Hardegree v. Zink

1963 OK 27, 382 P.2d 153, 18 Oil & Gas Rep. 1017, 1963 Okla. LEXIS 398

• Court: Supreme Court of Oklahoma
• Decided: February 5, 1963
• Docket: Nos. 39567, 39568
• Status: Published

Opinions

BERRY, Justice.

The above styled and numbered cases were consolidated for trial below and will be treated as consolidated cases here.

We will first consider and dispose of the appeal in No. 39,567. In doing so we will refer to the plaintiff in error, Dan L. Harde-gree, as “plaintiff”; to defendant in error, Townsend M. Zink, as “defendant”; and to the remaining defendant in error as “Bond”.

On February 21, 1955, J. H. and Emma Poole executed and delivered to plaintiff, for a consideration of $5.00 an acre, an oil and gas lease covering minerals above 1250 feet underlying the NE/4, Sec. 29, T. 7N, R. 6W, Kiowa County, Oklahoma. The primary term of the lease was one year. Production of oil or gas in paying quantities during said year would serve to extend the lease during the period of such production.

While plaintiff assigned interests in the lease to a number of persons, under the issues presented the only assignments which are directly involved are these: Plaintiff’s assignment to his mother, Lucille Cotten, of an undivided 2%28ths. interest in the lease in so far as it covered the NW/4 of the NE/4; a reassignment by Mrs. Cotten of said interest to defendant, which was given in order to enable defendant to perfect title to the lease; an assignment of the lease by plaintiff to defendant; an assignment to Bond’s predecessor in title of a net one-half of the production from the NW/4 of the NE/4.

The only assignment that plaintiff questions is his to defendant. He asserts that the assignment was given while he and defendant were mining partners; that the sole purpose in giving it was to enable defendant to clear title to the lease; that it was understood that he, plaintiff, retained an undivided one-half interest in the lease which is subject to the assignments to Mrs. Cotten and the one under which Bond claims.

In his petition filed below, plaintiff asked that he be adjudged to own an undivided one-half interest in the lease subject only to the interest assigned Mrs. Cotten. He also sought an accounting as to defendant, the appointment of a receiver and for injunc-tive relief. While a receiver was subsequently appointed, he did not cause the lease to be developed.

Following trial of case to the court, the court found and held that on July 8, 1957, plaintiff abandoned and forfeited his interest in the lease and that he thereafter had no interest in the lease; that defendant owned the lease subject to the assignments made to Mrs. Cotten and to Bond’s predecessors in title. Judgment was accordingly entered.

From order of the trial court denying plaintiff’s motion for new trial which was directed to the mentioned judgment, plaintiff perfected this appeal.

In support of his petition in error, plaintiff contends that the finding of the trial' court that plaintiff abandoned and forfeited his interest in the lease is contrary to the evidence; that “the evidence was wholly insufficient for the court to find that (defendant) was entitled to terminate the partnership contract by virtue of the abandonment.”

The pertinent evidence bearing upon the mentioned contentions can be summarized thusly:

Plaintiff testified that within one year from date of execution of the lease, he caused 5 or 6 test wells for oil and gas to-be drilled on the leased premises; that two-of the wells were drilled on the NW/4 of the NE/4; that some of the wells were completed as oil wells and produced oil in paying quantities; that a portion thereof was-delivered to a trucking concern and the remainder was placed in storage. There is competent evidence that none of the wells so-drilled would produce either oil or gas in-paying quantities.

As a result of the drilling operations numerous lien claims were, asserted against the lease, and a mortgage given by a drilling contractor on personal property used in drilling and producing the lease was in default. It appears that an action was instituted to-foreclose the mortgage in connection with which a receiver was appointed to take charge of the property subject to the mortgage. It further appears that in this action numerous lien holders sought to foreclose their liens on the leasehold. As a result of said action or actions all personal property on the lease was removed except casing cemented in the holes and a small amount of rods and tubing. Moreover, the action served to establish money judgments against plaintiff and liens against the leasehold which aggregated several thousands of dollars. The record tends to show that plaintiff was not then in a financial position to discharge the liens, equip the wells for production or drill further test wells for oil or gas. For said reason the trustee for the lessors was in a position to assert that the lease had been abandoned and that for said reason the lease should be cancelled. It appears that such was the position of the trustee and that an attorney had been consulted relative to instituting an action to cancel the lease.

Shortly prior to March 11, 1957, plaintiff became acquainted with defendant. Plaintiff represented that commercial wells had been drilled on the east half (80 acres) of the lease; that he could furnish a commercial title to the lease as to said 80 acres; that he would sell an undivided one-half interest in the east portion of the lease for $8,215.70, $800.00 of which was to be paid in cash upon a contract of sale being agreed upon. It appears that plaintiff agreed that all of the consideration would be expended in equipping and placing wells drilled on the east one-half on production and in further developing said portion of the lease. Defendant accepted plaintiff’s offer and a letter was drafted which evidenced in part the terms of the sale. Defendant paid plaintiff the agreed sum of $800.00. Plaintiff used but a small portion of this down payment in equipping or developing the lease. Shortly thereafter, defendant visited the lease and investigated those things bearing upon the value of the lease and plaintiff’s interest therein. In connection with the conditions that defendant found to exist, the court made this finding:

“ * * * On April 1, 1957, the defendant, * * * upon coming to Hobart found that the lease was subject to cancellation by reason of nondevelopment and non-production, that there were steps being taken to institute suit to cancel the lease by the landowners, that all of the equipment on the lease had been removed, except pipe in the holes, most of which was cemented in and without value, that there were numerous unpaid mechanics’ and material-men’s liens which were in the process of being foreclosed, that a receiver had been appointed over the lease, that a decree of foreclosure in the District Court of Kiowa County, Oklahoma, was then pending, that there were unpaid mortgages, outstanding interests in the leasehold estate, and that due to the condition of the title, the liens, mortgages, and position of the landowners, that there was no value to the lease, *

The Court further found that subsequently:

“ * * * a new oral agreement was entered into by and between the plaintiff and defendant on or about April 1, 1957, when the entire leasehold estate as to all of the interest of the plaintiff was assigned to the defendant, with the understanding that both would contribute time and effort towards developing and saving the lease. That thereafter, it was found that there were more liens than anticipated, and numerous items to be paid, and that the relations of the parties was not satisfactory, and! that finally on July 8, 1957, all arrangements between the parties were can-celled, and from that date to the filing of this action the lease was entirely developed and operated by the defendant, * * *, individually, to which he devoted his capital and his time and efforts. That as a result of such time and efforts, he. was able to clear the title, and was able to secure a ratification of the old oil and gas lease from the landowners, which ratification was to him individually, the landowners ratifying the same upon his showing that he was the sole owner of the lease and had developed the same and had the same in production. That had the lease not been cleared through his efforts, and the ratification secured, the leasehold estate would have been entirely lost. That due to the complete abandonment of the lease and enterprise by the plaintiff on July 8, 1957, and due to the individual development and perfecting of the lease by the defendant, * * *, that judgment should be entered for the defendant, * * *, and against the plaintiff, * * *, and that the cost of this action should be assessed against the plaintiff, * *

The findings so made are supported by competent evidence.

On the issue of whether plaintiff terminated or defendant terminated the mining partnership and whether plaintiff in fact abandoned the lease, there is competent evidence that on or about June 9, 1957, plaintiff, while upon the lease, advised defendant that he,, plaintiff, “was through with the lease, wasn’t going to do any more with it”; that plaintiff subsequently removed his tools from the lease; that shortly after June 9, 1957, defendant advised plaintiff that the agreements between them were terminated; that plaintiff did not thereafter perform any labor nor furnish any money in developing the lease. We add, that there is also competent evidence tending to show that plaintiff’s services and work were entirely unsatisfactory and that plaintiff failed to satisfactorily comply with any agreement that he made with defendant concerning the lease; that following plaintiff’s abandonment of the lease defendant caused the lease to be developed; that as of date of trial, several wells had been drilled on the lease which were producing oil in paying quantities; that no wells drilled prior to July, 1957, in fact produced oil or gas in paying quantities ; that defendant entered into a contract with Bond’s predecessor in title (hereafter referred to as “contractors”) under which it was agreed that test wells would be drilled on the NW/4 of the NE/4; that three such wells were drilled which produced oil in paying quantities; that in consideration of defraying the cost of drilling and equipping the wells, the contractors should be entitled to a net one-half of oil or gas produced.

It is not disputed but that plaintiff’s purpose in assigning the lease to defendant was to enable defendant to obtain a ratification thereof, clear title thereto and develop it.

The record shows that as of date of the assignment the lease had but a highly speculative and nominal value; that the value of the lease was far less than the aggregate amount of the liens that had been impressed thereon; that the judgments against ■ plaintiff which defendant caused to be satisfied in clearing the title and in obtaining ratification of the lease, and that portion of the $800.00 which plaintiff did not expend upon the lease, together with the value of the spudder which plaintiff delivered to defendant, exceeded the then-value of the lease and oil delivered to a truck and that in storage; that as aforesaid, plaintiff expended no labor upon and advanced no funds for developing the lease after July, 1957, and in fact instituted the instant action on November 19, 1960 only after defendant’s efforts had served in saving the lease and developing same; that defendant, under competent evidence, had just cause for terminating the mining partnership. Plaintiff, nevertheless, contends defendant could not properly terminate the mining partnership and that if he (plaintiff) in fact abandoned the lease, he did not thereby forfeit his interest in the partnership nor his right to an accounting.

On the issue of whether defendant could, for cause, terminate the partnership, defendant points out that in the sixth paragraph of the syllabus to Dike et al. v. Martin et al., 85 Okl. 103, 204 P. 1106, it was said that “If either party to a joint adventure has refused to substantially perform his obligations, his associates may terminate their relations with him, and carry out the enterprise to his exclusion, and if for this, or any other valid reason, they choose to terminate the relationship, they could do so only by giving notice to him that the relationship was then and there ended.” In view of this rule, we are of the opinion that under the evidence the trial court did not err in finding that defendant was justified in terminating the partnership.

In support of plaintiff’s contention that he did not forfeit his interest in the lease or a right to an accounting by abandoning the lease, plaintiff cites 40 Am.Jur. “Partnership”, Sec. 119, p. 212; 30 Am. Jur. “Joint Adventure”, Sec. 42 at p. 969, and Sec. 47 at p. 974 and other authority.

To our way of thinking, Forbes v. Becker, 150 Okl. 281, 1 P.2d 721, 80 A.L.R. 1, is dispositive of this issue and that in reaching a conclusion it is unnecessary to turn to the decisions of other courts.

In the cited case, as here, a mining partnership existed that had for its purpose exploring for oil and gas. At a time when the partnership was engaged in such work, one of the partners (Forbes) made known to the other that he was abandoning the partnership, and consistent with said declaration thereafter did nothing to further the business of the partnership. At the time of the abandonment the likelihood of the partnership venture proving successful was extremely doubtful. It was only after the efforts of the other partner (Becker) had resulted in the venture being successful, that Forbes sought an interest in the fruits of the venture.

The trial court found and held for Becker and upon appeal the judgment was affirmed. In affirming, we pointed out that a mining partner may dissolve a mining partnership; that a mining partner who abandons the partnership is not in all instances entitled to a share of the property of the partnership or the fruits of a venture that are attributable to the efforts of the partner who carries on following the abandonment.

After pointing out that Forbes contended that there was a general or universal rule that a partner who abandons a partnership, is entitled to a share of the partnership property and profits accruing from the use of such property, this is said at p. 726 of 1 P.2d:

“ * * * As a matter of fact, there is no universal rule, and it has been held by the highest authorities that there is not even a general rule that entitles a retiring partner to an interest in firm assets, or requires a partner using firm property or firm funds in his business, after the termination of the partnership status, to account for or divide profits so made with a former partner.

“In a case where parties, who had agreed to finance the performance of a contract made with the state, violated their agreement after having furnished part of the necessary funds, and yet sued for an agreed one-half of the profits, the Ohio court said: ‘There is, perhaps, no general rule without exceptions, certainly none that will do exact justice in every case, or that may not do injustice in particular cases. There is one general maxim, however, that is seldom found to fail, to wit, that when a supposed rule is so applied as to work manifest injustice, it is most likely that it is either misunderstood or misapplied.’ Durbin v. Barber and Barney, 14 Ohio, 311.”

Following the quoted matter will be found citations to cases which tend to sustain the general proposition that the matter of whether a partner who abandons a partnership forfeits his interest in the partnership depends upon the facts; that if under all of, the facts it would be unjust to permit him to share in property or gains of the partnership, he will not be permitted to do so.

For a recent opinion to the general effect that abandonment of a joint adventure by a co-adventurer may serve to deprive him of the right to an accounting, see Burkett v. Snakard et al., Okl., 365 P.2d 1006.

We are of the opinion that there is competent evidence which serves to bring this case within the purview of the law as announced in the cited cases, and for said reason the judgment in No. 39,567 is affirmed.

We next consider the appeal in No. 39,-568.

Defendant does not dispute the validity of plaintiff’s assignment to Mrs. Cotten of a 2%28ths interest in the lease in so far as it covered the NW/4 of the leased premises. He contends, however, that this assignment was subject to the contract entered into between defendant and Bond’s predecessors in title under which a net one-half of the production from said 40 becomes payable to the contractors (Bond), therefore, that Mrs. Cotten’s interest was in fact a net 1%28ths of oil or gas produced, saved and sold from the NW/4; that Mrs. Cotten’s interest should bear 2%28ths of the cost of clearing the title, obtaining ratification of the lease and of all expenses incurred by defendant in developing and producing the lease. The trial court found in accordance with defendant’s contention, save Mrs. Cot-ten’s interest was not charged with the value of defendant’s personal services and his travel expenses incurred in clearing the title and developing the lease.

It stands admitted that defendant’s purpose in obtaining the assignment from Mrs. Cotten was to facilitate the matter of clearing title to the lease, obtaining ratification of the lease and developing same and that Mrs. Cotten was not a party to the contract under which Bond claims. There is no evidence showing that she had knowledge of the contract or that she ratified it. The trial court nevertheless found that since defendant had reached the point in attempting to develop the lease where he was no longer in a financial position to do so without entering into a contract such as the one under consideration, Mrs. Cotten’s interest should be made subject to the contract. Defendant has not cited authority tending to sustain this finding and conclusion.

In our opinion defendant had neither express nor implied authority to in effect reduce Mrs. Cotten’s interest in pro- 2 duction from the NW/4 by entering into a contract with a third person to develop the lease in consideration of a share in the net production therefrom.

As to cost and expenses chargeable to Mrs. Cotten’s interest in the NW/4, she admits that her interest should bear its pro rata part of the actual cost of developing said forty but asserts that her interest “cannot be charged with development expenses of acreage (remainder of the lease) in which she claimed no interest”; that her interest should not bear any part of defendant’s cost in acquiring the lease.

It appears that the liens which defendant caused to be discharged covered the entire lease. Therefore, under the facts, Mrs. Cotten’s interest is therefore chargeable with %2sths part of the aggregate cost of discharging such liens together with reasonable expenses incurred by defendant in discharging the liens. As to cost of development of the lease where no lien resulted, .Mrs. Cotten’s interest should bear 2%28ths of said cost in so far as incurred on the NW/4 but no portion of such expense where incurred on remainder of lease. Her interest should therefore be charged only with 2%2sths of the reasonable value of work and services performed by the contractor on. the NW/4 and of like but actual cost and expenses incurred by others on the forty. As to overhead, such as bookkeeping, same should in so far as possible be prorated and charged to Mrs. Cotten’s interest in the ratio that cost of drilling operations and development on the NW/4 bore to cost of drilling operations and development of the entire lease. The cash consideration paid by defendant to plaintiff for an interest in the lease and any amount paid to and used by plaintiff in discharging liens thereon or in developing the lease should not as indicated be charged to Mrs. Cotten’s interest. Under the record, Mrs. Cotten’s interest in production from the NW/4 is a 2%2sths of the net production accruing to the ^ths working interest. Her interest is subject to and shall be impressed with a lien in defendant’s favor until such time as production accruing from her interest equals and serves to discharge the aggregate amount of cost and expenses chargeable thereto.

For reasons stated, the judgment in No. 39,568 is reversed and the trial court is directed to grant Mrs. Cotten a new trial and to otherwise proceed in accordance with the views herein expressed.

BLACKBIRD, C. J., HALLEY, V. C. J., and DAVISON, JOHNSON and WILLIAMS, JJ., concur. WELCH, JACKSON and IRWIN, JJ., concur as to Mrs. Cotten and dissent as to Hardegree.