The royalty contract provides that Dahlem must disclose bentonite deposit "known only to him" and IMC, engaged in the business of purchasing and mining bentonite, was "interested in learning the location of such bentonite deposit with the view of purchasing or leasing same for mining purposes." The phrase "known only to him" does not appear to have been the subject of interpretation by any court in the nation, and helpful analogies in the law have neither been cited by counsel nor otherwise been brought to the attention of this court. As Loucks testified, the purpose of the phrase was to protect IMC from having to pay for information that it already knew; and it is this meaning which is conveyed by the words of the document. Otherwise stated, the phrase, "known only to him", meant that Dahlem had to supply information that was unknown to IMC or the public generally. IMC's bentonite knowledge, of course, rested upon its own prior exploratory programs and all information in the public domain, such as published geological studies of bentonite deposits in Monroe County. It is our view that if IMC did acquire bentonite information novel and unknown to it, thus satisfying what it expected to receive for its promise, it is of no consequence that Dahlem might have shared his secret with his wife, or his brother-in-law or other persons who kept his confidence. We reject a harsh, literal application of the words "known only to him" as requiring that the information to be not only unknown to IMC and the public generally but beyond the knowledge of any other person. By holding that the consideration was in furnishing bentonite information unknown to IMC or information not already accessible to it, this court accords to the written agreement a fair, reasonable, and proper interpretation, and one faithful to the express intent of the parties.
Laying aside the special knowledge, if any, that Dahlem may have possessed, the record is surely replete with evidence that the pre-contract knowledge of IMC, and its predecessor ECP, of bentonite in the Monroe-Itawamba Counties area, was extensive, and equalled, if it did not surpass, the accumulated knowledge of the field geologists, competing mining companies, affected landowners, and independent prospectors of bentonite. At the trial, IMC offered five geologists as expert witnesses, Dr. Hunter, Roy Hall, Jefferson Teague, Frederic F. Mellen and N.J. Dunbeck; it also introduced Phillips' correspondence. In addition, defendant offered pertinent published geological studies on Mississippi bentonite, particularly the deposits located in the Panther Creek area. Dabbs relied principally upon the testimony and written reports of Tracy Lusk, the testimony of certain lay witnesses, the in-court admissions made by defendant's geologists and what he contends to be the correct evaluation of the antecedent geological reports and studies.
After a careful and detailed study of the expert testimony, the geological maps, the reports and writings of the several geologists and other relevant data, the court concludes that neither IMC, the affected landowners nor the general public was aware of the precise location and size of the commercial bentonite deposits in the yellow area before Dahlem's disclosure. The information he supplied was of value to IMC and materially aided it in its search for new bentonite reserves. The court holds that the "geological deductions" by certain IMC expert witnesses that the Panther Creek deposit, since it was of marine rather than non-marine origin, had to be a continuous deposit of broad lateral extent -- a fact allegedly known since 1940 when P & L began mining its bentonite outcrop -- do not begin to answer the question. It is quite clear that, prior to Lusk's exploration, while other lands in the vicinity of the P & L mine, including the yellow area, were regarded by IMC as prime prospective territory for wildcat drilling, no one in that company knew the size and extent of the Panther Creek formation, or if continuous, the precise route and depth of the bentonite strata.
In reaching this determination, the court is impressed with certain basic, undisputed physical facts; viz, (i) the bentonite deposits were located in terrain that is hilly, rugged, inaccessible and without interior roads; (ii) the deposits were buried from 50 to 120 feet below ground surface; (iii) there were no outcroppings or exposed areas at any point ; and (iv) prior to Dahlem's contract there had been no known deep-hole drilling in the particular territory. Thus it was that each geological expert who testified acknowledged one might suspect but could not know if or where bentonite might be located thereon, except by drilling. IMC rated a tremendous mass of land -- 23 square miles -- in the same category. Indeed, in the pre-1955 era, the presence of a known bentonite deposit on the P & L tract being mined did not indicate to geologists or to the mining industry the existence of large bentonite formations such as Lusk documented following the Dahlem contract. For example, to American Colloid personnel a bentonite bed of as much as 20 acres was a large deposit. The total drilling experience in Monroe County prior to 1955 had established that bentonite, like oil, was spotty, elusive, and usually found in pods or scattered occurrences which IMC carefully charted for guidance in future wildcat drilling.
Because of the importance of the issue, we shall briefly, if somewhat repetitively, examine in chronological order the significant features of various geological reports to show that they do not conflict with, but provide evidentiary support for, our holding that Dahlem did lead IMC to secret bentonite deposits. These reports, and the studies based thereon, were published and compiled by numerous persons ranging over a 27-year period as follows:
(a) Grim Report -- 1928.
Ralph E. Grim, a geologist connected with the Mississippi Geological Survey, in 1928 prepared the first report making reference to Dahlem's initial 1927 discovery. Grim's report (Ex. 3, p. 2) had the following notation:
" Outcroppings of the material can be found in the beds of Panther and Little Panther Creeks and their numerous tributaries about a mile west of the Tombigbee River, in parts of Sections 14, 23, 26, Twp. 15S, R 7E." (Emphasis added).
Grim made visual inspection of outcrops but did no drilling, stating: "As the material is located in the creek bottoms and has not been dug into, it is very hard to get unweathered material for testing." (p. 6) By locating outcrops in parts of Sections 14 and 23, Grim was in obvious error; under uncontradicted proof there are no outcrops in Section 14 or 23.
The only detailed study offered by Grim was of the property owned by Dahlem in the Northeast Quarter of Section 26.
(b) Bay Report -- 1935.
In another early study for Mississippi State Geological Survey, Harry X. Bay (Ex. 163) expounded that there were two distinct beds present in the Panther and Little Panther Creek areas, five miles south of Aberdeen (upper and lower). These deposits were placed by Bay in Sections 24, 25 and 26, yet he mislocated the property owned by N.W. Dahlem to be in Section 24, instead of in the Northeast Quarter of Section 26. Since the only outcrops in Section 24 are located in the Northeast Quarter, it seems clear that Bay intended to include only that quarter section in describing the area of known deposit in Section 24. This report added little to Grim's previous findings.
(c) Poole Maynard Report -- 1935.
As heretofore stated, Poole Maynard, a New York geologist hired by P&L, made a detailed study of the properties under the control of P&L. This he did in 1935, pointing out in his report: "I beg to submit the results of my investigation of the bentonite properties under your ownership and control in Monroe County, Miss."
Maynard, who prospected by means of a 4" hand auger and by sinking of shafts, reported: "The bentonite bed gradually rises about twenty feet to the mile going east as Panther Creek cuts its way down, flowing east to the Tombigbee River . . . It was revealed in prospecting that the bed (strata) of bentonite is continuous, so that without fail it was always possible to cross cut the bentonite by means of auger (drill) or shaft. On account of the continuity of the deposit, the outer line of the known commercial bentonite was placed at a series of points 150 feet from the outer edge of auger (drill) holes and shafts . . . The general strike of the bentonite bed is North and South and the bed of bentonite dips to the West from twenty to thirty feet to the mile." (Emphasis added).
The properties drilled by Maynard were located south and east of the yellow area; his program called for shallow-hole drilling and only a few holes were drilled in excess of 20 feet. This geologist estimated known reserves of 548,172 tons on the P&L properties, made up of 190,772 tons of yellow bentonite for strip mining and 357,400 tons of blue bentonite for underground mining. While this report furnished a significant advance over the prior general findings, yet Maynard's drilling was restricted to locations on P&L properties which were characterized by outcrops and a shallow strata of bentonite.
(d) Vestal Reports (2).
(1) 1936. Another State geologist, Franklin E. Vestal, next discussed the four known localities of bentonite in Monroe County, stating one of them to be:
"A body of bentonite exposed by Panther and Little Panther Creeks . . . a mile west of the [Tombigbee] River and four to six miles south of Aberdeen . . . It underlies parts of Secs. 14, 23, 24, 25 and 26, T. 15 S., R. 7 E., and properties of N.W. Dahlem, Fred Dahlem, Bank, Johnson, Sykes and possibly others . . ." (Emphasis added). (Ex. 164, p. 28).
Although relying upon the Poole Maynard report. Vestal, like Grim and Bay, incorrectly located some of exposed outcroppings which did not exist in Sections 14, 23, or in the Northwest Quarter of 24. The samples which Vestal used to determine bleach ratings came only from Dahlem's land (p. 39). This report contributed nothing to the known geology.
(2) 1943. Vestal's second inspection of the Panther Creek area again erroneously listed land Sections 14 and 23 in the region of known deposits. The property owners identified did not include any landowners within the yellow area. Vestal did not indicate that he did any drilling or take any samples from that area. This second field trip unearthed no new information relevant to our inquiry.
(e) Mellen Reports (3).
(1) 1937. That year Frederic F. Mellen, a geologist, made a field trip to the 1927 Dahlem discovery, reporting: "I prospected the area somewhat more in detail then previously but found no further extension, although conditions indicate that wide prospecting might reveal a large continuation." (Ex. 174). Mellen prospected south of the P&L property, located a bentonite bed near the juncture of the Tombigbee River and Buttahatchie Creek, and reported: "This bed [which is at least five miles south of the Dahlem bentonite] is probably, then, a southward continuation of the Dahlem bentonite. It extends in rather uniform thickness for a mile or more north-south in sections 25, & 26, T. 21 N, R. 7 E., Clay County, Mississippi." This exploration was clearly limited to lands lying considerably south of the original P&L mine.
(2) 1942. On his second trip to the Panther Creek area, Mellen did drill on land near the yellow area, i.e., on the Bradley-Kilgo-Sally Johnson properties which he described as the Southeast Quarter of Section 13 and the Northeast Quarter of Section 24. Mellen's test hole records fully support this finding.
These lands are northeast of the P&L mine; they contain outcroppings and lie due east of the yellow area.
(3) 1952. On this third visit in 1952, Mellen made a detailed study of the P&L properties, advising ECP that he was of the opinion that the "properties studied and adjoining lands merit the serious attention of your company." (Ex. 178). It should be stressed that Mellen confined his work to the property controlled by P&L but did not drill thereon. His study consisted of two phases: "(1) the securing of the P&L map and report of Poole Maynard and study of the report and map in the office; and (2) the examination of the mined-out areas and inspection of the remaining reserves as indicated by a relatively few outcrops and general use of Maynard's map in the field." Mellen's report was in essence an evaluation of the original Dahlem discovery in case ECP should consider purchasing it in the future. He did recommend, however, exploratory drilling.
This was the first direct suggestion that IMC might undertake exploratory drilling operations on the P&L property and adjoining lands. Mellen took Maynard's estimated reserves, used Maynard's study and drilling data, and did not attempt to calculate new reserve information for IMC. The tenor of this report was Mellen's belief that P&L property might be more efficiently mined than it had been under American Colloid should exploratory operations on the eastern bluff of the area near the Tombigbee River reveal a continuation of the bentonite deposit.
(f) Stephenson-Moore report -- 1940.
This study (Ex. 191) largely referred to other geological reports and furnished no new data.
(g) Phillips' correspondence -- 1939-42.
E.D. Phillips, the practical prospector mentioned earlier (ante p. 7), advised Dunbeck of his wide-ranging activity in ferreting out tips, rumors and all sorts of reports on minerals. Although his prolific letters (Exs. 71-158) are not easy to place in proper focus, it is clear that his shallow-hole drilling and examination of outcrops did not extend to any land in the yellow area. His findings related to certain property to the north (Alice Strong acreage in § 12), to the east (Bradley tract in § 13), and immediately south of the Bradley tract (Johnson property, NE 1/4 § 24). He estimated only small tonnages, i.e., Strong 15,000 tons, Bradley 30,000 tons and Johnson 50,000 tons, but made no estimates of other property under P&L's control.
Note should be taken of Phillips' confusing reference to the Cole property.
In one letter (Ex. 110) Phillips wrote that he loaned Cole a drill, that Cole found bentonite on his property (of unidentified location), and that Cole would show the clay to Phillips the following week. Phillips never mentioned this again, and the court can give no credence to such hearsay, although it might possibly be that this was the L.B. Cole property located in Sections 14 and 23 (within the yellow area) that IMC is presently mining.
(h) Hunter-Hall report -- 1954.
As heretofore stated, IMC's geologists, Frank Hunter and Roy Hall, in 1954 did extensive drilling in the Smithville vicinity in Itawamba and Monroe Counties, which was far distant from the yellow area. At the conclusion of their work, they designated the four broad areas for IMC's future wildcat drilling. While neither Hunter nor Hall drilled in Area IV, they had available all pertinent geological literature then published by state and federal agencies, as well as the Mellen and Poole Maynard reports. In their summary, these geologists made the following comment regarding Area IV, which was rated lowest in order of priority:
"Area IV was selected because of numerous bentonite deposits reported in the area. Very little is known about the geology of this area and one week of surface geology prior to exploratory drilling would be desirable. If reports are correct, Area IV is a very good prospect although it is farthest from the [Smithville] plant." (Emphasis added) (Ex. 70, p. 27).
The court notes that these geologists compiled all known information on their geologic map (Footnote 4), showing the specific locations of the occurrences of bentonite deposits in Monroe and Itawamba Counties.
It is significant that, despite Mellen's 1952 recommendation, these geologists gave Area IV the lowest priority, but ironically the Hunter-Hall report emphasized the desirability of getting information from Dahlem on his secret deposits, specifically recommending the negotiation of a contract to pay a royalty for the disclosure.
(i) Lusk's weekly reports -- 1955.
Lusk's work was a continuation of the Hunter-Hall study which began in the Smithville area. Under Hunter's direction, Lusk had three objectives in mind: (1) to estimate reserves then under the control of IMC; (2) to ascertain competitors' reserves; and (3) to locate new and unknown reserves. After leaving Smithville he was directed to drill the perimeter of the property under P&L control. When Dahlem approached him with an offer of secret information, IMC had no planned drilling program for the land in the yellow area, nor had any drilling work actually been done by IMC in Area IV. While Lusk regarded all property near the P&L mine as prime prospective territory and had access to the Maynard, Mellen and other geological reports, Lusk, as he later testified, did not know the nature and extent of the huge bentonite deposits in the yellow area until his attention was drawn to that particular territory by Dahlem's furnishing the land description, showing the pits and deep holes drilled by Dahlem, and supplying samples of the Tombigbee clay. Lusk's reports submitted at the time support this finding, and they also confirm that IMC's subsequent drilling program was geared to Dahlem's information and the company's ability to gain control of the lands by options or mining rights.
This court is impressed with the testimony of Tracy Lusk, who after studying his 1955 weekly reports and other pertinent data, stated that Dahlem's information was of material aid to IMC's carrying out a successful exploratory program on an accelerated basis; that before such information "we didn't know for a fact the location or extent of the deposit", although without it IMC would have drilled at some point in time since "it was a target area and near the P&L mine." Lusk emphasized that no one other than Dahlem gave him any information about the location of deposits in the yellow area, and he did not consider IMC's prior information available to him as sufficient to put him on notice that there were in fact commercial bentonite deposits in the yellow area. The timing of the information, of course, enabled IMC to make advantageous approaches to the landowners who were unaware of the deposits beneath their lands and to move ahead of its competition operating in the vicinity. Lusk expressed surprise at the failure of American Colloid to find and tie up the deposit before IMC did. Lusk's statements are fully supported by the record, thus enabling this court to find, in accordance with the probabilities, that the information which Dahlem supplied to IMC was new or novel to it and furnished IMC with valuable unknown facts about bentonite.
Since the record supports the foregoing conclusion, this court must reject the testimony of Maurice Clay that when he first saw the land description that Dahlem furnished he told Dahlem that IMC already knew about those lands and there was nothing secret about the information. Indeed, IMC's own records adequately refute this testimony; neither do those records support the post-1955 views of other IMC officials that they knew of this location of commercial bentonite deposits.
IMC, therefore, has failed to establish failure of consideration as a defense. Indeed, the whole record plainly discloses that something which the law regards of value, i.e., new or novel information, was furnished by Dahlem to support the promise of IMC. From a lengthy record this key fact has emerged, unobscured by either the sealing of Dahlem's lips by death or the passage of fifteen years from the making of the contract until IMC's challenge.
For the foregoing reasons the court declares the royalty contract in suit is legal, valid, and enforceable in accordance with its terms.
Judgment for plaintiff shall be entered accordingly.