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Damages For Breach of Express and Implied Drilling Covenants

Richard C. Maxwell, Proceedings of 5th Annual Rocky Mountain Mineral Law Institute (1960)

APPLICABILITY OF GENERAL PRINCIPLES OF CONTRACT DAMAGES

There are many situations arising in the oil and gas industry where the general law of property or contracts or torts does not quite fit and it has been necessary to erect a separate body of jurisprudence to meet the peculiar legal problems which are incident to the production of oil and gas. This body of law has grown, of course, through the adjustment of established rules and concepts to the oil and gas subject matter which has been so productive of legal controversy since the inception of the industry. The body of material governing damages for breach of obligations to drill oil wells furnishes a good example of the problems involved in this process.1 The law of damages is an exceptionally flexible mechanism in any case and there is considerable freedom to mold principles to fit problems which are not quite in the usual pattern.2

The goal of an award of damages for breach of contract is ...to place the plaintiff in the position he would be in [436] if the contract had been fulfilled.3 The realization of this principle in the cases involving the breach of construction contracts is an obvious source of rules to be tried out in a search for principles to govern the amount of an award for the breach of a drilling contract. The parties in construction contract cases are termed the owner and the builder. We