Empire Gas & Fuel Co. v. Stern

Decision Date13 October 1926
Docket NumberNo. 7195.,7195.
PartiesEMPIRE GAS & FUEL CO. v. STERN.
CourtU.S. Court of Appeals — Eighth Circuit

Warren T. Spies, of Bartlesville, Okl., and Leslie J. Lyons, of Kansas City, Mo., for plaintiff in error.

Paul R. Stinson, of Kansas City, Mo. (Isaac P. Ryland, Frank A. Boys, Arthur Mag, Robert K. Ryland, and William H. Wilson, all of Kansas City, Mo., on the brief), for defendant in error.

Before LEWIS, Circuit Judge, and FARIS and PHILLIPS, District Judges.

PHILLIPS, District Judge.

This is a writ of error from a judgment recovered by Sigmund Stern against the Empire Gas & Fuel Company.

On September 9, 1922, Sigmund Stern and Sybil C. Stern, his wife, executed an oil and gas lease running to the Empire Gas & Fuel Company. On September 11, 1922, C. J. Shortess, as the agent of the Empire Company, executed the following instrument:

"September 11, 1922.

"Sigmund Stern — Dear Sir: Pursuant to our agreement of this date, where you are forwarding lease with sight draft attached to Union National Bank, Bartlesville, Okl., with the understanding that said lease and draft are to be taken up within five days from September 11, 1922, providing the title to said land covered by said lease, being south one-half of the northwest one-fourth, section 27, township 27, range 6, is found to be merchantable, we herewith agree to have the title examined within five days from September 11, 1922, and we further agree that this lease and draft will be taken up promptly and money forwarded to Farmers' State Bank, Leon, Kan., provided the title is found to be merchantable subject to an incumbrance of $15,000. If the title is not merchantable, the lease is to be returned to the Farmers' State Bank, Leon, Kan., five days from the date of this agreement, and by said Farmers' State Bank to be returned to Stern Bros.

"Empire Gas & Fuel Company "By C. J. Shortess, Their Representative."

Shortess prepared the following draft to be forwarded with the lease:

"No. 15219. $20,000/00. Sept. 11, 1922.

"No protest

"Five days after date pay to the order of Sigmund Stern twenty thousand dollars, for oil and gas lease covering S. ½ N. W. ¼, 27 — 27 — 6, Butler county, Kan., subject to approval of title by our legal department, value received, and charge same to account

of Land and Leasehold Department "By C. J. Shortess.

"To Empire Gas & Fuel Co. 976.

"At Union National Bank, Bartlesville, Oklahoma.

"Bank to notify R. C. Russell, Treas., on receipt of draft."

On September 11, 1922, Sigmund Stern, by his agent, Morris Stern, delivered the draft and lease to the Farmers' State Bank of Leon, Kan., with instructions to forward them to the Union National Bank of Bartlesville, Okl. On the same day the Farmers' State Bank forwarded the documents to the Union National Bank, accompanying them with the following letter:

"Leon, Kansas, Sept. 11, 1922.

"Union National Bank, Bartlesville, Okl.:

"We inclose for collection and return. Report by number. * * * N. P. 83-1252.

* * * * * * *

"On whom drawn Amount 20,000.

"Sight draft on Empire Gas & Fuel Co. with lease attached, deliver lease only upon payment of draft; if not paid by Sept. 16, 1922 return to this bank.

"Farmers' State Bank "By H. C. Richardson, A. C."

Morris Stern, a witness for Sigmund Stern, detailed the preliminary negotiations which led up to the contract. He testified that Shortess requested an abstract; that he advised Shortess that there was a loan on the property, the abstract was deposited with the loan, and it would take two or three weeks to get the abstract; and that the Empire Company had recently purchased a lease on the adjoining eighty acres in the same chain of title. He testified further as follows: "I said to him: `There's only one thing that can concern you as to this title: To see that there have been no transfers by Sigmund Stern. The title is just as it was. You don't require more time for that. You can have one of your men go to the records in Eldorado, if you want to do that, and satisfy yourself. But we cannot give you any length of time for the purpose of examining abstracts.'" (Italics ours.) He further testified that Shortess stated he would have to get the consent of his company to handle the matter by examining the records; that Shortess left for the purpose of telephoning the home office of the Empire Company at Bartlesville, and shortly thereafter returned and stated, "Very well, we can waive that." In response to the following question: "What, if anything, did Mr. Shortess say to you about the manner that the Empire Company would follow in the examination of the title?" Morris Stern answered, "He stated that he would have one of their attorneys look over the records in Eldorado."

The Empire Company employed Judge Benson, of Eldorado, to examine the records.

On September 14, 1922, Judge Benson gave a written opinion to J. C. Kennedy, superintendent of the land department of the Empire Company, based upon an examination of the records. The opinion stated that the records disclosed an oil and gas lease dated September 7, 1920, running from Sigmund Stern and wife to W. M. Hastie; that on January 17, 1921, Hastie assigned this lease to Ferdinand Palma, trustee under a declaration of trust dated December 6, 1920; that on January 31, 1922, Palma executed a release of this lease to Sigmund Stern and wife; that there was nothing of record to show that Palma had authority as such trustee to execute the release. The opinion further stated that a suit for specific performance of an alleged contract for an oil and gas lease involving the land had been brought by W. C. Allen and Ed Naus against Sigmund Stern, Max Stern, and Henry Stern, and that such suit was pending; that Charles W. Stieger, attorney for plaintiffs, in the Allen-Naus suit, had stated that, while he had not seen his clients, he understood the suit had been settled, or that the plaintiffs had decided to dismiss it, and he would not object to a dismissal of the suit.

Stieger testified at the trial of the instant case that he brought the suit in good faith, believing that Allen and Naus had a good cause of action, and that the same was not dismissed until October 6, 1922.

Kennedy received Judge Benson's written opinion about four o'clock p. m., September 15, 1922. He submitted the opinion to Mr. H. O. Castor, chief counsel, and Mr. Hayes McCoy, assistant chief counsel, of the Empire Company. About noon, Saturday, September 16th, they advised Kennedy that the title was not merchantable and that they would not approve the same. Thereupon Kennedy wrote and delivered the following letter to the Union National Bank:

"September 16, 1922.

"Union National Bank, Bartlesville, Oklahoma — Gentlemen: On account of the dates in trust agreements being at such variance, and on account of pending litigation affecting this acreage, we are returning lease for proper disposition, and we do not believe we would care to consider it any further. Very truly yours, Signed J. C. Kennedy, Assistant Superintendent, Land and Lease Division."

The Union National Bank returned the draft and lease to the Farmers' Bank, advising it that they were returning them because the title was defective.

On Monday, September 18th, the Farmers' Bank notified Morris Stern that the papers had been returned, and he forthwith advised Sigmund Stern of that fact.

Sigmund Stern testified that on September 18th, after receipt of advice that the papers had been returned, he talked to Mr. Straight, general manager of the Empire Company, over the telephone; that in the course of the conversation he stated to Mr. Straight that the Empire Company had rejected the lease on account of the title; that the title was good, and apparently some mistake had been made; and that Mr. Straight stated that, if the title was good, the Empire Company would take the lease.

On the same day, Sigmund Stern wrote a letter to the Empire Company, which, in part, read as follows:

"As your counsel has obviously made a mistake, as we know the title is good, we would like for you to advise us to send this lease to you again with sight draft attached, and that you will honor same without any further delay."

On September 19, 1922, Kennedy wrote the following letter to Sigmund Stern:

"Mr. Straight, our general manager, called my attention to your telephone inquiry about consummating the purchase of oil and gas lease on the S. ½ N. W. ¼ 27 — 27 — 6.

"As explained in the letter returning the papers to the bank, the title is not in such condition that our legal department will accept it. The dates in the trust agreements seem to be at variance, and the company on whose behalf the old lease was released is not shown in the chain of title. There is also a suit involving the title to the lease.

"I understand that you are securing curative papers to correct the title, and that they will be sent to us for further consideration. If that is the case, we would like to have them at once."

Sigmund Stern further testified that on or about September 20th he talked to Mr. Kennedy over the telephone concerning the matter; that he told Mr. Kennedy that the Hastie lease had expired by its own terms, that no well had been commenced, and no rentals paid as provided in the lease; that Mr. Kennedy stated that it would be sufficient to take care of the defect caused by the Hastie lease to secure affidavits from Hastie and one McSmith that no well had been commenced, and that no rentals had been paid as provided in the lease.

Sigmund Stern further testified that he discussed the matter again over the telephone with Kennedy on October 3d; that he advised Kennedy he was experiencing some difficulty in obtaining the affidavits, but would continue to try to obtain them; that Kennedy stated that, if the affidavits could not be secured, it would be necessary to secure a decree quieting the title.

Sigmund Stern failed to obtain the affidavits, and thereupon brought...

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