United States Court of Appeals,
Fifth Circuit.
No. 91–1486.
CROSBY–MISSISSIPPI RESOURCES, LTD., Plaintiff–Appellant/Cross Appellee,
v.
PROSPER ENERGY CORPORATION, et al., Defendants–Appellees/Cross Appellants.
Oct. 8, 1992.
Appeals from the United States District Court for the Southern District of Mississippi.
Before, BROWN, GARWOOD and EMILIO M. GARZA, Circuit Judges.
JOHN R. BROWN, Circuit Judge:
Crosby–Mississippi Resources, Ltd. (CMR) brought this action to recover royalty payments
alleged to be due pursuant to a joint operating agreement (JOA) executed between CMR and the
defendants (collectively Prosper). Following a bench trial, the district court, finding that Prosper had
committed a unilateral mistake in its interpretation of the agreement, rescinded the JOA and dismissed
CMR's complaint for damages. CMR appeals this judgment, and Prosper cross-appeals the district
court's denial of its alternative affirmative defense of mutual mistake. We affirm.
Royalty interest dispute
CMR owns unleased mineral interests in numerous sections of the Poplarville Field in Pearl
River County, Mississippi. Prosper1 sought to develop several gas wells in the Poplarville Field and,
as early as 1979, began negotiating with CMR and Exxon2 to reach an agreement securing their
participation in the Prosper venture. These negotiations ultimately proved unsuccessful. On
1
Prosper is one of the independent oil and gas companies owned and operated by the Hunt
family of Dallas, Texas. The other parties appearing as defendants and appellees/cross-appellants
under the name Prosper are Petro–Hunt Corporation and Propel Energy Company, a partnership
composed of three trusts for the benefit of Hunt family members.
2
CMR and Exxon were parties to an exploration agreement between themselves. That
agreement, however, is not at issue in this case. Furthermore, Exxon, although a signatory to the
JOA on which CMR's claim is based, is not a party to this suit.
December 20, 1984, however, Prosper obtained an order from the Mississippi Oil & Gas Board
allowing the forced integration of CMR's interest in the first of several wells to be drilled by Prosper
in the Poplarville Field, the Southern Mineral 27–7 well (27–7 well). The JOA for this well is the
subject of this action.3 Because CMR refused to participate in Prosper's continued development of
the Poplarville Field, Prosper, on a well-by-well basis, obtained orders from the Mississippi Oil & Gas
Board force po oling eight other wells in which CMR owned mineral interests. Under Mississippi
statutory law, a non-consenting owner of unleased mineral interests, as CMR is here, is not entitled
to receive payments from production until 250% of costs and expenses of drilling and completing the
well have been recovered out of that non-consenting owner's share of production. Miss.Code Ann.
§ 53–3–7(2)(a), (g) (1990).4 Ultimately, CMR chose to participate as a working interest owner in
seven of these nine wells, choosing to pay its proportional share of drilling and completing costs in
exchange for receiving an immediate share of production payments, free from the 250% penalty.5
Although CMR was obligated to pay its share of expenses for the seven wells in which it was
a participating working interest owner, CMR withheld payment until a JOA could be executed t o
3
A JOA or joint operating agreement is a written contract between the operator of the well
(Prosper) and the owner(s) of the working interests of the well (CMR).
4
The statute in effect penalizes those parties who choose to not participate in production by
withholding from that party any benefit or interest until 250% of production and completion costs
(which would have been chargeable to the nonconsenting owner's nonconsenting share) have been
recovered. Miss.Code Ann. 53–3–7(2)(g)(ii) (1990). The obvious intent of the statute is to
encourage unleased mineral interest owners to participate in the development of their interests,
thereby preventing waste and avoiding the drilling of unnecessary wells. Miss.Code Ann.
53–3–7(1)(a) (1990).
5
Pursuant to Section 53–3–7, once a forced integration order is filed for record before the
Mississippi Oil & Gas Board, the nonconsenting owner (CMR) has 20 days to file an acceptance
in writing with the Board agreeing to participate in the development and operation of the well on
the same cost basis as the consenting owner (Prosper). Miss.Code Ann. 53–3–7(2)(g)(iii) (1990).
Ultimately, CMR agreed to participate as a consenting owner in seven of Prosper's nine wells.
In addition to the 27–7 well, therefore, CMR did not participate in one other well.
For reasons of timing, however, the statutory penalty provision governing that well was
100% rather than 250%. The 27–7 well, therefore, was the only well for which, under the
statute and forced pooling order, CMR was to receive no royalty or production payment
until 250% of the production costs attributable to CMR's share had been recovered.
Miss.Code Ann. 53–3–7(2)(g)(ii) (1990).
govern the well operations. The parties initially sought to enter into a single JOA covering all nine
wells and, unable to come to terms on such a comprehensive agreement, ultimately executed nine
separate JOAs, one for each well.6
Although the forced pooling order for the 27–7 well was entered on December 20, 1984, it
was not until April 20, 1987 that the negotiations over this well culminated in the JOA. The effective
date of the JOA, however, was pre-dated to November 20, 1984, a date approximately one month
before the forced pooling order was entered.7
Under the final draft of the 27–7 well JOA, CMR was not to receive a share in the working
interest of the well until 250% of its, the nonconsenting owner's, share of production costs had been
recovered.8 The JOA, however, contains no such provision governing royalty payments; the
language of the JOA, in fact, does not condition CMR's receipt of royalties at all. That is, under the
JOA, CMR is entitled to royalties from the effective date of the agreement and upon the first sales
of gas, free from the statute's 250% penalty. Yet despite being immediately entitled to royalty
payments under the agreement, CMR sent its first claim for past due royalties to Prosper on
December 15, 1988, some nineteen months after executing the 27–7 well JOA. Prosper refused to
honor CMR's claim, and, in response, CMR filed this action.
6
For the Southern Mineral 27–7 well, in which CMR elected not to participate but was instead
force-pooled by Board order, Prosper's expense obligations and distribution rights were initially
defined by Section 53–3–7. CMR and Prosper, however, modified the effect of Section 53–3–7
by subsequently entering into a written JOA, the provisions of which superseded the statute.
7
The district court found that the sole purpose of the JOA's early effective date was to ensure
that Prosper would recover all costs involved in developing the 27–7 well, including those costs
incurred in obtaining the forced pooling order. By so dating the JOA, Prosper did not, the Court
found, intend to nullify the effect of the statute's 250% penalty provision or to expose itself to a
claim for royalty payments prior to "reversion," the moment at which Prosper would recoup
250% of its costs and CMR would be entitled to production payments.
8
An identical result would be mandated under the statute had the parties not executed the 27–7
JOA. Miss.Code Ann. § 53–3–7(2)(a), (g) (1990).
After CMR filed its complaint seeking royalty payments, Prosper asserted the affirmative
defense of unilateral mistake in its second amended answer, seeking rescission of the JOA.9 The
district court "unreservedly conclude[d] that Prosper intended and believed that under the JOA,
royalty payments would not be payable to CMR until 250% payout had been reached." The court
then found that Prosper's failure to find and correct the error in the JOA was at most "an oversight"
and not the result of gross negligence.10 Because the 27–7 well "never, or only barely, reached
payout, and has been plugged and abandoned," the court ruled that rescission of the JOA would
restore the parties to status quo. CMR appeals from a final judgment dismissing its complaint and
granting rescission of the JOA. Additionally, Prosper cross-appeals the district court's refusal to
reform the JOA due to the parties' mutual mistake.
Unilateral mistake
We review the district court's findings of unilateral mistake for clear error under F.R.Civ.P.
52(a). Mississippi law governs this diversity action, and Mississippi courts require that unilateral
mistake, like mutual mistake, be proven beyond a reasonable doubt. Terre Haute Cooperage v.
9
Prosper raised two other defenses to the enforcement of the royalty provision. First, Prosper
argued that there existed an oral condition precedent which delayed the effect of the JOA until
reversion (when 250% payout had been satisfied). The district court found this defense meritless
since there existed no evidence of any discussion between the parties concerning royalty payments
to CMR.
Prosper's second defense, asserted in its first amended answer, sought to reform
the provision in the JOA obligating Prosper to pay royalties as of the effective date based
on the parties' mutual mistake. Finding this defense meritless as well, the court held no
doubt that Prosper was mistaken about the royalty provision, but was "unable to conclude
beyond a reasonable doubt that CMR was similarly mistaken."
10
The 27–7 well JOA established a working interest and a 3/16th royalty interest as to CMR's
unleased mineral interest. Further, it provided that CMR was not entitled to receive any working
interest income nor obligated to bear expenses attributable to any interest until reversion, but
made no such condition as to payment for CMR's royalty interest. Thus, Prosper's error was its
omitting language from the JOA conditioning CMR's royalty payments.
The JOA also provided that the agreement was "dated [the] 20th day of April,
1987, but effective as of the 20th day of November, 1984," such that the effective date of
the JOA predated the date of the force-pooling order of the Mississippi Oil and Gas
Board. Thus, under the terms of the JOA, as written, CMR was entitled to receive
payment for its 3/16th royalty interest from the effective date of the agreement.
Branscome, 203 Miss. 493, 35 So.2d 537, 540 (1948) (claim of unilateral mistake must be proven
by same standard of proof as that for claim of mutual mistake); see Sprow v. Hartford Ins. Co., 594
F.2d 418, 422–23 (5t h Cir.1979) (claim of mutual mistake must be proven beyond a reasonable
doubt).
CMR contends that the district court erred in finding that Prosper had met its burden of
proving beyond a reasonable doubt that it was mistaken about the JOA's effect on royalty payments.
The district court, however, "unreservedly conclude[d]" that Prosper intended that the JOA
retain the same effect as that of the forced pooling statute: namely, that royalty payments would not
be payable to CMR until reversion. The court also found that "the matter of royalty payments was
never discussed between the parties."
Because this action proceeded as a bench trial, the court heard testimony from the actual
negotiators of the JOA. The court found Prosper's witnesses "stated without equivocation and
credibly that Prosper never even considered the possibility of making royalty payments to CMR prior
to reversion and certainly never had any intention of paying CMR any royalty payments prior to
reversion."11 The court also heard testimony from CMR's general partner and signatory to the JOA,
Stewart Gammill, who stated that CMR fully expected to receive royalties from the effective date of
the JOA. The court, however, was not persuaded by Gammill's testimony. Nevertheless, Gammill
admitted, and the court found, that after CMR had been force pooled as to the 27–7 well, he
requested that CMR be relieved of the penalty provisions of the order or be allowed to enter into a
JOA releasing it from the penalty's effect; Prosper refused both requests. The court concluded that
11
The district court assigned overwhelming credibility to the testimony of Prosper negotiators
Earnest W. Stewart and Danny Foster, both of whom testified that Prosper would not have
executed the JOA had it known of the provision requiring Prosper to make royalty payments
during payout. Additionally, Jim McGowan, vice-president of Petro–Hunt, a Prosper affiliate, the
person ultimately responsible for approving the JOA, testified, and the court found "unequivocal,"
that he "would have preferred to operate with no JOA at all if the alternative were one providing
for payment of royalties during payout."
Prosper had little, if any, incentive to release CMR from the effect of the 250% penalty of the
forced-pooling order and that Prosper's steadfast refusal to grant such a release was fundamentally
inconsistent with the JOA's royalty provision. The court explained this inconsistency by finding
beyond a reasonable doubt that Prosper committed a unilateral mistake. In the face of such
well-documented and forceful factual findings, none of which are clearly erroneous, F.R.Civ.P. 52(a),
we cannot conclude that the district court erred.
Rescission
CMR next contends that the district court incorrectly applied Mississippi law in equitably
rescinding the JOA based on Prosper's unilateral mistake. Specifically, CMR asserts that the district
court erred in basing rescission on the four-part test found in Mississippi State Bldg. Comm'n v.
Becknell Constr., Inc., 329 So.2d 57, 60 (Miss.1976). The district court, according to CMR, should
have, instead, applied Hunt v. Davis, 208 Miss. 710, 45 So.2d 350, 352 (1950), to the facts of this
dispute. Characterizing Hunt as the general rule and Becknell as an "extraordinary exception" to the
general rule, CMR concludes that had it correctly followed the general rule and applied Hunt, the
district court would have been compelled to deny Prosper's claim for equitable relief.
Things change
The test for equitably rescinding a contract due to unilateral mistake in Mississippi has
evolved over the last fifty years. Originally, equitable relief for a unilateral mistake was only available
under Mississippi law if the mistake did not result merely from "inattention, personal negligence, or
misconduct on the part of the party applying for relief." Wall v. Wall, 177 Miss. 743, 171 So. 675,
677 (1937). In Wall, the complainant sought to reform a deed to reflect the alleged intent of the
parties. In denying reformation and enforcing the deed as written, the Supreme Court of Mississippi
found no evidence that the warranty deed "was not read and understood by the parties signing same."
Wall, 171 So. at 677. Considering the question of unilateral mistake, the Wall court announced the
"inattention, personal negligence, or misconduct" bar to obtaining equitable relief and found that the
complainant's proof necessary to obtain such relief did "not meet these requirements." Id. Wall,
therefore, established a firmly objective test for denying equitable relief.
A similar objective standard appeared in Terre Haute Cooperage, Inc. v. Branscome, 203
Miss. 493, 35 So.2d 537 (1948). In this case where the plaintiff sought cancellation of a timber deed,
the Mississippi Supreme Court denied equitable relief on the basis of unilateral mistake because
"equity would never give any relief from a mistake, if the party could by reasonable diligence have
ascertained t he real facts; nor where the means of information are open to both parties and no
confidence is reposed." Terre Haute, 35 So.2d at 540. Amplifying the standard set forth in Wall,
Terre Haute expressly relied on an objective test in assessing the culpability of the party seeking
rescission:
Negligence on part of the complainant, contributing to the mistake, will also prevent
the securing of relief, the cases are practically unanimous in holding that mistake which results
from failure to exercise that degree of care and diligence which would be exercised by persons
of reasonable prudence under the same circumstances will not be relieved against. (Citing 9
Am.Jur. Cancellation of Instruments § 33).
Terre Haute, 35 So.2d at 538–39.
Terre Haute, however, recognized the breadth of discretion enjoyed by a court sitting in
equity:
[I]t is not every negligence which will preclude equitable relief; it has been held that
relief by way of cancellation will be granted for a unilateral mistake of fact, even though it
was due to the negligence of the complainant, if his lack of care did not amount to the breach
of a legal duty, or a duty to another, which alone, some courts hold, constitutes culpable
negligence, or does not prejudice the other party to the transaction. (Citing 9 Am.Jur.
Cancellation of Instruments § 33).
Terre Haute, 35 So.2d at 539. Thus, the steadfast, objective standard negligence test for denying
rescission in Mississippi, the rule of Wall and Terre Haute, was challenged by the hint of a more
forgiving alternative.
In Hunt v. Davis,12 however, the Mississippi Supreme Court again denied equitable relief,
using an objective test which penalized the complainants who sought rescissio n of a mineral deed
which conveyed more than they intended because nothing prevented the complainants from reading
and examining the deed prior to execution. Hunt approvingly cited Wall 's "inattention, personal
negligence, or misconduct" standard and Terre Haute 's "reasonable diligence" standard and
predictably denied equitable relief, enlisting almost an estoppel-type reasoning:
If one does a thing deliberately and intentionally, he may not be heard to say that upon
further reflection he may have acted otherwise, or that he entertained a different purpose
which he refused or neglected to disclose. Minds must be held by the law to have met in all
open covenants openly arrived at.
Hunt, 45 So.2d at 352. Hunt followed the Terre Haute decision by two years, yet nowhere in Hunt
do we hear any echo of the more relaxed standard which allows equity to grant appropriate relief to
a party to a contract for unilateral mistake. Terre Haute, 35 So.2d at 541. It is no mystery, then, that
CMR champions the Hunt decision as the proper law to follow in evaluating Prosper's argument for
rescission. Indeed, if the "inattention, personal negligence or misconduct" standard of Wall and Hunt
were to control here, then we would be compelled to hold for CMR. After all, as the district court
expressed in its memorandum opinion, "a careful analysis of the various terms of the JOA should have
alerted Prosper to its effect on royalty payments[.]" Hunt 's clear rule notwithstanding, the Supreme
Court of Mississippi has since spoken and it is its more recent rule which we, like the district court,
choose to follow.
Along came Becknell
In Mississippi State Bldg. Comm'n v. Becknell Constr., Inc., 329 So.2d 57 (Miss.1976), the
Mississippi Supreme Court recognized that "[t]he rule announced in Hunt through Wall is
undoubtedly correct. Its application, however, is not always mandated, but must be judged from the
particular factual circumstances before a court." Becknell, 329 So.2d at 60. Amplifying Terre Haute
12
208 Miss. 710, 45 So.2d 350 (1950).
's recognition of a court's greater discretion to award equitable relief for unilateral mistake in proper
cases, Becknell announced a new, four-part test:
[i] But where the mistake is of so fundamental a character, that the minds of the
parties have never, in fact, met; or where an unconscionable advantage has been gained, by
mere mistake or misapprehension; and [ii] there was no gross negligence on the part of the
plaintiff, either in falling into the error, or in not sooner claiming redress; and [iii] no
intervening rights have accrued; and [iv] the parties may still be placed in statu quo; equity
will interfere, in its discretion, in order to prevent intolerable justice. [numbering added for
ease of reference].
Becknell, 329 So.2d at 60–61 (quoting State Highway Commission v. State Construction Co., 203
Or. 414, 435, 280 P.2d 370, 380 (1955)).
That the Mississippi Supreme Court, as well as diversity courts bound to apply its law, have
embraced Becknell as the test for rescinding a contract for unilateral mistake in proper cases is
without question. See Highlands Ins. Co. v. Allstate Ins. Co., 688 F.2d 398, 401 (5th Cir.1982);
Mississippi State Port Auth. v. Inland Tugs Co., 660 F.Supp. 38, 41 (S.D.Miss.1986); Morris v.
Liberty Mut. Ins. Co., 659 F.Supp. 201, 205 (N.D.Miss.1987); Sacred Heart So. Missions v.
Terminix Intern., 479 F.Supp. 348, 351 (N.D.Miss.1979). Becknell primarily benefits Prosper by
denying equitable relief if, inter alia, Prosper committed gross negligence, certainly a more lenient
standard than Hunt 's "inattention, personal negligence or misconduct" bar. No wonder, then, that
CMR attempts to portray Becknell as an aberration of Mississippi law, an "extraordinary exception"
relegated to equity's darkest closet. Rather, Becknell is the law. Incorporating the stringent rule of
Hunt and Wall, Becknell adds to its predecessors by finally providing Mississippi courts a framework
for exercising greater equitable latitude when resolving rescission disputes. The Becknell test thus
allows a court of equity ultimately to make a truly equitable decision, a superior inquiry compared
to that which would require application of a straightjacket rule that forbids any real discretion.
Indeed, the record reveals that Prosper's negligence caused the mistake, however, as Becknell
recognizes:
Implicit in the very definition of "mistake" is some degree of negligence. Human failure is its
essence and it denotes an error of judgment. Nevertheless, it still remains the obligation of
a court of equity to determine whether, despite such misjudgment, it would be inequitable and
fundamentally unjust not to grant relief from honest but negligent mistake.
Becknell, 329 So.2d at 61. The district court properly applied Becknell as the law in examining
Prosper's claim for equitable relief. We now consider the court's factual findings within the Becknell
framework.
Since the parties have stipulated that there are no intervening rights and the 27–7 well is now
plugged and abandoned, thus the parties may be returned to statu quo ante, the last two elements of
the Becknell test are not at issue in this appeal. We need only inquire, therefore, whether the district
court was clearly erroneous in finding that (i) there existed no meeting of the minds between Prosper
and CMR and (ii) Prosper was not grossly negligent in falling into error.
Minds never met
In the district court's opinion, "the evidence demonstrate[d] overwhelmingly that the minds
of the parties never met regarding payment of royalties prior to reaching 250% of payout."
Essentially, the court combined its finding of no meeting of the minds with that of unilateral mistake.
The "overwhelming" evidentiary suppo rt for its finding of no meeting of the minds included the
following: (i) the parties never discussed royalty payments, (ii) Prosper had no reason or incentive
to expose itself to royalty liability by entering into a JOA where, under Board order and the
Mississippi forced pooling statute, CMR was not entitled to any royalty payments until reversion, (iii)
Prosper steadfastly refused, despit e CMR's repeated requests, to release CMR from the penalties
provided by the statute and the Board's order, (iv) Prosper's witnesses unequivocally established that
Prosper never intended to obligate itself to paying royalties under the JOA until reversion, and, in
direct contrast to Prosper's understanding of their agreement, (v) CMR considered itself entitled to,
and fully expected, t o receive royalty payments from the effective date of the JOA. Under these
circumstances, the district court found "inescapable the conclusion that the parties' minds never met
on the matter of royalty payments." Such a finding was not clearly erroneous.
Not gross
CMR next contends that the district court's gross negligence analysis was in error because
the court focused on Prosper's intent rather than its conduct. Evidence of Prosper's intent, as
opposed to its conduct, CMR contends, is evidence going to the issue of whether Prosper was
mistaken in the first place rather than the critical inquiry of whether Prosper was grossly negligent
in making the mistake. Regardless of the court's focus, we will overturn a district court's finding of
gross negligence only if such a finding constitutes clear error. F.R.Civ.P. 52(a).
The district court expressly found:
While a careful analysis of the various terms of the JOA should have alerted Prosper
to its effect on royalty payments—that the agreement failed to exclude pre–250% pay out
royalty payments—the court cannot conclude that its failure to have realized this fact and
taken steps to have avoided this result amounted to gross negligence, especially since Prosper
had unequivocally refused to release CMR from the effect of the penalty provisions of the
forced-pooling order. At most, this was an oversight on the part of Prosper's representatives.
While Becknell does not describe what conduct constitutes gross negligence, the Fifth
Circuit, applying the Becknell test, denied rescission due to the mistaken party's gross negligence in
Highlands Ins. Co. v. Allstate Ins. Co., 688 F.2d 398, 401 (5th Cir.1982). A brief excerpt from
Highland detailing Allstate's repeated and stupendous error which amounted to gross negligence is
enough to convince us that Prosper's error is comparatively slight and certainly not grossly negligent:
Allstate had issued Policy No. 899 to replace Policy No. 190, but because of clerical error,
nevertheless neglected for six months to terminate Policy No. 190. Thus Allstate itself
violated the "other insurance' clauses of both Policy No. 190 and Policy No. 899 by keeping
both policies in force simultaneously. Allstate then sent Tri–State conflicting notices, one of
them saying Policy No. 899 was canceled, the other saying the policy was to be continued.
It further confused matters by failing to provide a full date in the continuation notice. When
Tri–State's general manager communicated with Allstate to find out whether Allstate had
insurance on the Pearl Street pro pert y, Allstate was unable to give him a definite answer.
Several months later, apparently through another clerical mistake, Allstate sent the renewal
policy to Tri–State. Although no one paid the premium on this policy, Allstate allowed the
policy to remain in Tri–State's files for almost a year, with a copy in its own files, and did
nothing either to collect the premium or to cancel the policy until after the loss.
Highlands, 688 F.2d at 401. In contrast to Allstate's repeated blunders, Prosper singularly erred by
omitting language from the JOA delaying CMR's collection of royalties. Yet CMR characterizes
Prosper's error as gross, asking how Prosper's seasoned negotiators could fail to understand the clear
and unambiguous provisions of the JOA which obligated Prosper to pay royalties to CMR. Perhaps
CMR could shed some light on the cause of Prosper's "slight error" since CMR waited some nineteen
months after executing the JOA to make its first claim for royalties, a delay indicative of its own error
in fully understanding the nuances of the lengthy model form JOA.13 We conclude that the district
court correctly found Prosper was not grossly negligent in mistakenly interpreting the JOA. Because
the district court properly applied Mississippi law and did not clearly err in undertaking its factual
findings, we affirm its decision to rescind the 27–7 JOA.
Mutual mistake
Prosper brings its cross-appeal solely to contest the district court's refusal to reform the JOA
on the basis of its alternative affirmative defense of mutual mistake. Because Prosper failed to meet
its evidentiary burden of establishing mutual mistake beyond a reasonable doubt and because the
district court's express findings sufficiently explained its denial under Mississippi law, we affirm.
Under Mississippi law, mutual mistake may be the result of either a mistake on the part of
both parties or a mistake on the part of one party with fraud or inequitable conduct on the part of the
13
The district court found evidence suggesting that CMR itself did not contemplate at the time
the JOA was executed that it would be entitled to claim royalties prior to 250% payout. Unable
to support this conclusion beyond a reasonable doubt, however, the court, nevertheless, found
that
after CMR's execution of the JOA's for the Poplarville field, including the 27–7
JOA, CMR on May 12, 1987 paid to Prosper the sum of $1,449,457.01 for its
proportionate share of the accrued expenses on seven other wells in the field, but
CMR did not withhold from this payment the amount which would at that time
have been due as royalties for the 27–7 well, in the amount of more than $390,000,
which CMR now claims that it knew was owed to it. CMR did not even reference
in its letter of transmittal that there was a claim for outstanding royalty payments.
In fact, CMR first demanded the payment of royalties in December 1988, some
nineteen months after the 27–7 JOA had been executed, and that demand came
only after a notification from Prosper that Petro–Hunt was to become the operator
of the wells in the Poplarville Field.
other party. Johnson v. Consolidated American Life Ins. Co., 244 So.2d 400, 402 (Miss.1971). See
also Perrien v. Mapp, 374 So.2d 794, 796 (Miss.1979) (citing Johnson ). As with unilateral mistake,
Prosper's burden of proof is beyond a reasonable doubt. Wise v. Scott, 495 So.2d 16, 19
(Miss.1986).
The district court was unable to conclude beyond a reasonable doubt that CMR was mistaken
about the royalty provision in the 27–7 JOA. Prosper does not contest this finding of the district
court. Prosper argues, instead, that the district court failed to consider whether CMR committed
fraud or acted inequitably and that, as a result, the court applied an incorrect standard of law in
focusing solely on whether CMR was itself mistaken.
We find no merit to Prosper's argument. In concluding that Prosper's defense of mutual
mistake was unavailing, the district court stated in its memorandum opinion:
[W]hile the proof does not exclude the real possibility that CMR realized during negotiations
and at the time of execution of the JOA that Prosper was not aware of the royalty provision
yet remained silent, or the possibility that CMR's claim for royalty payments was merely an
afterthought, the court is unable to conclude beyond a reasonable doubt that CMR was
similarly mistaken (emphasis in original).
The above portion of the district court's opinion reflects, contrary to Prosper's allegations, that
the court did, in fact, consider whether (i) "CMR realized ... that Prosper was not aware of the royalty
provision yet remained silent" and (ii) "CMR's claim for royalty payments was merely an
afterthought." Under Johnson and Perrien, the district court here satisfied its two-part inquiry
concerning the non-movant in a mutual mistake claim. That the court ended its discussion of mutual
mistake with the grammatically concise finding that CMR was not "similarly mistaken" certainly does
not suggest that the court considered whether CMR was itself mistaken without also considering
allegations of CMR's inequitable conduct. Indeed, as the above excerpt from the district court's
opinion demonstrates, the court considered whether CMR was also mistaken and whether CMR acted
inequitably. Unable to document either consideration beyond a reasonable doubt, the court properly
rejected Prosper's claim of mutual mistake.
Wrapping it up
We affirm the district court's finding that Prosper committed a unilateral mistake in its
interpretation of the 27–7 JOA. Because the district court properly applied Mississippi law and made
sufficient findings in rescinding the JOA, we affirm its decision. Finally, because the district court
made a sufficient inquiry whether CMR was mistaken and whether CMR acted inequitably, we affirm
the district court's denial of Prosper's claim of mutual mistake.
AFFIRMED.
GARWOOD, Circuit Judge, concurs in the result.