French Energy, Inc. v. Alexander, 69749

Decision Date16 October 1991
Docket NumberNo. 69749,69749
Citation1991 OK 106,818 P.2d 1234
PartiesFRENCH ENERGY, INC., an Oklahoma Corporation, Appellant, v. Dorothy ALEXANDER, an individual and attorney; Billy Clift, an individual; and Billy Clift, Executor of the Estate of H.E. "Bill" Clift, deceased, Appellees.
CourtOklahoma Supreme Court

Certiorari to the Court of Appeals Division I, Appeal From the District Court of Roger Mills County; Charles L. Goodwin Trial Judge.

In this action for recovery of the consideration paid for an oil and gas lease on grounds of unjust enrichment, the judgment of the trial court granting Appellees' motion for summary judgment is reversed and the cause is remanded to the trial court with directions to enter judgment for Appellant, including return of the purchase price plus the attorney fees paid by Appellant to the attorney representing the estate.

CERTIORARI PREVIOUSLY GRANTED; COURT OF APPEALS' OPINION VACATED; JUDGMENT OF TRIAL COURT REVERSED AND CAUSE REMANDED WITH DIRECTIONS.

Eric R. King, Linda A. King, Constance Ford Mungle, King & King, Edmond, for appellant.

Thomas B. Goodwin, Cheyenne, for appellees.

LAVENDER, Justice.

The question this court is asked to decide is whether a lessee of an oil and gas lease purchased at a judicial sale can recover on grounds of unjust enrichment the consideration paid, when the estate did not hold the interest that was the subject of the sale. We find that lessee, Appellant herein, is entitled to such equitable relief, notwithstanding the doctrine of caveat emptor.

FACTS

H.E. (Bill) Clift owned an oil and gas lease covering section 18-T13N-R25W, of Roger Mills County, Oklahoma. Bill died in 1981 and his son, Billy Clift (Billy/Appellee) Following Dorothy Alexander's instructions, French submitted a written bid and the district court on May 28, 1986 executed an order allowing French to purchase a lease on section eighteen for the sum of eighteen thousand, eight hundred dollars ($18,800). French paid Dorothy Alexander five hundred dollars ($500.00) in attorney fees.

was named executor of the estate. In 1986, French Energy, Inc., (Appellant) approached Billy about purchasing a lease in section 18. Billy advised French to contact Dorothy Alexander, (Appellee) the attorney representing the estate.

Shortly thereafter, French learned the mineral rights it had purchased were, in fact, subject to a pre-existing lease dated July 9, 1971 and having a ten year primary term. Though the initial term of the lease had expired, there was production from another section within the unit and therefore, the lease continued in force since it was executed before passage of 52 O.S. 1981, § 87.1(b), our statutory "Pugh clause." With the adoption this statutory "Pugh clause," production from within a unit will apparently no longer extend a leasehold interest outside the unit for more than ninety days beyond the expiration of the primary term of such lease.

Upon discovering the lease was encumbered, French demanded the return of its money including the $500 it had paid for attorney fees. Appellees refused, after which French filed suit seeking actual and punitive damages on the issues of fraud or in the alternative, rescission of the lease and restitution.

Appellees countered with a motion for summary judgment based on what they considered the undisputed material facts of the case and attached excerpts from interrogatories and depositions in support of it. Their brief argued the doctrine of caveat emptor was dispositive of the issue in that the lease was purchased in an estate sale and under Hammert v. McKnight, 1 and Selement v. Gibson, 2 the estate could and did sell only what interest it had to sell.

Appellant, responded, by stating why the doctrine of caveat emptor was inapplicable to the present situation. Further, Appellant alleged Appellees were guilty of intentional fraud citing to affidavits and deposition testimony, or in the alternative, constructive fraud, mutual mistake or unjust enrichment. 3 Finally, in answer to Appellees' motion, Appellant requested the trial court grant summary judgment based on either of its theories of constructive fraud or unjust enrichment. The trial court, however, ruled in Appellees' favor on the motion finding there was no dispute as to the sale proceedings and that, whatever its worth, Appellant owned a recorded lease.

The Court of Appeals affirmed the trial court. The appellate court stated, however, affirmation did not suggest approval of Appellees' theory on the doctrine of caveat emptor in judicial sales; rather, the court found Appellant should have raised a breach of warranty argument pursuant to our rulings in Walker & Withrow, Inc. v. Haley, 4 and Oklahoma City, v. Harper. 5 Having failed to raise this argument at the trial court level, Appellant could not raise it on appeal. Moreover, the court found Appellant was not entitled to relief since it had not met its burden of proof to overcome Appellees' motion for summary judgment. We previously granted certiorari.

In analyzing this case, we use the standard of review as articulated in Ross v. City of Shawnee, 6 where we stated:

In reviewing the grant or denial of summary judgment, this Court will examine the pleadings and evidentiary materials to determine what facts are material to plaintiff's cause of action, and to determine whether the evidentiary materials introduced indicate whether there is a substantial controversy as to one material

fact and that this fact is in the movant's favor. All inferences and conclusions to be drawn from underlying facts contained in such materials as affidavits, admissions, depositions, pleadings, exhibits and the like, must be viewed in a light most favorable to the party opposing the motion.

ANALYSIS

We note initially, the appellate court erred in deciding Appellant's failure to argue breach of warranty was fatal to obtaining relief. This lease was purchased at a judicial sale and as such breach of warranty is an irrelevant defense. 7 Likewise, the trial judge ruled improperly in granting Appellees motion for summary judgment, rather, summary judgment should have been granted for Appellant on the basis of unjust enrichment. 8

I. UNJUST ENRICHMENT

Recovery, based on unjust enrichment depends upon a showing that Appellees have money in their hands that, in equity and good conscience, they ought not be allowed to retain. Unjust enrichment was the basis for our ruling in Conkling's Estate v. Champlin, 9 a case we find analogous to the one at bar. In Conkling's Estate, "the plaintiff paid to the deceased in her lifetime $100 per month under the misapprehension that she was in necessitous circumstances. While it is true the record is silent as to any misstatement on the part of Mrs. Conkling that would render her guilty of fraud in representing her true financial condition, nevertheless the facts are such as to justify a conclusion of nondisclosure on her part and to warrant the view of the learned trial judge that payment was made by [Plaintiff] and received by Mrs. Conkling under a misapprehension as to her true financial condition." 10

Likewise, the facts of this case manifest that, regardless of fault, the oil company was not aware of the prior lease when it paid the bonus money to executor. The executor, however, was aware of the existence of a pre-existing lease 11 though he may not have appreciated its significance; if he did, his retention of the bonus money is particularly offensive to principles of equity, if not, there was at the very least, a mutual mistake that was basic to the parties' bargain 12 in that Appellee specifically agreed to convey to Appellant the present right to explore for oil and gas.

In Conklings' Estate, we concluded The basis of recovery allowable is under the doctrine of unjust enrichment.... Where innocent misrepresentation or non-disclosure is the sole ground for restitution, restitution is granted only if the misrepresentation or non-disclosure was material.

Where mutual mistake is the sole ground for restitution, restitution is granted only if the mistake was basic. 13

In the present case, the mineral rights French thought it was purchasing were being held by production from within the unit. The contract, in clear and unambiguous terms, purported to convey the present right to explore for oil and gas. 14 However, there was nothing to convey. 15 To allow Appellees to keep the bonus money in exchange for nothing would result in them being substantially and unjustly enriched 16. We refuse to allow one party to profit by the mistake of another where, as here, both parties can be returned to the position they were in before the transaction. In short, this case is a classic illustration of when, in accordance with general principles of common justice and equity, Appellees will be required to do what it is they promised. Since this is not possible in that the mineral rights are subject to a pre-existing lease, we order the contract be rescinded and Appellant's money refunded.

II. CAVEAT EMPTOR

Appellees have maintained throughout this suit, however, that the doctrine of caveat emptor is controlling. Specifically In Hammert, the executor of an estate had not advertised the sale of land in the correct form, manner and length of time as required under the law. In addressing the merits of the case, we initiated our legal discussion by reciting the established rule that a "purchaser at judicial sales is entitled to and takes only such title as the decedent had. If the decedent had no title, the purchaser takes none. If the title is defective, the purchaser takes it, subject to such infirmities as exist." 19

Appellees cite to Hammert v. McKnight, 17 and Selement v. Gibson, 18 for the proposition that a purchaser at a judicial sale acquires whatever interest the estate owned and his knowledge or lack thereof, as to the extent of that interest, could hardly be the basis for invalidating the judicial sale. An...

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