Lachman v. Sperry-Sun Well Surveying Company

• Decision Date: 16 May 1972
• Docket Number: No. 661-70.,661-70.
• Citation: 457 F.2d 850
• Parties: Charles R. LACHMAN et al., Appellants, v. SPERRY-SUN WELL SURVEYING COMPANY, a corporation, Appellee.
• Court: U.S. Court of Appeals — Tenth Circuit

457 F.2d 850 (1972)

Charles R. LACHMAN et al., Appellants, v. SPERRY-SUN WELL SURVEYING COMPANY, a corporation, Appellee.

No. 661-70.

United States Court of Appeals, Tenth Circuit.

March 2, 1972.

Rehearing Denied May 16, 1972.

Robert J. Emery, Oklahoma City, Okl. (William D. Curlee, Oklahoma City, Okl., with him on the brief), for appellants.

Coleman Hayes, Oklahoma City, Okl. (E. M. Cage, Dallas, Tex., J. Colbert Peurifoy, Houston, Tex., and J. Paul Greve, Tulsa, Okl., with him on the brief), for appellee.

Before SETH, HOLLOWAY and McWILLIAMS, Circuit Judges.

SETH, Circuit Judge.

This is an appeal from an order of the United States District Court for the Western District of Oklahoma, dismissing plaintiffs' suit for damages for breach of contract on the ground it failed to state a cause of action.

The plaintiffs had an oil and gas lease on a tract in Oklahoma on which an oil and gas well had been drilled. In April 1967 they contracted with the defendant for a directional survey of the well. This contract forbade the defendant to communicate information concerning the survey or well to any third party. Defendant company completed the survey and submitted its report which indicated that the well deviated from the vertical to such an extent that it was bottomed on a neighboring tract of land the oil and gas rights to which belonged to third parties. The well survey indicated that the hole from a depth of about 6800 feet below the surface to a depth of 9285 feet was outside the plaintiffs' tract. The well was producing from an interval of about 7887 feet to 8002 feet, and from below 8600 feet. The well had been drilled by an independent contractor under a turnkey contract.

It is not disputed that at the time of the survey the well was producing oil and gas from the adjoining tract. Some time after learning that plaintiffs' well deviated into the subsurface of the adjoining tract, employees of defendant Sperry-Sun notified the owners of the oil and gas rights on the adjoining tract of such deviation. These parties then brought suit against plaintiffs in the state court, and won a judgment establishing their rights to the proceeds of all oil and gas produced by the well and causing plaintiffs to plug the well back to their own boundary line.

Plaintiffs thereafter brought this suit against Sperry-Sun on their contract, alleging a breach thereof by the disclosure of the results of the directional survey to the adjoining owners, the direct result of which was the adverse judgment referred to above. The trial court dismissed the suit on the basis that public policy "will never penalize one for exposing wrongdoing . . .," and this appeal was taken.

It is apparent that the basic issue in this appeal does not fall neatly within any well recognized legal category. While it is axiomatic that an agreement in violation of law is illegal and void, Smith v. Southwestern Bell Telephone Co., 349 P.2d 646 (S.C.Okl.1960), we are not presented here with a contract which, on its face, contravenes Oklahoma law. The defendant-appellee however contends that the effect of its contract with appellants, if appellants prevail, would make possible the undetected and wrongful depletion of the oil and gas under another's property. It suggests that the state has such an interest in preventing such an act that the contractual silence was properly broken.

An agreement, the object of which is the commission of a civil wrong against a third person, is also illegal and void although such wrong may not be an indictable offense or crime. In the present case the parties did not of course execute the contract for the purpose of harming the adjoining property owners, but it is clear that non-disclosure of the deviation would have had this result. Should the consequences be the same as if the fact were known when the contract was executed? At 6A Corbin, Contracts, § 1455, the author states: ". . . A bargain is illegal if it is made for the purpose of defrauding one or more third persons, or if its terms are such that it will have such an effect." The Restatement of Contracts, § 577 states: "A bargain, performance of which would tend to harm third persons by deceiving them as to material facts, or by defrauding them, or without justification by other means is illegal." The lack of fraud or deception in the present case, strictly speaking, removes it from these rules of contract law. They are cited, however, to indicate the law's reluctance to enforce contracts which have the effect of injuring third persons, whether such a possibility is anticipated or not. It is apparent that it is the silence contracted for in view of the facts found by the survey that creates a condition not contemplated by the parties and, had it been, the agreement for silence would be unenforceable.

In Willig v. Gold, 75 Cal.App.2d 809, 171 P.2d 754 (1946), the plaintiff employed defendant to find a party willing to purchase plaintiff's business. Defendant found a buyer, but was dissatisfied with his commission. He then went to plaintiff's insurer with the information that it had been underpaid on policies issued to plaintiff, a fact known to defendant due to his prior confidential relationship with the insured. The insurer recovered the amount of the underpaid or understated premiums in court, and split the recovery with its informant, the defendant. The defendant's former employer then sued him for violation of trust. In ruling for the defendant, the court said:

"Appellant\'s . . . claim is somewhat startling. He argues in effect that because of the agency relation which had previously existed Gold was under a duty not to disclose to Rathbone, King & Seeley that appellant had made

...