Opinion ID: 1274053
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Heading Rank: 1

Heading: True's Interest

Text: The activities of True in connection with the commencement of a well on Cooks' land were performed pursuant to a farmout agreement being obtained from Sinclair and covering the remaining 240 acres held by it in the Fleetwood lease. The execution of instruments pertaining to this farmout were not completed until after the primary term of such lease had expired. In view of this situation, appellees contend True had no leasehold interest in the land being obtained from Sinclair, during the primary term. Exhibits and undisputed testimony are in evidence which show that Sinclair's farmout agreement was executed by Sinclair as of September 10, 1962 and received by True on September 12. It is claimed by True that the proffered agreement contained discrepancies, and amendments were required by True's letter dated September 13, 1962. We consider these amendments substantial and material. They included among other things the following: 1. Sinclair was to waive the requirement for (actual) drilling to be commenced on or before September 14, 1962, and in lieu thereof agree that the staking of location on September 13 was sufficient. 2. Instead of the well being located in the center of the SE¼ SE¼ of Section 7, Township 49 North, Range 70 West, it was to be at any location of True's choice in that forty-acre tract. 3. Instead of the requirement for an initial test well to test 200 feet into the Minnelusa formation or to a depth of 9,800 feet, whichever is less, True was to be entitled to complete the initial test well in any producing formation and defer the commencement of a subsequent well for 60 days after completion of the initial test well. 4. The proffered agreement reserved to Sinclair an overriding royalty of one-eighth except this was reduced to one-sixteenth as to production from the initial test well, until all costs on such well were recovered. One of True's amendments changed this so that the one-sixteenth applied to all production from the entire lease until all costs on the initial test well were recovered. Additionally, the amendment provided for a royalty thereafter of one-eighth of the overriding royalty. While the language in the last of these amendments is somewhat ambiguous insofar as it provides for a royalty of one-eighth of the overriding royalty, after costs on the test well were recovered, the assignment of lease which was executed by Sinclair and accepted by True provided for a royalty of one-sixteenth only on each well until the costs of that particular well were recovered, after which the royalty would be one-eighth for such well. This was indeed a material and substantial change from the agreement offered by Sinclair on September 10. All of the amendments demanded by True were accepted and agreed to in writing by Sinclair September 18, 1962, the fourth day after the primary term of the Fleetwood lease had terminated. Plaintiffs (True, Sinclair and Shell) contend nevertheless that an oral agreement between True and Sinclair was reached prior to the expiration of the lease on September 14. Without deciding whether, in view of our statute of frauds, such an oral agreement would be valid, we can say, if there was any evidence of an oral agreement having been reached, such evidence was effectively nullified by Sinclair's transmittal of its written acceptance. By separate letter, also dated September 18, 1962, Sinclair said it was returning a copy of True's letter dated September 13, 1962 covering amendments to the farmout agreement, which had been approved by Sinclair. The letter then stated these changes are being approved in this particular agreement because of the limited time in which to commence operations for the test well. In the future, Sinclair warned, it would not change certain of the provisions which were being changed in that instance. This statement can only mean that the amendments were being approved on September 18 and that they had not been approved previously. Or at least, the trier would have been warranted in arriving at such a finding of fact. The evidence and all reasonable inferences therefrom must be construed by us in the light most favorable to appellees. However, even if such evidence were construed in a light favorable to appellants, it would still be inadequate to establish the consummation of a farmout agreement (either written or oral) between Sinclair and True, prior to expiration of the primary term of the lease in question. It is true John E. Dobos, an attorney and landman for True, testified he called Larkin O'Hern, District Landman for Sinclair at Casper, on September 13, 1962 regarding the so-called discrepancies noted by True. He claimed that he and O'Hern agreed the modifications proposed by True were in order. Not only was his testimony self-serving and hearsay in nature, but it constituted nothing more than the witness' conclusion as to what was agreed. O'Hern's testimony concerning the conversation clearly negatived the idea that he committed Sinclair to any agreement. At first he claimed he called Sinclair's office in Denver and got approval for the modifications, so then it was a matter of the paper work catching up with the activity. This was then qualified by his admission that he could only recommend; that such matters had to be reviewed in Denver; and that all he did was to transmit his recommendation to Denver. Being more specific, O'Hern explained that the man he talked to in Denver on September 13 was C.S. Tinkler, Division Exploration Manager of Sinclair. He then testified Tinkler himself was not the man who made ultimate decisions, but Tinkler assured O'Hern the changes would be approved and that Tinkler would discuss it with Mr. Wright and get his approval. Thus, O'Hern's testimony fell far short of showing an immediate approval by R.A. Wright, who was Vice-President and Division Manager for Sinclair and the one whose duty it was to approve or reject the True amendments. Clarence Peterson, a landman and contractman for Sinclair in Denver, testified Tinkler came to him about O'Hern's call and the proposed changes; that together they went to Wright, and Wright approved the changes  on September 13. It is at this point that appellants' evidence, construed in its most favorable light, fails. It fails because there was nothing to show the acceptance made by Wright on September 13 was communicated to True prior to the written acceptance of September 18, which was signed by Wright. In fact, the only reasonable inference to be gathered from all the evidence touching on this subject is that Wright's acceptance was not communicated to True until September 18. On that subject, O'Hern testified affirmatively that Wright responded directly to True, by Wright's letter of September 18, and O'Hern thereupon referred to September 18 as the acceptance date. Being asked specifically whether he received any confirmation of the company's action on the True amendments other than a copy of Wright's acceptance on September 18, O'Hern replied I frankly don't remember. As to the necessity for an acceptance to be communicated in order to complete mutuality in a contract, we understand the rule to be as stated in 1 Williston on Contracts, Third Edition § 70, p. 230 (1957); and in 17 C.J.S. Contracts §§ 44 and 45, pp. 688-689, which is to the effect that in a bilateral contract, where the offeror asks that the offeree promise something, a communication of the acceptance in some manner is essential. Consequently, Sinclair's acceptance of the counteroffer contained in True's September 13 letter would not be effective until communicated or put in the course of communication by an act on the part of Sinclair. This did not take place until September 18. For cases which confirm and demonstrate the application of the rule which we follow on communication see the following: Commercial Casualty Ins. Co. v. Industrial Accident Commission, 116 Cal. App.2d 901, 254 P.2d 954, 958; Arnold v. Gramercy Company, 15 App.Div.2d 762, 224 N.Y.S.2d 613, 614, affirmed 12 N.Y.2d 687, 233 N.Y.S.2d 475, 185 N.E.2d 911; In re Estate of Russell 10 Wis.2d 346, 102 N.W.2d 768, 771; State Highway Department v. Wright Contracting Company, 107 Ga. App. 758, 131 S.E.2d 808, 813; Maloney v. Crest Finance Co., 39 Ill. App.2d 378, 188 N.E.2d 739. What we have said seems sufficient, we think, to make it clear the trial court was justified in finding True had no farmout agreement from Sinclair until September 18, 1962. Therefore, True was a mere volunteer and trespasser on the Fleetwood lease, as far as the location in the SE¼ SE¼ of Section 7 was concerned. True then was not, on or before September 14, 1962, a lessee as to such location, and under the provisions of the lease no one except the lessee could keep such lease alive by commencing drilling operations. It is of interest to note that on the same day as Sinclair's final acceptance was communicated, September 18, 1962, True wrote a letter to Sinclair asking for written verification of their mutual agreement that operations could be discontinued on account of demands from the holders of mineral interests, and because the risk of failure was too substantial to permit the continuance of drilling operations. Sinclair did verify such agreement on September 24. True claims to have discontinued operations September 20, with a determination to file suit and test title.