Smith v. Bolin

• Decision Date: 11 September 1953
• Docket Number: No. 15440,15440
• Citation: 261 S.W.2d 352
• Parties: SMITH et al. v. BOLIN et al.
• Court: Texas Court of Appeals

Page 352

261 S.W.2d 352

SMITH et al. v.BOLIN et al.

No. 15440.

Court of Civil Appeals of Texas, Fort Worth.

Sept. 11, 1953.

Rehearing Denied Oct. 9, 1953.

C. J. Brannan and Nelson, Montgomery, Robertson & Sellers, Wichita Falls, for appellantsDr. P. K. Smith, Dr. J. B. Nail, Dr. O. C. Egdorf, S. G. Denny, Kindel Paulk, E A. Denney, Dr. John Arrington and Dr. J. R. Reagan.

Rogers & Eggers, Wichita Falls, for appellant First Nat. Bank of Wichita Falls, independent executor of the estate and testamentary trustee under the will of, Theo W. Beck, deceased.

Kilgore and Kilgore, Dallas, for appelleeD. H. Bolin.

Mortimer A. Kline, Los Angeles, Cal., for appelleesA. Morgan Maree, Jr., Richard Brooks, Stanley Morner, Cornel Wilde and Patricia K. Wilde.

MASSEY, Chief Justice.

This suit is fundamentally one brought by two groups of plaintiffs, each group in part composed of the personnel of the other, to impose a constructive trust upon oil leases and producing oil wells thereon located, acquired by the primary defendant, D. H. Bolin.Some of the leases in question had been those as to which the members of one of such groups had at a prior time been cotentants along with the primary defendant and upon which they, joined by him, had conducted fruitless drilling operations during the life of the lease estates.Said leases had expired prior to date of the re-acquisition by the primary defendant.

Defendants named along with the primary defendant were individuals and corporations to whom and which the primary defendant had conveyed or mortgaged interests in the leases upon which constructive trusts were sought to be imposed.

The plaintiffs also sued for accounting upon all transactions in connection with all the leases acquired by the primary defendant in 1950 and all the development thereon-upon transactions handled by the primary defendant for them as a trustee in connection with activities during the years 1947, 1948 and 1949 upon and in connection with the leases the members of one of such groups had then been cotenants (and alleged partners) along with the primary defendant -and upon all transactions the other of such groups had engaged in as a partnership during the life of which the primary defendant had been managing partner.

Defendants moved for summary judgment.Upon hearing this motion the trial court entered judgment in behalf of the defendants.The plaintiffs appealed.

Judgment affirmed in part and reversed and remanded in part.

On date of June 20, 1950, D. H. Bolin, the primary appellee herein, secured by lease from the surface owners mineral interests under two adjacent leases, together comprising what is termed the Howard land leases, and which may also be termed the west Howard lease and the east Howard lease.The lease was for oil and gas minerals.It has been said that such a lease is actually not a lease at all, but is a type of license for purposes of exploration and production.As a license, such creates an incorporeal hereditament.Huston v. Cox, 1918, 103 Kan. 73, 172 P. 992.Though occasion for distinction does not exist as to the questions posed by this appeal, the consciousness thereof is of aid in our analysis.

The land had not been under lease for approximately three months, but prior to date of March 12, 1950, it had been under lease to D. H. Bolin, who held it as trustee for himself and several others who were cotenants thereunder along with him during 1947, 1948, 1949, and in 1950 up to its expiration on March 12.This land was leased by Bolin for himself on March 12, 1947, but subsequently, and during the late spring of 1947, he entered into an agreement with other persons (some of the appellants herein), whereby the leases were owned on the basis of fractional interests.The ownership was in the following persons, as to the stated fractional interest: D. H. Bolin, 8/16; Dr. P. K. Smith, 2/16; Dr. J. B. Nail, 1/16; Dr. O. C. Egdorf, 1/16; S. G. Denny, 1/16; Earl Denney, 1/16; Kindel Paulk, 1/16; Theo Beck, 1/16.

Acquisition of these fractional interests was coupled with oral express purpose to drill an oil well or wells, and in July of 1947, the members of the above group drilled an exploratory well at about the center of the west Howard lease.This proved to be a dry hole.It was drilled to a depth of 2,020 feet.At depths of 1,890 feet to 1,930 feet a 'crinoidal lime' formation was encountered in which there was 'good oil staining'.The formation was tested, but failed of production.On or about date of July 18, 1947, the well was plugged and was abandoned.There was no other drilling activity in progress on the Howard land leases at this time, and there was none instituted by any one after that date for a period of approximately a year and a half, when a 'farmout well' was drilled on the southern part of the east Howard lease by J. M. Hawley.The well proved dry and was abandoned.The 'farmout' was made to Hawley by Bolin under questionable authority, but the act by him was in any event ratified by his cotenants' acceptance of their part of the consideration paid him therefor.

After the acquisition of the fractional interests in ownership in cotenancy in the Howard land leases in 1947, and before the drilling of the well at approximately the center of the west Howard lease, Dr. P. K. Smith had conveyed information in his possession to Bolin and the other members of the group which caused Dr. Smith to believe that the drilling location upon the Howard land leases to be most likely to develop production of oil or gas would be on the northern portion of the west Howard lease.This information so conveyed by Dr. Smith, and upon which he encouraged action, was information acquired by him at a time when he had been a member of a partnership, at least for mining purposes, which drilled wells in that vicinity on the northern portion of the west Howard lease.His 'partners' had been John Kay and Gene Clark.Neither John Kay nor Gene Clark was interested in any way in the leasehold estate taken in 1947.The venture of Smith, Kay and Clark was one which took place several years prior to 1947, and the wells in question were drilled to depth of approximately 1,250 feet, proving dry.The knowledge conveyed to the other cotenants in 1947 by Dr. Smith about the findings from such venture was that such former drilling operations proved that there was oil in the vicinity of the northern part of the west Howard lease but that the well or wells drilled on such prior occasion simply failed to be at proper location to discover it in paying quantities.He suggested drilling at a location near such former wells.Dr. Smith's suggestion as to location was not honored, the well being drilled some distance south, where it proved dry.Bolin selected the location which was drilled.Following this venture, no activity on the west Howard lease taking place in the interim, D. H. Bolin, on date of August 19, 1949, wrote the following letter to all the members in cotenancy with him as to the Howard land leases.The letter read as follows:

'Your attention is called to the two leases which we own im Montague County, Texas, namely, the Edith Paine(the east Howard lease) and Minnie Gault(the west Howard lease), with 320 acres in each lease.These leases by their own terms will expire the early part of 1950.Therefore, we should give consideration to their worth, if any.

'It is my recommendation that we drill two wells, one on each lease to a depth of approximately 1250 feet because there are two known producing sands, one at 850 feet and one at 1250 feet.At this time both Continental Oil Company and Gulf Oil Corporation are drilling many wells in area which have been producing for many years, and are finding wells at particularly 850 feet, and in territory that has been passed up at that depth.In the well that we drilled we set pipe at 850 feet and tested the sand, but it did not make a well.The pipe was then pulled out and we went deeper with the same results.However, at the time, Mr. Miller, my Superintendent, said he believed the producion was South and West of our well and in the general area where Continental and Gulf are developing.Frankly, it is quite likely the well will be dry according to the law of averages, but at the same time I am unwilling to surrender the leases without drilling the two wells.Therefore, please let me know your desires and if any of you want to drop out, I am willing to take your interest and carry on.

'Continental is paying $2.00 per foot and I am sure we can get a well drilled for this price.In addition to the $2.00, there will be approximately $.25 per foot for surface pipe, cement and cementer and testing.In the event of a dry hole, that is about all it would cost.Should we find oil however we will all share our proportionate part of the expense of putting the well on production.

'I would like to get this cleared away the early part of next week.

'Thanking you, I am

'Yours very truly,

'/s/ D. H. Bolin'

Though there was discussion of the subject of Bolin's letter by and between some of the cotenants and between each cotenant with Bolin, nothing immediately developed from the proposal.

In the month of February of 1950 there was undertaken by Bolin and some of the others one further exploratory drilling operation, and which took place on the south line of the east Howard lease.At time of the drilling operation the estate of cotenancy therefore existing upon both the Howard land leases was changed as to the east Howard lease, so that the fractional interest in the lease thereon was as follows: D. H. Bolin, 11/16; Dr. J. B. Nail, 1/16; Dr. O. C. Egdorf, 1/16; Earl Denney, 1/16; Kindel Paulk, 1/16; Theo Beck, 1/16.

Theo Beck did not agree to pay for any part of the drilling venture on the south line of the east Howard lease, and he never paid any of the expenses.Earl Denney did agree to pay for one-eighth the cost of the drilling.However, after the well...