Clark v. Cooper

• Decision Date: 10 November 1922
• Citation: 247 S.W. 929,197 Ky. 530
• Parties: CLARK ET AL. v. COOPER ET AL.
• Court: Kentucky Court of Appeals

247 S.W. 929

197 Ky. 530

CLARK ET AL. v. COOPER ET AL.

Court of Appeals of Kentucky.

November 10, 1922

Rehearing Denied Feb. 23, 1923.

Appeal from Circuit Court, Pike County.

Action by R. H. Cooper and another against T. N. Clark and another. From a judgment for plaintiffs, defendants appeal. Reversed and remanded, with directions.

S. S Willis, of Ashland, and W. K. Steele, of Pikeville, for appellants.

E. J Pickleseimer, of Pikeville, Judge John D. Carroll, of Frankfort, and Roscoe Vanover and R. H. Cooper, both of Pikeville, for appellees.

CLARKE J.

On January 24, 1917, the appellees R. H. Cooper and D. H Hatcher assigned to the appellant T. N. Clark 42 oil and gas leases, covering 18,691 acres of land situated in Pike and Floyd counties, Kentucky, and which Cooper and Hatcher represented to be valid leases. In consideration of the assignment, Clark agreed to pay, in addition to stipulated royalties, all the costs incident to the drilling of the first five wells on the leases, if such wells should be drilled, and "to pay all rentals beginning April 22, 1917, due thereafter on said leases until the completion of the first five wells," and he agreed "to begin work for operations on said leases within 60 days from the 24th day of January, 1917." It was further stipulated that:

"In the event that two wells shall have been drilled by party of the first part (Clark) on said leased premises, and both be unproductive of gas or oil in paying quantities in any of the oil or gas production sands, and the said first party shall desire to abandon the further prosecution of its work on said leased premises, then in that event the said first party shall assign to the second parties all its right, title and interest in said leased premises; but if oil or gas is found in paying quantities in either of said two wells, then in that event said first party agrees to drill the said five wells, and if after drilling said five wells the first party does not desire to drill any more wells, then in that event said first party shall assign all its rights, title and interest to the parties of the second part."

On July 26, 1917, Cooper and Hatcher instituted this action in equity against Clark and the Omar Oil & Gas Company, in which, after setting out the contract above referred to, they alleged that Clark in making the contract was acting for the oil and gas company and that it was a part, if not the sole owner of the leases assigned by them to Clark and bound with him to perform his obligations under the contract. They further alleged that the defendants broke the contract in failing to drill within 60 days after January 24, 1917, two wells on the leased premises, or any well; that they failed to pay rentals to the lessors of the leases beginning April 22, 1917; that if defendants had assigned and transferred the leases back to them as they had agreed to do, if they failed to begin work within 60 days, they could have sold the leases for $1 an acre; that they were worth that sum; that plaintiffs had demanded of defendants that they reassign the leases, which they refused to do; and that, on account of their refusal to reassign the leases to them, covering 18,691 acres. plaintiffs had been damaged in the sum of $18,691. They prayed judgment against Clark and the oil company for $18,691 on account of their failure to reassign the leases to them. Other items of damage were asserted, but they need not be noticed, as they were not proven and have been abandoned.

Clark and the oil company filed separate answers. Clark by his answer admitted the execution of the contract and his failure to drill any wells on any of the leased premises, and pleaded in justification thereof that plaintiffs had procured the execution of the contract by fraudulently representing that the leases were valid and covered adjoining lands; that the lands did not adjoin but were widely separated; that within the 60 days he made a location for a well on one of the leases assigned to him by plaintiffs, contracted for the lumber to erect thereon a drilling derrick, ordered the necessary iron therefor, and in good faith attempted to commence drilling on this land; that the owner, James Hatcher, refused to permit him to do so because the lease on his land had been forfeited by the failure of Cooper and Hatcher to pay the rentals due thereon January 22, 1917; that this lease covered 8,850 acres, or nearly half of all of the land covered by the leases assigned to him by plaintiffs; and that his failure to comply with his contract as he in good faith attempted to do was occasioned solely by the fact that the leases assigned to him were null and void, and not good and valid leases as represented. He alleged an expenditure of $2,500 in the effort to comply with the contract, for which he asked judgment against plaintiffs.

The oil company, by its answer, denied that it had anything to do with, or was a party to, the contract between Clark and the plaintiffs, but neither defendant denied the allegations of the petition that, after defendants refused to drill, plaintiffs demanded the return and reassignment of the leases to them, which was refused.

After plaintiffs, by reply, had traversed the affirmative allegations of Clark's answer, thus completing the issues, proof was taken by deposition, and the case set for trial before a special judge at a special term of the court called to try this and other cases, in which presumably the regular judge was disqualified to act.

When the case was thus called for trial, the defendants moved to transfer it to the ordinary docket and for a trial by a jury, which was overruled and a judgment rendered for plaintiffs in the sum of $8,800, from which the defendants appeal.

Numerous grounds are urged for reversal, which may be summarized and will be discussed under the following heads: (1) The court erred in overruling a demurrer to the petition; (2) the court erred in refusing to transfer the case to the ordinary docket for trial by a jury; (3) the first breach was by plaintiffs, and it was such as amounted to a total failure of consideration, and excused defendants from every obligation to perform; (4) there was no evidence of damage; (5) that the defendant oil company was not a party to the contract and is not liable in any event because it was not authorized to do business in the state.

1. We have held, in accordance with a rule generally recognized that where the whole compensation of a party under a contract for the exploration of land for oil or gas depends upon the discovery of such minerals, no damages can be allowed for failure to carry out the contract, unless there is a showing that the land contained oil or gas and that, as a consequence, in the absence of an averment in the petition that there was oil or gas in the land in such quantities as to make the royalty of value, there was a failure to state a cause of action, and it was error to overrule a demurrer thereto. Duff v. Bailey, 89 S.W. 577, 29 Ky. Law Rep. 919; McClay v. Western Penn. Gas Co., 201 Pa. 197, 50 A. 978; Grass v. Big Creek Development Co., 75 W.Va. 719, 84 S.E. 750, L.R.A. 1915E, 1057...