Adair v. Transcontinental Oil Co.

• Decision Date: 11 April 1959
• Docket Number: No. 41222,41222
• Citation: 338 P.2d 79,184 Kan. 454
• Parties: Henry C. ADAIR, Plaintiff, v. TRANSCONTINENTAL OIL COMPANY, a Corporation, Emery Construction Company, Inc., a Corporation, George B. Emery, Jr., Mountain Iron and Supply Company, a Corporation, William J. Harrington, Jr., Frank W. Liebert, Midland Supply Company, Inc., Appellees, and Dowell, Inc., a Corporation, L. D. White, J. T. McCracken, M. G. Jenson, G. W. Gatton and Ralph Sears, partners, d/b/a Gatton & Sears Drilling Contractors, J. W. Fisher, Keystone Supply Company, Appellants.
• Court: Kansas Supreme Court

Page 79

338 P.2d 79

184 Kan. 454

Henry C. ADAIR, Plaintiff, v. TRANSCONTINENTAL OIL COMPANY, a Corporation, Emery Construction Company, Inc., a Corporation, George B. Emery Jr., Mountain Iron and Supply Company, a Corporation William J. Harrington, Jr., Frank W. Liebert, Midland Supply Company, Inc., Appellees, and Dowell, Inc., a Corporation, L. D. White, J. T. McCracken M. G. Jenson, G. W. Gatton and Ralph Sears, partners, d/b/a Gatton & Sears Drilling Contractors, J. W. Fisher, Keystone Supply Company, Appellants.

No. 41222.

Supreme Court of Kansas.

April 11, 1959.

Rehearing Denied May 20, 1959.

Syllabus by the Court

1. The cross petition of a lien claimant under the oil and gas lien statute (G.S.1949, 55-207) alleging three causes of action against the owner of oil and gas leases, operated and developed as a single unit under a written conditional sales contract by the conditional vendee, is examined on demurrer and held to state a cause of action on the theory that the conditional vendee was the agent of the owner by operation of law subjecting the owner's interest in such leases to the burden of a lien, but is held not to state a cause of action on the theory that the conditional vendee was a joint adventurer with the owner of the leases, or that the conditional vendee itself was the owner of the leases.

2. As a general rule the conditional vendee of a leasehold estate, created by an oil and gas lease, will not be considered the agent of the owner thereby subjecting the owner's interest in such leasehold estate to the burden of a lien for material furnished and labor performed in developing the same under a contract with such conditional vendee, but a clear exception to that doctrine exists in cases where such leasehold estate is developed by the conditional vendee, not for his own benefit, but for the benefit of the owner of such leasehold estate under a written contract to that effect wherein such owner is to receive the entire proceeds of oil runs from all wells located thereon until the purchase price is paid in full and all improvements placed upon the leasehold estate in the event of default. In such case the law looks upon the operator of the lease as the agent of the owner, for lien purposes, upon the theory that the owner will not be allowed to reap the benefits of the operation without at the same time subjecting his interest in the leasehold estate to the burden of a lien, notwithstanding the written contract provided otherwise.

3. Where a number of oil and gas leases are operated as a single unit and materials are furnished or labor is performed under a single contract for the development of the leases, a single lien statement timely filed creates a valid and enforceable lien upon all such leases, which may be sold to satisfy the lien.

Roy Kirby, Coffeyville, argued the cause and was on the brief for appellant L. D. White.

Aubrey Neale, Coffeyville, was on the brief for appellants M. G. Jenson, Gatton & Sears Drilling Contractors, J. W. Fisher and J. T. McCracken.

A. H. Harding and Harold Gregg, Independence, were on the brief for appellant Dowell, Inc.

John F. Pendleton, Nowata, Okl., and Dallas W. Knapp and Charles D. Knapp, Coffeyville, were on the brief for appellant Keystone Supply Co.

John F. O'Brien, Independence, argued the cause, and John P. Quinlan, Independence, was with him on the brief, for appellee George B. Emery, Jr.

SCHROEDER, Justice.

This is an action to foreclose mechanics' and materialmen's liens against a block of oil and gas leases which were owned and operated as a unit.

By reason of failure to pay bills for work and materials furnished in connection with the development of these leases the action was originally filed by one of the lien claimants, a pumper, against the leasehold owners. Various other lien claimants intervened, were made parties defendant, and filed answers and cross petitions seeking to foreclose additional liens against these leases.

While numerous parties appear as appellees in the caption of this case, the only appellee asserting any interest in the appeal is the owner of the leases, George B Emery, Jr., defendant below, whose demurrers to the amended cross petitions of the appellants were sustained by the lower court. The appellants are various lien claimants. The original petition of Henry C. Adair, plaintiff, has been dismissed with prejudice and the action at present is, in effect, a contest between Emery and various lien claimants.

The sole question is whether the facts pleaded in the amended answers and cross petitions of the various lien claimants state a cause of action against Emery for the recovery of money claimed to be due either for materials furnished or labor performed in connection with the development of leases owned by Emery, and subjecting the leases and improvements thereon to the burden of the various liens. Embraced within the foregoing is the question: Did claimants furnish labor and materials under a contract, express or implied, with the owner of the oil and gas leases, or the agent of such owner, within the meaning of the provisions of G.S.1949, 55-207?

The cross petitions of all lien claimants appealing are reported to be identical except for the amount claimed, and the demurrers of Emery are identical. The abstract, therefore, includes only the pleadings of one lien claimant, M. G. Jenson, and the motions and demurrer relating thereto.

A review of the involved pleadings and motions culminating in the amended answer and cross petition (as amended) here under attack is unnecessary, except to state, on the basis of the record presented for review, such pleadings are entitled to a liberal construction under familiar rules of law frequently stated. Walton v. Noel Co., 167 Kan. 274, 205 P.2d 928; Clark v. Meyers, 173 Kan. 96, 244 P.2d 217; Hickert v. Wright, 182 Kan. 100, 319 P.2d 152; Gibbs v. Mikesell, 183 Kan. 123, 325 P.2d 359; and Klotz v. Board of County Commissioners, 176 Kan. 325, 270 P.2d 281.

The cross petitioner's right to a lien against the block of leases in question, including improvements thereon, is based upon three separate theories, each alleged in a separate cause of action. The facts in each are similar except as to the conclusions drawn from such facts. The allegations relevant to the second cause of action, drafted upon the theory of agency, will serve to supply the factual basis for further discussion.

The second cause of action alleged that prior to July 28, 1955, Emery was the owner of ten oil and gas leases on real estate in Montgomery County, Kansas, which were operated together as a single unit by Emery. On or about July 28, 1955, Emery and Transcontinental Oil Company, a corporation, entered into a contract for the operation and sale of said leases, a copy of said contract being attached and made a part of the amended cross petition by reference. It was specifically alleged that this contract was not recorded and that the cross petitioner had no knowledge or notice of said contract at or during the time he furnished labor and materials as more specifically set forth. It further alleged:

'2. That pursuant to the terms of said contract and on August 1, 1955, the defendant, George B. Emery, Jr., placed the defendant, Transcontinental Oil Company, in possession of said leases for the purpose of improving, developing, and operating the same. That immediately thereafter, the defendant, Transcontinental Oil Company, began developing and operating and producing said oil and gas leases and incurring expenses in connection with such development, including the claim of this Cross Petitioner. That said expenses and costs of development were well known to the defendant, George B. Emery, Jr., and that, pursuant to the terms of said contract, he was receiving benefits from the increased development and production in the form of oil runs and money payments from the defendant, Transcontinental Oil Company; that by reason of the development and operation performed by the defendant, Transcontinental Oil Company, oil and gas wells were drilled and produced on said leases, increasing the value thereof; and increasing the value of the ownership therein by the defendant, George B. Emery, Jr.; that on December 9, 1955, the defendant, George B. Emery, Jr., took possession of said leases and all of the equipment and personal property thereon including the oil and gas wells and equipment placed thereon while the same was in the possession of Transcontinental Oil Company and now holds possession of said leases with the improvements placed thereon, including the improvements made by this answering defendant and is receiving all of the oil runs from all of said leases; that by reason thereof the said defendant, Transcontinental Oil Company, was acting as the agent for the defendant, George B. Emery, Jr.; and that the defendant, George B. Emery, Jr., because of the facts alleged hereinbefore, should be estopped from denying said agency.'

It further alleged that the cross petitioner under an oral contract with Transcontinental Oil Company performed labor and furnished material and oil well supplies and machinery in the digging, drilling, completing, operating and repairing of oil and gas wells for oil and gas on the described leases which gave rise to the liens asserted in the amount of $17,384.93, which amount was alleged to be due and owing the defendant, M. G. Jenson, by the defendants, Transcontinental Oil Company and George B. Emery, Jr. Further allegations disclose that the liens were properly filed within four months from the date the labor was last performed and material and oil well supplies and machinery last furnished. Foreclosure of the lien was requested.

The contract between George B. Emery, Jr. (seller), and Transcontinental Oil Company, an Illinois corporation (buyer), provided generally that Emery agreed to sell the leases and all of the oil wells and personal property and...