Love v. Couch

• Decision Date: 09 June 1930
• Docket Number: No. 38.,38.
• Citation: 28 S.W.2d 1067
• Parties: LOVE et al. v. COUCH et al.
• Court: Arkansas Supreme Court

28 S.W.2d 1067

LOVE et al. v. COUCH et al.

No. 38.

Supreme Court of Arkansas.

June 9, 1930.

Rehearing Denied July 7, 1930.

Appeal from Pulaski Chancery Court; Frank H. Dodge, Chancellor.

Action by M. W. Love and others against H. C. Couch and others. Judgment for defendants, and plaintiffs appeal.

Affirmed.

John M. Rose, of Little Rock, for appellants.

Robinson, House & Moses and H. E. Meek, all of Little Rock, for appellees.

BUTLER, J.

The appellants were the owners of oil properties in Union county on which two or more small producing wells had been brought in. In November, 1921, for reasons about which there is some dispute, an arrangement was effected by which these properties were purchased by the appellee, to be developed and operated by a corporation. The terms of the agreement were set out in the following instrument:

"This Memorandum of Agreement, made this the 7th day of November, 1921, by and between H. C. Couch and Associates, M. W. Love and Love Brothers, Incorporated, Witnesseth:

"That M. W. Love and Love Brothers, Incorporated, are the owners of the following described properties, to wit:

"(1) 10 acres, section 31, Rodgers lease, Union County, Arkansas; one-fifth interest of Love Brothers and two-fifths interest of M. W. Love. Well No. 1 producing 112 bbls. per day. Well No. 2 producing 35 bbls. per day.

"(2) 10 acres, section 8, Pratt lease, Union County, Arkansas; one-fourth interest of Love Brothers. Well No. 1 capped. The first $14,500 worth of oil from this well to go to Couch interest. Well No. 2 producing 200 bbls. per day. Well No. 3 drilling. Debt of $6,000 out of first oil from this well to go to Harrell & Hatcher, drillers, $1,500 of which Couch interests pay.

"(3) 5 acres; Section 17, Calvert lease, Union County, Arkansas; 51 per cent interest of Love Brothers, Inc. Well No. 1 producing 200 bbls. per day.

"(4) 10 acres, section 8, De Cou lease, Union County, Arkansas; one-half interest of Love Brothers, Incorporated. Well No. 1 producing 65 bbls. per day. Well No. 2 drilling, to be completed by Love Brothers, Incorporated, Couch and Associates to pay $6,250 of said drilling expense, to be deducted from purchase price, and Love Brothers to bear like expense.

"(5) 10 acres, section 20, Pendleton lease, Union County, Arkansas; one-half of 51 per cent interest of Love Brothers. Well No. 1 to be completed by Love Brothers, including flow lines, separators and two 1200 bbls. wooden tanks, free of any cost to Couch and Associates. Operation of this lease to be vested in Couch from date of transfer.

"(6) 20 acres, section 5-19-15, Greenwood lease, Union County, Arkansas; 5-16 interest of Love Brothers. Well No. 1 to be drilled by Love Brothers, Incorporated, free of any expense to Couch and Associates. Flow lines, tanks and standardization to be paid equally by Love Brothers and Couch and Associates.

"(7) Couch and Associates to have full ownership of royalty on the 40 acres in section 31.

"(8) Couch and Associates to have full ownership of the 700 acres of wildcat leases, description of which is attached hereto and made a part hereof marked Exhibit `A.'

"(9) Whereas, Couch and Associates expect to consolidate all oil property interests in the El Dorado field into one company, possibly under the corporate name of `The Southwestern Oil Company,' the company so formed agrees to take over and pay for said properties in the following manner, to wit:

                (10) In cash upon consummation
                       of this deal ..........................  $ 5,000.00
                     Upon completion of Greenwood
                       Well No. 1 ............................    7,500.00
                (a)  To be paid Love Brothers, Incorporated
                       and M. W
                       Love, monthly from net
                       earnings of the property interests
                       herein conveyed in
                       the manner described below
                       .......................................   19,000.00
                (b)  Indebtedness of Love Brothers
                       Incorporated, to be satisfactorily
                       adjusted and
                       paid by Couch and Associates
                       .......................................   45,000.00
                                                                 _________
                     Total ...................................  $76,500.00
                     Paid by Couch and Associates
                       toward drilling of Well No
                       2 DeCou ...............................    6,250.00
                                                                __________
                     Total ...................................  $82,750.00
                

"(a) It is agreed and understood by and between the parties hereto that Love Brothers, Incorporated, and M. W. Love, shall receive 20 per cent of the net earnings accruing from the property interests herein conveyed until Couch and Associates have been reimbursed for the $12,500 advanced under Article 10 hereof, after which they shall receive 25 per cent of such net earnings until they have been paid the aggregate sum of $19,000.

"(b) It is further agreed that Couch and Associates, through the corporation to be formed, shall satisfactorily adjust and pay the outstanding obligations of Love Brothers, Incorporated, as minutely set forth in the attached list marked `Exhibit B', from 60 per cent of the net earnings of the property interests herein conveyed until Couch and Associates shall have been reimbursed for the $12,500 advanced under Article 10 hereof, after which 75 per cent of such net earnings shall be applied to the retirement of said indebtedness.

"(11) Upon retirement of the total indebtedness, including the item of $19,000 due Love Brothers, Incorporated, and M. W. Love, and $45,000 outstanding obligations, M. W. Love and Love Brothers, Incorporated, are to receive without cost $75,000 in stock at par of the oil company to be formed by Couch and Associates, said stock to be deposited in escrow upon consummation of this deal for delivery when retirement of said indebtedness shall have been accomplished.

"(12) All earnings from the Rogers and DeCou leases from October 1, 1921, and all earnings from the Pratt and Calvert leases after October 17, 1921, shall go to Couch and Associates.

"(13) The sum of $15,000 derived from sales of 7/8 of the first oil produced from Pendleton Well No. 1, is due Love Brothers, Incorporated, of which Couch and Associates are to receive $75,000 ($7,500.00).

"14. It is further agreed that Love Brothers, Incorporated, and M. W. Love shall use their best endeavors to secure and turn over to Couch and Associates, either by direct purchase, or under an operating agreement, control of the Pratt lease as described under Article 10 hereof, and that as the wells now drilling are completed the control and operation thereof are to pass to the purchaser.

                "[Signed] H. C. Couch and Associates
                          "Love Brothers, In.
                          "By M. W. Love, President
                          "By J. W. Love, Vice-president.
                "[Signed] By K. J. Michel, Secretary,
                             "[Signed] By M. W. Love."
                

At the time the contract was executed a corporation existed bearing the name of the Southwestern Oil Company of which H. C. Couch was president, with an authorized capital stock of $500,000, only $300 of which had been issued and which corporation held title to certain oil properties. Instead of organizing a new corporation to take over the properties acquired from the appellants, the existing corporation was utilized and the appellants conveyed to it the properties described in the contract, at the time of the execution of the contract, and for some time before, the production of the properties had been slowing down and their value diminishing. When they were being operated under the aforesaid contract the production became progressively less so that finally they could no longer be operated at a profit and in the latter part of October, 1922, operation of the properties was abandoned. It is not seriously contended that the properties were mismanaged or that they could no longer be made profitable. The appellants were paid the cash items of $5,000 and $7,500 and $6,250 as stipulated. A payment was made on the $19,000 item which reduced that item to $16,417.74. The $45,000 item was reduced by various payments to the appellants' creditors to $18,614.69, for which balance the appellants were liable. A small balance against the appellants on another transaction was deducted, the balance then remaining being $34,865.26. These are the transactions from which this litigation arose and from a decision adverse to the appellants (plaintiffs below) is this appeal.

A number of points are presented by counsel for the litigants in their able and exhaustive briefs, but the main question, which is largely determinative of the issues involved, depends on a single proposition and is involved in the construction of article 10 of the contract set out above. It is a familiar rule of construction that contracts should be interpreted so as to give effect to the intention of the parties, which is to be ascertained by a consideration of the instrument as a whole and of each part in connection with other related paragraphs. Where the language used is of doubtful import, the situation of the parties and the attendant circumstances...