Gilbert v. Fontaine

• Decision Date: 26 October 1927
• Docket Number: No. 7803.,7803.
• Citation: 22 F.2d 657
• Parties: GILBERT v. FONTAINE et al.
• Court: U.S. Court of Appeals — Eighth Circuit

22 F.2d 657 (1927)

GILBERT v. FONTAINE et al.

No. 7803.

Circuit Court of Appeals, Eighth Circuit.

October 26, 1927.

Edward P. Marshall, of Tulsa, Okl. (C. E. Cooper and Bird McGuire, both of Tulsa, Okl., on the brief), for appellant.

L. P. Brooks, of Wichita, Kan., for appellees.

Before WALTER H. SANBORN and BOOTH, Circuit Judges, and PHILLIPS, District Judge.

BOOTH, Circuit Judge.

This is an appeal from a decree dismissing a bill on motion, upon the ground that it disclosed no right to equitable relief.

The suit was brought by appellant and another, since deceased, against the three appellees, M. M. Fontaine, Kansas City Refining Company, Sinclair Crude Oil Purchasing Company, and a fourth defendant Commercial National Bank of Independence, Kan. The purpose of the suit was to recover a judgment against the defendant Fontaine; to establish an equitable lien for the amount of the judgment upon the interest of Fontaine in a certain oil and gas lease and the products thereof, in which property two of the other defendants were alleged to claim an interest; and to foreclose the lien. The Commercial National Bank disclaimed any interest in the property. The other three defendants moved to dismiss the bill for want of equity. The court indicated that the bill disclosed a cause of action at law against defendant Fontaine, and offered to transfer the cause as to Fontaine to the law side of the court. Plaintiff refused to acquiesce in such a course. The bill was accordingly dismissed as to all three of the defendants.

The vital question on this appeal is whether the bill disclosed any right in plaintiff to equitable relief.

Omitting formal allegations, the bill alleges that on February 12, 1921, Fontaine and others as assigners transferred to Rogers, Nye, and Bittler an undivided 288/768 interest in and to an oil and gas lease covering southwest quarter (S. W. ¼) of the northwest quarter (N. W. ¼) of section 16, township 26, range 8, Butler county, Kansas, and also executed with Rogers, Nye, and Bittler a contract for the development of the lease; that pursuant to the contract Rogers, Nye, and Bittler entered upon the leased premises and drilled wells thereon productive of oil and gas; that said wells are still producing in considerable quantities; that on October 26, 1921, Rogers, Nye, and Bittler assigned and conveyed their interest in the lease to the Oliphant Petroleum Company, which company in turn on June 1, 1922, assigned and conveyed the said interest in the lease to the Turman Oil Company; that the lease, the assignments, and the contract were duly recorded; that said Turman Oil Company is now the owner of said interest in the lease; that pursuant to the assignments of said interest in the lease, and by virtue of said contract for the development of the lease, the Turman Oil Company succeeded to the rights, duties, and obligations of a co-owner or mining partner in charge of operations for oil and gas upon the leased premises; that plaintiff and another (now deceased) were on the 9th of September, 1924, duly appointed ancillary receivers of the Turman Oil Company by the United States District Court for the District of Kansas, with the usual powers; that, since their appointment, said receivers by authority of said court have been in charge and have been conducting the work of operating the wells upon the leased premises; that defendant Fontaine is the owner of an undivided 13/64 interest in the lease, and by virtue of the said contract of February 12, 1921, became liable to pay 13/64 of the expense and cost of operating the lease and the wells on the leased premises for oil and gas; that, prior to the time of the appointment of the receivers, Fontaine had become indebted to said Turman Oil Company in the sum of $2,310.10, for her proportionate share of said expenses incurred in operating said lease, and since the appointment of the receivers Fontaine has become indebted to them in the further sum of $709.99 on account of expenses in operating said lease, no part of which sums has been paid; that the Turman Oil Company and the receiver are mining partners with Fontaine in the matter of the operation of said lease; that Fontaine has been receiving from the defendant Sinclair Crude Oil Purchasing Company, which is running the oil produced from the lease for the account of Fontaine, her proportionate share of the sale price of the oil produced from the lease; that Fontaine has appropriated said proceeds without paying her proportionate share of said expenses; that plaintiff as receiver of the Turman Oil Company has an equitable lien upon the interest of Fontaine in said lease to secure the payment of said indebtedness, and that the lien should be impressed also upon the oil produced and the proceeds from the sale thereof; that defendants, other than Fontaine and Sinclair Crude Oil Purchasing Company, and each of them, claim some lien, interest, or mortgage right in and to the interest of Fontaine in said lease; that the lien of plaintiff is superior to each and all said liens of defendants.

The contract of February 12, 1921, is attached to the complaint and made a part thereof. This contract recites that the first parties (Fontaine and others) have an ownership in the oil and gas lease described in the complaint. The lease and the contract both cover an additional forty-acre tract not here involved. The contract provides: "* * * First parties are desirous of securing the development of said premises for oil and gas, and said second parties Rogers, Nye, and Bittler, agree to develop the same on the terms and conditions hereinafter set forth." It further provides:

"The said second parties agree at their own expense and in proper manner to drill, shoot, and thoroughly clean out, and furnish necessary tankage for and fully equip and put on the pump seven (7) wells on said above described premises, said wells to be drilled five (5) upon the south forty acres and two (2) upon the north forty acres of said premises, and to be completed within one (1) year from the date hereof and to be drilled to a depth of twenty-eight hundred (2,800) feet, unless oil in paying quantities is found at a lesser depth. Also, it is agreed that said parties of the second part are to have charge of operations and shall protect the lines of said premises at all times by drilling proper offset wells.

"And the expense of the maintenance, operating and pumping of the said seven (7) oil wells from the time they are put on the pump and of the drilling, equipping and operating of any further wells on said premises drilled by said second parties under this contract shall be paid one-half (½) by parties of the first part and one-half (½) by parties of the second part. The said second parties shall render monthy installments of all such costs and expenses to said parties of the first part and said parties of the first part shall thereupon within fifteen (15) days thereafter remit their proportionate share of such expenses to parties of the second part, and each of the first parties shall be liable only for their proportionate part of said expense. * * * That said parties of the first part and said parties of the second part shall own the undivided interest in all permanent equipment in proportion to their respective interests. * * *

"It is agreed and understood by and between the parties hereto that if second parties shall discover gas in paying quantities in any wells they shall properly case off and shut in said gas and make proper connections to use same, and said gas so discovered shall belong to the parties hereto in the same proportion as the oil; that is to say, first parties shall be the owners of the one-half (½) part thereof and second parties shall be the owners of the remaining one-half (½) part thereof after first delivery and the 1/8 to the fee title owner under the terms of his said lease, and that said gas so discovered shall be used for operating said lease; and if same, or any part thereof, is sold off the premises, the proceeds of such sale, or sales, shall be divided equally among the parties hereto according to their respective interests. * * *

"In consideration of covenants and agreements to be kept and performed by second parties as above set forth, first parties agree to transfer to second parties by proper division orders the full one-half of the oil and gas produced from the seven-eighths (7/8) of working interest in the oil and gas lease above described; said division order to be signed immediately upon completion of first well. This agreement extends to the heirs, executors, administrators, and assigns of parties hereto."

The foregoing are the salient facts appearing in the bill. Upon the motions to dismiss and upon this appeal they must be taken to be true. Do they disclose any right to equitable relief on behalf of plaintiff? The answer to this question depends primarily upon the answer to a second question, viz.: Do the facts show the existence of a mining partnership between plaintiff and defendant Fontaine? The plaintiff contends for an affirmative answer; the defendants for a negative.

In 40 C. J. p. 1143 et seq., it is stated: "A mining partnership has been said not to be a true partnership, but rather a cross between a tenancy in common and a partnership proper, partaking in part of the nature of each." "No express declaration of partnership is essential to the establishment of partnership rights, where the intention of the parties may be gathered from the surrounding circumstances and their conduct with reference thereto." "A partnership may be formed to work mines owned or leased by any or all of the individual members, but the parties must be associated together in the ownership or possession of the property in some manner; and although an equitable interest is sufficient, there must be an interest in the property or a right to possession in the right of the partnership as distinguished from...