French Energy, Inc. v. Alexander

1991 OK 106, 818 P.2d 1234, 62 O.B.A.J. 3095, 117 Oil & Gas Rep. 120, 1991 Okla. LEXIS 118, 1991 WL 205564

• Court: Supreme Court of Oklahoma
• Decided: October 16, 1991
• Docket: 69749
• Status: Published

Opinions

LAVENDER, Justice.

The question this court is asked to decide is whether a lessee of an oil and gas lease purchased at a judicial sale can recover on grounds of unjust enrichment the consideration paid, when the estate did not hold the interest that was the subject of the sale. We find that lessee, Appellant herein, is entitled to such equitable relief, notwithstanding the doctrine of caveat emptor.

FACTS

H.E. (Bill) Clift owned an oil and gas lease covering section 18-T13N-R25W, of Roger Mills County, Oklahoma. Bill died in 1981 and his son, Billy Clift (Billy/Appel-lee) was named executor of the estate. In 1986, French Energy, Inc., (Appellant) approached Billy about purchasing a lease in section 18. Billy advised French to contact Dorothy Alexander, (Appellee) the attorney representing the estate.

Following Dorothy Alexander’s instructions, French submitted a written bid and the district court on May 28, 1986 executed an order allowing French to purchase a lease on section eighteen for the sum of eighteen thousand, eight hundred dollars ($18,800). French paid Dorothy Alexander five hundred dollars ($500.00) in attorney fees.

Shortly thereafter, French learned the mineral rights it had purchased were, in fact, subject to a pre-existing lease dated July 9, 1971 and having a ten year primary term. Though the initial term of the lease had expired, there was production from another section within the unit and therefore, the lease continued in force since it was executed before passage of 52 O.S. 1981, § 87.1(b), our statutory “Pugh clause.” With the adoption this statutory “Pugh clause,” production from within a unit will apparently no longer extend a leasehold interest outside the unit for more than ninety days beyond the expiration of the primary term of such lease.

Upon discovering the lease was encumbered, French demanded the return of its money including the $500 it had paid for attorney fees. Appellees refused, after which French filed suit seeking actual and punitive damages on the issues of fraud or in the alternative, rescission of the lease and restitution.

Appellees countered with a motion for summary judgment based on what they considered the undisputed material facts of the case and attached excerpts from interrogatories and depositions in support of it. Their brief argued the doctrine of caveat emptor was dispositive of the issue in that the lease was purchased in an estate sale and under Hammert v. McKnight,¹ and Selement v. Gibson,2 the estate could and did sell only what interest it had to sell.

Appellant, responded, by stating why the doctrine of caveat emptor was inapplicable to the present situation. Further, Appellant alleged Appellees were guilty of intentional fraud citing to affidavits and deposition testimony, or in the alternative, constructive fraud, mutual mistake or unjust enrichment.³ Finally, in answer to Appel-lees’ motion, Appellant requested the trial court grant summary judgment based on either of its theories of constructive fraud or unjust enrichment. The trial court, however, ruled in Appellees’ favor on the motion finding there was no dispute as to the sale proceedings and that, whatever its worth, Appellant owned a recorded lease.

The Court of Appeals affirmed the trial court. The appellate court stated, however, affirmation did not suggest approval of Appellees’ theory on the doctrine of caveat emptor in judicial sales; rather, the court found Appellant should have raised a breach of warranty argument pursuant to our rulings in Walker & Withrow, Inc. v. Haley,⁴ and Oklahoma City, v. Harper.⁵ Having failed to raise this argument at the trial court level, Appellant could not raise it on appeal. Moreover, the court found Appellant was not entitled to relief since it had not met its burden of proof to overcome Appellees’ motion for summary judgment. We previously granted certiorari.

In analyzing this case, we use the standard of review as articulated in Boss v. City of Shawnee,6 where we stated:

In reviewing the grant or denial of summary judgment, this Court will examine the pleadings and evidentiary materials to determine what facts are material to plaintiff’s cause of action, and to determine whether the evidentiary materials introduced indicate whether there is a substantial controversy as to one material fact and that this fact is in the mov-ant’s favor. All inferences and conclusions to be drawn from underlying facts contained in such materials as affidavits, admissions, depositions, pleadings, exhibits and the like, must be viewed in a light most favorable to the party opposing the motion.

ANALYSIS

We note initially, the appellate court erred in deciding Appellant’s failure to argue breach of warranty was fatal to obtaining relief. This lease was purchased at a judicial sale and as such breach of warranty is an irrelevant defense.⁷ Likewise, the trial judge ruled improperly in granting Appellees motion for summary judgment, rather, summary judgment should have been granted for Appellant on the basis of unjust enrichment.⁸

I. UNJUST ENRICHMENT

Recovery, based on unjust enrichment depends upon a showing that Appel-lees have money in their hands that, in equity and good conscience, they ought not be allowed to retain. Unjust enrichment was the basis for our ruling in Conkling’s Estate v. Champlin,⁹ a case we find analogous to the one at bar. In Conkling’s Estate, “the plaintiff paid to the deceased in her lifetime $100 per month under the misapprehension that she was in necessitous circumstances. While it is true the record is silent as to any misstatement on the part of Mrs. Conkling that would render her guilty of fraud in representing her true financial condition, nevertheless the facts are such as to justify a conclusion of nondisclosure on her part and to warrant the view of the learned trial judge that payment was made by [Plaintiff] and received by Mrs. Conkling under a misapprehension as to her true financial condition.”¹⁰

Likewise, the facts of this case manifest that, regardless of fault, the oil company was not aware of the prior lease when it paid the bonus money to executor. The executor, however, was aware of the existence of a pre-existing lease¹¹ though he may not have appreciated its significance; if he did, his retention of the bonus money is particularly offensive to principles of equity, if not, there was at the very least, a mutual mistake that was basic to the parties’ bargain¹² in that Appellee specifically agreed to convey to Appellant the present right to explore for oil and gas.

In Conklings’ Estate, we concluded:

The basis of recovery allowable is under the doctrine of unjust enrichment.... Where innocent misrepresentation or non-disclosure is the sole ground for restitution, restitution is granted only if the misrepresentation or non-disclosure was material.

Where mutual mistake is the sole ground for restitution, restitution is granted only if the mistake was basic.¹³

In the present case, the mineral rights French thought it was purchasing were being held by production from within the unit. The contract, in clear and unambiguous terms, purported to convey the present right to explore for oil and gas.¹⁴ However, there was nothing to convey.¹⁵ To allow Appellees to keep the bonus money in exchange for nothing would result in them being substantially and unjustly enriched ¹⁶. We refuse to allow one party to profit by the mistake of another where, as here, both parties can be returned to the position they were in before the transaction. In short, this case is a classic illustration of when, in accordance with general principles of common justice and equity, Appellees will be required to do what it is they promised. Since this is not possible in that the mineral rights are subject to a preexisting lease, we order the contract be rescinded and Appellant’s money refunded.

II. CAVEAT EMPTOR

Appellees have maintained throughout this suit, however, that the doctrine of caveat emptor is controlling. Specifically, Appellees cite to Hammert v. McKnight,¹⁷ and Selement v. Gibson,¹⁸ for the proposition that a purchaser at a judicial sale acquires whatever interest the estate owned and his knowledge or lack thereof, as to the extent of that interest, could hardly be the basis for invalidating the judicial sale. An analysis of the line of cases interpreting caveat emptor does not support this contention.

In Hammert, the executor of an estate had not advertised the sale of land in the correct form, manner and length of time as required under the law. In addressing the merits of the case, we initiated our legal discussion by reciting the established rule that a “purchaser at judicial sales is entitled to and takes only such title as the decedent had. If the decedent had no title, the purchaser takes none. If the title is defective, the purchaser takes it, subject to such infirmities as exist.”¹⁹

However, we continue by stating, “[t]he purchaser at the executor’s sale had a right to presume that the executor would comply with the law relative to the sale of the land and that he would receive the title that was vested in the estate of the deceased at the time the sale was begun.”²⁰ Moreover, we expressed the following principle:

The doctrine of caveat emptor can never be invoked to perpetrate a fraud. The purchaser is entitled to receive the title owned by the estate of the decedent at the time of his death or prior to the sale. The estate will never be allowed to retain its title to the property and also retain the purchase price therefor. The law requires the estate to part with whatever title it has in and to the land before it will be permitted to retain the purchase price therefor.

In the instant case, if the probate proceedings were not sufficient to pass the title of the estate in and to the lands to the purchaser, and the purchaser, believing that he was being vested with such title, paid the purchase price to the executor, then the purchaser would be entitled under such circumstances to either have the sale rescinded and be awarded the purchase price for the land, or, on the other hand, he would be entitled to have the title to the land quieted in himself, because it would be inequitable to allow the estate to retain its title to the land and at the same time retain the purchase price therefor.²¹

In Phillips v. Ball,22 we declared that: The doctrine (of caveat emptor) has been so relaxed that the purchaser at a judicial sale is entitled to expect and obtain a sound marketable title to the property sold.... If the record of a judicial sale shows a legal title upon its face, together with all other records which the law requires a purchaser to take notice, and the purchaser has no actual notice of any fact that impeaches and destroys the validity of the record title ... and in addition thereto the purchaser has paid a consideration for his title, then the purchaser has a right to stand upon his title, notwithstanding the title may in fact and in truth be fraudulent, void, or a nullity as between the parties and all persons with notice, actual or constructive.

We find these cases dispositive of the notion that the doctrine of caveat emptor precludes Appellant from obtaining recovery. While it is true a buyer must still “beware” at judicial sales, the doctrine will not shield a seller from purporting to sell that which he does not have. We realize that these cases by their very nature are uniquely fact specific and do not readily translate into general rules of law. However, we deem it reasonable, as between these two parties, to grant Appellant judgment in his favor. We know of no rule of law or equity that forbids such resolution.

CONCLUSION

We hold summary judgment should be granted on Appellant’s theory of unjust enrichment. We therefore VACATE the decision of the court of appeals and REVERSE the trial court. We REMAND with directions for the trial court to enter summary judgment in favor of Appellant, to order the contract rescinded and to enter judgment in favor of Appellant and against Appellees for the recovery of the consideration paid for the property plus recovery of the five hundred dollars ($500.00) paid for attorney fees.

HODGES, V.C.J., and DOOLIN, HARGRAVE, ALMA WILSON and KAUGER, JJ., concur. OPALA, C.J., and SIMMS and SUMMERS, JJ., concur in part, dissent in part.

1 . 132 Okla. 14, 269 P. 289 (1928).

2 . 171 Okla. 513, 43 P.2d 759 (1935).

3 . Plaintiffs response brief to Defendants' Motion for Summary Judgment at 145-56.

4 . 653 P.2d 191 (Okla.1982).

5 . 198 Okla. 493, 180 P.2d 162 (1947).

6 . 683 P.2d 535, 536 (Okla.1984).

7 . Hammert, 132 Okla. 14, 16, 269 P. 289, 291 (an executor cannot bind the estate by any covenants of warranty). The holdings of Walker & Withrow, Inc., 653 P.2d at 191, and Oklahoma City, 198 Okla. at 493, 180 P.2d at 162, are therefore not applicable to the present case.

8 . The Court of Appeals noted that the record contained no motion for summary judgment filed by French only a "request” for such in its response to Appellee’s motion for summary judgment. However, District Court Rule 13(e) states, "If it appears to the court that there is no substantial controversy as to any material fact and that one of the parties is entitled to judgment as a matter of law, the court shall render judgment to said party whether or not he is the moving party.”

9 . 193 Okla. 79, 141 P.2d 569 (1943).

10 . Id. at 80, 141 P.2d at 570.

11 . Deposition of Billy Clift at 38.

12 . Appellee Alexander was also aware of a preexisting lease. See Deposition of Dorothy Alexander at 25. "Q. Is it your testimony that you were unaware that there was an existing oil and gas lease covering any of those properties that we have just referred to? A. I knew that there was production from both properties. I assumed there was a lease because it (sic) was production. Q. So, the estate had received some revenue checks, had they, from a purchaser, to your knowledge? A. I believe there may have been some, yes. Q. Do you remember the last time the estate received any revenue checks on these interests? A. It has been quite sometime. I couldn’t recall when. Q. But you were personally aware that some revenue checks had been delivered to the estate for oil and gas production? A. That’s right. Q. And you previously stated today that you were aware that they had been delivered on both the Section 18 and 17 properties? A. That’s right. Q. As an attorney, would that not have been sufficient information to cause you to believe that there must be an existing oil and gas lease covering both Section 17 and Section 18? A. If you are asking me if that's sufficient notice that they were both on the same lease, no.”

13 . 193 Okla. at 81, 141 P.2d at 571 (citation omitted).

14 . Van Horn Drug Company v. Noland, 323 P.2d 366, 367 (Okla.1958) (syllabus by the court). Where the terms of the contract are not subject to interpretation, the construction afforded will be determined by the court not a jury.”

15 . Appellees insist that, “ftjhe contention of the Appellant that it received nothing for its money is not well taken because the Appellant acquired the estate’s right to explore for oil or gas In the event that the pre-existing lease terminated and the subject mineral interest reverted unencumbered to the estate on or before the 28th day of May, 1986.” Appellees’ argument is mer-itless. Appellant did not bargain for a "top lease." A top lease is where the lease taken is subject to pre-existing lease that has not expired when the second lease was taken. Stoltz, Wagner & Brown v. Duncan, 417 F.Supp. 552 (W.D.Okla.1976). In Cutright v. Richey, 208 Okla. 413, 416, 257 P.2d 286, 289 (1953), we stated, "A grantor in his deed is presumed to have made all the reservations he intended to make and he is not permitted to derogate from his grant by showing that some reservation was intended, but not expressed.” And in Siniard v. Davis, 678 P.2d 1197, 1200 (Okla.App.1984), the court expressed the following opinion:

Appellants argue that the proper construction to be placed on a general warranty of title clause in a top lease is that the lessor warrants he owns the minerals and has the authority to convey right of entry, exploration, production, and possession subject only to the right, if any, of a prior unreleased lease of record. We believe that if Appellants desired this result they could have easily inserted in the top lease the above stated language or could have stricken the warranty clause in said top lease in the same manner they struck the clause concerning crop damages. The covenant of warranty contained in the top lease must be given its plain effect and intent since the warranty clause and the oil and gas lease do not contain any limitations, exceptions or qualifications.

While we acknowledge this is not a suit for breach of warranty, this does not alter the fact that the same principle of construction applies to the present lease. Appellees will not be allowed to come back in at a later point and maintain that what they really intended to convey was in fact something less than what the contract stated. If Appellees intended by their action to convey a top lease they should have so stated it in their lease. The lease did not purport to convey the right to explore the minerals in the event Appellees had received back their reversionary interest prior to May 28, 1986, but rather that as of that date, Appellant had the right to go upon the land and explore for minerals.

16 .Throughout this case, the $500 (five hundred dollars) paid to Dorothy Alexander has been characterized as an attorney's fee paid by French for the sale of the lease. However, the trial judge ruled that the $500 was not a fee for service, rather, additional consideration for the lease. Hearing to Compel Answers to Certified Questions, July 20, 1987 at 31. Appellees raised no objection to this ruling. Had the $500 been for legal services, Dorothy should have been allowed to retain her fee in that she did perform a service. However, that not being the case, the "additional consideration” on remand must be returned as well.

17 . 132 Okla. at 14, 269 P. at 289.

18 . 171 Okla. at 513, 43 P.2d at 759.

19 . Hammert, 132 Okla. at 15, 269 P. at 290.

20 . Id.

21 . Id. at 16, 269 P. at 290-01 (emphasis added).

22 . 358 P.2d 193, 199 (Okla.1960) (citations omitted, emphasis added).