Danciger Oil & Refining Co. v. Burroughs

BRATTON, Circuit Judge.

The major question which the appeal in -this suit for specific performance brings here for decision is whether a contract resting in parol in which it was mutually agreed that the owner of eight lots in a block consisting of thirty-two lots Should execute and deliver an oil and gas lease upon his own property and secure similar leases from the respective owners of the remaining lots for a cash compensation of $500 and an overriding royalty of one-sixteenth of the oil, gas, and casing-head gas produced upon the entire block, was removed from the statute of frauds by complete performance on the part of the owner of the eight lots. For convenience the parties will be referred to as they appeared in the trial court.

Plaintiff alleged that block 31 in Schilling addition to Oklahoma City consisted of thirty-two lots; that he owned eight of them, including two small ones only ninety feet in length; that defendant Danciger Oil & Refining Company desired to secure leases in that vicinity; that R. J. Reinke was its agent in charge of its office at Oklahoma City; that plaintiff and defendant Danciger Oil & Refining Company, acting through Reinke, entered into a parol agreement in which it was mutually agreed that plaintiff should execute a lease upon his property; that he should secure similar leases from the respective owners of the remaining lots in the block and thus deliver to defendant a community lease upon the entire block; that such defendant would pay the owners a cash bonus of $400 per lot for such leases; that it would pay plaintiff a cash consideration of $500 and convey a one-sixteenth overriding royalty to him; that he completely performed the agreement on his part; that defendant Danciger Oil & Refining Company accepted the lease and subsequently assigned it to defendant Danciger Royalty Company; that at the time of the assignment the latter company had notice of the agreement; that a well of 50,000 barrels per day was drilled and large quantities of oil' extracted from the premises; that he had received virtually all of the cásh compensation, but that defendants had failed and refused to convey the overriding royalty to him in accordance with the terms of the contract. Specific performance by conveyance of the specified royalty, an accounting for his share of the oil, gas, and casing-head gas extracted from the premises, and judgment for the balance due on the cash consideration were prayed. .. .

Defendants admitted by answer that plaintiff was requested to secure the leases and that he did so; that they were accepted and placed of record; asserted that he was to be paid a reasonable compensation for that service; denied an agreement to con-véy an overriding royalty to him; pleaded that Reinke lacked authority to make an agreement for such a royalty; and averred specifically that the contract upon which plaintiff seeks to recover is void because it is within the statute of frauds.

The court found that it was mutually provided in the parol contract that plaintiff should receive the overriding royalty; that Reinke had authority to make such an agreement; that plaintiff had completely performed his part of it; and that defendant Danciger Royalty Company is owned by defendant Danciger Oil & Refining Company. Concluding that such performance took the contract without the statute, a decree of specific performance was entered.

Section 9455, O. S. 1931, provides that every agreement for the sale of real property or an interest therein shall be invalid unless it, or some note or memorandum thereof, shall be in writing and subscribed by the party charged. It is settled law in Oklahoma that an oil and gas lease conveys an interest in real estate, and therefore comes within the statute. King v. Gants, 77 Okl. 105, 186 P. 960; Hall v. Haer, 160 Okl. 118, 16 P.(2d) 83. That construction of the statute by the highest court of the state is binding here. Crain v. Pure Oil Co. (C. C. A.) 25 F.(2d) 824; Owens v. Dancy (C. C. A.) 36 F.(2d) 882; Balanced Rock Scenic Attractions v. Manitou (C. C. A.) 38 F.(2d) 28; Clarke v. Boysen (C. C. A.) 39 F.(2d) 800; Jackson v. Harris (C. C. A.) 43 F.(2d) 513; Oklahoma Gas & Electric Co. v. Wilson & Co. (C. C. A.) 54 F.(2d) 596; Terry v. Midwest Refining Co. (C. C. A.) 64 F.(2d) 428; Ætna Life Ins. Co. v. Wertheimer (C. C. A.) 64 F.(2d) 438; Bivins v. Board of Com’rs (C. C. A.) 66 F.(2d) 351. The contract, being for the conveyance of an interest 'in land, is invalid unless taken without the statute by complete performance on plaintiff’s part.

Both parties approach the contracts as one exclusively for services on plaintiff’s part, and argue the case upon that assumption. Plaintiff relies upon King v. Gants, supra, and the trial court apparently predicated its decision upon that case. Defendants concede that the principle decided in that case applies here, but insist that the case was overruled by Hall v. Haer, supra, and urge that we must follow the last expression from the Supreme Court of the state. It is unnecessary to consider whether there is a conflict between the two cases, and, if so, which applies here, because we do not share the view that the contract now under consideration was one exclusively for services on plaintiff’s part. It overlooks an important fact. The contract consisted of two integral parts on each side. In addition to the services rendered in securing leases from other owners, plaintiff was required to execute a lease upon his own property constituting virtually one-fourth of the entire area. Under the authorities previously cited, that lease constituted a conveyance of an interest in real estate. In addition to paying the $500 in cash, defendant Danciger Oil & Refining Company was required to convey to plaintiff an overriding royalty. That constituted a conveyance of an interest in land because it is the general rule tha.t an assignment of an overriding royalty carries an interest in the real estate. United States v. Noble, 237 U. S. 74, 35 S. Ct. 532, 59 L. Ed. 844; Homestake Exploration Corp. v. Schoregge, 81 Mont. 604, 264 P. 388; Sunburst Oil & Refining Co. v. Callender, 84 Mont. 178, 274 P. 834; Robichaux v. Bordages (Tex. Civ. App.) 48 S.W.(2d) 698; Emerson v. Little Six Oil Co. (C. C. A.) 3 F.(2d) 265; Mills-Willingham, Law of Oil-Gas, § 128. These two constituent elements on each side of the contract were inseparable. Manifestly, neither party would have entered into the agreement without both being required of the other. We, therefore, have a case in which the parties agreed, among other things, to an exchange of interests in land, and the contract has been fully performed on plaintiff’s part. Can a court of equity compel specific performance in that situation?

The general principles of equity jurisprudence in dealing with specific performance of a parol contract invalid because it contravenes the statute of frauds are well recognized. Their application to divergent facts has occasioned some contrariety of opinion. Ordinarily, the mere rendition of services in complete performance of such a contract is not enough to justify specific performance unless they are of such peculiar character that their value cannot be measured accurately and adequately compensated in damages at law. But where one party, with the knowledge of the other, has been induced to do or forbear to do an act in performance of the agreement, has thereby changed his position for the worse in such manner that restoration to his former position is impossible and he cannot be adequately compensated at law, so that it would perpetrate a fraud upon him to permit the other party to take refuge in the statute, equity will intervene and enforce completion of the contract because the statute cannot be used to effect a fraud. The most frequent application of the doctrine has been in cases involving the sale of land, followed by change in possession and the erection of improvements, but those elements are not essential to its appropriate application. Any act done or forborne in reliance upon the contract and m furtherance of its execution, which converts the enforcement of the statute into the perpetration of a fraud, is enough. That doctrine obtains in Oklahoma and elsewhere. Purcell v. Corder, 33 Okl. 68, 124 P. 457; Eggstaff v. Phelps, 99 Okl. 54, 226 P. 82; Miller v. Roberts, 140 Okl. 271, 282 P. 1104; Brooks v. Yarbrough (C. C. A.) 37 F.(2d) 527; Sears v. Redick (C. C. A.) 211 F. 856; Pomeroy’s Specific Performance (3d Ed.) § 104.

Plaintiff executed and delivered the lease upon his own propérty, placed it in the community unit, thereby making it impossible for him to lease it to another. He has forborne, that right and defendants developed oil on the block as a single unit. The leasehold estate was converted into a single unit and the several lessors have their respective rights in it. Manifestly, plaintiff cannot be restored to his former position, nor can he be adequately compensated at law because it is impossible to measure with accuracy the market value of an over; riding royalty in a new and fast developing field where drilling proceeds rapidly, leases are bargained with avidity, and values fluctuate with the fortunes of production. For these reasons the doctrine that complete performance removes .the-contract from the statute has application here.

Equity decrees specific performance of a valid contract to sell real' estate because land is’ sui generis and money damages for failure to perform are not adequate relief without reference to the quality or quantity of the land. Wilhite v. Skelton (C. C. A.) 149 F. 67; Kitchen v. Herring, 42 N. C. 190, 191; Clark v. Cagle, 141 Ga. 73, 82 S. E. 21, L. R. A. 1915A, 317; Bennett v. Moon, 110 Neb. 692, 194 N. W. 802, 31 A. L. R. 495; Larrabee v. Bjorkman, 79 Or. 467, 155 P. 974; Spencer v. Bales, 108 Or. 339, 216 P. 746. That general doctrine was applied in Williams v. Cow Gulch Oil Co. (C. C. A.) 270 F. 9, 11, which was an action for specific performance of a contract for the mutual exchange of oil and gas leases. The court held that .no insuperable obstacle to specific performance was perceived. It was said:

“An action at law for damages for the breach of a contract to convey land does not afford as adequate a remedy as a suit in equity for specific performance, and it is no answer to such a suit because, in the case of a contract for real estate, the action at law does not place the parties in the same situation in which they were before the agreement was made, and it is not as prompt, complete, and efficient as is the suit in equity. Castle Creek Water Co. v. City of Aspen, 146 F. 8, 11, 76 C. C. A. 516, 519, 8 Ann. Cas. 660; Boyce v. Grundy, 3 Pet. 210, 215, 7 L. Ed. 655; Williams v. Neely, 134 F. 1, 10, 67 C. C. A. 171, 181, 69 L. R. A. 232; Wilhite v. Skelton, 149 F. 67, 72, 78 C. C. A. 635, 640.

“In equity, the vendee of-land, or of a right or interest therein under a contract of the vendor to convey it to him, is treated as the owner thereof, and the vendor is deemed to stand seized of it in trust for the vendee, and when, as in the case at bar, the entire purchase price has been paid and is in the hands of the vendor, who refuses to perform his part of the agreement, the equity of the vendee is of the highest character, and specific performance of the contract may not be denied, unless it is forbidden by some insuperable principle or rule of law or equity.”

Again, the facts in Matthewson v. Fluhman (Tex. Com. App.) 41 S.W.(2d) 204, 207, were that Fluhman and wife gave Matthewson an oil and gas lease on 36.6 acres of land. Fluhman and Matthewson subsequently entered into an oral agreement; in which it • was provided that Matthewson would surrender that lease and assist Fluhman to procure leases on other lands, and that, in consideration thereof, Fluhman would give him a commercial lease on a certain tract of 20 acr.es. Matthewson executed the release. Fluhman accepted and placed it of record, but refused to execute the new lease on the 20-acre tract. Instead, he leased it to a third person. Performance being thereby rendered impossible, Matthewson pleaded the contract, his complete performance, and sought damages representing the value of the lease. The court held that performance by Matthewson took the contract out of the statute, and that, since the lease to a third person rendered performance by Fluhman impossible, recovery could be had for the value of the lease on the 20-acre tract at the time of repudiation. Except for the impossibility of performance occasioned by the outstanding lease to the third person, specific performance would have been granted. Its theoretical equivalent in damages was the only available measure of relief, and that was given. The court said:

“We have reached the conclusion that the contract to lease the 20-acre tract to plaintiff in error was enforceable, and that defendant in error, having himself placed it beyond his power to comply therewith, by conveying such lease to another, is liable for the value of such lease at the time he repudiated the same, which the jury found to be $8,000.

“The defendant in error cannot accept the leasehold estate on the 36.6-acre tract pursuant to his parol contract of exchange, reap the large benefits therefrom by the obtaining of producing wells thereon under his lease to Merrick, in the meantime assuring plaintiff in error that he would live up to his agreement to' convey the leasehold estate on the 20-acre tract, and then refuse to perform when the extraordinary value of such leasehold was proven by the outcome of events, without accounting for such value at the time of refusal.”

Since the contract under consideration included an exchange of interests in land, that is, an oil and gas lease on one hand and an overriding royalty on the other, and was fully performed by plaintiff, we think that well-recognized doctrine supports the decree below.

Relying upon the agreement and in furtherance of its execution, plaintiff completely performed his part of it and soon thereafter demanded conveyance of the overriding royalty. Defendants negotiated with him until oil was struck. They then repudiated that part of the agreement and refused to make the assignment. Manifestly, it would perpetrate a palpable fraud on plaintiff to permit defendants to take shelter under the statute. It cannot be invoked for that purpose.

The authority of Reinke to make the contract as agent for defendant Danciger Oil & Refining Company is challenged. The written contract under which he was employed contains the following provisions:

“Primarily Employee shall devote his entire time at the direction of Employer to the purchase and sale of leases and/or royalties, to working up drilling blocks, procuring acreage contributions, etc., from companies, assisting in procuring favorable contracts for tests, drilling, core-drilling, and investigating the oil fields and likely structures in the Oklahoma City area in the State of Oklahoma.

“Employee shall faithfully report his findings, negotiations and trades with prices, costs, geological reports and pertinent information bearing on any proposal which Employer shall consider, making at all times full disclosures of any royalties or collateral trades that might be made.

“Employee shall keep Employer fully advised as to his activities, furnishing all assistance possible in assembling of leases, assignments, royalties, drilling blocks, etc., but Employee shall not sign contracts or any memorandum in writing unless specifically authorized and instructed by Employer.”

Reinke was in charge of the business of the defendants in Oklahoma. He had an assistant named J. B. Garrett; he employed a stenographer who was paid by defendants and he occupied a suite of offices in the Braniff building. Scott P. Squyres, one of the attorneys for defendants herein, shared the suite with him. The sign on the door read, “R. J. Reinke, Danciger Oil & Refining Company and J. B. Garrett.” In May, 1930, defendant Danciger Oil & Refining Company telegraphed W. J. Talley at Oklahoma City, “Telegram date Reinke is our agent at Oklahoma City.” Counsel for defendants expressly admitted during the trial that Reinke was the representative of the defendants. It is sought to limit the scope of that agency to the terms of the written agreement which required, according to the contention advanced, that he submit all proposed agreements to the company at Fort Worth, Tex., for approval. As between principal and agent, the scope of the latter’s authority is that actually conferred. It may be conditioned, limited, or restricted, secretly or otherwise. But as between the principal and a third person dealing with the agent without notice of secret conditions or limitations upon the agency, the rule is different. Conditions or limitations secretly imposed upon the authority of an agent who acts within the apparent scope of his authority are not binding upon a third person dealing with the agent in good faith and without notice thereof. After holding Rein-ke out as its agent and permitting him to act with apparent authority in connection with the business in Oklahoma, defendants cannot assert the secret conditions imposed by the contract. Midland Savings & Loan Co. v. Sutton, 30 Okl. 448, 120 P. 1007; National Surety Co. v. Miozrany, 53 Okl. 322, 156 P. 651; Daniel v. Pappas, 93 Okl. 165, 220 P. 355; Atlas Assur. Co. v. The Hub, 109 Okl. 101, 235 P. 172; Continental Supply Co. v. Sinclair Oil & Gas Co., 109 Okl. 178, 235 P. 471; Consolidated Flour Mills Co. v. Roberts, 123 Okl. 101, 252 P. 29; Ætna Life Ins. Co. v. Eakins, 143 Old. 52, 287 P. 402; Lyons Milling Co. v. Goffe & Carkener (C. C. A.) 46 F.(2d) 241, 83 A. L. R. 501. It is urged that plaintiff had notice of the limitations imposed upon Reinke’s agency before the contract was executed. Reinke testified that he told plaintiff that he had a contract of employment under which everything he accepted had to be approved at the Fort Worth office; that he did not exhibit the contract, but told plaintiff about it. Plaintiff denied in general that the conversation 'outlined by Reinke ever occurred. The trial court necessarily found the issue of fact thus formed against defendants, and further found that Reinke’s testimony was untrue in other material respects. A court of equity is not compelled to believe testimony merely because it is given. The facts and circumstances patent upon the record subject the testimony in question to doubt, and the court was justified in rejecting it.

Finally, it is urged that clear and satisfactory proof must be produced to remove a parol contract from the statute of frauds; that the testimony here presents a sharp conflict and therefore fails to meet the requirements in a case of this kind. The trial court was satisfied. We have examined it painstakingly and think it is clear, satisfactory, and convincing.

For the reasons indicated, the decree is affirmed.