William M. Graham Oil & Gas Co. v. Oil Well Supply Co.

1927 OK 338, 264 P. 591, 128 Okla. 201, 1927 Okla. LEXIS 420
CourtSupreme Court of Oklahoma
DecidedOctober 4, 1927
Docket17049
StatusPublished
Cited by20 cases

This text of 1927 OK 338 (William M. Graham Oil & Gas Co. v. Oil Well Supply Co.) is published on Counsel Stack Legal Research, covering Supreme Court of Oklahoma primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
William M. Graham Oil & Gas Co. v. Oil Well Supply Co., 1927 OK 338, 264 P. 591, 128 Okla. 201, 1927 Okla. LEXIS 420 (Okla. 1927).

Opinion

TEEHEE, C.

In 1920, William M. Graham, and W. E. Graham were the owners of certain undeveloped oil and gas leaseholds situated in Osage county. For the purpose-of the development thereof they established a line of credit with certain supply houses and dealers, hereinafter named, from whom they purchased materials, machinery, and supplies at intervals as needed and required. Such commodities were purchased on ac *203 count, whereon, in several eases, payments were made at such times as were convenient. Lessees were successful in their enterprise, and in due course of their operations, reduced to possession and. control crude oil in large commercial quantities. Thereupon, as a part of their operations, they established a refining plant on a part of a certain leasehold, the surface title to which area of .the land thus occupied they purchased. The materials used in the construction of the refinery and mechanical equipment thereof, and the necessary supplies, the lessees likewise purchased from certain of said dealers, and. as required and needed in the same manner as such commodities were purchased in the development of their several leaseholds.

For the purpose of providing immediate funds for the further development and improvement of these leaseholds, with the view of increasing the production therefrom, the lessees, on July 1, 1920, entered into a certain contract for the advance sale of-their products to the Prairie Oil & Gas Company under certain fixed terms. At .the time of this contract they had resolved their enterprises into corporate entities under the names of the William M, Graham Oil & Gas Company, the Graham Gasoline Company, and the Graham Drilling Company, and under these designations, as well as individuals, the contract mentioned was executed. Under this contract the lessees covenanted to sell all of their production to the Prairie Oil & Gas Company for a specified term, in consideration of which the Prairie Company paid the lessees $700,000, as advance purchase price, whereon the runs of oil each month were to’ be credited at the market price until this amount together with interest at six per cent, was liquidated; and in addition to other appropriate covenants it was agreed as follows:

“The vendors do not guarantee any certain or fixed amount of oil production. upon the oil and gas mining leases and interests above described, but vendors agree that during the life of this contract all of said producing leases and said interests therein and also undeveloped leases, if they justify it, and any other lands or oil properties hereafter acquired by vendors, will be diligently drilled, developed, and operated and that oil will be produced therefrom in the usual and customary manner. * * *
“If at the end of 30 months from July 1, 1920. the vendee shall not have received an amount of oil sufficient to liquidate the obligation of vendors to vendee arising out of the said advance of said sum of $700,000 and interest thereon, as herein provided, then and in that case it is agreed that vendors will, on demand, pay the balance due and owing in cash. Thereupon this contract shall wholly terminate and end and neither of the parties hereto shall be under any further or additional obligations to each other.
“It is agreed that inasmuch as this contract, so far as vendee is concerned, is made for the purpose of securing deliveries of oil, as herein provided, and not a loan for the return of money advanced, in the event there is any breach or violation of the provisions or covenants of this contract, vendee shall have a first and prior lien on the properties, rights and interests of vendors mentioned and referred to herein and more particularly described in ‘Exhibits A, B, C, and D,’ to secure any unpaid balance of the amount advanced by vendee to vendors under this contract, and shall have the right and authority to take charge of any op all of said properties and operate them for the benefit ,of the parties in interest. * * *
“The vendors agree and warrant that ail of the lands and leases affected by this contract and the tools, machinery, and material, supplies and properties of every nature and kind owned and uséd thereon, or in connection therewith, are free and clear of all liens, mortgages or incumbrances whatsoever, and that during the life of this contract vendors shall not in any manner cause or suffer the same to be incumbered.”

The contract was filed for record in Osage county on September 29, 1929. Other subsequent agreements were entered into by the signatory parties, which were involved in the trial court, but are not here urged for our consideration.

At the time of recordation of the contract the Graham concerns, operating either In the names of the lessees, or under their corporate names, were indebted on account to said dealers for commodities purchased under their credit arrangement. Thereafter, in the diligent prosecution of their business as required of them under the terms of the contract, lessees continued to purchase materials, machinery, and supplies from said dealers for use in their further operations. In due course, by reason of depressed conditions then existing in the oil industry, the Grahams encountered financial difficulties whereby they were unable to meet their indebtedness to various creditors, then approximately $800,000 by reason whereof the creditors on July 8, 1921, entered into an operating agreement. This contract, upon recitation of the necessity thereof, provided for the application of the revenue derived thereunder as follows:

“1. To pay all operating expense.
“2. To repay to itself all sums and amounts which it may hereafter advance, *204 on account of unpaid labor expenses at the time of taking possession of property, with the further understanding that the Prairie Oil & Gas Company, if it desires to advance the money, may settle or compromise other small outstanding claims heretofore incurred by the W. M. Graham Oil & Gas Company, in connection with this property, said amounts to be repaid said Prairie Oil & Gas Company from the receipts of the sale of oil or other property.
“3. To pay to the bank creditors of the said W. M. Graham Oil & Gas Company interest at the rate of 6 per cent, per an-num on the notes of said company, for a period of 6 months.
“4. To retain all the residue to await the further action of the creditors; being further agreed that all creditors, including those having lien rights, will forego the institution pf any proceedings !<o foreclose! said lipns, or to proceed against said company in the courts, for a period of '■en months from this date; it being further understood that nothing herein contained shall be construed as preventing such creditors, as may have the right to file mechanic’s liens from filing such lien in compliance with the mechanic s lien law; it being further understood and agreed that all the undersigned creditors agree to reduce interest charges to a basis of 0 per cent, per an-num from this date, the Prairie Oil & Gas Company further agreeing to reduce the interest on its claims to 5 per cent, per an-num.

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Bluebook (online)
1927 OK 338, 264 P. 591, 128 Okla. 201, 1927 Okla. LEXIS 420, Counsel Stack Legal Research, https://law.counselstack.com/opinion/william-m-graham-oil-gas-co-v-oil-well-supply-co-okla-1927.