TUTTLE, Circuit Judge.
This is an appeal from a judgment by the court without a jury in a suit for damages based on an anticipatory breach of a contract to pay $25,000 as a contribution under a “Dry Hole Contribution Letter Agreement.”
The principal questions are: (1) whether the doctrine of anticipatory breach is applicable in Texas to a contract to pay a fixed sum upon the completion and abandonment of a dry hole if there was no initial mutuality of obligation between the parties; (2) whether there was in fact an anticipatory breach by the promisor; and, if the first two questions are answered in the affirmative, (3) what is the correct measure of damages. Supplemental questions are whether the contract did impose mutual obligations on the parties initially and whether, assuming recovery could not be had for a breach of the contract, a recovery could be had for quantum meruit. In the view we take of the case it is not necessary for us to reach these subsidiary questions.
This case is reported at 142 F.Supp. 246. In the able and well reasoned opinion of the district court the facts are set out in detail, and they will not be repeated here except insofar as is necessary to an understanding of our discussion of the legal principles. So, too, do we adopt much that is said by the trial court in its reasoning. With its judgment we fully concur.
Appellant agreed that if appellees would drill a test well for oil or gas on property owned or leased by them, and, if after taking it to a depth of 10,000 feet or to the oil creek sand of Ordivician age (whichever is the lesser depth) the well proved to be a dry hole1 appellant would pay as a “dry hole contribution” the sum of $25,000. The drilling continued, as found by the trial court on ample evidence, strictly in accordance with the contract to a depth of 10,025 feet. Thereupon appellees’ agent approached appellant to sound it out as to whether it was satisfied that the hole was in fact a dry hole. The trial court expressly found that this did not amount to a demand by appellees for the payment of the $25,000, which would of course not be due unless and until the well should be plugged and abandoned. Appellant deferred replying for twenty-four hours, during which time appellees permitted the drilling rig to lie idle at the well site. Thereafter, on July 28, 1955, appellant sent a telegram to appellees2 stating that a certain type of testing must be carried out by appellees as to eight different horizons and that the failure to test at these horizons in the manner specified would' be “a material [187]*187breach of agreement and a forfeiture of all your rights under same.”
The trial court found that immediately after receiving this telegram appellees excluded appellant from the rig and denied further information as to the drilling operation to appellant and otherwise treated this telegram as an anticipatory breach of the contract. Thereupon, after consultation with their counsel, appellees decided to extend the well to a depth of 10,250 feet. At a depth somewhat lower than the 10,025-foot level oil was encountered in sufficient quantities to cause appellees to complete it as a producing well.3
The trial court found that the requirements set out in the telegram were not in accordance with the contract and that it would have cost a minimum of $75,000 for the appellees to have completed the tests as demanded in the telegram. It was undisputed that the cost of the drilling to appellees up to the time of the receipt of the telegram was approximately $121,000. It was also undisputed that the cost of plugging the well would have been $2,000.
The trial court reasoned that appellant’s telegram was tantamount to saying: “Unless you complete the additional testing in the manner herein stated (which, as stated above, would cost at least $75,000) we will not pay the $25,-000 even though you plug the hole and abandon it in accordance with the contract.” Finding, as it did, that the additional testing was not required by the original contract but was a very substantial modification of its terms, the trial court held that this was a complete and unambiguous renunciation of the contract and amounted to an anticipatory breach. This, the court held, “destroyed” the contract at the moment it was treated as a breach by the other parties. The court held that they did so, as evidenced by their immediate exclusion of appellant’s agent from the rig and the denial of information to him thereafter. The court further held that the anticipatory breach destroyed the contract completely at that point of time and there was no further obligation on the part of appel-lees to plug and abandon the well. They were at liberty either to abandon it or to use it in any manner they saw fit, including further drilling against the prospect that this procedure would be productive of oil or gas at a" lower depth. He found that the only obligation of appellant under the contract was to pay $25,000; that upon its breach of the contract the damages to appellees were represented by the difference between the agreed amount and the $2,000, which it would have cost appellees to carry out their agreement had the contract not been breached. He therefore gave judgment to appellees in the sum of $23,000.
Appellant does not seriously contend that the doctrine of anticipatory breach does not exist under the Texas law. In arguing limitations on the doctrine, in fact, it concedes that it is applicable in a proper case. The trial court and appellees rely heavily on Pollack v. Pollack, Tex.Com.App., 46 S.W.2d 292. This case fully supports the trial court’s determination that the doctrine of anticipatory breach is no stranger to the Texas law. It also identifies Texas with a minority view to the effect that the doctrine is not restricted to those cases where the contract is still fully executory on both sides. See also Kilgore v. Northwest Texas Baptist Educational Ass’n, 90 Tex. 139, 37 S.W. 598, and Moore v. Jenkins, 109 Tex. 461, 211 S.W. 975.
Appellant cites no Texas authorities for the precise proposition that the doctrine of anticipatory breach does not apply to such a breach of the obligation of a promisor whose promise becomes binding only if acted upon by the other [188]*188party, as distinguished from a promise that is given in exchange for a promise by the other party. Cases of other jurisdictions are cited which raise some question as to the application of the doctrine in the case of a unilateral agreement. These cases are not persuasive except for the proposition that no part of a promise is binding and no breach of it is actionable unless and until it is supported either by a corresponding promise or by performance by the other party. No reason is .perceived why a party whose promise is supported only by the performance of the other party should not be held to the same strict accountability for the breach of his contract as is one whose promise is supported by the agreement of the other party. Even assuming, although we do not hold, that this letter agreement did not' create mutual obligations, initially there can be no doubt but that when ap-pellees undertook to drill the well strictly in accordance with the specifications, appellant became bound to carry out its undertaking in precisely the same manner as if the contract expressly obligated appellees to drill the well in the first place.
Free access — add to your briefcase to read the full text and ask questions with AI
TUTTLE, Circuit Judge.
This is an appeal from a judgment by the court without a jury in a suit for damages based on an anticipatory breach of a contract to pay $25,000 as a contribution under a “Dry Hole Contribution Letter Agreement.”
The principal questions are: (1) whether the doctrine of anticipatory breach is applicable in Texas to a contract to pay a fixed sum upon the completion and abandonment of a dry hole if there was no initial mutuality of obligation between the parties; (2) whether there was in fact an anticipatory breach by the promisor; and, if the first two questions are answered in the affirmative, (3) what is the correct measure of damages. Supplemental questions are whether the contract did impose mutual obligations on the parties initially and whether, assuming recovery could not be had for a breach of the contract, a recovery could be had for quantum meruit. In the view we take of the case it is not necessary for us to reach these subsidiary questions.
This case is reported at 142 F.Supp. 246. In the able and well reasoned opinion of the district court the facts are set out in detail, and they will not be repeated here except insofar as is necessary to an understanding of our discussion of the legal principles. So, too, do we adopt much that is said by the trial court in its reasoning. With its judgment we fully concur.
Appellant agreed that if appellees would drill a test well for oil or gas on property owned or leased by them, and, if after taking it to a depth of 10,000 feet or to the oil creek sand of Ordivician age (whichever is the lesser depth) the well proved to be a dry hole1 appellant would pay as a “dry hole contribution” the sum of $25,000. The drilling continued, as found by the trial court on ample evidence, strictly in accordance with the contract to a depth of 10,025 feet. Thereupon appellees’ agent approached appellant to sound it out as to whether it was satisfied that the hole was in fact a dry hole. The trial court expressly found that this did not amount to a demand by appellees for the payment of the $25,000, which would of course not be due unless and until the well should be plugged and abandoned. Appellant deferred replying for twenty-four hours, during which time appellees permitted the drilling rig to lie idle at the well site. Thereafter, on July 28, 1955, appellant sent a telegram to appellees2 stating that a certain type of testing must be carried out by appellees as to eight different horizons and that the failure to test at these horizons in the manner specified would' be “a material [187]*187breach of agreement and a forfeiture of all your rights under same.”
The trial court found that immediately after receiving this telegram appellees excluded appellant from the rig and denied further information as to the drilling operation to appellant and otherwise treated this telegram as an anticipatory breach of the contract. Thereupon, after consultation with their counsel, appellees decided to extend the well to a depth of 10,250 feet. At a depth somewhat lower than the 10,025-foot level oil was encountered in sufficient quantities to cause appellees to complete it as a producing well.3
The trial court found that the requirements set out in the telegram were not in accordance with the contract and that it would have cost a minimum of $75,000 for the appellees to have completed the tests as demanded in the telegram. It was undisputed that the cost of the drilling to appellees up to the time of the receipt of the telegram was approximately $121,000. It was also undisputed that the cost of plugging the well would have been $2,000.
The trial court reasoned that appellant’s telegram was tantamount to saying: “Unless you complete the additional testing in the manner herein stated (which, as stated above, would cost at least $75,000) we will not pay the $25,-000 even though you plug the hole and abandon it in accordance with the contract.” Finding, as it did, that the additional testing was not required by the original contract but was a very substantial modification of its terms, the trial court held that this was a complete and unambiguous renunciation of the contract and amounted to an anticipatory breach. This, the court held, “destroyed” the contract at the moment it was treated as a breach by the other parties. The court held that they did so, as evidenced by their immediate exclusion of appellant’s agent from the rig and the denial of information to him thereafter. The court further held that the anticipatory breach destroyed the contract completely at that point of time and there was no further obligation on the part of appel-lees to plug and abandon the well. They were at liberty either to abandon it or to use it in any manner they saw fit, including further drilling against the prospect that this procedure would be productive of oil or gas at a" lower depth. He found that the only obligation of appellant under the contract was to pay $25,000; that upon its breach of the contract the damages to appellees were represented by the difference between the agreed amount and the $2,000, which it would have cost appellees to carry out their agreement had the contract not been breached. He therefore gave judgment to appellees in the sum of $23,000.
Appellant does not seriously contend that the doctrine of anticipatory breach does not exist under the Texas law. In arguing limitations on the doctrine, in fact, it concedes that it is applicable in a proper case. The trial court and appellees rely heavily on Pollack v. Pollack, Tex.Com.App., 46 S.W.2d 292. This case fully supports the trial court’s determination that the doctrine of anticipatory breach is no stranger to the Texas law. It also identifies Texas with a minority view to the effect that the doctrine is not restricted to those cases where the contract is still fully executory on both sides. See also Kilgore v. Northwest Texas Baptist Educational Ass’n, 90 Tex. 139, 37 S.W. 598, and Moore v. Jenkins, 109 Tex. 461, 211 S.W. 975.
Appellant cites no Texas authorities for the precise proposition that the doctrine of anticipatory breach does not apply to such a breach of the obligation of a promisor whose promise becomes binding only if acted upon by the other [188]*188party, as distinguished from a promise that is given in exchange for a promise by the other party. Cases of other jurisdictions are cited which raise some question as to the application of the doctrine in the case of a unilateral agreement. These cases are not persuasive except for the proposition that no part of a promise is binding and no breach of it is actionable unless and until it is supported either by a corresponding promise or by performance by the other party. No reason is .perceived why a party whose promise is supported only by the performance of the other party should not be held to the same strict accountability for the breach of his contract as is one whose promise is supported by the agreement of the other party. Even assuming, although we do not hold, that this letter agreement did not' create mutual obligations, initially there can be no doubt but that when ap-pellees undertook to drill the well strictly in accordance with the specifications, appellant became bound to carry out its undertaking in precisely the same manner as if the contract expressly obligated appellees to drill the well in the first place. Such being the case, the liabilities of both parties became fixed by the terms of the contract, and if either violated its terms by clearly and unequivocally stating that it would not carry them out, such conduct would amount to an anticipatory breach under Texas law.
Of course, for such conduct by the promisor, the appellant here, to amount to such a breach, its announcement must be unequivocal. Englehart v. Volunteer State Life Ins. Co., Tex.Civ.App., 195 S.W.2d 798; see also Moore v. Jenkins, 109 Tex. 461, 211 S.W. 975; Kilgore v. Northwestern Texas Baptist Educational Association, 90 Tex. 139, 37 S.W. 598. We must then consider whether the action of the parties here made of this telegram an anticipatory breach within these requirements.
We think the trial court correctly construed the telegram and the actions of the parties as a plain, unequivocal announcement by Placid Oil Company that even though appellees did what was still required for them to do under the contract — that is plug and abandon the well —it would still not carry out its agreement to pay the $25,000 unless appellees in addition undertook the extensive and costly tests at the eight horizons which had already been subjected to all the testing required under the original agreement. This placed appellees in a real dilemma. They could have at once plugged the well and have removed the rig and thus have abandoned their $121,-000 hole, fully realizing that they had been told that they would thus not be entitled to the $25,000 payment from Placid, or, relying upon their knowledge that the additional requirements were improperly asserted and that the refusal by Placid was a breach of the contract, they could treat it as a breach and consider anew whether they would, risk drilling operations to attempt to salvage something out of the theretofore dry hole.
Under the Texas law the moment as of which damages for an anticipatory breach are to be computed is the moment of the breach.
“ * * * The damages are to be ascertained as of date of the breach, but such damages are to be full compensation for the loss occasioned by depriving plaintiff of the benefit of the contract. The doctrine of anticipatory breach is not founded on the theory that it moves the performance ahead of the time provided for in the contract, but on the theory that, when a party bound to perform under the contract repudiates it and denies his liability thereunder, he thereby wrongfully destroys the contract so far as he is able to do so, and is liable for damages for such wrongful act. Also, since the injury is to the contract as a whole, the measure of damages is the value of the thing injured or destroyed regarded as an article of property. * * * ” Pollack v. Pollack, Tex.Com.App., 46 S.W.2d 292, 293.
At that point both parties were free to take such action as they saw fit, [189]*189the cause of action for the anticipatory-breach having fully accrued in favor of appellees. The fact that they elected to proceed with the drilling and that fortune later smiled, although rather wanly, on their subsequent efforts, in no way affects the cay.se of action which had already ripened.
We need not discuss in more detail whether the requirement asserted by Placid as to the additional testing actually imposed substantial additional requirements under the contract. We accept the reasoning of the trial court that these requirements were utterly unfounded and that appellant’s making them a condition of its continued liability under the contract amounted to an anticipatory breach.
We do not think that the cases cited by appellant, such as Englehart v. Volunteer State Life Ins. Co., supra, or Universal Life & Accident Ins. Co. v. Sanders, Tex.Com.App., 129 Tex. 344, 102 S.W.2d 405, (where the only loss sustained by the promisee from the mere refusal of an insurance company to continue making monthly payments was a delay in the receipt of the instalments) throw any light upon the present situation where under appellant’s theory appellees were required to decide whether to spend a minimum of $75,000 additional under circumstances in which the trial court has found that a prudent operator would not have considered doing so, or to plug the well, abandon it, and incur the expense of removing the rig from the property and trust to a suit to recover the $25,000. A repudiation of the contract according to its terms, under these circumstances, might very properly be found to result from a' threatened refusal to pay, whereas it might not result from a mere refusal to make a monthly payment until after a dispute is resolved by the court in the disability insurance cases.
We find no merit in the contention of appellant that some subsequent correspondence between counsel for appellees and appellant and the furnishing of certain data by an agent of the drilling company to appellant several weeks after the breach compels a holding that there was no acceptance by the appellees of the breach and no termination of the contract. Such action would merely be evidence of a waiver. Waiver being a question of fact its existence vel non is for the trial court to decide. The trial court found specifically that plaintiffs “continued at all times subsequent thereto (July 28) to treat the said contract as terminated and never at any time waived such breach or renunciation.” This finding was amply supported in the record and cannot be disturbed on appeal.
We finally come to the measure of damages. The only obligation of appellant under the contract was to pay the sum of $25,000. Compensation for the loss of the contract therefore would be a loss of the $25,000. Before becoming entitled to receipt of the sum, if the contract had not been broken, appellees would have had to expend $2,000 to plug the well. The court, relying upon the principle announced in Pollack v. Pollack, supra, and especially on the above quotation from that opinion, found that “compensation for the loss occasioned by depriving plaintiffs of the benefit of the contract” was $23,000. We agree that this is the correct measure of damages. Appellant’s contention that appellees suffered nothing because they thereafter salvaged something of their investment in the well by drilling to a greater depth is clearly inappropriate. They had a right to use the dry hole in any manner they chose after the contract was terminated. At that moment they had been entitled to the value of the contract, and that value could not be affected by what appellees did or did not do thereafter, freed of any obligations of the defaulted contract. Moreover, if there were to be any reduction in damages by reason of the subsequent finding of small quantities of oil, the burden would be on the defaulting party to prove that appellees had recovered or would reasonably be expected to recover their entire outlay for the drilling and the cost of operation from the flow of the well before they could say that appellees had not been damaged by their [190]*190breach. This appellant did not attempt to do.
We conclude that the judgment of the trial court was correct. It is affirmed.