664 F.3d 1208
8th Cir.2012Background
- Arrington Oil & Gas, Inc. failed to pay cash bonuses due under Arkansas leases presented to landowners in Phillips County, Arkansas.
- Drafts issued with lease payments identified Arrington as drawee, landman as drawer, and Western National Bank as collecting bank, for $300 per acre.
- Leases were prepared by Arrington and executed by landowners before any payment, with drafts tied to each lease.
- Drafts contained no-liability, lease-approval, and title-approval language, and specified escrow terms and payment conditions.
- Arrington admitted no formal title-disapproval record for the leases and later abandoned the Phillips County leases for unproductive drilling.
- District court granted summary judgment for landowners on breach of contract, and dismissed other claims; appellate panel affirmed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether drafts’ provisions void mutuality of obligation | Landowners: leases control; drafts only payment method. | Arrington: no-liability clause nullifies contract. | No mutuality void; contracts formed; no-liability clause harmonizes with leases. |
| Whether lease-approval clause prevented payment | Landowners: acceptance of executed leases by Arrington sealed approval. | Arrington: approval required by drafts to trigger payment. | Lease approval satisfied by acceptance of executed leases; not a nullity. |
| Whether title-approval clause excused payment | Landowners: good-faith title approval required; no title disapproval by Arrington. | Arrington: could deny payments for title reasons within draft period. | Arrington’s business reasons voided title-only defense; no good-faith disapproval shown. |
| Whether Arrington acted in good faith on title and payments | Landowners: generally enforceable contracts; goodwill presumed. | Arrington: decisions based on business reasons; not title. | No genuine issue of material fact; summary judgment for landowners proper. |
Key Cases Cited
- Spellman v. Lyons Petroleum, Inc., 709 S.W.2d 295 (Tex.Ct.App.1986) (no-liability clause limited to draft liability; not all contract)
- Griffin, First Nat’l Bank of Crossett v. Griffin, 832 S.W.2d 816 (Ark. 1992) (contractual interpretation: ascertain intention, harmony of provisions)
- Dardanelle v. City of Russellville, 277 S.W.3d 562 (Ark. 2008) (mutuality and contract elements; construction of instruments)
- Hanna Oil & Gas Co. v. Taylor, 759 S.W.2d 563 (Ark. 1988) (ambiguities construed in favor of lessor; against lessee)
- Leroy v. Harwood, 178 S.W. at 430-31 (Ark. 1915) (good-faith discretion required; title considerations)
- Cantrell-Waind & Assocs., Inc. v. Guillaume Motorsports, Inc., 968 S.W.2d 72 (Ark.App. 1998) (good-faith duty in performance of conditions precedent)