ABF Capital Corp. v. Yancey

• Decision Date: 18 December 2003
• Docket Number: No. A03A2271.,A03A2271.
• Parties: ABF CAPITAL CORPORATION v. YANCEY.
• Court: Georgia Court of Appeals

592 S.E.2d 492

264 Ga. App. 850

ABF CAPITAL CORPORATION v. YANCEY.

No. A03A2271.

Court of Appeals of Georgia.

December 18, 2003.

Foltz Martin, LLC, Michael D. Robl, Kevin H. Hudson, Atlanta, for appellant.

Greenberg Traurig, Mark G. Trigg, Atlanta, for appellee.

BLACKBURN, Presiding Judge.

In this contract action, ABF Capital Corporation ("ABF") appeals the trial court's denial of its motion for summary judgment and grant of summary judgment to Robert E. Yancey, contending that the trial court inappropriately applied OCGA § 11-2-107 to determine that ABF's suit was not timely filed. Because we find that this action is subject to the statute of limitation set forth in OCGA § 9-3-24, not OCGA § 11-2-725, we agree that ABF's action was timely filed and, therefore, reverse.

Summary judgment is proper when there is no genuine issue of material fact and the movant is entitled to judgment as a matter of law. OCGA § 9-11-56(c). A de novo standard of review applies to an appeal from a grant of summary judgment, and we view the evidence, and all reasonable conclusions and inferences drawn from it, in the light most favorable to the nonmovant.

(Citation and footnote omitted.) Nelson v. Glynn Brunswick Hosp. Auth.¹

Viewed in this light, the record shows that, in the early 1980s, Yancey became a limited partner in a New York limited partnership tax shelter known as Regent Energy Partners (the "Partnership"). The Partnership entered into an agreement to sublease land from ABF for exploratory drilling for oil and natural gas and to have ABF arrange for drilling on the subleased land. Under the terms of an Assumption of Liabilities Agreement ("Assumption Agreement"), the limited partners assumed liability for payment of the royalties to ABF; in return, ABF would sublease land to them, facilitate drilling on the land pursuant to a Turnkey Drilling Contract, and defer receiving payments otherwise due ABF from the Partnership. Yancey, as a limited partner of the Partnership, personally guaranteed payment of minimum annual royalty payments to ABF in an amount proportional to the number of units of participation in the Partnership which he had purchased.

In order to secure the tax benefits contemplated by the tax shelter, the limited partners were required to pay the royalties to ABF regardless of whether oil or natural gas was ever discovered. Under the terms of the Assumption Agreement, any deferred sublease payments remaining unpaid by the Partnership became due and payable by the limited partners on the twelfth anniversary of the sublease, which had been entered into by the partners on December 31, 1982. Because neither oil nor gas was ever produced commercially on the subleased lands, the limited partners became liable for payment of the deferred sublease payments. Yancey had purchased six units of participation, each unit carrying with it a maximum liability of $13,500. Thus, Yancey became personally liable to ABF in the principal amount of $81,000 on December 31, 1994.

Yancey has not paid any of the amount due under the Assumption Agreement, ignoring ABF's repeated requests for payment. On December 5, 2000, ABF filed suit against Yancey. Both Yancey and ABF filed motions for summary judgment. The trial court granted that of Yancey and denied that of ABF, finding that the Assumption Agreement was part of a transaction whose dominant purpose was the sale of oil and gas. The trial court reasoned that, because the subleases and drilling contract constituted contracts for the sale of goods under OCGA § 11-2-107, the Assumption Agreement was governed by the four-year statute of limitation of OCGA § 11-2-725, and ABF's lawsuit was, therefore, time-barred. We disagree.

The trial court improperly applied the four-year statute of limitation under OCGA § 11-2-725 to the contract. Under OCGA § 11-2-102, the provisions of the Uniform Commercial Code apply "to transactions in goods." "A contract for the sale of timber, minerals, or the like (including oil and gas)... is a contract for the sale of goods within this article if they are to be severed by the seller." OCGA § 11-2-107. The contracts between the Partnership, the individual limited partners, and ABF, however, were entered into primarily in order for the Partnership to secure from ABF a leasehold interest in prospective oil and gas properties which would provide the Partnership with a tax shelter available to oil and gas producers. The sale of oil or gas which might be produced, if any, was merely a secondary goal of the contract wholly subsidiary to creation of a tax shelter, and such sales would have been made, not by ABF to the Partnership, but by the Partnership to as yet unidentified third parties. The contracts are, therefore, governed by OCGA § 9-3-24, which provides that all actions on "simple contracts in writing shall be brought within six years after the same become due and payable."

The Assumption Agreement provides that it is to be governed by and construed under the laws of the State of New York. Under New York law, "[w]here the provisions of a contract are clear and unambiguous and the intent of the parties can be gleaned from the four corners of the document, a court should interpret the contract in accordance with its plain and ordinary meaning." Edwards v. Poulmentis.² Georgia follows the same rule. See, e.g., Fulton County v. Collum Properties³ ("`[w]here the terms of a written contract are clear and unambiguous, the court will look to the contract alone to find the intention of the parties'"). We look, therefore, to the language of the agreements between the parties to ascertain their intentions. Under the terms of the Assumption Agreement, the Partnership entered into a sublease of certain oil and gas properties, each of which contained drilling units. Under the sublease, the Partnership was required to pay ABF a production royalty from the revenues earned from production on the properties. The Partnership was also liable for minimum annual royalties on each drilling unit on execution of the sublease and on each anniversary of the sublease's execution for the shorter of 20 years or so long as the Partnership retained the drilling units. However, the Partnership was entitled to apply " aggregate minimum royalties paid or incurred against the production royalty on oil and gas thereafter produced."

The Partnership also entered into a Turnkey Drilling Contract, under which it was unconditionally obligated to pay the driller $945,080 for the drilling and estimated completion costs of the wells. The Assumption Agreement also called for ABF to be paid out of the "production revenues," specifically defining "production revenues" as "the gross revenues of the Partnership from the sale of oil and gas produced from the property which is the subject of the Sublease reduced by all windfall profit tax." The Turnkey Drilling Contract also provided:

The Driller shall have at all times a first preferred lien on the Partnership's interest in all the oil and gas from any Drilling Unit and the proceeds thereof and upon the Partnership's interest in material and equipment to secure the payment of all sums due from the Partnership to the Driller. Driller, without prejudice to other existing remedies, is authorized to collect from the purchaser or purchasers of oil or gas the proceeds accruing to the Partnership up to the amount owing, including interest and reasonable attorneys' fees, and each purchaser of oil or gas is authorized to rely upon Driller's statement as to the amount owing by such party.

Under the terms of the Confidential Private Placement Memorandum ("Placement Memorandum"), the Partnership's general partner would receive compensation "once the first well is in production and the Partnership has begun to receive income therefrom." The general partner was also to receive an expense allowance "as soon as the first well is placed in production and the Partnership begins to receive income therefrom." In another paragraph of the Placement Memorandum, the general partner was authorized to take certain actions "[t]o the extent that Partnership funds are available, including proceeds of production."

The Placement Memorandum states that approximately 80 percent of the proceeds of the offering will be used for the acquisition of the oil and gas property and the actual drilling and completion of the wells. The balance of the...