Nelson Development Co. v. Ohio Oil Co.

• Decision Date: 28 July 1942
• Docket Number: No. 227-D.,227-D.
• Citation: 45 F. Supp. 933
• Parties: NELSON DEVELOPMENT CO. v. OHIO OIL CO.
• Court: U.S. District Court — Eastern District of Illinois

45 F. Supp. 933

NELSON DEVELOPMENT CO. v. OHIO OIL CO.

No. 227-D.

District Court, E. D. Illinois.

July 28, 1942.

Kirk, Lee & Fleetwood, of Tulsa, Okl., Ortmeyer, Bamberger and Ortmeyer, of Evansville, Ind., and Allen, Dalbey & Foreman, of Danville, Ill., for plaintiff.

Fred W. Gee, of Lawrenceville, Ill., and Fred H. Pannill, of Marshall, Ill., for defendant.

LINDLEY, District Judge.

Plaintiff seeks judgment of this court that defendant holds as constructive trustee, an oil and gas lease on 90 acres of land of one Stevens in Richland County, Illinois, and as such account to plaintiff for profits realized by defendant from producing wells upon said premises. Defendant denies that the facts and circumstances justify a conclusion that a constructive trust exists and that plaintiff is entitled to any relief.

Plaintiff and defendant are engaged, amongst other activities, in exploration for and production of oil and gas in the Illinois field and elsewhere. On May 23, 1941 both were owners of leases in the then undeveloped speculative territory in which the Stevens land is located. No wells had been drilled and both were anxious to know whether oil existed in commercially profitable quantities. Defendant proposed to plaintiff that it would drill a well upon premises just east of the Stevens tract. Plaintiff's leases lay to the east, north and southeast of the proposed site and it had no acreage lying southwest or west thereof. Giffel, "land agent" of defendant, and Smith, his assistant, on May 23, 1941, conferred with Ross, "land man" of plaintiff. After stating that defendant proposed to drill a well, Giffel inquired of Ross whether plaintiff, being interested in ascertainment of whether the territory was commercially productive, would agree to contribute $2,500 toward the cost of drilling the well, if oil should not be found in paying quantities. Ross replied that plaintiff was willing to contribute $2,000 to such fund, provided defendant would procure for plaintiff a lease on the Stevens tract or on one equally well located. Inasmuch as plaintiff held no leases in that direction from the proposed drilling site and it was uncertain, if oil should be found, whether commercial production would run to the east or to the west, Ross said that if such a lease could be procured, he would make the contribution and would pay $500 for the lease. Giffel replied that he had no authority to make any such agreement but that he would confer with his superior officers to determine whether his company would consider getting additional acreage for plaintiff. Ross said that he would send no brokers into the territory in an attempt to procure the lease and to this Smith made no reply except to say, "that would be very nice."

Accordingly, plaintiff, at its home office in Tulsa, prepared a written contract, fixing the terms upon which it would contribute $2,000 but mentioning nothing concerning procuring additional acreage for plaintiff by defendant. This contract was then executed by defendant. Ross in a letter reporting the facts to plaintiff's officers, preliminary to the drafting of the contract, made no mention of the alleged contract of defendant to procure the Stevens lease for plaintiff.

On May 28 defendant wrote Ross saying that it was under no obligation to procure such acreage. Ross early in June told Giffel that he was surprised at the letter; that he felt that he had a contract for the Stevens lease. Giffel then wrote him further that defendant still denied any obligation to procure a lease. Some weeks later Ross talked to Smith in West Salem and testified that Smith told him then that there was a contract by defendant to procure the Stevens lease and assign it to Nelson. This Smith denied. Later Ross talked to Carroll, an executive officer of defendant, who denied any obligation upon defendant's part to procure the lease for plaintiff and on August 8, told Ross that the matter would not be discussed or considered further. Nothing further occurred between the parties until after defendant had drilled on the proposed site and discovered oil in paying quantities. This event terminated any liability of plaintiff to contribute anything whatever to the cost of the well. After the discovery of oil, in November, defendant filed this suit.

The evidence was controverted but I find that the facts are as hereinbefore stated and that there was no meeting of the minds of the parties upon an express contract to the effect that defendant would attempt to procure and if it succeeded would assign a lease from Stevens to plaintiff. I do not impute to Ross any desire to misrepresent what occurred between him and Giffel and Smith on May 23. I feel rather that this is another demonstration of the frailty of human recollection often apparent in litigation where parol negotiations have occurred. No doubt Ross felt that plaintiff should have additional acreage; no doubt he was anxious to procure it. But I do not believe that the parties' minds met on any final agreement in that respect. The fact that the litigation was not begun until after commercially profitable oil had been discovered, that in reporting his negotiations to his superior officers, Ross made no mention of the alleged promise to procure additional acreage and that the written agreement between the parties made no mention of such agreement but constituted merely a contract as to the contribution for drilling a dry hole, all tend to corroborate the evidence of defendant that the negotiations regarding additional acreage were wholly executory and provisional and fell far short of a binding contract. It follows that plaintiff is entitled to no relief.

If I have erred in my finding that no contract came into existence and that Giffel and Smith did not in fact make a binding agreement with Ross to have defendant procure and assign to plaintiff the Stevens lease, we are met with certain legal questions as to the enforcibility of this contract and the granting of relief to plaintiff because of what occurred. Amongst these are these questions: Did Giffel and Smith have authority to bind Ohio? Was the contract within the statute of frauds of the State of Illinois? Was there, even if there were no contract, such a relationship between the parties as would create a fiduciary relationship upon the part of defendant toward plaintiff? Were the circumstances such that it can be said that defendant committed fraud or other inequitable conduct as a result whereof the Stevens lease should be held by defendant as a constructive trustee for the benefit of plaintiff? Delfosse v. Delfosse, 287 Ill. 251, 122 N.E. 484; Lantry v. Lantry, 51 Ill. 458, 2 Am.Rep. 310; Lowenberg v. Booth, 330 Ill. 548, 162 N.E. 191.

If there had been a clear and unambiguous contract, inasmuch as it provided for conveyance of a freehold interest in land, Ohio Oil Co. v. Daughetee, 240 Ill. 361, 88 N.E. 818, 36 L.R.A.,N.S., 1108; Daughetee v. Ohio Oil Co., 263 Ill. 518, 105 N.E. 308; Transcontinental Oil Co. v. Emmerson, 298 Ill. 394, 131 N.E. 645, 16 A.L. R. 507, it would have been within the statutes of fraud of Illinois, as it involved the sale or transfer of interest in land within the meaning of the statutes. 3 Summers on Oil & Gas, Perm.Ed., § 612, p. 543; Smith-Hurd Stats.Ill. c. 59, § 2. Such a contract is not enforcible in a suit for specific performance. Can the desired result be reached in a suit to declare a constructive trust, beyond the bar of the statute of frauds?

A constructive trust is to be distinguished from a resulting trust, the essentials of which do not exist here, and from an express trust. It arises wholly by construction of law from circumstances negativing any intent upon the part of the contracting parties to create a trust, in those cases where there is no intent to create a trust, but where the acts of defendant constitute conduct which equity stamps as unfair, wrongful, unjustified and thereby, loosely speaking, as fraudulent. It is an involuntary trust, a fiction of equity, devised to the end that equitable remedies available against a conventional...