Grayhill Drilling Co. v. Superior Oil Co.

TRAYNOR, J.

Plaintiff appeals from a judgment of non-suit entered in its action to recover the balance alleged due from defendant for the drilling of an oil well. The evidence, stated most favorably to plaintiff, is as follows: Plaintiff entered into a written contract with defendant to drill an oil well in Oklahoma. The contract was negotiated with defendant’s agents Smith and Kunau and sent to California, where it was signed by defendant’s vice-president Cody. It was then returned to Oklahoma, where it was executed by plaintiff. It provided that the well should be drilled to the Gibson sand, which was expected to be encountered at or below 6,500 feet. Plaintiff was to receive $5.25 per foot for the hole drilled up to 6,500 feet in depth, and $6.00 per foot thereafter, plus certain amounts for standby time. Drilling proceeded until a depth of somewhat over 4,000 feet was reached, at which depth a steep dip in the geological formation was encountered, and drilling became much more expensive. Plaintiff’s vice-president and general manager Frederickson then informed defendant’s Oklahoma agents that plaintiff would be unable to continue with the drilling unless more favorable terms could be agreed upon to compensate it for the unforeseen expenses and difficulties. Kunau, defendant’s Oklahoma drilling and production superintendent, orally agreed to a modification of the contract whereby plaintiff should be paid at the contract rate of $5.25 per foot for the hole drilled up to that time, and on a cost plus basis thereafter. Drilling continued until a depth of 7,254 feet was reached, at which time the well was abandoned as a dry hole. Plaintiff then submitted three statements to defendant. One was for $96,872.63, described as the actual cost of the well; the second was for $100,121.42, based upon “footage contract to 4000', actual cost from 4000' to 7254' ’ ’; and the third was for $47,697.46, the amount that would have been earned under the terms of the original written contract. Defendant sent plaintiff a cheek for the latter amount, which was accepted and cashed after defendant’s agent Smith as

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sured Prederickson that it was not intended as a final settlement. Thereafter further negotiations took place between Prederickson, acting for plaintiff, and various officers and agents of defendant. These negotiations terminated when defendant’s vice-president Cody met Prederickson in Oklahoma and offered him $23,000 in final settlement of their account. Prederickson said he would accept the $23,000, but not in final settlement. Defendant then forwarded its check for $23,000 together with a letter stating, “We are enclosing-check No. 5305 in the amount of $23,000.00 in full and final settlement of balance of all claims and costs for drilling' Craig No. 1 well in Garvin County, Oklahoma. This check is being sent in accordance with request of Mr. J. C. Cody.” The voucher attached to the check bore the notation that it was “in full and final settlement of balance of all claims and costs for drilling Craig No. 1. . . Plaintiff cashed the check and later instituted this action for the balance it claims is due under the terms of the oral modification of the written contract. At the close of plaintiff’s case defendant successfully moved for a nonsuit on the grounds that there was no proof that its Oklahoma agents had authority to modify the written contract, that the oral modification was invalid for lack of consideration and because it was not in writing, and that the evidence established an accord and satisfaction as a matter of law.