Corey v. Sunburst Oil & Gas Co.

233 P. 909, 72 Mont. 383, 1925 Mont. LEXIS 23

• Court: Montana Supreme Court
• Decided: February 18, 1925
• Docket: No. 5,589.
• Status: Published

Opinion

MR. CHIEF JUSTICE CALLAWAY

delivered the opinion of the court.

The plaintiff, while a homesteader upon government land, and before he made the final proof which is required as preliminary to the issuance of patent, executed an oil and gas lease to a predecessor in interest of the defendant. Patent was issued February 27, 1922, In May, 1923, plaintiff began suit against the defendant to quiet title to the land, his purpose being to rid the land of the lease; this upon the theory that the lease is void under both federal and state statutes.

The defendant corporation by answer admits reliance upon the lease. It alleges affirmatively in substance that during the year 1920 Gordon Campbell was engaged in getting what are commonly known as oil and gas leases upon lands within the supposed limits of the Rocky Ridge Dome in Toole county, which was then what oil operators call a wildcat field. Whether the dome contained oil or gas or other hydrocarbons was problematical, but there were geological indications which seemed to warrant the expenditure of time and money in exploiting the land within its confines with a reasonable expectation of finding these minerals, or some of them, in com mercial quantities. Campbell made known to the plaintiff and to other persons who were the owners of land within the field that if he could procure leases upon a sufficient acreage to justify the expenditure of the money necessary to drill one or more wells upon some part of the dome he would so do. On May 29, 1920, plaintiff executed to Campbell the lease in question. A portion of its terms and conditions are:

As party of the first part, plaintiff, in consideration of the sum of $1 and of the covenants and agreements to be kept and performed on the part of the party of the second part, granted, demised and leased the lands contained in his homestead entry to Campbell as “party of the second part, his heirs, successors or assigns, for the sole and only purpose of mining and operating for oil, gas, hydrocarbons and other minerals, and the laying of pipe-lines and building tanks, power stations and structures thereon, to produce and take care of said products, for the term of twenty years, and as much longer thereafter as oil, gas, hydrocarbons, or other minerals are found in paying quantities.”

It was provided that the lessee should either deliver to plaintiff the equal of twelve and one-half per cent of all oil produced and saved from the premises or pay in cash the equal of that per cent of the market value of the oil. Royalties respecting any gas or other hydrocarbons or minerals were likewise provided for. Other provisions need not be stated.

It is alleged that Campbell, having obtained leases upon 50,000 acres or more within the Rocky Ridge Dome, determined that a sufficient area had been obtained to justify the expenditure of the money necessary to drill and test the dome for oil and gas, and thereafter a well was drilled resulting in the discovery of oil within that area. Thereafter the lease in controversy was assigned to L. C. Stevenson, who later assigned it to the defendant. It is then alleged that Stevenson having caused the region in the vicinity of plaintiff’s lands to be examined by geologists so as to determine whether oil and gas in commercial quantities existed therein and whether the probability of discovering, producing and saving the same would justify the expenditure of large sums of money in testing the lands “all of which were then wildcat lands and had not theretofore been tested by any person for oil and gas,” eventually determined to proceed with the drilling operations; that relying upon the validity of the leases, including that obtained from plaintiff, Stevenson raised and expended approximately $250,000 in the development of the territory and on or about the fifth day of June, 1922, completed an oil well in the same township in which plaintiff’s lands lie, which ever since that date has produced oil in commercial quantities, and thereby demonstrated that all the • lands in the field including plaintiff’s were valuable for oil purposes; whereas before the exploratory activities such lands, including the lands of the plaintiff, had not even a speculative value for such purposes. These allegations the plaintiff did not deny.

Proceeding upon the theory that the lease is void and it being admitted by the defendant that its only claim to the land is by virtue thereof, plaintiff at the beginning of the trial moved for a judgment upon the pleadings, which the court denied. Plaintiff then announced that he elected to stand upon his motion for judgment and declined to introduce any testimony in support of his complaint,' Judgment of dismissal followed. The plaintiff himself caused the entry of the judgment. "Whereupon he appealed.

Counsel for defendant insist that plaintiff himself having caused the dismissal of the ease is not now in a position to say the court erred in rendering the judgment. "Whether this position is correct depends upon the force of the answer: Does it state a defense to plaintiff’s cause of action?

One may not appeal from an order denying a motion for judgment on the pleadings. (See. 9165, Rev. Codes 1921.) This being true, say counsel for defendant, the plaintiff may not do indirectly that which the statute prohibits him from doing directly. But in a given ease if the complaint states a cause of action and the answer does not state a defense thereto the plaintiff is entitled to judgment.

Had plaintiff demurred to defendant’s answer, had the court overruled the demurrer, had plaintiff refused to plead further and had judgment then been entered in favor of defendant, plaintiff’s right to appeal would not be challenged. His motion for judgment was in effect a demurrer to the answer. (Power v. Gum, 6 Mont. 5, 9 Pac. 575; Floyd v. Johnson, 17 Mont. 469, 43 Pac. 631.) Plaintiff’s action in asking the court to enter “such judgment as would allow of an appeal, was not such a consent to the judgment as to debar him of the right to appeal.” (Stevenson v. Matteson, 13 Mont. 108, 32 Pac. 291; Conner v. McPhee, 1 Mont. 73.) The method pursued by the plaintiff was a short cut to an ultimate decision, but in pursuing it he took the risk of losing his case, for if it should be determined that the answer states a defense, then having caused the court to do what it could not otherwise have done rightfully, he could not be heard to complain. (Moore v. Murray, 30 Mont. 13, 75 Pac. 515.)

To support his contention that the answer does not state a defense counsel for plaintiff insists that the lease is void upon two grounds: 'First, because it is in contravention of the policy of Congress in disposing of the public lands for that it constitutes an alienation of part of the land (U. S. Rev. Stats., secs. 2290, 2291; U. S. Comp. Stats., secs. 4531, 4532); second, because it violates a statute of Montana (sec. 6707, Rev. Codes 1921) which limits oil and gas leases to a term of ten years and the producing period thereafter.

Shortly after the cause was submitted we took up its consideration. First off, in order to settle’ one question, it may as well be said that the document in question is a lease within the meaning of our statutes. (Secs. 6902, 6903, Rev. Codes 1921.) It is very like that considered in Solberg v. Sunburst Oil & Gas Co., 70 Mont. 177, 225 Pac. 612.

While we were considering the interesting problems pre sented we were interrupted by a petition to dismiss the appeal, filed by defendant, on the ground that the questions involved have become moot. The petition sets forth that after the argument of the cause in this court the plaintiff served upon the defendant a paper called a “division order,” which relates to the lease in question and by its terms recognizes its validity and demands from the defendant as the owner and holder of the lease a percentage of the oil produced from the land which the lease covers. A copy of the division order is attached to the petition. By it the plaintiff “certifies and guarantees that he is the legal owner of two and two-thirds per cent of the production” of the wells on the land covered by the lease, “including the royalty interest”; declares that the defendant “is hereby authorized, until further notice, to receive oil from said wells, including the production from said tract, prior to date hereof for which settlement has not been made,” also, “the oil run in pursuance of this division order shall become the property of the Sunburst Oil & Gas Company at once,” and then gives directions respecting payment for the same; further plaintiff notifies the defendant that he looks to the defendant as “assignee of the original lease for the entire tract for pi’otection, compensation and indemnity as to his share of the production of the entire tract.”

In opposition to the petition to dismiss the plaintiff filed objections upon the following grounds: That the lease being void cannot be validated by ratification; that even if it were capable of being so validated, the alleged division order “was not a ratification thereof; nor is it a contract under which any new right in the defendant arises”; that the plaintiff has agreed to transfer an interest in the land involved to another person, consequently is without right or authority to make a ratification to the prejudice of that person.

As a part of his objections the plaintiff filed an affidavit in which he admits the execution of the division order and its transmission to the defendant. He sets forth at length the circumstances under which he came to make it, but he does not allege that the defendant or its agents had anything whatever to do with the action he took. He says that the tract of land involved has been producing oil for a number of months and he believes that regardless of the outcome of this lawsuit the defendant will be required to account to him for his share of production, even though the lease may be declared null and void; that in signing the division order he “did not give a single or passing thought to the lease or this lawsuit; * * * that the sole. purpose of giving the order was to hold the defendant for plaintiff’s share of oil and gas already produced and sold, as well as such oil and gas as might thereafter be produced during such time as the defendant might be in possession of the premises.” He then says that he mailed the division order to defendant on January 23, but defendant never accepted it, and then says that on the 27th of January he revoked the order.

In passing we observe that whether the defendant accepted the order or whether plaintiff attempted to revoke it does not change the fact that he voluntarily executed it in the first place. It has an important bearing on his conduct.

Counsel for plaintiff asserts that a contract illegal as against public policy cannot be rendered valid by a subsequent ratification; that the doctrine of relation may not be invoked to validate a conveyance which is illegal as against public policy; that estoppel may not be predicated upon a void instrument.

The correctness of these assertions as abstract propositions of law may be admitted; but whether a court of equity will afford relief to one so sunk in the mire of his own making as is this plaintiff is still another proposition. Ordinarily a court of equity will not aid either party to an illegal agreement. It leaves the parties where it finds them. (Glass v. Basin & Bay State Min. Co., 31 Mont. 21, 77 Pac. 302.) "What application that principle might have had had the plaintiff begun suit immediately after receiving patent for the land we need not consider; it has application to present conditions. A venerated maxim of wide application is that he who comes into a court of equity must come with clean hands. (Gazette Printing Co. v. McConnell, 45 Mont. 89, Ann. Cas. 1913C, 1327, 122 Pac. 561.)

In view of what follows let it be noted that the lease is not inherently vicious or immoral from any viewpoint. (Hartman v. Butterfield Lumber Co., 199 U. S. 335, 50 L. Ed. 217, 26 Sup. Ct. Rep. 63 [see, also, Rose’s U. S. Notes].)

From the pleadings and the facts shown in the petition to dismiss the appeal it is seen that several important developments in the situation have transpired since the lease was executed: Patent has been issued to the plaintiff; an assignee of the original lessee, recognized as such by the plaintiff, has sunk wells upon the tract of land which are producing oil in commercial quantities; the plaintiff now recognizes the lease and demands a portion of its fruits. Of course this last position is utterly inconsistent witb his first that the lease is void. To obviate this situation it is argued by his counsel that he has not estopped himself for the reason that the defendant being a trespasser must account for all of the oil it has taken from the land, so if plaintiff asks but a per centum of it he is only asking for a portion of that to which he is entitled.

It may be granted that a trespasser must account for all the oil he takes; but here again the plaintiff is inconsistent: By his division order he recognizes the defendant as the owner of the oil.

The facts as now developed in. this record are that the plaintiff, while a homesteader, and long before he made proof entitling him to patent, executed an oil and gas lease covering the land. Let it be conceded that the validity of the lease was doubtful. Whether the land was valuable for oil or gas purposes was purely speculative. The plaintiff obtains patent, and then sits by observing the defendant’s predecessor in in terest spend huge sums of money in exploiting the field; oil is found in paying quantities in the vicinity of his land; his land becomes of great value by reason of the foregoing facts; almost a year after the oil is found he begins this suit; then wells are driven upon plaintiff’s land which produce, and for several months have been producing, oil in paying quantities; then plaintiff, desiring to obtain a portion of the royalties reserved to him by the terms of the lease which by this suit he seeks to repudiate and without giving “a single or passing thought to the question of the lease or this lawsuit, ’ ’ serves upon the defendant the division order in question, which notifies defendant that plaintiff is the legal owner of a certain portion of the production of the wells on the land in question, “including the royalty interest” demands credit for such interest in all oil produced, declares that the oil run in pursuance of this division order shall become the property of the defendant at once, demands payment for plaintiff’s share in a certain manner and at a certain time, and gives notice to all persons concerned that plaintiff does not recognize the right of any sublessee of any part of the land involved to hold or distribute the plaintiff’s share of production, but the plaintiff looks to the defendant as assignee of the original lease “for protection, compensation and indemnity as to his share of the production of the entire tract.”

In view of the result whether the twenty-year provision made the lease void need not be decided. However, it is interesting to note that the land is now producing oil in paying quantities. It may continue to do so for more than twenty years. Query: Does that condition affect the question?

But plaintiff says that he has agreed to transfer an interest in the land to a third person, so under the provisions of section 7943, Revised Codes of 1921, which reads, “No unauthorized act can be made valid, retroactively, to the prejudice of third persons, without their consent,” he was without authority to ratify the lease even if he desired to do so. On June 7, 192J, plaintiff and his wife entered into an agreement with one C. M. Brinton in which it was set forth that, whereas there appears of record against the lands involved here what purports to be an oil and gas lease which is being contested in the courts of Montana, plaintiff claiming it to be null and void, and whereas plaintiff and his wife “desire to lease said lands for oil and gas, notice is hereby given that they have this day executed an oil and gas lease in favor of and to said C. M. Brinton, party of the second part, upon specified conditions that such lease is to be held in escrow in the Conrad National Bank of Kalispell, Montana, until final completion of said court action is had, whereupon said lease is to be delivered, upon the specified conditions, to said C. M. Brinton, who will then be the sole lessee of said lands for the purpose of prospecting and recovering oil and gas therefrom.”

It is fairly inferable from this document that in ease the plaintiff does not win this lawsuit it is not contemplated that the lease in escrow shall be delivered to Brinton. Upon this hypothesis it will not be. Under the agreement Brinton has not had and has not now any present interest in the land. His expectancy seems doomed to failure.

If the facts which are admitted in this record had been presented to the court in plaintiff’s complaint the court would have been justified in sustaining a general demurrer thereto upon the ground of a want of equity appearing upon the face thereof. For the same reason this court declines to aid the plaintiff; he does not come before it with clean hands. Having been, according to his own theory, a party to an illegal contract he now seeks to avail himself of that illegality to his own advantage and to the disadvantage of the other party. Having sat by while another expended toil and money in bringing forth riches he would take the riches and leave the other nothing. And lastly while he seeks to have the court declare the lease invalid he himself does that which declares it valid. He who seeks relief in equity must come with clean hands; he who does not must go hence without it.

The appeal is dismissed.)

Dismissed.

'Associate Justices Holloway, Stark and Matthews concur. Mr. Justice Galen, being absent on account of illness,’ did not hear the argument and tabes no part in the foregoing decision.

Record certified to supreme court of the United States on application for writ of certiorari on March 19, 1925. Petition for writ denied May 11, 1925'.