Plains Resources, Inc. v. Gable

Decision Date08 June 1984
Docket NumberNo. 55449,55449
Citation682 P.2d 653,235 Kan. 580
PartiesPLAINS RESOURCES, INC., Appellee, v. John R. GABLE and Empire Oil & Gas Company, Defendants, and Empire Drilling Company, Appellant.
CourtKansas Supreme Court

Syllabus by the Court

1. A claim becomes liquidated when both the amount due and the date on which it is due are fixed and certain, or when the same becomes definitely ascertainable by mathematical computation. Where an amount is due upon contract, either express or implied, and there is no uncertainty as to the amount which is due or the date on which it becomes due, the creditor is entitled to recover interest from the due date.

2. Under K.S.A. 60-460(i ) an out-of-court declaration is admissible, as against a party, if the statement concerns a matter within the scope of an agency or employment of the declarant for that party, and was made before the termination of the relationship. However, evidence extrinsic to the out-of-court declaration must be in the record to establish some substantial factual basis that an agency or employment existed before hearsay evidence may be admitted as an exception to the hearsay rule.

3. Employer liability for the acts of an employee under doctrines of respondeat superior and negligent hiring and/or retention is discussed and distinguished.

4. Damages for breach of contract are limited to pecuniary loss sustained and punitive damages are not recoverable in the absence of an independent tort causing additional injury. In such case proof of the independent tort must indicate the presence of malice, fraud or wanton disregard for the right of others.

5. A corporation is not liable for punitive damages awarded for an employee's tortious acts within the scope of employment unless (a) a corporation or its managerial agent authorized the doing and manner of the act; (b) the employee was unfit and the corporation or its managerial agent was reckless in employing or retaining him; (c) the employee was employed in a managerial capacity and was acting within the scope of employment; or (d) the corporation or its managerial agent ratified or approved the act of the employee.

6. Punitive damages are allowed not because of any special merit in the injured party's case, but are imposed by way of punishing the wrongdoer for malicious, vindictive, or a willful or wanton invasion of the injured party's rights, the purpose being to restrain and deter others from the commission of like wrongs.

Anne L. Baker, of Eidson, Lewis, Porter & Haynes, Topeka, argued the cause and was on the brief, for appellant.

Ken M. Peterson, of Morris, Laing, Evans, Brock & Kennedy, Chartered, Wichita, argued the cause, and Joseph J. Hlavacek, Wichita, and Jack E. Dalton, of Mangan, Dalton, Trenkle & Rebein, Chartered, Dodge City, were on the brief, for appellee.

McFARLAND, Justice:

This is an action for breach of an oil and gas drilling contract, and related tort claims, arising from the drilling of wildcat wells in western Kansas. The drilling contract was between defendant Empire Drilling Company, a contract drilling company, and plaintiff Plains Resources, Inc., an enterprise engaging in exploring for oil and gas production on a wildcat basis. Following a bench trial the district court entered judgment against defendant Empire Drilling Company and defendant Empire Oil & Gas Company, a related corporation, for compensatory damages of $282,569.05, prejudgment interest, punitive damages of $1,000,000 and certain fees and expenses. Empire Drilling Company and Empire Oil & Gas Company appealed from the judgment. The appeal of the latter corporation has been voluntarily dismissed and the matter is before this court on the appeal of Empire Drilling Company (hereinafter referred to as Empire).

As would be expected, the evidence introduced during the trial, which took four weeks, was extensive and complex. The trial court made eighty-eight detailed factual findings. It would be inappropriate to include the same in this opinion in their entirety or to attempt to summarize the entire trial court memorandum opinion. Rather, we will state generally the background of the case and reserve discussion of facets of the evidence until necessary for determination of specific issues.

Plains Resources, Inc. (hereinafter referred to as Plains), obtained leasehold mineral rights on tracts located in Ford and Sherman Counties, Kansas. In 1977 Plains solicited funds from investors for development of the leases. A selling point for the potential investors was that the funds invested would be expended or obligated by the end of the calendar year thereby gaining 1977 income tax advantages for the investors. Plains and Empire entered into a drilling contract in November 1977 whereby Plains prepaid drilling expenses of $795,000. A total of eight wells were drilled or commenced under the contract with Empire. Six wells were drilled to total depth with Empire deducting expenses therefor from the prepaid funds. Many problems arose during the operation. While Ellis No. 1 was being drilled, an additional difficulty surfaced. Empire advised Plains the prepaid drilling expenses had been exhausted and additional funds would be needed to complete the hole. The funds were not forthcoming. On February 16, 1978, orders were sent to shut down the operation at Ellis No. 1 and Empire removed its equipment from the hole. It was later discovered the hole had been sabotaged. Plains made unsuccessful efforts to salvage Ellis No. 1, and a new well (Ellis No. 1A) was subsequently drilled by another drilling contractor. Plains brought this action for breach of contract seeking compensatory damages arising from inferior performance of the drilling contract and overcharges. Plains further sought compensatory and punitive damages for the sabotage of Ellis No. 1.

We turn now to the issues. The first issue is alleged error by the trial court in relying on certain testimony of plaintiff's expert witness, H.E. Barry, Jr. Mr. Barry owns and operates an oil and gas industry consulting firm based in Oklahoma City, Oklahoma.

As has been previously noted, Plains prepaid drilling expenses to Empire in the sum of $795,000. Empire was drilling the eighth well when the ship hit the rocks, so to speak. As of the time of the shutdown Empire contended it was owed $114,705 by Plains, over and above the prepaid funds. Plains contended it had been overcharged for services performed and charged improperly for items that were not its responsibility and was, in fact, owed a refund by Empire. Accounting procedures employed by Empire were quite deficient. Into this chaotic situation came plaintiff's expert, H.E. Barry, Jr. Mr. Barry's qualifications for the difficult assignment given him are very impressive and are not seriously challenged by Empire. Mr. Barry examined the hundreds of entries and documents relative to the entire drilling operation and, utilizing his expertise, arrived at very definite opinions relative to who owed whom what amounts and why. It is not surprising the trial court relied heavily on Mr. Barry's report and testimony in determining the compensatory damage issues herein. It should be noted Empire did not employ an expert to offer evidence contrary to that of Mr. Barry.

Empire fires no broadsides at Mr. Barry. Rather, it contends that, in certain instances, Mr. Barry testified as to legal opinions and thereby overreached his area of expertise. We do not agree. In determining what were or were not proper charges in this highly specialized field, the expert had, of necessity, to give consideration to what in his expert opinion was encompassed within the contractual obligation of the parties. Illustrative of the complaints made in this regard is Barry's testimony relative to whether Empire had properly charged Plains with paying for rigging up and rigging down at the daywork rate. Another area of complaint is Barry's testimony relative to whether certain rig transportation costs had been properly charged against the Plains' account. We have examined all complaints concerning the testimony and report of Mr. Barry and find no error or abuse of the trial court's discretion.

The second issue concerns numerous alleged errors by the trial court in the allowance and computation of the compensatory damages herein. The trial court, as previously noted, made extensive findings of fact and conclusions of law. The parties, of course, are intimately familiar with the evidence, their contentions herein, the basis on which damages were allowed and the method of damage computations. We see no precedential value in this issue. We, therefore, conclude it would be inappropriate to burden this opinion with a lengthy discussion of this many-faceted issue. It is sufficient to say we have carefully examined the record, considered the contentions of the parties and conclude no reversible error has been shown in the trial court's allowance and computations of compensatory damages.

The third issue is whether the trial court erred in allowing prejudgment interest on the compensatory damage award. Prejudgment interest was allowed from the February 1978 shutdown of Ellis No. 1 (and another uncompleted well) to date of judgment.

A claim becomes liquidated when both the amount due and the date on which it is due are fixed and certain, or when the same become definitely ascertainable by mathematical computation. Where an amount is due upon contract, either expressed or implied, and there is no uncertainty as to the amount which is due or the date on which it becomes due, the creditor is entitled to recover interest from the due date. Equity Investors, Inc. v. Academy Ins. Group, Inc., 229 Kan. 456, 625 P.2d 466, modified on other grounds 229 Kan. 668, 625 P.2d 466 (1981); First National Bank v. Bankers Dispatch Corporation, 221 Kan. 528, 537, 562 P.2d 32 (1977).

The trial court made no finding the Plains claim became a liquidated claim as of that date...

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