Appeal from the District Court of the United States for the Eastern District of Oklahoma; Bower Broaddus, Judge.
Before PHILLIPS, BRATTON, and HUXMAN, Circuit Judges.
On November 19, 1934, Lee Statler and Ed King were the owners of a 160-acre tract of land in Coal County, Oklahoma. The record title stood in the name of Statler. The state of Oklahoma held a mortgage on the land. The Commissioners of the Land Office of the state of Oklahoma had obtained a judgment in foreclosure and the land had been sold in the foreclosure proceedings and a sheriff's deed issued. Certain tax sales certificates were also outstanding against the land.
Statler, acting for himself and King, entered into a contract with Hart, Twyford, and Smith, whereby Twyford and Smith members of the Oklahoma bar, agreed to prosecute an action to vacate the sheriff's deed and set aside the judgment on the ground that no proper service had been made upon Stalter in the foreclosure proceedings, and Statler agreed to convey 20 per cent of the mineral rights in the land to Twyford and Smith and 20 per cent of the mineral rights in the land to Hart.
Thereafter, the parties to the contract agreed that Statler should execute and deliver an oil lease on the land and, with the proceeds of advance royalties received, discharge the mortgage and tax liens, and that such oil lease should be superior to the mineral rights of Twyford, Smith, and Hart.
Early in 1935, Twyford, Smith, and Hart requested Statler to execute two mineral deeds, one running to Twyford and Smith and the other running to Davis. They agreed not to record the deeds until the lease had been executed and recorded and the land redeemed from the mortgage.*fn1 Statler executed the mineral deeds on February 8, 1935. Each deed conveyed an undivided one-fifth interest in minerals in the land. Each recited "The intention hereof is to convey an undivided 32-acre interest, subject to oil and gas lease." Hart owned the beneficial title under the deed to Davis.
Contrary to their agreement with Statler, Twyford, Smith, and Hart recorded the mineral deeds on September 18, 1935.
On November 13, 1935, Stalter and King executed and delivered to C. G. Whitchurch an oil and gas lease on the land, commonly referred to as an "unless" lease. The lease provided that it should run for a term of ten years and as long thereafter as oil, gas, casinghead gas, casinghead gasoline, or any of them could be produced. It reserved a one-eighth royalty to Statler and King. It provided that if operations for the drilling of a well for oil and gas should not be commenced on the land on or before one year from the date of the lease, the lease should terminate unless the lessee should, on or before one year from the date, pay or tender to the lessor or for the lessor's credit in the First State Bank of Stonewall, Oklahoma,*fn2 or its successor, which bank and its successor should be the lessor's agent, and should continue as the depository of any and all sums payable under the lease, the sum of $160 to operate as a rental and cover the privilege of deferring the commencement of drilling operations for a period of one year. It provided in like manner and upon like payments or tenders, the commencement for drilling operations could be deferred for like periods successively. As further consideration for the lease, Whitchurch paid $2,000 advance royalty to Statler and King and paid the state $8,298.33 to discharge the mortgage. The lease was recorded November 14, 1935.
Before the Whitchurch lease was given, Statler showed Whitchurch a copy of the contract between him and Twyford, Smith, and Hart and the letters set out in Note 1, and Whitchurch relied thereon.
On November 18, 1935, Twyford, Smith, and Hart recorded the contract of November 19, 1934.
On December 12, 1935, Davis executed and delivered to A. D. Hudspeth, Jr., a mineral deed purporting to convey some interest in the minerals in the land. On the same day Hudspeth executed and delivered three mineral deeds purporting to convey some interest in the minerals in the land, one to Claude Wright, one to J. V. Holt, and one to Davis. All of the mineral deeds referred to in this paragraph were executed, delivered, and recorded after the recordation of the Whitchurch lease.
On December 31, 1934, Statler executed an oil and gas lease, in which the name of the lessee was left blank, in order to aid in the sale of an oil and gas lease to raise funds with which to discharge the mortgage. No consideration was ever paid therefor. The name of W. A. Villines was thereafter filled in the lease as lessee, without the knowledge or consent of Statler. Twyford, Smith, Hart, and Davis*fn3 had notice of the facts respecting such lease and knew that it was not executed for the purpose of conveying title to Villines.
On November 15, 1935, Davis, acting as trustee for Hat, and Twyford and Smith made and delivered to the Pacific Petroleum Company, a corporation in which Twyford and Smith were officers and directors, and oil and gas lease on the land. It was recorded on November 16, 1935. At the time of the execution of such lease the ...