Imperial Refining Co. v. Kanotex Refining Co.

• Decision Date: 24 September 1928
• Docket Number: No. 8017.,8017.
• Parties: IMPERIAL REFINING CO. v. KANOTEX REFINING CO.
• Court: U.S. Court of Appeals — Eighth Circuit

29 F.2d 193 (1928)

IMPERIAL REFINING CO. v. KANOTEX REFINING CO.

No. 8017.

Circuit Court of Appeals, Eighth Circuit.

September 24, 1928.

C. H. Rosenstein, of Tulsa, Okl. (M. H. Silverman, of Tulsa, Okl., on the brief), for plaintiff in error.

John J. Jones, of Chanute, Kan. (E. K. Childers, of Arkansas City, Kan., on the brief), for defendant in error.

Before BOOTH, Circuit Judge, and DEWEY, District Judge.

BOOTH, Circuit Judge.

This is a writ of error to a judgment dismissing a cause, after an order had been entered sustaining a demurrer to the complaint, and after plaintiff had declined to plead further. The questions raised by the demurrer were: (1) Whether the complaint stated facts sufficient to constitute a cause of action; and (2) whether the complaint showed on its face that the alleged cause of action was barred by the statute of limitations of the state of Kansas. Jurisdiction was based on diversity of citizenship and the requisite amount involved.

The complaint alleged in substance as follows: That the plaintiff, Imperial Refining Company, a corporation, had on May 28, 1919, made a written contract with Fern Oil Company, a joint-stock association, whereby plaintiff agreed to purchase from Fern Oil Company and that company agreed to sell to plaintiff for a period of one year commencing June 4, 1919, all of the seven-eighths of the oil produced and saved from a certain oil and gas lease owned by the Fern Oil Company; that on the same day plaintiff assigned the contract and all its rights thereunder to the defendant herein, the Kanotex Refining Company, by written instrument duly signed by plaintiff, and duly accepted in writing by the Kanotex Company; that at the time when the contract and the assignment were made the Fern Oil Company was operating and developing the leased premises for oil and gas, and did thereafter obtain oil in paying quantities on the premises; that, after the assignment was made, defendant, acting under it and under the rights conferred by the contract, caused pipe line connections to be made to the leased premises, and made all necessary preparations to run and take the oil which was being produced at the time from the premises; that defendant, after making the pipe line connections, refused to run the oil then being produced; that as a result of the actions of defendant in making the pipe line connections, and then refusing to run the oil, the Fern Oil Company and its assignees sustained damages; that thereafter the Fern Oil Company and its assignees commenced suit in the state court of Oklahoma against plaintiff as the original promisor to recover damages for breach of the contract; that plaintiff herein immediately notified defendant herein of the suit brought by the Fern Oil Company and requested defendant to defend the same; that, though defendant did not employ counsel to defend the suit, yet it did advise with plaintiff relative thereto, and furnished certain of its employés as witnesses at the trial, and its counsel was present at the trial; that plaintiff herein defended the suit with diligence, but nevertheless judgment was obtained against it in the amount of $18,000; that plaintiff promptly notified defendant herein of the judgment and preserved the right to appeal, and notified defendant that it did not desire to appeal, but that, if defendant desired to appeal, plaintiff would cooperate, and that plaintiff expected defendant to protect it against the judgment obtained; that defendant disregarded the notice sent by plaintiff, and took no steps to perfect an appeal; that plaintiff has paid and satisfied the judgment, and has paid the attorney's fees and costs incident to the suit; that by reason of the fact that defendant was the assignee of the contract with the Fern Oil Company, and succeeded to plaintiff's rights and obligations under the same, and by reason of the acts of defendant heretofore recited, plaintiff is entitled to recover from defendant the amount of the judgment, attorney's fees, and costs paid by plaintiff as before stated. Attached to the complaint as exhibits were copies of the contract with the Fern Oil Company, of the assignment to the defendant and of the journal entry of the judgment obtained against plaintiff in the state court.

One of the points raised by the demurrer to the complaint was that the contract with the Fern Oil Company was invalid, because of indefiniteness of description of the leased premises. The description in the contract was "all of the holdings of the Fern Oil Company in block 84" — no town, county, or state being given. However, the complaint itself, against which the demurrer was aimed, contains a full and complete description of the premises as follows: "* * * The north two and one-half acres of the east ten acres of the south 37.9 acres of the east 97.9 acres of block 84, Red River Valley subdivision, in Wichita county, Texas." We think that this complete and definite description in the complaint should not be discarded for the indefinite description contained in the contract, in view of the fact that there is no inconsistency between the two descriptions, and especially in view of the facts alleged in the complaint, showing that both the Fern Oil Company and the Kanotex Company had identified the premises and had done work thereon pursuant to the contract. We think there is no merit in this point of the demurrer.

The next point of the demurrer is that the contract with the Fern Oil Company was void for lack of mutuality, and that, since the contract was void, no obligation in reference to it were assumed by the Kanotex Company. It may be conceded that, unless the contract between the Imperial Company and the Fern Company was valid, no duty in reference thereto rested on the Kanotex Company under the assignment. Two questions therefore arise: (1) Was the contract with the Fern Company invalid for lack of mutuality? (2) Was the Kanotex Company under any obligation to the Imperial Company to carry out the contract?

As to the first question, it is claimed that by the terms of the contract the Fern Company was not bound to sell any oil to the Imperial Company; that in this respect the contract was subject wholly to the wish or whim of the Fern Company. The language of the contract is as follows:

"* * * The Seller the Fern Company hereby offers and agrees to sell and deliver to the `Company' the Imperial Company his, or their seven-eighths (7/8ths) part of all oil produced and saved from wells No. 1, and up on the following described property, * * * for the period beginning 7 a. m. June 4th, 1919, and ending 7 a. m. June 4th, 1920. And the Company hereby agrees to accept and purchase said oil subject to the following conditions:

* * * * *

"7. The Seller and Company further agree that this contract shall be in force and effect for the full term hereof and be binding on their successors, assigns, heirs or administrators."

We construe this language to mean that, if any oil was produced on the land in question and during the period named, the Fern Oil Company was bound to sell and deliver it to the Imperial Company. While no exact number of gallons is specified, yet all of the output belonging to the Fern Company during the named period is covered, and the Fern Company disqualifies itself to sell to any one else than the Imperial Company or its assigns. The books are full of cases involving questions relating to the mutuality of contracts. Out of the multitude we have selected but a few, which we think will serve to illustrate the principles which must control the case at bar.

Transcontinental Petroleum Co. v. Interocean Oil Co., 262 F. 278 (C. C. A. 8), was a suit by the seller for breach of contract. Plaintiff had agreed to sell 1,200,000 barrels of petroleum oil, "provided, however, that deliveries in said quantity or in any quantity are limited to the actual production of the oil wells owned by the vendor and the production of other wells which may be from time to time controlled by the vendor." The court in its opinion said:

"The argument of defendant is that the proviso of the first paragraph, limiting plaintiff's undertaking to the production of wells owned or controlled by it, made it entirely optional with plaintiff to deliver any oil at all. There is no merit in the argument. In effect, the contract bound the plaintiff to deliver the entire output of its wells, up to the quantities specified. No such personal choice or option was given to withhold or refuse deliveries of oil produced by its wells, as is sometimes held to destroy the requisite mutuality of contract obligations. The limitation is a physical one, of a kind common in business affairs. When the quantity of a commodity to be delivered or received under a contract of sale rests in the uncontrolled will or desire of one of the parties, mutuality is lacking. It is otherwise when the quantity is measured by the output or requirements of an established plant or business during a limited time. Cold Blast Transp. Co. v. Kansas City Bolt & Nut Co., 52 C. C. A. 25, 114 F. 77, 57 L. R. A. 696. This latter rule is an adjustment of legal principles to necessary and reasonable business usages. It appears plaintiff owned and controlled about 20 oil wells in the Panuco field, with extensive structural equipment, and though the life of any particular well might not be forecast with certainty, it is idle to say plaintiff did not have an established plant, the actual product of which it could bind itself to sell and deliver in whole or in part during the time limited. The plaintiff could not, without violating its contract, have capped its wells or choked their production to escape deliveries. In that respect a correlative duty on its part would be implied."

Robertson v. Miller, 286 F. 503, was a case involving breach of contract by the purchaser of ore. In its opinion the Circuit Court of Appeals of the Second Circuit said:

"By the contract, the ...