Hаrold and Barbara Uptegraft brought this action against Dome Petroleum Corporation and Atlas Oil, Inc., in the District Court of Oklahoma County. The petition alleged a single cause of action against each defendant. The cause of action against Atlas alleged plaintiffs were induced to give uр their rights in two oil wells while uninformed of certain facts concerning established production they allege Atlas was required to disclose to them. The plaintiffs sought rescission of a farm-out and lease assignments in addition to an accounting of production, referable to those two wells, called the James and Bross wells.
The second cause of action was brought against Dome Petroleum Corporation. It alleged Dome owed them a duty to fully disclose the production information, and that presenting the lease assignments for execution without full disclosure amounted to fraud for which Dome was liable in damages.
In their answers both defendants made a general denial and alleged the plaintiffs executed the assignments and their adoption of the preceding farmout was made in the face of actual or constructive knowledge of the facts. It is alleged this prior knowledge estops them from rescinding the contracts. Atlas Oil, Inc., filed an amended answer in which it alleges that it assigned part of its interest to others in reliance on plaintiffs’ acknowledgement of the farmout and execution of the lease assignment. Atlas alleged those absent parties are necessary parties. As a сounter-claim Atlas sought to compel plaintiffs to execute assignments to it of wells drilled after the James and Bross wells.
After a trial to the court the judgment was entered rescinding plaintiffs’ execution of the farmout and lease assignments to the James and Bross wells. Judgment was rendered in favor of Dome Petrоleum, exonerating it on the fraud claim. Additionally, the judgment required Atlas to account for all production and permitting plaintiffs to participate in all drilling activi
The factual basis for this lawsuit began with a grant from Ferguson Oil & Gas to the Uptegrafts of a 2% leasehold interest in lands located in Logan County known as the Southeast Cresent Prospect. This instrument also created interests in other parties. Ferguson Oil & Gas sold the remainder of the lеasehold to Dome Petroleum. Atlas approached Dome about development of this prospect, and on February 18, 1981 Dome executed a checkerboard farmout to Atlas. It provided that Dome would assign its interest in 80-acre tracts on which wells were completed by Atlas. This instrument reрresented without warranty that Dome possessed the entire leasehold. Both Atlas and Dome had actual notice of plaintiffs’ 2% leasehold interest.
The leases applicable to the agreement had assorted expiration dates. The earliest was April 30, 1981. On March 26, 1981 Atlas completed the James 1—3 on one tract expiring on that early date, and the Bross 1—4 was completed on another such tract on April 18, 1981. Both wells were commercially productive and were completed.
After the two wells were completed Dome (plaintiffs’ co-tenant) initiated contact with the Uptеgrafts seeking their acquiescence to the farmout. The contact was by letter dated May 18, 1981, and it states:
Dome has recently agreed to a checkerboard Farmout to Atlas Drilling Company. A copy of the Farmout Agreement is enclosed for your review.
Advantages to Dome, and our various partners are, evaluation of production in those units Atlas drills, and protection of leases which would have expired before we could have drilled in this area.
To indicate inclusion of your working interest in the Farmout Agreement please execute two (2) copies of this letter and return them to the undersigned. Prompt attention will be appreciated due to lease expiration.
Please call if there are any questions or if I can be of assistance. Sincerely, DOME PETROLEUM CORP., s/Joe Powell, Joe Powell, Landman.
This communication is immutably misleading by reason of failure to inform of current production, while stating an advantage of the arrangement is evaluation of the leases by drilling. The leases had already been evaluated by drilling. Further the leases were already perpetuated by production prior to the time the farmout had been mailed to plaintiffs.
Earlier, plaintiffs had participated in a marginal producer in the prospect and thus the farmout did not seem attractive to plaintiffs in the absence of knowledge that, at the time, there were currently two producing wells on the property. Plaintiffs contend they would have participated in those wells and future drilling activities had they possessed this knowledge. The plaintiffs talked to a geologist about the checkerboard farmout arrangement and executed it. During mid-June - of that year Dome sent plaintiffs’ lease assignments to Atlas for tracts covered by the James and Bross wells. These were executed and returned by the plaintiffs, аnd corrected assignments were signed and returned in July. Mr. Uptegraft learned later that the wells had been drilled and contacted Atlas requesting them to recognize his interest. Atlas refused and this action ensued. This action was originally assigned to the Court of Appeals. After an opinion was written, both plaintiffs and Atlаs presented a writ of certiorari in this Court. Certiorari has previously been granted and the cause is submitted here on the original briefs.
The appellant Atlas Oil first argues as reversible error the failure to join as defendants all parties having a recorded interest in the property that would be affeсted by the judgment. Atlas had assigned 75% of its interest acquired under the farmout to five other entities. These assignments were filed two months prior to the filing of this action. This defense was first raised in the amended answer which
Atlas contends that the judgment rescinding the farmout and assignments made pursuant thereto should be reversed because the plaintiffs, hаving knowledge sufficient to put a prudent man on inquiry, failed to make that inquiry and may not have their contract rescinded on the basis that they were ignorant of the fact to which inquiry should have led. Appellants point to finding of fact number 25, wherein the court determined that plaintiffs had sufficient information to put a reasonable person upon inquiry notice of the existence of the two wells. The finding states this knowledge arises from the terminal date of well commencement listed in the farmout and the lease expiration date, both prior to the time plaintiffs were asked to sign the farmout. Appellant’s positiоn is that this information prohibits, as a matter of law, a finding plaintiffs are entitled to rescind for actual or constructive fraud. The Court of Appeals held that failure to disclose the known fact of production amounted to constructive fraud. Citing
Barry v. Orahood,
Instead of disclosing the truth of there being production the same was sought to be concealed from the plaintiff by indirectly if not directly creating the belief if it did not exist or confirming as true, if it did exist, plaintiffs bеlief that the land was non-productive. The holding of the trial court that the deed was obtained by fraud finds full support in the evidence.
Appellant insists that it, as co-tenant was not obligated to speak; there was no duty.
Heggem v. Kilpatrick,
Although a party may keep absolute silence and violate no rule of equity, yet, if he volunteers to speak and to convey infor
Where one or two or more cotenants has knowledge of an offer by a third person to purchase the part of the common property owned by his cotenant, though he may be under no obligation to communicate the offer to his cоtenant, yet if he volunteers to speak and to convey information concerning such offer, which he knows will, or has reason to believe might, influence the conduct of his coten-ant to his injury he is bound to disclose the whole truth.
The appellant contends that the plaintiff had constructive knowledge оf the production and having such constructive knowledge, appellant cannot be held to have committed fraud by failing to tell the whole truth in this transaction.
Halsell v. First National Bank,
“The policy of the courts, is on the one hand to suppress fraud, and, on the other, not to encourage negligence and inattention to one’s own interests. The rule of law is one of policy. Is it better to encourage negligence in the foolish, or fraud in the deceitful? Either course has obvious dangers. But judicial experience exemplifies that the former is the less objectionable, and hampers less the administratiоn of pure justice. The law is not designed to protect the vigilant, or tolerably vigilant, alone, although it rather favors them, but is intended as a protection to even the foolishly credulous, as against the machinations of the designedly wicked....”
The trial court found that Dome was acting as Atlas’ agent in procuring the farmout by sending the letter appearing above to the plaintiffs. At this time Atlas and Dome were plaintiffs’ co-tenants. Dome and Atlas both stand in a position of trust and confidence in relation to the plaintiffs, and thus both were under a duty to convey the whole truth as discussed. Under
Constructive fraud consists:
1. In any breach of duty which, without an actually fraudulent intent, gains an advantage to the person in fault, or any one claiming under him, by misleading another to his prejudice, or to the prejudice of any one claiming under him, or,
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Dome is principally liable for its constructive fraudulent failure to fully disclose the facts to its co-tenant, the Upte-grafts, and also liable as an agent of Atlas. Accordingly, the judgment of the trial court in favor of defendant Dome is reversed with directions to grant judgment to plaintiff against Dome. The cause must be remanded for determination of damages in accоrdance with the stipulation of proof of damages found in the record.
Under the facts of this case both Atlas and Dome are liable to the plaintiffs by reason of their constructively-fraudulent acts. The argument has been made that the plaintiffs may not obtain judgment against both Atlas and Dome—that plaintiffs shоuld be constrained by the doctrine of election of remedies to pursuing one defendant or the other. The defendants, Atlas and Dome, are joint wrongdoers, and plaintiffs sought a judgment against both. Election of remedies is discussed in
Sisler v. Jackson,
COURT OP APPEALS OPINION VACATED. TRIAL COURT AFFIRMED IN PART AND REVERSED IN PART AND CAUSE REMANDED FOR FURTHER PROCEEDINGS CONSISTENT WITH THIS OPINION.