Raben v. Schlottman, 9654

• Decision Date: 27 February 1958
• Docket Number: No. 9654,9654
• Citation: 77 S.D. 184,88 N.W.2d 205
• Parties: Mel RABEN, Curt Shaw, George Stapp, Lars Jensen, Edward J. Brodsky, Mead Corwin, John Myers, Irvin Smith, Ivan Ellis, Dale Gregson, R. H. Burton, Clark Burton, Clarence Fiegen, Don J. McFall, J. R. Bobier, Otto Dodds, and O. J. Buxton, Plaintiffs and Respondents, v. Buford SCHLOTTMAN, Defendant and Appellant.
• Court: South Dakota Supreme Court

Page 205

88 N.W.2d 205

77 S.D. 184

Mel RABEN, Curt Shaw, George Stapp, Lars Jensen, Edward J.

Brodsky, Mead Corwin, John Myers, Irvin Smith, Ivan Ellis, Dale Gregson, R. H. Burton, Clark Burton, Clarence Fiegen, Don J. McFall, J. R. Bobier, Otto Dodds, and O. J. Buxton, Plaintiffs and Respondents, v. Buford SCHLOTTMAN, Defendant and Appellant.

No. 9654.

Supreme Court of South Dakota.

Feb. 27, 1958.

Rehearing Denied May 26, 1958.

Bangs, McCullen & Butler, Rapid City, for defendant and appellant.

Burnell H. Hendricksen, Rapid City, for plaintiffs and respondents.

ROBERTS, Judge.

Defendant Buford O. Schlottman and three associates entered into a contract demoninated 'Contract of Organization of the Tepee Buttes Joint Venture'. It was set forth in the contract that the purpose for which the joint adventure was organized was to acquire leases and to prospect for oil and gas. The transactions herein arose out of drilling operations in Butte County, South Dakota. The drilling of a well was abandoned by these persons because of the collapse of the casing, and this resulted in the commencement of an action by them in the United States District Court for the District of Colorado against S. W. Pressey & Son for damages resulting from the collapse of the casing allegedly caused by breach of warranty as to its weight. Schlottman v. Pressey, 96 F.Supp. 979. The court found that the casing delivered was not 17 pound casing as provided by the terms of the purchase contract but was in fact 13 pound casing; that the casing was used in a well drilled to a depth of 1,407 feet at which point the casing collapsed and the well was abandoned; and that such collapse and abandonment resulted from a breach of an express warranty respecting the weight of the casing sold. Judgment was rendered for the plaintiffs.

In the instant action, plaintiffs seek to recover from Buford O. Schlottman the amount paid to him in satisfaction of the judgment in the Pressey action after deduction of expenses of litigation therein and royalty reserved to the owner of the land on which the well in question was drilled. The amount in controversy is $4,868.32. Trial herein to the court resulted in judgment in favor of plaintiffs and from the judgment defendant appeals.

The only question presented on appeal is whether or not the findings of fact support the conclusions of law and judgment.

The parts of the findings of fact important here follow:

'On or about April 27, 1948, the defendant, B. O. Schlottman, together with M. J. O'Brien, M. E. Hafner, and Jay Huisman, formed and organized the Tepee Butte Joint Venture. The agreement was fully reduced to writing, and a copy thereof is attached hereto marked Exhibit 'A'. The sixth Article thereof provided: 'Legal title to the property owned by the Venture shall be in the name of B. O. Schlottman, who shall hold such property in trust for the use of the venture. Each of the members of the venture equitably shall own an equal undivided share of said property; provided that assignments of the undivided interests shall be made and delivered to the members by the said B. O. Schlottman at such time as such action may be determined and voted by a three-fourths (3/4) vote of such membership. Those persons owning an interest, but who are not members, shall have no ownership interest in the property of the venture.'

'Having acquired certain oil leases, the Joint Venture offered for sale certain 'working interests' at the rate of a one-forty-eighth (1/48th) working interest for $500. Purchasers of such 'working interests' were issued 'receipts,' copy of which is attached hereto marked Exhibit 'B'. Such working interests were sold to the extent of 29/48th and Fourteen Thousand Five Hundred Dollars ($14,500) was thereby raised.

'That the defendant and his associates caused such exploratory well, Tepee Buttes Number One, to be drilled to a depth of 1,407 feet, and in so doing, spent $15,201.10, which amount included the amount spent for pipe referred to in subsequent finding; and the amount spent included moneys received from the plaintiffs.

'Said casing had been purchased by the Joint Venture from S. W. Pressey & Son of Pueblo, Colorado, and moneys obtained from the plaintiffs through their investment for which receipts were issued was used, in part at least, for the purchase of the casing.

'The Defendant Schlottman discussed with the plaintiffs at meetings held at Spearfish in 1948 the bringing of a lawsuit against the suppliers of the pipe, which had collapsed and had advised them that there were funds belonging to the group that could be used for such litigation or could be used for drilling another well.

'Plaintiff investors advised Schlottman of their desire to proceed with the lawsuit.'

We cannot agree with the conclusion of law 'That by virtue of the foregoing findings and particularly the terms of the instrument denominated 'receipt,' issued to the plaintiffs as investors, the plaintiffs are entitled to receive 1/48 for each $500 invested of the net amount of the recovery' in the breach of warranty action. We set forth a copy of the form of receipt used and referred to as Exhibit 'B':

'Receipt

'1. Received of .......... the sum of $105p, being in payment of certain working interests in Oil and/or Gas Leases generally described as follows and to be more specifically determined and located, at the discretion of the undersigned, at a later date: Six Hundred Forty (640) acres of Oil and/or Gas Leases to be situated in the South Half of Township Nine (9) North, Range Seven...