Blodgett v. Merritt Annex Oil Co.

PLUMMER, J. This is an action to determine the rights of the respective parties, if any, under a certain oil drilling contract dated February 14, 1930.

On the date just mentioned the appellant entered into an agreement with Carl S. Hemple and James E. Brown, having for its purpose the drilling of certain oil wells. The rights and privileges of Hemple and Brown under the agreement were subsequently assigned to the Federal Drilling Company, a corporation. Under the contract the appellant allowed the respondent Drilling Company to take possession of a certain rotary oil drilling outfit. Subsequently, the Federal Drilling Company took possession of the drilling outfit and began operations upon what is termed in the contract “Well No. 1”. This well was never finished. The Federal Drilling Company became bankrupt, ceased its drilling operations beyond the time allowed in the contract, permitting the appellant to repossess itself of the drilling equipment. The appellant brought a reclamation proceeding against the referee in bankruptcy and obtained possession of the property mentioned above. Thereafter, the trustee in bankruptcy instituted this proceeding to determine the rights of appellant, if any, to the royalty mentioned in the contract.

The contract provided that upon cessation of work for a certain length of time, the appellant might repossess itself of the drilling outfit and terminate the contract. The portion of the contract in dispute between the parties is worded as follows (omitting names of parties):

“Annexed hereto and made part hereof is an inventory of a rotary drilling outfit and other oil well tools and equipment [171](hereinafter called the drilling equipment) owned by Merritt Annex and title to which is warranted by Merritt Annex to be free and clear of encumbrances, now located on property known as the Lindner Lease in the Huntington Beach Field, Orange County, California. Second parties have inspected the drilling equipment and will accept delivery ‘as is’, without warranty or representation by Merritt Annex as to condition or equality. Within ten days after date hereof second parties shall dismantle and remove the drilling equipment to the location for ‘Well No. 1’ hereinafter mentioned, all at expense of second parties. At the location of, and for use in connection with ‘Well No. 1’, and not elsewhere, second parties shall install and keep the drilling equipment in good order and repair, at expense of second parties, and shall use the same for the drilling of said ‘Well No. 1’. Second parties agree that the drilling of ‘Well No. 1’ will be commenced and prosecuted diligently and in good faith. In event of abandonment of ‘Well No. 1’ prior to time it is completed and on production, or cessation of work thereon for thirty (30) days prior to time it is completed and on production, this contract, at option of Merritt Annex, shall terminate and second parties shall surrender possession of the drilling equipment and Merritt Annex may remove the same, and this contract thereupon shall terminate.”