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Appeals court remands case over gas-lease bonus

A lawsuit over whether a Van Buren County couple must repay a $120,000 bonus they received from a gas company for leasing mineral rights later determined not to be theirs has been remanded to circuit court by the state Court of Appeals.

Circuit Court Judge Michael A. Maggio had issued a summary judgment in favor of Thomas and Gayla Whillock, which allowed the couple to keep bonus. Chesapeake Exploration appealed the decision.

In 2005 or 2006, the Whillocks, who own 80 acres, were approached by an oil-and-gas company, not Chesapeake, about leasing the mineral rights to their property, according to a January appeals court ruling. Before the transaction could be completed, Tom Whillock learned that he did not own the mineral rights.

In 2008, a Chesapeake representative approached Whillock and asked about leasing the mineral rights. Whillock told the representative that he did not own the rights, but the representative insisted he did and offered an additional signing bonus totaling $120,000.

A five-year oil-and-gas lease was executed Jan. 21, 2008. That same time the Whillocks were presented a draft in the amount of $120,000, which said it was payable “on or before 10 business days sight with approval of title and form of agreement,” the decision said.

While nothing is in the court record indicates whether Chesapeake conducted a title search of the couple’s mineral interests at the time the draft was issued, or within 10 days, Chesapeake paid the draft on Feb. 11, 2008, according to the decision. The Whillocks received the $120,000 bonus and paid taxes.

About 14 months later, Chesapeake asked the Whillocks for the $120,000 back, saying that they had learned that the couple did not own the mineral rights.

When the Whillocks refused to return the bonus, Chesapeake sued, arguing the couple was in breach of contract. The Whillocks responded filing a counterclaim arguing the company misrepresented the facts when it encouraged them to sign the lease. They also argued they were defrauded because the Chesapeake representative had told them they owned the mineral rights.

After a hearing in Van Buren Circuit Court, Maggio granted the Whillock’s motion for a summary judgment, saying Chesapeake had “‘no cause for action for breach of contract … because Chesapeake ‘rescinded the Lease through their Release of Oil, Gas and Mineral Lease on May 22, 2009.’”

Chesapeake then filed a motion, asking for a clarification on why the lease had been rescinded and noted that the judge had failed to address their unjust-enrichment argument.

Maggio responded, saying that the release Chesapeake filed was a “general release” of all of Chesapeake’s claims, including those for unjust enrichment or restitution.

The company then appealed the judge’s decision.

In a nine-page opinion written by Judge Rita W. Gruber, the appeals court affirmed Maggio’s decision in part, reversed in part and remanded.

The appeals court said the circuit judge erred when treating the release as a general waiver of all of Chesapeake’s claims against the Whillock, adding the lease did not affect the company’s right to pursue other, extra-contractual remedies.

The court said the circuit judge was correct when he rejected Chesapeake’s claim of breach of contract.

On the issue of unjust enrichment and restitution, the appeals court said that must be reviewed in circuit court and reversed Maggio’s summary judgment ruling.

“Unjust enrichment applies when a party has received something of value to which he is not entitled and which he must restore,” Gruber wrote. “Arguably, the Whillocks’ receipt of money for property they did not own falls within these requirements.

“Restitution and unjust enrichment are equitable theories and necessarily involve a weighting of the equities as to all parties,” Gruber wrote, adding the Whillocks have several arguments the judge must consider, including the company’s “alleged misrepresentation of the ownership of the minerals and Chesapeake’s waiting more than a year before informing the Whillock’s that there was a problem with the title to the minerals.

“We therefore conclude that fact-finding involving a weighing of the equities is necessary on these claims,” Gruber wrote.

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