLEY R. STANLEY, an 

Individual, d/b/a H & L 

OPERATING CO., a Texas 

Partnership, 

Defendants-Appellants. 

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FI L·E D 

Ucited Stat~~ ~ijfC of Appeii.s 

Tenth Circuit 

M:~Y '7 1~QO 

ROBERT L. I~IOECKER 

Clerk 

No. 88-2872 

APPEAL FROM THE UNITED STATES DISTRICT COURT 

FOR THE WESTERN DISTRICT OF OKLAHOMA 

(D.C. No. CIV-88-581-W) 

James M. Peters, MONNET, HAYES, BULLIS, THOMPSON & EDWARDS, of 

Oklahoma City, Oklahoma, for Defendants-Appellants. 

James U. White, Jr., WHITE, COFFEY, GALT & FITE, PC, (Jennifer E. 

Irish with him on the brief), of Oklahoma city, Oklahoma, for 

Plaintiff-Appellee. 

Before LOGAN and BALDOCK, Circuit Judges, and SAFFELS,* District 

Judge 

SAFFELS, District Judge 

/ * The Honorable Dale E. Saffels, United States District Court 

/ for the District of Kansas, sitting by designation. 

Appellate Case: 88-2872 Document: 010110284373 Date Filed: 05/07/1990 Page: 1
This diversity jurisdiction case arises from an agreement 

involving oil and gas development on two sections of land. After 

a two day court trial, the United states District Court for the 

Western District of Oklahoma1 found that the defendants-appellants 

Frank A. Ladd and Dudley R. Stanley, d/b/a H & L Operating Co. (H 

& L) failed to perform an express condition of its agreement with 

plaintiff-appellee Raydon Exploration, Inc. (Raydon). Therefore, 

the district court granted Raydon's request for equitable relief 

rescinding the agreement and further ordering Raydon to return to 

H & L the partial consideration H & L had paid to Raydon, 

$60,264.93. In this appeal, H & L challenges many of the findings 

of the trial court and its order rescinding the agreement. 

STATEMENT OF FACTS 

The parties in this case entered into a letter agreement dated 

August 21, 1987, in which the parties agreed to assign certain 

mineral interests in Sections 21 and 28, Township 6 North, Range 

15 ECM, Texas County, Oklahoma. In the agreement, Raydon promised 

to assign an interest in Section 21 to H & L, and H & L promised 

to obtain and assign an interest in Section 28 to Raydon. Raydon 

acquired its interest in Section 21 from Sullivan & Co., pursuant 

to a farmout agreement, prior to August 21, 1987. H & L intended 

to obtain a farmout agreement on Section 28 from Mobil. On August 

27, 1987, H & L discovered that Mobil no longer had the soughtThe Honorable Lee R. West. 

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Appellate Case: 88-2872 Document: 010110284373 Date Filed: 05/07/1990 Page: 2
after rights in Section 28, but that the rights were actually owned 

by Edward C. Cox. After learning this fact, H & L began its 

attempt to acquire a farmout agreement from Cox for the rights in 

Section 28. 

On August 28, 1987, Gilbert Brown of H & L informed Tom Gray 

of Raydon that ·Mobil did not have the deep mineral rights in 

Section 28, but that the rights were owned by Cox. Raydon 

indicated that it would continue with the agreement and H & L could 

seek the farmout from Cox. 

On September 4, 1987, H & L accepted and executed the letter 

agreement dated August 2~, 1987, and returned it with a transmittal 

letter written by Frank Ladd of H & L. The transmittal letter 

stated that H & L would attempt to obtain a farmout agreement from 

Cox instead of Mobil, but no assurances could be provided that the 

farmout agreement from Cox would be obtained. 

H & L continued to try to negotiate a farmout agreement on 

Section 28 from Cox. On September 27, 1987, H & L forwarded to 

Raydon $60,246.93, representing H&L 1 s share of drilling costs for 

the well to be drilled on Section 21. The letter agreement between 

the parties provided that each party would be responsible for their 

proportionate share of drilling costs for test wells in the section 

of land in which they were to acquire an interest. The test well 

on Section 21 was logged and tested in late October 1987 and was 

shown to be a well of very good commercial capabilities. On 

November 3, 1987, H & L attempted to participate in the completion 

costs of the well on Section 21. Raydon, however, refused the 

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Appellate Case: 88-2872 Document: 010110284373 Date Filed: 05/07/1990 Page: 3
tendered check and returned it on November 9, 1987. After some 

attempt to obtain a farmout agreement with cox, H & L failed to 

get any interest in the mineral rights in Section 28. In March 

1988, Raydon discovered that cox had decided to drill a well in 

Section 28 itself, instead of assigning the mineral interest. On 

April 5, 1988, Raydon notified H&L that it intended to rescind the 

agreement and tendered the return of the initial drilling costs 

that H & L had paid Raydon. H & L refused the tender. 

After hearing the evidence presented at the bench trial, the 

district court found that the agreement between the parties failed 

because of a failure of an express condition, H & L's promise to 

obtain and assign an interest in Section 28. Since H & L failed 

to perform this part of the agreement, the district court rescinded 

the contract and ordered Raydon to return the partial consideration 

that H & L had provided to Raydon, the $60,264.93 drilling cost. 

On appeal, H & L argues that the trial court misunderstood the 

agreement between the parties. H & L contends that the September 

4, 1987, transmittal letter was a counteroffer to Raydon's offer 

proposed in the August 21, 1987, letter. H & L contends that this 

counteroffer was accepted when Raydon accepted H & L's payment of 

drilling cost for the Section 21 well. Also, H & L contends that 

the agreement between the parties simply required H & L to use its 

best efforts to obtain an interest in Section 28 and did not 

obligate H & L to obtain and assign such an interest. Therefore, 

H & L contends that it performed its obligation to use best efforts 

as called for in the agreement. Finally, H & L contends that the 

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relief of rescission granted by the district court is an 

inappropriate remedy in this case. 

STANDARD OF REVIEW 

On appeal, H & L challenges many of the district court's 

findings. This court must view the evidence presented to the trial 

court in the light most favorable to the prevailing party. Cowles 

v. Dow Keith Oil & Gas, Inc., 752 F.2d 508, 510 (10th Cir. 1985), 

cert. denied 479 U.S. 816 {1986). If a trial is to the court, as 

in the present case, the resolution of factual issues and 

conflicting evidence lies solely within the province of the 

district court. Id. at 511 (citing Harmon City, Inc. v. United 

States, 733 F.2d 1381, 1385 {10th Cir. 1984)). The findings of the 

district court are presumed correct and should not be set aside on 

appeal unless they are clearly erroneous. Cowles, 752 F.2d at 511. 

A finding of fact is "clearly erroneous" if it is without factual 

support in the record or if the appellant court, after reviewing 

all the evidence, is left with a definite and firm conviction that 

a mistake has been made. Id. 

ANALYSIS 

First, appellant H & L contends that the trial court misunderstood the agreement between the parties. In essence, the trial 

court found that the August 21, 1987, letter memorialized an 

agreement of exchanged promises between the parties. H & L 

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promised to obtain and trade an interest in Section 28 to Raydon 

and Raydon promised to trade an interest in Section 21 to H & L. 

Each party promised to bear a proportional share of the drilling 

costs for the test well drilled on the section of land in which it 

was to acquire an interest in the trade. After reviewing the 

record on appeal, it is clear the promises exchanged in the 

agreement are mutually dependent conditions to be performed at the 

same time. Neither party is bound to perform unless the other 

contemporaneously tenders performance. See Anderson v. Pickering, 

541 P.2d 1361, 1365, (Okla. App. 1975). The district court found 

that H & L failed to perform its promise to obtain an interest in 

Section 28, and therefore, H & L failed to comply with an express 

condition of the parties' agreement. We find that sufficient 

evidence exists to support this finding. Since an express 

condition of the contract failed, the district court was correct 

in ruling that Raydon was entitled to rescission of the contract. 

H & L also contends that its September 4, 1987, transmittal 

letter sent with the return of the August 21, 1987, letter 

agreement, which H & L had executed, was actually a counteroffer 

which modified the agreement's terms. H & L contends that pursuant 

to the terms of the counteroffer, H & L made no promise to obtain 

an interest in Section 28, because of the "no assurance" language 

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of that letter. 2 The trial court, however, treated the August 21 

letter as containing the complete terms of the parties' agreement. 

Under Oklahoma contract law, an acceptance generally will not 

bind the parties and create a contract unless it is unconditional, 

identical to the offer, and does not modify, delete or introduce 

any new terms into the offer. Ollie v. Rainbolt, 669 P.2d 275, 280 

(Okla. 1983). Notwithstanding this rule, an acceptance must 

receive a reasonable construction. Immaterial variances between 

the offer and acceptance will be disregarded and the mere addition 

of a collateral or immaterial matters will not prevent the 

formation of a contract. Foster v. West Publ. Co., 77 Okla. 114, 

186 P. 1083, 1084 (1920), cited with approval in Price v. Oklahoma 

College of Osteopathic Medicine, 733 P.2d 1357, 1362 n.8 (Okla. 

App. 1986); see also Farmers' Produce Co. v. McAlester Storage, 48 

Okla. 488, 150 P. 483, 485 (1915); Wallerius v. Hare, 200 Kan. 578, 

438 P.2d 65, 68-69 (1968) ;and Restatement (Second) of Contracts§ 

61 (1979). 

This court finds that there is sufficient evidence in the 

record to support the trial court's finding that the parties 

2 The September 4, 1987, transmittal letter reads, in part, 

as follows: 

We [H & L] have executed the enclosed herewith 

one copy of your letter of 8-21-87. 

As we have advised you, Mobil doesn't own the 

leasehold rights in Section 28-6N-15ECM as they were 

assigned to Cox Oil and Gas, Inc. some years ago. 

We are currently negotiating a farmout with Cox on 

terms no less favorable than those of Sullivan and 

Company. We have no final assurance that this 

farmout can be obtained, however, and shall keep you 

informed as to our progress. 

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intended to enter into a definite agreement memorialized by the 

August 21, 1987, letter agreement. The additional language in the 

letter transmitting H & L's acceptance, i.e. that H & L was trying 

to obtain the farmout agreement from Cox rather than Mobil and that 

H & L had no assurance of getting the f armout agreement, are 

collateral matters to the agreement between the parties. The trial 

court's finding that the terms of the parties' contract were set 

out in the August 21, 1987, letter agreement is not clearly 

erroneous. This court's review of the evidence does not support 

H & L's contention that the letter should have been treated as a 

counteroffer. 

Next, H & L contends that the trial court was wrong in 

treating the August 21 letter agreement as obligating H & L to 

obtain an interest in Section 28. H & L argues that the terms of 

the August 21 letter agreement only obligated H & L to use its best 

efforts in attempting to obtain such an interest. The "best 

efforts" language appears in the August 21, 1987, letter agreement. 

The letter states that "H & Lis using its best efforts to obtain 

terms no less favorable than those of Sullivan and co. above 

referenced." ( emphasis added) • This phrase refers to H & L's 

efforts to obtain terms in the farm-out agreement it was to 

negotiate on Section 28. H & L promised to use its best efforts 

to obtain terms in the farmout agreement on Section 28 no less 

favorable than the terms of the Sullivan/Mobil farmout agreement 

on Section 21. In Finding of Fact No.1, the trial court found that 

the "best efforts" phrase "does not state H & L will use its best 

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efforts to obtain the farmout itself, but rather to obtain terms 

thereto." This finding is not clearly erroneous. A plain reading 

of the agreement and testimony presented at trial clearly support 

the trial court's finding. 

Finally, H & L contends that rescission was inappropriate in 

this case. In order to constitute grounds for rescission under 

Oklahoma law, failure of performance must defeat the object of the 

contract. Rescission is appropriate when the failed future 

performance was an essential part of the bargain. See Stoltz, 

Wagner & Brown v. Cimarron Exploration co., 564 F. Supp. 840, 850 

(W.D. Okla. 1981); Davis v. Hasting, 261 P.2d 193, 195, (Okla. 

1953). Also, a party seeking rescission of a contract must 

exercise reasonable diligence and rescind promptly on discovery of 

facts entitling rescission. The party seeking rescission must 

restore to the other party everything of value which was received 

under the contract. 15 Okla. Stat. Ann. § 235; see also Burke v. 

Donnermeyer, 448 P.2d 446 (Okla. 1968). 

In this case, the object of the parties' contract was an 

exchange of deep mineral rights in Sections 21 and 28. H & L's 

failure to obtain and assign an interest in Section 28 to Raydon 

clearly defeated the central object of the August 21, 1987, letter 

agreement. Therefore, the trial court was correct in finding that 

rescission of the contract was an appropriate remedy in this case. 

H & L also contends that Raydon was dilatory in seeking rescission. 

Essentially, H & L contends that if Raydon was going to rescind the 

contract, it should have done so before the test well on Section 

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( 

21 proved to be a well of commercial capability. The evidence 

presented to the trial court supports the finding that Raydon acted 

promptly upon learning of H & L's inability to obtain the farmout 

agreement from Cox. Furthermore, Raydon does not have an 

appropriate remedy at law. Therefore, the remedy of rescission of 

the agreement between the parties is an appropriate remedy in this 

case. 

For all the foregoing reasons, this court finds that the 

judgment of the lower court should be AFFIRMED. 

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