Hall Jones Oil Corporation v. Claro

1969 OK 113, 459 P.2d 858
CourtSupreme Court of Oklahoma
DecidedJuly 22, 1969
Docket41908
StatusPublished
Cited by47 cases

This text of 1969 OK 113 (Hall Jones Oil Corporation v. Claro) is published on Counsel Stack Legal Research, covering Supreme Court of Oklahoma primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Hall Jones Oil Corporation v. Claro, 1969 OK 113, 459 P.2d 858 (Okla. 1969).

Opinions

HODGES, Justice.

Parties will be referred to- as they appeared in the trial court. Plaintiffs filed suit in the district court of Lincoln County on behalf of himself and all others similarly situated. Plaintiff is the owner of approximately 26 acres of undivided minerals in the NW/4 of Section 18-T13N-R2E, Lincoln County and the other parties in this class action are the remainder of the mineral owners in the 158.64 acres contained in the NW/4 of Section 18. Defendants are the owners of oil and gas leases on NW/4 of Section 18, and the operator of a gas well known as Kimmel No. 1, that is located on the SW/4 of Section 7, which together with the NW/4 of Section 18 forms a 320 acre gas spacing unit in the lower Skinner formation. Defendants are also the owners of leases and operators of an offset well known as Petchinsky No. 1, located on the E/2 of Section 13-T13N-R1E, which forms an adjacent gas spacing unit.

Plaintiff’s action is based upon the tor-tious breach of an implied covenant of an oil and gas lease to prevent drainage. A second cause of action is alleged for punitive damages for the willful, malicious and fraudulent acts of the defendants in illegally producing oil from the Petchinsky well which drained oil from their land. The case tried to a jury resulted in a verdict for the plaintiffs for actual or compensatory damages in the amount of $29,388.86 and punitive damages in the amount of $25,000.00.

Defendants appeal from this jury verdict asserting sixty-six assignments of error which are briefed under thirteen separate propositions. Many of the propositions are directly related to the defendant’s argument that plaintiff’s cause of action is founded on fraud and misrepresentation, and can be disposed of upon a determination of that issue.

Plaintiff contends that his cause of action is based upon a tortious breach by the defendants of an implied covenant to protect against drainage. Defendants retort that plaintiff’s designation of their cause of action “is mere double talk.” They argue that regardless of the label, whether as one based upon fraudulent misrepresentation as proposed by the defendants, or based upon a tortious breach of an implied covenant as argued by plaintiff, it is still a cause of action in which plaintiff must prove the tort or fraudulent misrepresentation, and that he relied upon it.

As pointed out in the beginning, the defendants were the lessees- of oil and gas leases on lands underlying the minerals of the plaintiffs, and were the operators of the Kimmel No. 1 gas well permitted under a 320 acre gas spacing unit. Based upon this relationship there is a contractual relationship with an implied covenant to protect against drainage. The plaintiff’s petition alleges damages against the defendants for an intentional breach of this covenant. The petition stated that the defendants [861]*861were also the owners and operators of a well known as Petchinsky No. 1, which was located adjacent to their property under a separate gas spacing unit. They allege that this offset well drained oil from their property in violation of the implied covenant, and that this drainage was done deliberately and intentionally by the defendants, and that such acts amounts to a tor-tious breach of the lease contract. The petition also alleges that when the Petchin-sky well was completed the defendants did not notify the Oklahoma Corporation Commission that the well was, in fact, an oil producing well, but instead “fraudulently and intentionally falsified its Completion Report” and reported it as a gas well, and then proceeded to “fictitiously” operate the well for 18 months and produced oil in excess of 125 barrels per day.

Defendants contend that if plaintiff’s petition alleges a tort, it is a tort in fraud or misrepresentation. If so, it is a necessary prerequisite for recovery that plaintiff prove that he relied upon the fraud or misrepresentation, citing Jones v. Spencer, 197 Okl. 608, 173 P.2d 745; Allen v. Pendarvis, 60 Okl. 216, 159 P. 1117; Thompson v. Teel (1950), 204 Okl. 105, 227 P.2d 395; Littlefield v. Aiken, 130 Okl. 142, 265 P. 1054, to his detriment.

Defendants further contend that plaintiff knew of the oil production from the Petchinsky well before he purchased his minerals, and because of this knowledge the plaintiff was not mislead by the Completion Report and placed no reliance upon it when he purchased his mineral interest in the adjoining property. The fallacy of this defense is that plaintiff’s cause of action is not based upon the intentional falsification of the Completion Report by the defendants, but rather their deliberate and intentional breach of an implied covenant to protect against drainage. The Completion Report submitted to the Corporation Commission is merely evidence to show a tortious conduct by the defendants in breaching their implied covenant against drainage. The fact that defendants attempted to conceal their tortious conduct is of no consequence. The liability would be the same if the intentional breach had been committed openly and in public display. The cause of action is not based upon fraud, misrepresentation or concealment upon which reliance thereon is a prerequisite for liability.

In discussing plaintiff’s cause of action a further characterization is necessary. Defendants have also charged that this is not a case in which punitive damages are allowable. While the defendants argued under the proposition above discussed that plaintiff’s cause of action sounds in tort for fraud and misrepresentation, they now argue that plaintiff’s action is founded upon contract. In Colby v. Daniels, 125 Okl. 202, 257 P. 298, we construed our punitive damage statute and held that in an action for a breach of an obligation arising from contract, exemplary or punitive damages are not recoverable.

Conduct that is merely a breach of contract is, of course, not a tort. Nevertheless, a tort may arise in the course of the performance under a contract so that a breach of the contract may not be the gravamen of the action, but an intentional wrong may be. The contract in such case is the mere incident creating the relation furnishing the occasion for the tort and giving rise to an action ex delicto, especially where the acts constituting the breach are willful, designed, intentional, or malicious. Jackson v. Central Torpedo Co., 117 Okl. 245, 246 P. 426, 46 A.L.R. 338; Independent Torpedo Co. v. Carder, 165 Okl. 87, 25 P.2d 62; Morriss v. Barton, 200 Okl. 4, 190 P.2d 451. “[It] is well established that, where a breach of contract is permeated with tort, the injured person may elect to waive the contract and recover in tort; or, differently stated, although the relation between the parties may have been established by contract, express or implied, if the law imposes certain duties because of the existence of that relation, the contract obligation may be waived and an action in tort maintained for the violation of [862]*862such imposed duties.” Hobbs v. Smith, 27 Okl. 830, 115 P. 347, 34 L.R.A.,N.S., 697. The key in the present instance is the infliction of intentional harm resulting in damage by means of an illegal act, without excuse or justification. Here the defendants knowingly and intentionally attempted to subvert and destroy the implied covenant to protect against drainage by the illegal production of oil on adjoining property. Under such circumstances, this conduct amounts to more than a contractual breach of the implied covenant. Such conduct is a tortious violation of their contractual obligations.

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Bluebook (online)
1969 OK 113, 459 P.2d 858, Counsel Stack Legal Research, https://law.counselstack.com/opinion/hall-jones-oil-corporation-v-claro-okla-1969.