This summary was computer-generated without any editorial revision. It is not official, has not been checked for accuracy, and is NOT citable.
Facts
The Plaintiff, a petroleum exploration company, entered into a farmout agreement with the Defendant for drilling rights on a tract of land. The Defendant represented that it owned or controlled 100% of the working interest and promised to assign a 76.5% net revenue interest upon performance. The Plaintiff relied on this agreement to begin drilling operations but later discovered that the Defendant could not deliver the promised interests due to title deficiencies. The Plaintiff proceeded with drilling and sued for breach of contract and negligent misrepresentation (paras 2-11).
Procedural History
- District Court of Lea County: Found in favor of the Plaintiff, awarding $616,555.22 in damages for breach of contract and negligent misrepresentation.
Parties' Submissions
- Defendant-Appellant: Argued that the farmout agreement was a unilateral contract that could be modified before acceptance, the trial court misinterpreted the contract terms, the damages should be reduced by the interests of subsequent investors, and the trial court used an incorrect measure of damages (paras 1, 13, 28, 33).
- Plaintiff-Appellee: Contended that the Defendant breached the contract by failing to deliver the promised interests, the agreement was binding due to promissory estoppel, and the damages were properly calculated based on actual and projected oil production (paras 16-22, 39-43).
Legal Issues
- Was the Defendant’s offer in the farmout agreement irrevocable due to promissory estoppel?
- Did the Defendant breach the contract by failing to deliver the promised working and net revenue interests?
- Was the trial court correct in awarding damages without reducing them by the interests of subsequent investors?
- Did the trial court apply the correct measure of damages?
Disposition
- The Supreme Court of New Mexico affirmed the trial court’s judgment in favor of the Plaintiff (para 45).
Reasons
Per Frost CJ (Baca and Minzner JJ. concurring):
- Promissory Estoppel: The court held that the Plaintiff’s reliance on the Defendant’s promise, including drilling a high-risk exploratory well, made the Defendant’s offer irrevocable. The Plaintiff substantially changed its position based on the Defendant’s representations, satisfying the elements of promissory estoppel (paras 16-27).
- Breach of Contract: The court found substantial evidence that the Defendant represented it owned or controlled 100% of the working interest and promised to assign it. The Defendant’s failure to deliver the promised interests constituted a breach of contract (paras 28-32).
- Damages: The court rejected the Defendant’s argument to reduce damages by the interests of subsequent investors, as the investors were not in contractual privity with the Defendant. The damages were properly calculated based on the present and projected oil production, which was a reasonable measure for lost profits in a drilling contract (paras 33-43).