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Contract Formation Issues When Contracting For Goods, Services, and People

David E. Pierce, Oil & Gas Agreements: Contracting for Goods, Services, and People (2013)

The basic premise of American contract law is that parties can agree to order their affairs as they see fit, with minimal intervention by courts and legislatures.2 This remains the model, particularly when dealing with oil and gas agreements where traditional give-and-take bargaining occurs among sophisticated parties. For example, in Nearburg v. Yates. Petroleum Corp.,3 the New Mexico Court of Appeals refused to grant Yates a second chance to elect to participate in drilling a well when it failed to respond within the 30-day time frame set by the operating agreement.4 In reversing the trial court's “equitable” approach to the issue, the Court of Appeals stated: “A court should ... not interfere with the bargain reached by the parties unless the court concludes that the policy favoring freedom of contract ought to give way to one of the well-defined equitable exceptions, such as unconscionability, mistake, fraud, or illegality.”5

However, such “freedom” also means courts should not rescue a party from what turns out to be a bad bargain. Freedom of contract creates both a “right” and an “obligation” to ensure it is used properly to accomplish the intended goals. The purpose of this Special Institute on Oil and Gas Agreements is to assist the transactional lawyer in using this freedom to accomplish client goals while avoiding unanticipated or unintended consequences.<