Prairie Oil & Gas Co. v. Allen

• Decision Date: 13 September 1924
• Docket Number: No. 6438.,6438.
• Citation: 2 F.2d 566,40 ALR 1389
• Court: U.S. Court of Appeals — Eighth Circuit
• Parties: PRAIRIE OIL & GAS CO. et al. v. ALLEN.

40 ALR 1389, 2 F.2d 566 (1924)

PRAIRIE OIL & GAS CO. et al. v. ALLEN.

No. 6438.

Circuit Court of Appeals, Eighth Circuit.

September 13, 1924.

W. P. Z. German, of Tulsa, Okl. (T. J. Flannelly and Paul B. Mason, both of Independence, Kan., and Alvin F. Molony and Cliff V. Peery, both of Tulsa, Okl., on the brief), for plaintiffs in error.

L. K. Pounders, of Bristow, Okl., for defendant in error.

Before STONE and LEWIS, Circuit Judges, and PHILLIPS, District Judge.

PHILLIPS, District Judge.

This action was originally brought in the state court by Lizzie Allen against the Prairie Oil & Gas Company, hereinafter called Prairie Company, to recover damages for alleged conversion of a quantity of petroleum oil. It was properly removed to the federal court. Thereafter, Skelly Oil Company, hereinafter called Skelly Company, on motion of Prairie Company, was made a party defendant.

The parties by written stipulation waived a trial by jury and set forth an agreed statement of facts and an agreed statement of what certain witnesses would testify to, subject to the right to move to strike any part thereof on legal grounds. From this stipulation the following facts appear:

On May 9, 1911, the Good Land Company executed and delivered to J. C. Trout its deed, the material portions of which are as follows:

"That Good Land Company, a corporation, * * * in consideration of the sum of four thousand 00/100 dollars * * * does hereby grant, bargain, sell and convey unto J. C. Trout the following described real property and premises situate in Creek county, state of Oklahoma, to wit:

"East half of northwest quarter of section 28; southwest quarter of south-east quarter of section 32; west half of south-east quarter and south-east quarter of south-west quarter of section 21 — all in township 16 and range 10.

"However, reserving and excepting unto the grantor, its successors and assigns, nine-tenths of all oil, gas and mineral in and under the surface of S. W. ¼ of S. E. ¼ of section 32, with the full and free right to enter upon said 40 acres and use so much of the surface thereof as may be reasonably necessary for operating, drilling and mining and marketing the production thereof. This provision is a part of the consideration of this deed. * * *"

On November 21, 1912, J. C. Trout and Rozella Trout, executed and delivered to Lizzie Allen their deed to the above-described property conveyed by Good Land Company to J. C. Trout.

Thereafter Good Land Company entered into a so-called assignment and contract with the Kay-Wagoner Oil & Gas Company, hereinafter called Kay-Wagoner Company, which in part reads as follows:

"Witnesseth, that for and in consideration of the sum of one dollar and other good and valuable considerations and the covenants hereinafter contained, the party of the first part Good Land Company assigns, transfers and sets over unto the party of the second part Kay-Wagoner Company, its successors and assigns, all its right, title, interest and estate in and to all oil and gas in and under the surface of

"The southwest quarter of the southeast quarter (SW4 SE4) of section thirty-two (32), township sixteen (16) north, range ten (10) east, located in Creek county, Oklahoma,

"Together with full force and free right to enter upon said lands and use so much of the surface thereof as may be reasonably necessary for operating, drilling, mining and marketing the production thereof, it being the purpose and intent of the parties hereto that said first party assign and transfer and sets over to said second party all of its right, title, interest and estate in and to the oil and gas reservation made in and to said lands as reserved in a certain warranty deed executed by the said first party to one J. C. Trout, * * *

"In consideration of said transfer said second party agrees to enter upon said lands and to develop the same for oil and gas mining purposes within one year from the date hereof and to pay to said first party 15 per cent. of all of said oil and gas produced from said property, the said 15 per cent. part of said oil to be delivered in the pipe line for the use and benefit of said first party, free of cost to it, and the 15 per cent. market value of all gas used or sold off of said property to be paid monthly; said 15 per cent. royalty of oil and gas to be paid to said first party as royalty the same as it would be entitled to receive it as if said first party was the lessor in a commercial lease on said property, it being agreed and understood that one Lizzie Allen, of Creek county, Oklahoma, is the owner of an undivided one-tenth part of said production, if any, by reason of the condition of a certain deed made to her on November 21, 1912, by the said J C. Trout and Rozella Trout, but the 15 per cent. royalty of the first party not to be reduced by reason thereof.

"It is further agreed by and between said parties hereto that the said second party shall complete a producing well oil or gas well on said lands within one year from this date, otherwise this assignment, transfer and agreement to be null, void and of no effect, and it is further provided that if said second party shall complete a producing oil or gas well on said property within one year from this date, this agreement shall be binding and valid and in force and effect as long thereafter, as oil or gas are produced from said property.

"It is further agreed by and between the parties hereto that either party may assign its rights, or any part thereof, under this contract."

Thereafter Kay-Wagoner Company executed and delivered an assignment thereof to Skelly Company, which, after reciting and describing the instrument between Good Land Company and Kay-Wagoner Company, and referring to it as a lease, in part, reads as follows:

"Now, therefore, for and in consideration of one dollar ($1.00) and other good and valuable considerations, the receipt of which is hereby acknowledged, the undersigned, the said Kay-Wagoner Oil & Gas Company, as the present owner of said lease and all rights thereunder, or incident thereto, does hereby bargain, sell, transfer, assign and convey unto Skelly Oil Company, * * * its successors and assigns, an undivided three-fourths (¾) interest in said lease and in the oil and gas leasehold estate created, granted and evidenced thereby, and in all rights thereunder or incident thereto. * * *"

The deeds and other instruments above referred to, shortly after the respective dates of their execution, were duly recorded.

At the time of the assignment from Kay-Wagoner Company to Skelly Company, it was agreed that Skelly Company should have the operation, management and development of the premises for oil and gas.

On June 15, 1920, Skelly Company peaceably entered upon the land and took possession of sufficient of the surface to enable it to proceed with the development thereof for oil and gas. On June 17, 1920, Skelly Company commenced the drilling of an oil well thereon and completed the same July 12, 1920, as a producing oil well. Thereafter it drilled two additional wells. It completed the last one February 9, 1921. From July 12, 1920, to the date of the trial it continuously produced oil from the premises in paying quantities. The reasonable and necessary expenditures of Skelly Company in the development and operation of the property up to and including February 1, 1922, amounted to $153,880.40. Skelly Company continued to operate the property from February 1, 1922, to the date of the trial (April 13, 1922), and incurred and paid the necessary expenses of such operation, but the items at the time of the trial had not been posted on Skelly Company's books.

On August 4, 1920, Skelly Company contracted with Prairie Company to sell the latter the oil produced from well No. 1, and from wells that might thereafter be drilled on the land, and in pursuance thereof a divisional order was executed by the Good Land Company, Kay-Wagoner Company, and Skelly Company, which directed the Prairie Company to give credit for oil received from such wells, as follows: Good Land Company 15 per cent. royalty interest; Kay-Wagoner Company 18.75 per cent. working interest; Skelly Company 66.25 per cent. working interest. The 66.25 per cent. working interest credited to Skelly Company included the 10 per cent. belonging to Lizzie Allen.

The oil produced and delivered to Prairie Company was as follows: To May 13, 1921, 25,284.71 barrels, of the market value of $57,586.82; from May 13, 1921, to April 7, 1922, 19,252.02 barrels, of the market value of $27,371.98. All oil run prior to May 13, 1921, was paid to the persons and in the proportions designated in the divisional order. One-tenth of the purchase price of all oil run after May 13, 1921, was retained by the Prairie Company.

Skelly Company, in taking possession of the land and developing the same, did not hold adversely to Lizzie Allen, but recognized that she owned the surface and one-tenth of the oil and gas.

The possession by Skelly Company, the development and operation of the property for oil and gas, the production of oil therefrom and the disposal of the same to the Prairie Company were with the full knowledge of Lizzie Allen.

On September 23, 1920, one Annie Miller filed a suit in the district court of Creek county, Okl., against Lizzie Allen, Skelly Company, and others, wherein she sought to recover the land, claiming that she was the allottee thereof, and that a conveyance made by her in 1905 through which Lizzie Allen, Skelly Company, and Good Land Company claimed title to the same, was void. On October 11, 1920, Lizzie Allen solicited Skelly Company to represent her through its attorney in conjunction with the representation of itself in the defense of this suit. Skelly Company complied with the request, filed a joint answer in behalf of itself and Lizzie Allen, and successfully defended the suit.

On February 25, 1921, Lizzie Allen procured W. W. Croom to write a letter to ...