Court Opinion

ID: 9463464
Source: CourtListenerOpinion
Date Created: 2023-08-04 23:08:08.975667+00
Date Added: 2024-06-11T17:38:08.099501
License: Public Domain

COLEMAN, Circuit Judge,
concurring in part and dissenting in part:
The chief adversaries in this oil well drilling breach of contract controversy are Callón Petroleum Company (Callón), which contracted to have the well drilled, and Big Chief Drilling Company (Big Chief), which agreed to drill it. The respective parties were bound by a written contract but for a time Callón exercised little or no diligence to see that it was receiving what it had *1181contracted for. Through its drilling chief, Big Chief knew very well that it was not drilling where it had contracted to drill.
Callón found an undrilled tract in the North lh of the Northwest Vi, Section 23, Township 1 North, Range 14 East, Prairie Branch Oil Field, Clarke County, Mississippi. It proceeded to acquire the necessary leases to drill in search of oil and gas. Don Caldwell, the company geologist, advised Callón that if it expected to strike oil bearing sand, thought to be at 14,800 feet, it should obtain an exception order from the Mississippi Oil and Gas Board permitting it to move the drilling site of the proposed well nearer the unit lines than allowed by standard regulations. The recommendation was that the well be drilled 200 feet from inside the north and west lease lines. The exception was secured.
Agreeably to the exception order, on November 23,1971, Meade Hufford, the executive vice-president of Callón, employed Engineering Services of Jackson, Mississippi, to survey and stake the proposed well location at 200 feet from the north line and 200 feet from the west line of the drilling unit. Hufford instructed the survey party chief of Engineering Services to call him if the location was “bad”, that is, hampered by obstacles.
On November 24, 1971, Engineering’s party chief met at the 200 X 200 stake with David Stanley, a representative of Stanley Brothers, who had been hired as an independent contractor by Callón to do the clearing and preparation of the drill site. They discussed the various problems found there. The stake was 105 feet from an occupied dwelling, 50 feet from an electric power line, and a paved public road ran nearby, posing serious problems, if not insurmountable difficulties, in the erection of the drilling equipment. They decided to call Mr. Hufford. The party chief placed the call and spoke briefly with Hufford, but he then turned the phone over to Stanley. Stanley advised Hufford of the problems and was instructed to place the stake 200 feet from the north line and 250 feet from the west line, which would cause a 50 foot shift to the east. Stanley then relayed this information to the party chief, who set the stake at the 200 X 250 foot point.
Callón then petitioned the Oil and Gas Board for a further exception order to permit moving the stake to the new location, which was approved by the Board on December 15, 1971.
At this point no contract had been made with the well driller and everything had proceeded “according to Hoyle”.
On or around December 15 Billy Stanley of Stanley Brothers met Jack Pitchford, Big Chief’s toolpusher in charge of drilling operations, at the 200 X 250 drill stake. They decided that even this location would not afford enough room to erect the drilling rig. They decided that if the stake were moved northeast 60 feet the problem would be solved.
Pitchford did not talk to Callón or any of its representatives about this new development. Pitchford testified that Stanley told him he would have to check with Hufford before a change of location could be authorized, that he would try to clear the change of location with Hufford, and would be back in touch with him. Pitchford had to leave for Oklahoma. Before leaving, he called Stanley, not Callón, on December 20, 1971, to see if the problem had been resolved. Over objection by Callón, Pitchford was allowed to testify that Stanley told him that “he had the go ahead on the well”. This was never confirmed by testimony from either Callón or Stanley, so it was rank hearsay insofar as it applied to Callón.
Neither side called Bill Stanley as a witness. His pretrial deposition, noted as being at page 865 of the record, is not there, presumably because it was not offered in evidence at the trial. I do not know why both sides so scrupulously stood so far back from Mr. Stanley. What he knew, if given subject to cross examination, should have cleared up a big blind spot in this record. Instead, what he knew, if anything, came in as hearsay. ;il), (
In any event, Pitchford testified that he interpreted Stanley’s statement to mean *1182that a change of location had been accepted by Hufford, but he did not contact Callón to verify either the statement or the interpretation. Pitchford did not return to the site until around the first of January, where he found the completed site preparation. The litigants stipulated that Stanley (not Callón) had instructed Morris Robinson, his dirt contractor, to level the site “where the rig could be rigged up”.
After negotiations, Big Chief submitted a drilling bid proposal and contract, which Callón executed on December 27, 1971, and Big Chief signed on January 3, 1972, effective December 27. This was about two weeks after Big Chief’s man Pitchford had agreed with Stanley (but not with Callón) that the actual drilling stake would have to be moved 60 feet from the point designated in the contract.
The written contract specified that Big Chief was to drill the well vertically from a point 200 feet south of the north line and 250 feet east of the west line of the 80 acre unit, a specific location. Before the contract was ever executed, Big Chief’s man in charge of the drilling knew that the well was not going to be drilled there. Big Chief’s excuse for not drilling where it had contracted to drill was reliance on what Stanley had said and what Pitchford thought that meant, although Stanley specifically told Pitchford that he could not authorize a change without Hufford’s permission.
To meet a time limitation in the lease, the well had to be started before December 31. The start was begun before that day, before the contract document was signed, but actual drilling did not get under way until January 13.
In the meantime, January 7, Collins, a petroleum engineer employed by Callón to see that the well was drilled within directional tolerances, visited Pitchford at the drill site. On that date, Pitchford told Collins that Stanley had told him that he had received permission to “walk” the drill stg&e approximately 60 feet to the northeast of the contracted drilling point. As a matter of fact, the drilling rig had been erected at a point not 60 feet, but 122 feet, from the true stake. No witness saw the stake moved for an additional 62 feet, but the testimony was clear that Stanley had prepared the drill site at that point. In any event, the well went down from a point 295 feet east of the west line and 86 feet south of the north line of the drilling unit.
Collins wrote a letter to Callón, informing it of the 60 foot move which had been reported to him. Callón received this letter January 10, 1972, three days prior to the commencement of actual drilling. No action was taken. Both Caldwell and Hufford (of Callón) testified that they were not ■alarmed by this information since both “assumed” that this statement indicated the location had been moved “60 feet to the northeast” in compliance with the original change from 200 X 200 to 200 X 250 feet. They tried to justify this assumption, erroneous as it was, by testifying further that it was “unheard of” to move an exception location. Hufford never visited the drill site at any time. When Caldwell finally got there, well after the horse was “long gone”, a witness said that he was an “angry, angry man”.
Nevertheless, on January 13, the very day that real drilling began, Callón requested Engineering Services “the next time they were down that way” to look at the location. While this inspection was being made, Big Chief kept right on drilling. On January 20, Engineering Services determined the well location to be 86 feet from the north line and 295 feet from the west unit line. The well was then a mile into the earth.
A verification surface survey was then undertaken for Callón by a Laurel firm. Big Chief kept on drilling. On January 29, when the well was down to 9,271 feet, the Laurel firm confirmed the prior survey. The bottom of the hole was then 106 feet from the north line and 230 feet from the west line.
On February 2, Callón filed a petition with the Oil and Gas Board, advising it of the foul-up and that it had undertaken directional drilling designed to put the bot*1183tom hole where it should have been, had perpendicular drilling been prosecuted from the right location, 200 X 250. It requested permission to continue. Permission was granted. Directional drilling was done between 9,271 and 10,769. At depth 10,769, the bottom of the hole was 207 feet south of the north line and 284 feet east of the west line. This lacked 7 feet one way and 34 feet another from being directly below the point from which Big Chief had contracted to drill. Big Chief then resumed control of the drilling and completed the well to contract depth.
The upshot of this (mis)managerial imbroglio was that Callón sued Big Chief for having performed “with total disregard for its contract obligations”, etc., demanding damages in the sum of $76,920.77, alleged to have been the additional cost of the directional drilling.
There was no doubt that Big Chief had contracted to drill the well at 200 X 250. There was no doubt that it had not drilled there. Consequently, it fell back to these affirmative defenses:
1. The practice in the oil and gas industry does not place upon the drilling contractor the burden of having the location surveyed. A necessary condition precedent to the obligation and performance under the contract was the preparation of the drill site by the plaintiff. Under the practice uniformly followed in the oil and gas industry the operator (in this case the plaintiff), prepares the drill site, and the drilling contractor relies on the site so prepared as the correct site for the drilling of the well.
(The answer to this defense is that Big Chief knew before it signed the contract that the cleared site was not the contract site.)
2. The well in question was drilled on the site selected and prepared by the plaintiff at the plaintiff’s sole cost, risk and expense, and as a necessary condition precedent to defendant’s obligation on the contract. Even if the drill site prepared by plaintiff, acting through its employees, agents and contractors, was not the surface location called for in the written contract between the parties, such site was prepared at a location authorized by the plaintiff, and plaintiff is now estopped to contend to the contrary.
(The answer to this is that except for hearsay there is no evidence that Callón authorized the change.)
3. Even if plaintiff did not authorize its employees, agents and contractors to prepare the site at the location where, in fact, it was prepared, defendant reasonably relied on the verbal representations and acts of plaintiff’s employees, agents and contractors that the site so prepared was the location authorized by plaintiff.
(The answer to this is that Big Chief signed the contract after its contacts with Stanley, and not before.)
Big Chief also counterclaimed for $21,-651.21, allegedly due and unpaid on the contract.
Callón responded to Big Chief’s affirmative defenses with the assertion that Big Chief and other parties had knowingly and intentionally moved the surface location of the well for their own convenience and economic gain without Callon’s knowledge and consent, a direct and intentional breach of contract, knowingly done.
The case was tried to a jury, in a contest which lasted seven days, at the conclusion of which the District Court directed a verdict for Callón. Judgment went to Callón in the sum of $36,500.
Big Chief challenges the directed verdict with eleven assignments of error. Their validity or invalidity must be measured by the standards enunciated in Boeing v. Shipman, 5 Cir. 1969, 411 F.2d 365. They may accurately be described as linked, in groups, to Big Chief’s affirmative defenses, raising, says Big Chief, questions of fact about which reasonable men might well differ, thus requiring submission to the jury.
I begin my analysis of this badly mishandled situation by recognizing that Callón had undoubtedly agreed to clear and prepare the drilling site at the location designated in the contract. Vis a vis Big Chief, Callón could not absolve itself of that duty *1184by unilaterally delegating it to an independent contractor.
It is nevertheless the law in Mississippi that a party to a contract is estopped to take advantage of his own act or omission to escape liability on it, Dawson’s Dependents v. Delta Western Exploration Co., 147 So.2d 485, 487 (Miss., 1963).
It stands undisputed that before the contract was signed, Big Chief’s driller knew that the stake had been “walked” sixty feet from the right place and no effort was made to verify Callon’s acquiescence. The total “walk” of 123 feet could not have changed the fact that Big Chief knew that it was not drilling at the place approved by the Oil and Gas Board and particularly described in the contract. Big Chief elected to drill, regardless of the failure to prepare the site at the point designated in the contract, signed after all the contacts with Stanley, and with never a whisper to Callón about a variation.
There is no evidentiary support for the contention that Callón authorized a change in the location of the drill stake. Hufford testified that Stanley had never talked to him about it, that he had never authorized it, and that the first he knew of any discrepancy was when he saw Collins’ letter. Hufford’s testimony stands unrefuted by any competent testimony. Big Chief did not call Stanley as a witness. The hearsay testimony of Pitchford as to what Stanley said that Hufford said, and that of Robinson as to what Stanley said that Hufford said, was obviously incompetent.
There is no merit to the argument that Big Chief could reasonably rely on Stanley’s representations with reference to moving the drill stake. Before the contract was signed, Big Chief’s agent knew that the stake had been moved to a point other than that prescribed in the contract. When Pitchford returned to the scene about the first of January, he knew that the stake was not at the point prescribed in the contract. A telephone call to Callón could have ascertained the reliability of Stanley’s representations. Out of court admissions, statements, and declarations are not admissible to prove either agency or its scope or intent, Austin v. Gulf States Finance Company, 308 So.2d 90 (Miss., 1975).
On either waiver or estoppel, on facts about which men could not reasonably differ, the law will not now allow Big Chief to defend its breach on the ground that Callón had failed to prepare the site at the location prescribed in the contract.
Amicus curiae, International Association of Drilling Contractors, urges that this result will hereafter require a driller to verify the correctness of the drilling site before proceeding to drill. I disagree. This is a case in which the driller, unknown to the owner, participated in moving the drill stake from the known location to one which would better suit his own convenience and then signed a contract for the correct location. That is what should control the outcome of this appeal.
Big Chief also argues that, by reasonable diligence, after receiving Collins’ letter of January 7, 1972, Callón could have avoided the consequences of which it now complains; that by its conduct after receiving that letter it waived its right to complain, that Callón undertook a program of directional drilling on its own initiative and for its own reasons and is thus responsible for all the expenses incurred in connection therewith. Big Chief did not include these issues in the affirmative defenses filed in response to the complaint. In the main, they go to the issue of damages.
I think the correct response to this is that the well had reached a depth of 5,000 feet when Callón first received notice, that Big Chief kept on drilling while the suspected discrepancy in the drilling site was being checked out, and there is no evidence in the record to indicate that any less directional drilling would have been required at the 5,000 foot depth than at the 10,000 foot depth. Certainly, there can be no dispute that under the Mississippi Oil and Gas statutes there could have been serious legal consequences for failure to drill at the site approved by the Board.
On the issue of damages the parties stipulated:

*1185
Stipulation

Counsel for plaintiff and counsel for defendant stipulate that upon the Court having directed a verdict for plaintiff against defendant that the amount to be entered in the judgment in favor of the plaintiff against defendant shall be $36,-500.00 and that said amount shall be considered the same as though having been entered by a jury and shall be appealable by either party. This stipulation shall in no manner be deemed an admission of liability on the part of the defendant nor an admission as to the true measure of damages by either party but is made to expedite the disposition of the trial of this case in lieu of a jury verdict, subject to the right of appeal by either party.
I would, in all respects, affirm the District Court.