Fox v. Buckingham

• Decision Date: 22 March 1929
• Citation: 228 Ky. 176
• Parties: Fox v. Buckingham.
• Court: United States State Supreme Court — District of Kentucky

Page 176

228 Ky. 176

Fox v. Buckingham.

Court of Appeals of Kentucky.

Devided November 27, 1928.

As Modified, on Denial of Rehearing, March 22, 1929.

1. Contracts. — Question of what was meant by parties to contract at time they entered into it must be determined by consideration of the contract itself.

2. Contracts. — When contract limits payment of debt to particular fund, an raising of fund or sufficiency of it is condition precedent to payment of debt, agreement to pay cannot be enforced until fund is realized, unless failure to realize or collect fund is caused by negligence or unreasonable failure to act of promisor, or is otherwise attributable to him.

3. Mines and Minerals. — Under contract assigning oil and gas lease subject to condition that certain indebtedness owing by assignor was to be paid from the first revenue derived from production of oil, and providing that oil so produced was to be proportioned and used for developing and operating expenses and for payment of such debts, and that title to leasehold should not pass until payment of indebtedness as well as developing and operating expenses, the assignor had no right of action to recover against assignee the amount of debts which he had promised to pay out of proceeds of oil because of failure to perform terms of contract, without showing profits, would have been sufficient to pay debts if assignee had acted within terms of contract.

Appeal from Johnson Circuit Court.

PRICHARD, MALIN & SMITH and KIRK, KIRK and WELLS for appellant.

FRED HOWES for appellee.

OPINION OF THE COURT BY JUDGE LOGAN.

Reversing.

On the 20th day of December, 1923, the appellee, Claude Buckingham, trustee, was the owner and in the possession of a certain oil and gas lease in Johnson county, known as the "Hen Blanton lease." On that day he entered into a contract with the appellant, David Fox, which is the subject of controversy in this action. The lease had been the property of the Castle Petroleum Company, and had been conveyed to Buckingham as trustee for that company. The Castle Petroleum Company had become indebted to five creditors in a sum aggregating $3,762. Some of the officers of the company had assumed the payment of this indebtedness, or some part of it. The Branchland Supply Company was a creditor in the amount of $1,012, and the appellant, David Fox, was the president of that company. The contract entered into on the date named in the preamble set out the indebtedness of the company, and then followed these provisions:

"Whereas, the first party has this day sold and conveyed the lease hereinafter described to the second party, subject to the conditions and reservations hereinafter recited, and,

"Whereas the second party hereby agrees to pay off and discharge said indebtedness from the first revenue derived from the production of oil from said lease in the following manner: 1. All revenue derived from the production of oil shall be applied in the ratio of one half to developing and operating expenses and one half to the payment of the said indebtedness above enumerated in the ratio of said debts. 2. Upon the payment and liquidation of said indebtedness and of said developing and operating expenses said lease shall become the property of the second party subject, however, to an undivided one sixteenth (1/16) royalty interest which is hereby reserved unto the first party and,

"Whereas, the payment of said indebtedness in the manner hereinbefore prescribed and reservation of said royalty interest as hereinbefore set out constitute the consideration for the execution of this agreement.

"Now, therefore, in consideration of the premises and of the payment of the debts as herein before provided and reservation of the royalty as herein before recited the first party hereby sells, grants and conveys unto the second party the following described oil and gas lease, etc."

The description then follows, and the conclusion is a covenant of general warranty.

The leasehold had two wells on it at the time of this contract producing a small quantity of oil. The appellant did not take possession of the leasehold, neither did he pump the wells, although they were equipped for pumping, nor did he make any effort to develop the property.

About four months after the contract had been executed, the appellee wrote a letter to appellant notifying him that he was bound to carry out the contract and he was expecting him to do so. Appellant made no response to this demand. Whereupon appellee instituted this action.

It is alleged in the petition that the contract was made, and it is copied at length therein. The breach of the covenants is alleged. There is an allegation that appellant is indebted to appellee by reason of the contract in the sum of $2,750. This is the amount of the indebtedness which is mentioned in the contract omitting the debt of the Branchland Supply Company of which appellant is president. The prayer is for a judgment against appellant for $2,750, and that he be compelled to develop the property so that appellee may receive the royalty provided for in the contract.

Appellee obtained a general order of attachment which was levied upon certain equipment located on a lease belonging to appellant in Johnson county. An agreement was entered into between the parties relating to this attached property, wherein it was agreed that the appellant might sell the attached property for $800, provided he should execute a bond to pay to appellee that sum if he should be entitled thereto at the conclusion of the action. A bond was accordingly executed by appellant conditioned that he would perform the judgment of the court up to the sum of $800, which bond was signed for him by the United States Fidelity & Guaranty Company. The attachment was also served on Branchland Supply Company. It answered, and disclosed that it was not indebted to appellant in any sum, but set out that he was the owner of 312.76 shares of stock in the company of the par value of $100 each, and that he was indebted to the company in the sum of $6,000, and the stock was held as...