Ballard v. Claude Drilling Co.

• Decision Date: 08 April 1939
• Docket Number: 33820.
• Parties: BALLARD et al. v. CLAUDE DRILLING CO. et al.
• Court: Kansas Supreme Court

88 P.2d 1021

149 Kan. 506

BALLARD et al. v. CLAUDE DRILLING CO. et al.

No. 33820.

Supreme Court of Kansas

April 8, 1939

Syllabus by the Court.

Information respecting oil lease, including results of special study given to geological structure of land near lease, reports and maps of geologist, and terms of farm-out contract lessee was willing to make, constituted "business" or "trade" secret against wrongful use of which owner would be protected.

In action to establish interest in oil and gas lease, petition alleging that, after defendants in negotiating for drilling contract obtained information gathered by plaintiffs with respect to lease, defendants delayed negotiation until rights of plaintiffs to accept farm-out contract with lessee expired and then contracted directly with lessee on terms which had been offered to plaintiffs, stated cause of action to enforce constructive trust.

The petition in an action to establish and enforce a constructive trust is examined and held to state a cause of action.

Appeal from District Court, Harvey County; J. G. Somers, Judge.

Action by A. M. Ballard and R. J. Wallace, copartners doing business under the firm name and style of Ballard & Wallace, against Claude Drilling Company, to establish an interest in an oil and gas lease. From a judgment sustaining a demurrer to the petition, plaintiffs appeal.

Reversed with directions.

Paul H White, Robert C. Foulston, George Siefkin, Sidney L Foulston, Lester L. Morris, George B. Powers, Carl T. Smith C. H. Morris, and John F. Eberhardt, all of Wichita, for appellants.

Earle W. Evans, Joseph G. Carey, W. F. Lilleston, George C Spradling, Henry V. Gott, George Stallwitz, A. M. Buzzi, and Paul J. Donaldson, all of Wichita, for appellees.

HARVEY Justice.

This was an action to establish and enforce an interest in an oil and gas lease. The trial court sustained a demurrer to plaintiffs' petition and they have appealed.

The petition, for our purposes, may be summarized as follows: Plaintiffs reside at Tulsa, Oklahoma, maintain an office in Wichita, and deal in oil and gas leases. On and prior to January 8, 1937, they acquired certain geological information concerning oil and gas prospects in the Burrton, Kansas, area. About that time they learned the Indian Territory Illuminating Oil Company (hereinafter called the oil company) held an oil and gas lease in the Burrton area, known in this record as the Dick lease, on certain described land in Harvey county near the Reno county line. This lease expired by its terms on June 28, 1937, unless an oil well was commenced on the property before that date, and plaintiffs later ascertained that the owner of the property would not consent to any extension of that time. Plaintiffs took the matter up with the Wichita office of the oil company and after some delay were advised the oil company would be interested in making a "farm-out" contract of the Dick lease. Thereafter, at considerable expense to themselves plaintiffs employed the firm of Lerke & Whortan, geologists of Wichita, to make a geological survey of this area. This was done, and the geologists made a report to plaintiffs, with plats. These showed a "high" in the vicinity of the Dick lease and that it had excellent possibilities of being a producing areage.

The defendant, the Claude Drilling Company, is a corporation with its principal office at Tulsa, Oklahoma. As its name implies, its principal business is drilling oil and gas wells. The defendant, Claude Wentworth, is its president. Wentworth and the plaintiff Wallace had been acquainted for many years. He repeatedly solicited Wallace for drilling contracts in Kansas if Wallace should find something which he thought of sufficient merit, and in the spring of 1937, through a mutual friend, specifically solicited plaintiffs for a drilling contract in Kansas.

After receiving the report of Lerke & Whortan, geologists, plaintiffs renewed their efforts to make a contract with the oil company to handle the Dick lease. They took this up with the oil company's representative at Wichita, who, after conferences indicating a contract could be made, referred them to the general officers of the oil company at Bartlesville, Oklahoma. By this time it was late in May, 1937. Plaintiffs went to Bartlesville, took the matter up with the officials of the oil company, and agreed upon a contract by the terms of which the Dick lease would be assigned to plaintiffs, who definitely bound themselves to begin drilling a well on the lease before June 28, 1937, the oil company retaining an "overriding-royalty" of 5/64 of all oil and gas produced from the lease. Plaintiffs were to show the oil company they had a binding contract with a responsible drilling company, and the contract itself was to be finally executed by June 4th. The form of contract was to be written by the oil company and sent to plaintiffs. This was done promptly and was received by plaintiffs on the last day of May or the first day of June. They promptly took the matter up with defendants, and as early as June 2nd they explained to Mr. Wentworth, president of the defendant company, all of the investigations they had made with respect to the geological structure in the Burrton, Kansas, area, and particularly with respect to the Dick lease; submitted to him the report and maps of their specially hired geologists, Lerke & Whortan; all indicating that the Dick lease was a good prospect for the production of oil and gas; gave defendants the information they had as to who owned the lease and on what terms it might be handled, and showed them the contract which had been prepared by the oil company. Plaintiffs went over this with defendants on two days, perhaps the 2nd and 3rd of June. Plaintiffs proposed to defendants that if defendants would drill the well and take all the production until it paid for the expense of putting down the first well they would assign to the defendants an undivided one-half interest in the lease subject to the overriding-royalty of the oil company. Mr. Wentworth, for defendants, orally expressed himself as being willing to accept the deal, but advised that he would have to get the consent of an associate interested in his company, a Mr. Cotton, then thought to be at Enid, Oklahoma. Later, and on June 3rd, Wentworth advised plaintiffs that he was unable to locate Mr. Cotton at Enid, but had learned that he was somewhere in Texas. Mr. Wentworth advised plaintiffs that he was thoroughly sold on the proposition and felt sure that Mr. Cotton would agree with him. He urged plaintiffs to get from the oil company an extension of the time for the full acceptance of the contract with the oil company to June 7th by which time he would be able to get in contact with Mr. Cotton, and that he felt sure defendants would accept the contract. At defendants' request plaintiffs did contact the oil company and obtained an extension of time for closing the contract to June 7th. On June 7th defendant Wentworth advised plaintiffs that Mr. Cotton had objected because the Dick lease was on land in Harvey county, Kansas; that he had a prejudice against operating in that county, and if it were in any other county they would be glad to accept the proposition. It was alleged that it was then too late for plaintiffs to contact other drillers and they were compelled to give up their contract with the oil company on June 8th.

It was further alleged that thereafter, and on or before June 23rd, defendants went directly to the oil company and made with it a contract substantially on the same terms the oil company had made with plaintiffs, and the defendants did in fact commence a well on the lease before June 28, 1937.

It was further alleged that defendants knew that these plaintiffs had only until June 7th in which to...