Sapulpa Petroleum Co. v. Mccray

• Court: Oklahoma Supreme Court
• Writing for the Court: RILEY, J.
• Citation: Sapulpa Petroleum Co. v. Mccray, 277 P. 589, 1929 OK 129, 136 Okla. 269 (Okla. 1929)
• Decision Date: 19 March 1929
• Docket Number: Case Number: 19077
• Parties: SAPULPA PETROLEUM CO. v. McCRAY.

1929 OK 129

277 P. 589

136 Okla. 269

SAPULPA PETROLEUM CO. v. McCRAY.

Case Number: 19077

Supreme Court of Oklahoma

Decided: March 19, 1929

Syllabus

¶0 Oil and Gas--Development of Leases in Good Faith Under Contract for Conveyance Rendered Unenforceable Through Failure of Title--Right to Offset Cost of Development Against Gross Profits from Production.

One having initial possession of oil and gas leases admittedly in good faith under a contract providing that the same shall be conveyed to him, and he develops the leases in an efficient and economical manner, notwithstanding that title eventually fails and such occupant is dispossessed by final judgment, yet he is entitled in accounting to offset the cost of development as against the gross profit arising from production during his occupancy and possession when he acts in good faith.

Error from District Court, Creek County; Fred A. Speakman, Judge.

From judgment in accounting in favor of W. S. McCray, the Sapulpa Petroleum Company, by receiver, J. A. Fulp, brings error. Affirmed.

See, also, McCray v. Sapulpa Petroleum Co., 102 Okla. 108 , 226 P. 875 .

Silverman & Rosenstein, for plaintiff in error.

F. E. Riddle and E. B. Hughes, for defendant in error.

RILEY, J.

¶1 This is a second appeal in this cause. See McCray v. Sapulpa Pet. Co. et al., 102 Okla. 108, 226 P. 875, and consolidated cases.

¶2 McCray sought specific performance for the conveyance of two oil and gas leases known as the Timothy & Cedar leases. He was in possession and had developed the same. Prior to August, 1919, McCray, Birch C. Burnett, and Bates B. Burnett each owned one-third of the stock in the Sapulpa Petroleum Company as a Delaware corporation. In the year 1919, said owners of said stock decided to incorporate the Cushing Petroleum Company as a Delaware corporation. A portion of the stock of the new corporation was delivered to one Herd, a promoter. Six hundred thousand dollars of debenture notes were issued by the new corporation. McCray and the Burnetts delivered all but one share each of the Sapulpa Petroleum Corporation stock to Herd, who pledged the stock to the Empire Trust Company to secure the debenture bonds of the Cushing Petroleum Company. McCray, on September 25, 1919, contracted with one Kelly to sell to Kelly all of his stock in the Cushing Petroleum Company for the sum of $ 250,000. Twenty-five thousand dollars in cash was paid. According to McCray this contract was for the benefit of Herd and the Burnetts. Twenty-five thousand dollars additional was paid, but no more, whereupon McCray demanded of Herd and the Burnetts his stock under theory of an option, without avail; the Burnetts contending the contract was a sale and they simply owed McCray the balance.

¶3 A settlement between McCray, the Burnetts, and Herd was negotiated for $ 153,967.13, but the Burnetts and Herd were unable to pay cash, but agreed to deliver McCray the two leases owned by the Sapulpa Petroleum Company above mentioned. That was accepted by the parties and assignment of the leases was to be authorized by the Cushing Petroleum Company and the Sapulpa Petroleum Company. McCray went into possession. Birch C. Burnett wired McCray that the resolution had passed the board of directors of the Cushing Petroleum Company and mailed a purported resolution to McCray, but such was false. Birch C. Burnett then agreed to arrange a meeting of the Sapulpa Petroleum Company and pass the necessary resolution for assignment of the leases to McCray. The Burnetts and McCray met as directors. Bates Burnett left, but said he would return and complete the transaction, but they never completed the same, thereafter refusing to do so. Judgment was for defendants on specific performance, but allowing McCray $ 11,552.06 for expenditures in developing and operating the leases. It was affirmed. Mandate issued in June, 1924, but prior to final determination of the cause in this court, McCray sought relief against the Cushing Petroleum Company, the Delaware corporation, in the United States District Court of the Eastern District of Oklahoma. The federal court granted injunctive relief under the view that McCray was entitled to an interest in said leases as an equitable mortgagee, but the Circuit Court of Appeals reversed that holding of the federal district court, and that litigation continued until 1925. Sapulpa Pet. Co. v. McCray, 4 F. (2nd Series) 645; McCray v. Sapulpa Pet. Co., 21 F. (2nd Series) 953; Certiorari-- W. S. McCray v. Sapulpa Pet. Co., 72 L. Ed. 734, 48 S. Ct. 213. Subsequently there was an accounting. A referee was appointed by the district court of Creek county. It is the latter judgment in accounting now before us on appeal. The issue is that of good faith. If in good faith, McCray is not a willful trespasser, and consequently is entitled to proper cost of development; otherwise he takes nothing.

¶4 The referee found that McCray's entry on the leases was in good faith, under belief that the contract for conveyance of title would be carried out; that McCray's action for specific performance was in good faith, but the referee found that McCray's good faith ended when the district court held against him. However, the referee found "that no question is raised in this accounting that McCray did not operate the leases in an efficient and economical manner." No exception, by plaintiff in error, is made to the referee's findings of (1) good faith at time of McCray's entry into possession of the leases, or (2) to the economical and efficient operation of the leases by McCray during his possession. Defendant in error, McCray, did except to the finding that he was not entitled to deduct from the profits the cost of development and operation for the entire time of the litigation. The trial court held in accord with defendant in error's exception and against the referee's finding to that extent and in the view that by reason of good faith the proceeds from the lease under McCray's management should be offset by expenditures incurred in the operation.

¶5 The question of good faith is by plaintiff in error limited to the time after the judgment of the district court in 1922. They do not question McCray's good faith prior thereto. (P. 52, plaintiff in error's brief.)

¶6 It is the gist of the contention that after judgment of the district court, notwithstanding the leases were first possessed in good faith, liability attached upon the supersedeas bond given, for the entire gross proceeds arising from the lease and irrespective of cost of development and operation; that as a matter of law McCray was converted into a trespasser ipso facto, without right of appeal from the judgment denying him specific...