Callon Petroleum Company v. Big Chief Drilling Company, Defendant-Third-Party v. William R. Stanley, Defendant-Third-Party

548 F.2d 1174

• Court: Court of Appeals for the Third Circuit
• Decided: April 27, 1977
• Docket: 74-4172
• Status: Published

Opinions

JAMES C. HILL, Circuit Judge:

This appeal involves a controversy over the surface location of a well drilled in search of oil and gas in Clarke County, Mississippi. After the close of the evidence, the district court directed a verdict for the plaintiff and third-party defendant. We conclude this was error in part and reverse for a new trial.

The proper standard in federal court to test the sufficiency of the evidence for submission of a case to the jury was succinctly pronounced in Boeing Company v. Shipman, 411 F.2d 365, 374-375 (5th Cir. 1969) (en banc):

On motions for directed verdict and for judgment notwithstanding the verdict the Court should consider all of the evidence — not just that evidence which supports the non-mover’s case — but in the light and with all reasonable inferences most favorable to the party opposed to the motion. If the facts and inferences point so strongly and overwhelmingly in favor of one party that the Court believes that reasonable men could not arrive at a contrary verdict, granting of the motions is proper. On the other hand, if there is substantial evidence opposed to the motions, that is, evidence of such quality and weight that reasonable and fair-minded men in the exercise of impartial judgment might reach different conclusions, the motions should be denied, and the case submitted to the jury. A mere scintilla of evidence is insufficient to present a question for the jury. The motions for directed verdict and judgment n. o. v. should not be decided by which side has the better of the case, nor should they be granted only when there is a complete absence of probative facts to support a jury verdict. There must be a conflict in substantial evidence to create a jury question. However, it is the function of the jury as the traditional finder of the facts, and not the Court, to weigh conflicting evidence and inferences, and determine the credibility of witnesses, (footnote omitted).

Thus, we are required to view the evidence in the light and with all reasonable inferences most favorable to the party opposed to the motions, i. e., Big Chief Drilling Company.

So viewed, the facts appear as follows: The plaintiff, Callon Petroleum Company (Callon), contracted with the defendant, Big Chief Drilling Company (Big Chief), to drill the oil well in question. The contract was a printed standard form drilling contract identified as “AAODC¹ Rotary Drilling Bid Proposal and Contract.” The contract provided that the Owner (Callon) engaged the Contractor (Big Chief) “to drill the hereinafter well . . . .” The well location was dealt with in the succeeding paragraph:

"1. LOCATION OF WELL:

Well Name and Number— Menasco Mcslev Unit # 1

Parlsh/County — Clarke State Mississippi

Field Name —Prairie Branch

Well Location and ²

Land Description — 250' FWL and 200' FNL of N/2 of NW/4 of Section 23-1N-14E_

The responsibilities of the parties to the contract were then clearly divided. Among the “services” to be furnished by the Owner (Callón) was the following:

“6.2 Stake location, clear and grade location, and provide turnaround, including surface when necessary.”

In this regard, the evidence revealed that in the normal custom and practice of the oil industry, prior to drilling of an oil well on “dry land,” certain clearing, grading and boarding work had to be done in order to prepare the ground area for Big Chief’s drilling equipment. This preparatory work on the surface area absolutely determines where the well will be drilled and the preparatory work was clearly the responsibility of Callón under the contract. In the instant case, a surface location was prepared by the third-party defendant, William R. Stanley, d/b/a Stanley Brothers Construction Company (Stanley), pursuant to an oral contract with Callón. Thus, Callón undertook to perform its responsibility for site preparation by contracting with Stanley to do it. Big Chief had no contractual arrangement with Stanley. The surface location ultimately prepared by Stanley was not the location designated in the contract between Callón and Big Chief. Big Chief proceeded to drill the well some nine thousand feet before Callón protested and an issue in this case is who should be responsible for the increased cost of slanting the well to conform with the original contract location.

The contract between Callón and Big Chief clearly provided that the well was to be located at the point of intersection of imaginary lines 250 feet from the West line of section 23 in Clarke County and 200 feet from the North line of the same section. This site was selected after a conversation on November 24,1971, between Stanley and Meade Hufford, the Vice-President of Callón, in which Hufford instructed Stanley to have the surveyor “stake” this location since two originally proposed sites were unsuitable. However, on or about December 15, 1971, Stanley and Jack Pitchford, the “toolpusher” or supervisor of the Big Chief drilling crew, met at the “staked” location and agreed that the site afforded insufficient room to prepare a site for the erection of the size drilling rig necessary for the well. While there was evidence that this location could have been used with difficulty, Stanley and Pitchford agreed that, if the location could be moved some 60 feet to the northeast, the drilling equipment could be more safely and easily erected.

However, at this meeting Stanley made it clear that he could not move the location from 250 X 200 without first getting approval from Callón. Stanley told Pitchford that he would undertake to get permission from Callón to move the location and then report back to Pitchford. On December 20, 1971, Pitchford called Stanley and asked him if he had received permission from Callón to move the location of the well. Stanley stated that he had gotten the “go ahead” and that it would probably take a week to ten days to prepare the site for drilling.³

Morris Robinson, a bulldozer operator and employee of Stanley, began grading and preparing a drilling site a few days after Christmas. He received his instructions from Billy Stanley who told him to prepare a location “where the rig could be rigged up and the well drilled.” Robinson did this by mentally selecting an imaginary stake and building the location around it. This was later surveyed to be 84 feet from the North line of section 23 and 292 feet from the West line, approximately 122 feet in a general northeasterly direction from the 250 X 200 contract site.⁴ This is the location where the well was in fact drilled by Big Chief.

Big Chief began its work on or about December 30, 1971, when the conductor pipe⁵ was set. It is undisputed that the building of the location and laying of the boards by Stanley precedes the setting of the conductor pipe and absolutely determines where the conductor pipe is to go. By the time Jack Pitchford returned to the well site on January 5, 1972, the location had been prepared, the conductor pipe set and the rigging-up operations begun.

Around January 6, 1972, O. C. Collins, Gallon’s Consulting Engineer, visited the site and Pitchford reported that the location had been moved approximately 60 feet to the northeast and that Stanley had obtained permission from Callón for this move. Collins reported this directly to Callón in a letter dated January 7,1972. Actual drilling operations had not then commenced and did not commence until January 13, 1972. The original surveyor for Callón went back to the site on January 20 and determined that the surface location was approximately 122 feet in a general northeasterly direction from the 250 X 200 contract site. He reported this to Callón who then had another survey made of the actual well site. Finally, on January 29, 1972, Big Chief was informed by Callón of the substantial deviation from the contract location of 250 X 200.

At the time Big Chief was informed of the incorrect location of the well, the drilling operations had reached an approximate depth of 9,000 feet. Gallon then took over the drilling of the well and began “slant” or directional drilling for the stated purpose of getting the well back to a position vertically beneath the original permitted location. On February 2, 1972, Gallon filed a petition with the Mississippi Oil and Gas Board requesting authority to continue directional drilling. Permission was granted and directional drilling continued until the well reached an approximate depth of 10,700 feet. Big Chief then resumed control of the drilling operations and drilled to a total depth of 14,800 feet. The well was a “dry hole.”

Callón then instituted this suit against Big Chief on February 6, 1973, to recover the cost of drilling the well and the added expense for directional drilling. Big Chief answered and counterclaimed against Callón for the unpaid balance allegedly due under the drilling contract. At the same time, Big Chief filed a third-party complaint against Stanley to recover any amount that might be recovered by Callón against Big Chief in the original action. Upon trial of the case the district court granted a directed verdict in favor of Callón and Stanley. This appeal followed. We conclude that the district court erred in directing a verdict for Callón.

The contract between Callón and Big Chief provided that the well was to be located at a point 250 X 200. The evidence is equally as clear that the well was not drilled at this location. The district court was of the opinion that as a consequence Big Chief was liable for having failed to abide by the written agreement. However, the contract also provided that Callón was responsible for preparing the site. The evidence shows that Callón did not prepare a drilling site at the contract location of 250 X 200.

The general rule is that a party to a contract may not take advantage of its own act or omission. Dependents of Dawson v. Delta Western Exploration Co., 245 Miss. 335, 147 So.2d 485 (1962). Under the contract, we are of the opinion that the preparation of the drilling site was clearly a condition precedent to the obligation of Big Chief to drill the well. A condition precedent is a prerequisite “calling for performance of some act after the contract is entered into on performance of which the obligations depend.” Williston on Contracts, § 666A (3rd Ed. 1961). Thus, the failure of Callón to perform its obligation under the contract to prepare the drill site at the contract location would normally excuse Big Chief from its obligation to drill at that site. If Callón had prepared no drill location, Big Chief 'could not be held liable for not drilling a well.

Yet, a drill site was prepared in this case and a well was drilled at the exact spot determined by the site location. Callón chose to perform its obligation under the contract to prepare a site by employing an independent contractor — Stanley. However, Callón may not escape its obligation under the contract by delegation to a third party. See Bolin Oil Company v. Staples, 496 S.W.2d 167 (Tex.Civ.App.1973). Stanley thus became the agent of Callón insofar as Callón chose to fulfill its obligation under the contract to prepare a drill site. If Stanley, in fact, acted incompetently or recklessly or even negligently in preparing the drill site at an incorrect location, then, under his contract with Callón, Stanley might be liable. Big Chief in this situation could normally not be held responsible for the manner in which Callón chose to perform its precedent obligation under the contract to prepare a drill site.

On the other hand Big Chief was not totally divorced from the manner in which Stanley chose to perform his contract with Callón. The evidence shows that Big Chief and Stanley met at the contract drill site and agreed that the location was unacceptable. Big Chief proposed that the location be moved some 60 feet to the northeast to better accommodate its drilling rig. If it be shown that Big Chief designedly induced Stanley to prepare a drill location different from the contract site for its own advantage and to the detriment of Callón, e. g., to thus excuse Big Chief’s obligation under the contract with Callón or perhaps merely to reduce drilling costs, then Big Chief might be held liable. See Delta Construction Company of Jackson v. City of Jackson, 198 So.2d 592 (Miss.1967); see also Williston supra at §§ 677-677B. While we do not intimate that the evidence in this case amounts to actual hinderance, we do suggest that there may be circumstances under which the failure to perform a condition precedent by one party may be legally attributable to another. We are of the opinion that the question of whether Big Chief is liable to Callón for the failure of Callón to perform its obligation under the contract is an issue which should be submitted to the jury for its resolution.

Under normal circumstances it is of little or no concern to the drilling company exactly where an oil well is to be drilled. The owner is the party responsible for preparing the drill location and, once a drill site is prepared, the drill operator is entitled to assume that the owner has prepared the location where he — the owner — wants it. The owner is also responsible for obtaining permission from the regulatory body to drill at a given location. Thus, the owner is the party in a position to know the exact location of the drill site and the extent of the permission granted by the state. If the well is drilled in an “illegal” location, normally the owner is the only party to be held responsible.

In the case at bar, however, the evidence presented could take this case out of the general rule. In this case it would appear that Big Chief was in a position to know that the site prepared by Stanley was not the location proposed in the contract between Big Chief and Callón. Jack Pitch-ford had visited the site with Stanley and concurred in the determination that the location should be moved. In addition, a reasonable inference from the evidence would also support the proposition that Pitchford knew that the well was to be an “exception location.” Finally, an “eyeball” survey of the actual location that was prepared by Stanley could arguably have revealed to Pitchford that the well was about to be drilled in a location removed from the contract site. A drilling operator in the position of Big Chief could not thus negligently disregard what it knew or reasonably should know and drill a well contrary to the express terms of its drilling contract. While a drilling operator is certainly not required to conduct a precise survey to insure that the owner has prepared the site at the correct contract location, he may not ignore the significance of what he actually knows or reasonably should know to the detriment of the owner. If under the facts of this case it were found that Big Chief failed in its obligation reasonably to apprise Callón of the incorrect location, then Big Chief could be held liable for the increased expense of the directional drilling. Of course, if this be shown, the normal rules relating to the requirement that one mitigate his damages would be applicable.

In sum, there appears to be two theories under which Big Chief may be held liable to Callón for drilling the well in this case in the incorrect location. Big Chief would be liable if upon submission of the evidence to a jury, the jury concluded that Big Chief wrongfully induced Stanley not to perform the obligation of Callón under its contract; to wit, prepare the location at 250 X 200. Second, Big Chief would be liable if the jury found that Big Chief acted negligently in going ahead with the drilling of the well at the prepared site without apprising Callón of the information of which it was actually aware. In this regard the interpretation of the information relayed to O. C. Collins, Callon’s Consulting Engineer, by Big Chief on January 6, 1972, becomes extremely important. Big Chief asserts that the information was sufficient notice to Callón that the well had been moved. Callón contends that it was insufficient in that it was reasonably interpreted by Callón to relate to the original move from 200 X 200 to 250 X 200. The sufficiency of the notice in fulfilling Big Chief’s obligation to apprise Callón of facts within its knowledge is the traditional province of the jury.

Finally, with respect to all of the issues that we have discussed, it is not unimportant to observe that, even though the facts may appear clear from the evidence, a directed verdict is not proper when, from the facts thus disclosed, conflicting inferences might be drawn. It should be left to the finder of fact — the jury in this case — to resolve such conflicting inferences. See. Tennant v. Peoria & Pekin Union Railway Co., 321 U.S. 29, 35, 64 S.Ct. 409, 88 L.Ed. 520 (1944); Cleveland Trust Co. v. United States, 421 F.2d 475, 479 (6th Cir.), cert. denied, 400 U.S. 819, 91 S.Ct. 35, 27 L.Ed.2d 46 (1970).

The district court also dismissed Big Chief’s complaint against Stanley based upon implied indemnity. We conclude that this was correct. There are two basic theories under which Big Chief might be held liable to Callón. Under each theory Big Chief would be held responsible either because of its active misconduct or its failure to act when the circumstances dictated. The law in Mississippi was set out in Home Insurance Co. v. Atlas Tank Mfg. Co., 230 So.2d 549, 551 (Miss.1970):

Two critical prerequisites are generally necessary for the invocation of noncontractual implied indemnity in Mississippi: (1) The damages which the claimant seeks to shift are imposed upon him as a result of some legal obligation to the injured person; and (2) it must appear that the claimant did not actively or affirmatively participate in the wrong.

See also Alabama Great Southern Railroad Co. v. Allied Chemical Corp., 501 F.2d 94, 98-103 (5th Cir. 1974), aff’d en banc, 509 F.2d 539 (1975). In the context of this case, the liability of Big Chief, if liable at all, would be the result of active wrong on its part. Thus, under Mississippi law, implied indemnity will not lie.

The order of the district court dismissing the third-party complaint is AFFIRMED. The order of the district court sustaining the plaintiff’s motion for a directed verdict is REVERSED and the case REMANDED for further proceedings.

1 . American Association of Drilling Contractors. The organization is now known as the International Association of Drilling Contractors (IADC). IADC appears in this case as an amicus on behalf of Big Chief.

2 . Prior to the actual execution of the written contract, the parties had orally agreed to a well location 200' FWL and 200' FNL of the property. Discussion of the impossibility of drilling there had led to the movement of the site 50' in an easterly direction before the signing of the document.

3 . The conversations between Pitchford and Stanley were admitted over the objection of Callón. Clearly, as regards the third-party action between Big Chief and Stanley, the conversations were not hearsay. Fed.R.Evid. 801(d)(2)(A). Furthermore, since Stanley was hired by Callón to prepare the site, the statements by Stanley were probably not hearsay even as to Callón. See Fed.R.Evid. 801(d)(2)(D). At any rate, since Callón asserted that Big Chief undertook to move the site location for its own advantage, the conversations were admissible to explain the course of conduct of Big Chief. See Fed.R.Evid. 801(c); Mabry v. Travelers Insurance Co., 193 F.2d 497 (5th Cir. 1952); Petroleum Carrier Corp. v. Snyder, 161 F.2d 323 (5th Cir. 1947); see generally 6 Wigmore on Evidence § 1789 (3rd Ed. 1940); McCormick on Evidence § 249 (2nd Ed. 1972).

4 . An earlier survey pinpointed the actual drill site at 86 feet from the North line and 295 feet from the West line. The slight difference is immaterial to the resolution of the case.

5 . The conductor pipe stabilizes the upper portionof the well hole to prevent the softer earth ~Kf from caving in.