Loe v. Hope Oil & Gas Co., 5-1853

• Decision Date: 14 September 1959
• Docket Number: No. 5-1853,5-1853
• Citation: 328 S.W.2d 74,230 Ark. 844
• Parties: Bert LOE et al., Appellants, v. HOPE OIL AND GAS COMPANY, Inc., et al., Appellees.
• Court: Arkansas Supreme Court

Page 74

328 S.W.2d 74

230 Ark. 844

Bert LOE et al., Appellants, v.HOPE OIL AND GAS COMPANY, Inc., et al., Appellees.

No. 5-1853.

Supreme Court of Arkansas.

Sept. 14, 1959.

Rehearing Denied Nov. 2, 1959.

McKay, Anderson & Crumpler, Magnolia, for appellant.

Weisenberger & Wilson, by John L. Wilson, Jr., Hope, for cross appellantHope Oil & Gas Co., Inc.

Graves & Graves, Hope, for appellees and cross appellants, Fred B. Overton et al.

McKay, Anderson & Crumpler, Magnolia, for cross appelleesAl Johnson et al.

WARD, Justice.

On this appeal we are called upon to decide the merits of several conflicting claims growing out of an oil and gas lease on 40 acres of land in Lafayette County.A skeleton outline of the factual background will help to understand the issues hereafter discussed.

Prior to November 27, 1954, the Hope Oil and Gas Company, Inc.(hereafter refered to as 'Hope') was the owner of an oil and gas lease on the land in question and on which land there was a producing oil well.

On the above named date Hope executed an assignment of said lease to one Al Johnson.The assignment appears to be absolute on its face but it is contended by some of the parties, including Hope, that said assignment was, in fact, an equitable mortgage.The assignment was filed for record December 1, 1954.

In September of 1955, Hope executed an assignment to each of several persons.These combined assignments conveyed 8/12ths of 7/8ths royalty interest on the land in question.All of these assignees will hereafter be referred to as the 'Overtons'.Some of the assignments were filed as early as September 27, 1955.

On October 22, 1955, Johnson executed to Bert Loe and Glen D. Loe, appellants herein, an assignment conveying to them a $12,000 oil payment for which the Loes paid Johnson the sum of $6,000.The said $12,000 oil payment was to be paid at the rate of $200 per month out of the working interest of the production from the land in question.The assignment further provided that the oil payment was not a personal obligation of Johnson and that the monthly payments would be made out of the first oil produced, saved and sold without cost or expense to the Loes, but Johnson warrants to defendant the title in that he has the right and authority to make the conveyance.It also further provided that the oil payments were secured by a lien on the personal property, equipment and fixtures now on and which may hereafter be placed on said premises.

On October 28, 1955, Johnson executed an assignment to Hope conveying back to Hope the same oil and gas lease first mentioned above, subject, however, to the said $12,000 oil payment in favor of the Loes.Also in this assignment back to Hope Johnson excepted 1/16th of 7/8ths interest in favor of his wife and Wilmot McCain.

It should be noted that Hope's oil and gas lease and also all of the other assignments mentioned above are subject to a 1/16th of 7/8ths overriding royalty interest owned by the Carter Oil Company and the same interest owned by L. J. Peters, which interests were created some years previously and are not involved in this law suit.

On January 24, 1956, Hope filed in Chancery Court a petition against Johnson and the Loes to remove certain clouds from his title.(a) It was alleged that the assignment to Johnson referred to above was, in fact, an equitable mortgage, that it was given to secure a debt which he owed to Johnson in the amount of $7,500; that said amount had been re-paid to Johnson; and that, therefore, said assignment was now null and void.(b) It was alleged that Johnson had no right or authority to assign the $12,000 oil payment to the Loes and that said assignment should be removed as a cloud on his title.(c) It was further alleged that Johnson, in assigning the lease back to Hope, had no right to reserve the 1/16th of 7/8ths of the oil and gas lease in favor of Johnson's wife and Wilmot McCain but that same should be declared null and void.The prayer was in accordance with the above allegations.

Johnson, by his attorneys, answered the above petition stating: (a) That Hope, by accepting the assignment from him on October 28, 1955, also accepted the provision which gave the $12,000 oil payment to the Loes, and that Hope is now estopped from denying the same.(b) Further answering, Johnson says that if Hope refuses the claim under the above assignment that he is barred by the statute of frauds.

The Loes, represented by the same attorneys who represent Johnson, in their answer made the same claims as made by Johnson.The Loes further alleged that at the time they took the assignment of the $12,000 oil payment they had no actual or constructive knowledge of the dealings between Hope and Johnson, and were, therefore, bona fide purchasers for value.By the way of cross complaint the Loes alleged that no money had been paid to them as required by the terms of the $12,000 oil payment; that they are entitled to a judgment against the leasehold interest for all money due them; and that if said money is not paid within thirty days a receiver be appointed to operate said leasehold interest and to distribute the money.

Hope, is an amended complaint, stated that if the Loes' oil payments are found to be valid, then they ask judgment for $12,000 against Johnson or for damages against him because of non-operation of the oil well since 1955.Also, Hope, in replying to Loes' answer, stated that it had no knowledge of the assignment of the $12,000 oil payment to the Loes; and that while it accepted the assignment from Johnson it does not recognize the assignment of the oil payment to the Loes.

The Loes filed an amended and substituted cross complaint bringing the Overtons into the litigation, alleging that their rights under the oil payment assignment were superior to the rights of the Overtons.

The Overtons entered a general denial, asserting that the assignment of Hope to Johnson was, in fact, a mortgage; that there was no consideration for the assignment of the $12,000 oil payment to the Loes; that the reservation of the 1/16th of the 7/8ths interest to Mrs. Johnson and Wilmot McCain is void; and that the Loes and Hope are estopped from asserting any claim prior to theirs.By the way of cross complaint, the Overtons alleged that they are entitled to recover from Johnson the $8,000 which they paid for their assignments in the event said assignment is held to be void.

The trial court, after stating the facts, many of which have been set out above and after sustaining Loes' demurrer to Hope's complaint, decreed as follows: (a) Hope's complaint and the amendments thereto and Loes' cross complaint and the amendments thereto are dismissed for the want of equity; (b) The assignment of the oil payment from Johnson to the Loes is cancelled and set aside; (c) The assignment from Johnson to Hope, dated October 28, 1955, is reformed so as to exclude any reference to and reservation of the said $12,000 oil payment; (d) The Overtons' title to 8/12th of 7/8ths working interest in said oil and gas lease together with all personal property, used or obtained in connection therewith, is quieted and confirmed in them (setting forth the interest of each individual as assignee), and said Overtons shall receive their interest in the production from the SW 1/4, SW 1/4, NE 1/4 of said Section 13, cost free, until they have recovered the sum of $8,000.It appears also that the Overtons are granted a lien on the interest of Hope in said leasehold and personal property to guarantee the payment of the said sum of $8,000, and if Hope shall not begin operating said lease within sixty days and continue to operate it until the Overtons have received therefrom, free of cost, the sum of $8,000, then they may foreclose said lien on the interest of Hope; (e) The 1/32nd of 7/8ths overriding royalty interest reserved to Wilmot McCain and the same interest reserved to Mrs. Johnson is quieted and confirmed in them; (f) The balance of the leasehold (except the overriding royalty interest of the Carter Oil Company and L. J. Peters, aforementioned) is quieted and confirmed in Hope.

After a careful consideration of the entire matter, we have concluded that the basic question to be decided is whether appellants, the Loes, are innocent purchasers for value, and we have reached the further conclusion that the record before us shows them to be such.The findings of the trial judge show that he had a full and accurate grasp of the complicated factual situation and we agree with him on many of the conclusions which he reached therein.Most of these conclusions, however, were based on his determination of the basic question mentioned above, and that is where we think he fell into error.

In the court's findings, reference is made to a letter which Johnson wrote on October 10, 1955, to the Overtons (actually it was written to their agent, Henson) wherein, among other things, he stated: 'The deal has gone through.He fact Mr. Davis has paid me for it any you will have possession as of the first of this month together with all the oil it is now making.'

Following this the trial court found: 'The defendant, Al Johnson, and his grantees, the Loes, are bound by said letter, and the sale to the Overtons, defendants, and to the plaintiff, Hope Oil and Gas Company, Inc., was paid for and consummated before the purported assignment of the oil payment to the defendants, Bert and Glen D. Loe.'

In two respects we think the court was in error.First, we find that the assignment from Johnson to Hope was not consummated before the assignment of the oil payment to appellants.The record reflects that the former assignment was made October 28, 1955, while the latter assignment was made October 22, 1955.Secondly, while we agree that Johnson was bound by his letter, we do not agree it follows that appellants were bound by the letter, which, of course, was not a matter of record.That brings us now to a...