Before BRATTON, HUXMAN and MURRAH, Circuit Judges.
Malco Refineries, Inc.,*fn1 instituted a declaratory judgment action against Maljamar Oil and Gas Corporation*fn2 and Murchison and Closuit, Inc.*fn3 in the United States District Court for the District of New Mexico, seeking a declaratory judgment defining and establishing the rights and liabilities of the respective parties under certain contracts between them relating to the production, transportation and purchase of oil products, as will more specifically appear hereinafter.
Malco is a New Mexico corporation. It owns and operates a refinery at Artesia, New Mexico. Maljamar is a Delaware corporation. It owns producing oil properties near Artesia, New Mexico. Murchison is, or was, a Delaware corporation, and the substituted defendant, Murchison & Co., is a Delaware company, and the substituted defendant, Ernest Closuit, is a citizen of Texas.*fn4 Murchison constructed a pipe line running from Maljamar's wells to Malco's Refinery. At all times up to December 30, 1941, Malco and Maljamar were controlled by the same group through common stock ownership.
On April 9, 1934, a contract was executed between Grayberg Oil Co. and Maljamar as first parties, Malco as second party, and Murchison as third party,*fn5 in which Maljamar agreed to deliver to Murchison, to be transported or carried by it to Malco's Refinery all the oil produced from Maljamar's properties, as set out in the contract, for a period of ten years from the date of receipt of notice from Murchison that its pipe line had been completed. It was provided that all oil produced by Maljamar should be transported only through Murchison's pipe line, providing, however, that Maljamar reserved the right to dispose of any excess production over Malco's requirements otherwise than through Murchison's pipe line unless Murchison first exercised an option given to it in the contract to purchase such excess oil at such price as the oil was offered to other parties, but not more than the Hobbs posted field price. The contract fixed the transportation charges due Murchison but was silent as to the Price which Malco was required to pay Murchison for the oil.
On July 28, 1938, a supplemental contract was executed between Malco and Murchison which, so far as material, extended the term of the base contract for an additional five years. Maljamar did not join in the execution of this contract, but on July 11, 1940, it executed a supplemental contract with Malco and Murchison in which it ratified the extension of the base contract for five years. The above contracts were all executed while Malco and Maljamar were under common ownership. On December 29, 1941, the owners of Malco and Maljamar, by written contract, sold Malco to Anderson and Lubell. In this contract maljamar agreed to execute a contract for the sale of its production to Malco on the same price basis and terms as contained in the base contract. In fulfillment of this obligation Maljamar executed a contract December 30, 1941, in which it agreed to sell all its production to Malco from the date of the contract to December 31, 1951, subject to the contracts of April 9, 1934, July 28, 1938, and July 11, 1940. Up to this point, none of the contracts specifically fixed the price Malco was to pay Maljamar for the oil purchased thereunder.
On December 30, 1941, Maljamar wrote the following letter to Malco:
"Malco Refineries, Inc., Artesia, New Mexico.
"Gentlemen: Confirming conversation with you, it is mutually understood between us, with reference to the crude oil contracts with you, that you will continue to pay for such crude oil as you buy from us out of the Maljamar pool on the same price practices as heretofore in vogue. This is not intended to alter or amend the existing contracts in any way.
"Kindly indicate by your signature below your assent to this understanding.