Procedural Posture

Plaintiff corporation brought a breach of contract action against defendant sub-lessee after the sub-lessee refused to perform his contractual obligations to drill and remove oil from land leased by the corporation. The Superior Court of San Diego County (California) sustained the sub-lessee’s demurrer to the complaint and entered judgment for the sub-lessee. The corporation appealed.

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Overview

The corporation’s treasurer, acting in his capacity as treasurer, entered into the contract between the corporation and the lessor. The contract provided that the treasurer would drill and sink wells on the land within six months. The treasurer then assigned all of his rights in the contract to the corporation. Another contract was then executed whereby the treasurer sub-leased all the rights in the drilling of the land to the sub-lessee. The sub-lessee abandoned his operations and refused to complete them. The sub-lessee argued the contract was void because the treasurer had no interest in the land when he entered into the contract with the sub-lessee because he had previously assigned those rights to the corporation. The court reversed the judgment in favor of the sub-lessee and found that at all times the treasurer was acting in his capacity as treasurer on behalf of the corporation and that the sub-lessee knew that the corporation was the real party in interest. The treasurer indicated by his signature that he was signing on behalf of the corporation.