## Facts

- Harris Darcy held mineral rights and related drilling contributions under four instruments (an assignment from Sun Oil Company and three dry-hole contribution letters) that required Darcy to **begin actual drilling by August 10, 1959**.
- Each of the four instruments restricted reassignment unless the issuing company gave **prior written consent**.
- On July 29, 1959, Darcy and Glen Martin executed a written farmout/assignment agreement under which:
  - Martin assumed the obligation to drill the required well;
  - Darcy would retain a stated royalty interest if production resulted; and
  - Darcy would be paid a set contract amount depending on the outcome, including **$3,500 if the well was a dry hole** (and a smaller amount if completed as a producer).
- The agreement contemplated that Darcy would obtain and provide the required written consents from the four companies so the assignment to Martin could be effective.
- On July 31, 1959, Darcy promptly wrote the four companies requesting their written consents to the assignment.
- On August 4, 1959—before all consent letters had arrived—Martin sent Darcy a letter stating he could not take the deal because he did not have letters giving permission for Darcy to assign.
- Darcy continued securing consents and attempted to tender them to Martin:
  - By August 6–7, Darcy brought consents he had received to Martin’s office, but Martin refused to examine or consider them.
  - On August 7, Darcy also had Sun’s written consent and a telegram from El Paso stating El Paso’s written consent had been mailed.
  - Darcy received the El Paso written consent by August 8.
- There was evidence, credited by the factfinder, that even with consents arriving by August 8 (and earlier partial tenders), Martin could have commenced the actual drilling process in time to meet the August 10 drilling-commencement deadline if he exercised reasonable diligence.
- Martin never drilled the well.
- Another party later drilled the well for Darcy, and it was completed as a **dry hole**.
- Darcy sued Martin for breach of the farmout agreement and sought:
  - **$3,500** under the contract’s dry-hole payment term; and
  - **$3,000** as lost profits based on Darcy’s testimony that he had a tentative deal to sell one-half of his retained royalty for $3,000.
- The trial court entered judgment for Darcy for both $3,500 and $3,000. Martin appealed.

## Issues

1. Did Martin breach the farmout agreement by repudiating and refusing to drill when Darcy obtained and tendered (or was ready to tender) the required third-party consents in time for Martin, using reasonable diligence, to commence drilling by August 10, 1959?
2. Was Darcy entitled to recover $3,000 in lost profits based on an unconsummated, tentative arrangement to sell part of his retained royalty interest?

## Decision

- The appellate court upheld the finding that Darcy obtained the required consents in time for Martin, in the exercise of reasonable diligence, to meet the August 10 drilling deadline; Martin’s refusal to proceed therefore constituted a breach.
- The court affirmed the **$3,500** award, treating it as the contract measure tied to the dry-hole outcome that in fact occurred when the well was later drilled and proved nonproductive.
- The court reversed the **$3,000** lost-profits award because the proof showed only a tentative royalty-sale proposal and did not establish recoverable profits with the certainty required by Texas law.
- Disposition: affirmed as to $3,500; reversed and rendered as to $3,000 (judgment modified to delete the lost-profits recovery).

## Legal Principles

- When one party’s performance is conditioned on obtaining third-party consents, the condition is satisfied if the party seeking enforcement acts promptly and obtains the consents in time for the other party, using reasonable diligence, to perform by the contractual deadline.
- A party may not avoid its own contractual duty by refusing to consider timely tendered performance and then treating the condition as unsatisfied.
- In a farmout/drilling contract, where the parties set a specific payment tied to the well’s result (such as a dry-hole payment), that amount may serve as the proper contract measure of expectancy damages when the breach prevents performance and the contemplated result is later established by what actually occurred.
- Lost profits are recoverable only when supported by competent evidence showing they are not remote or speculative; a tentative, unaccepted, or unperformed deal to sell an interest is not sufficient proof of profits with reasonable certainty.

## Conclusion

Martin repudiated and refused to drill despite Darcy’s timely procurement and tender of the required consent letters, and the evidence supported that Martin could still have commenced drilling by the August 10 deadline with reasonable diligence; the court therefore enforced the contract by awarding Darcy the $3,500 dry-hole amount, but it set aside the separate $3,000 lost-profits recovery because it rested only on a tentative royalty-sale arrangement and was too uncertain to be recoverable.


Martin v. Darcy, 357 S.W.2d 457 (1962)