Wasp Oil, Inc. v. Arkansas Oil and Gas, Inc., 83-93

• Decision Date: 17 October 1983
• Docket Number: No. 83-93,83-93
• Citation: 658 S.W.2d 397,280 Ark. 420
• Parties: WASP OIL, INC. and John F. Brown, Appellants, v. ARKANSAS OIL AND GAS, INC. et al. Appellees.
• Court: Arkansas Supreme Court

Page 397

658 S.W.2d 397

280 Ark. 420

WASP OIL, INC. and John F. Brown, Appellants, v. ARKANSAS OIL AND GAS, INC. et al. Appellees.

No. 83-93.

Supreme Court of Arkansas.

Oct. 17, 1983.

Warner & Smith, Fort Smith, for appellants.

Laws & Swain, Russellville, Bruce Wolitarsky, Fort Smith, and Tom Donovan, Dardanelle, for appellees.

DUDLEY, Justice.

This case began as a simple quiet title action but, before completion, constituted a multi-party action involving not only the quiet title action but also a defamation action arising out of the disputed title. In accordance with one of the tenets of the Arkansas Rules of Civil Procedure, the trial judge allowed a third party plaintiff to enter and a third party defendant to be brought in and then tried the related cases at one time. We affirm on all issues except for the proof of damages for defamation. Jurisdiction is before this Court as the case presents issues involving oil, gas and mineral rights, Rule 29(1)(n), and because it involves a question in the law of torts, Rule 29(1)(o).

Wasp Oil, Inc., the original plaintiff, and now one of the appellants, contends that the trial court erred in refusing to quiet its title to an oil and gas lease. On February 26, 1981, the landowners, the Crowells, executed an oil and gas lease to Wasp Oil. Unfortunately, at that time, Wasp Oil did not file the lease for record. On April 10, 1981, the landowners executed another oil and gas lease involving the same land but this lease was to Arkansas Oil and Gas, Inc. On that same day, April 10, 1981, Arkansas Oil assigned its lease to Texas Oil and Gas Corporation. On April 23, 1981, Arkansas Oil filed its lease for record. The practice of the recorder was to place leases in the record book by the use of a photocopy system. There is substantial evidence that on April 23 the recorder photocopied only the front and not the back of the lease to Arkansas Oil. The acknowledgment is on the back of the page and therefore was not originally photocopied. On May 20, 1981, Arkansas Oil's assignment to Texas Oil was recorded. It was not until June 1, 1981, that the plaintiff, Wasp Oil, filed for record its lease which was, in fact, the first one executed.

Wasp Oil contends that the Arkansas Oil lease should be removed as a cloud on its title because at the time Arkansas Oil took its lease, its chief executive officer, Dale Braden, had actual knowledge of Wasp Oil's original lease. Although there is substantial evidence that neither Arkansas Oil nor Dale Braden had actual knowledge of the Wasp Oil lease, the argument is moot because the evidence clearly establishes that Texas Oil was an innocent purchaser without notice of the original unrecorded lease. An innocent purchaser is not chargeable with constructive notice of an unrecorded instrument. Moore v. Morris, 118 Ark. 516, 177 S.W. 6 (1915). Of course, one who purchases with actual knowledge of a prior unrecorded lease, or with information which would naturally suggest inquiry and lead to such knowledge, is not an innocent purchaser. Love v. Bryson, 57 Ark. 589, 22 S.W. 341 (1893). Here there is no proof that Texas Oil had any information which would suggest an inquiry.

Appellant Wasp Oil next contends that Dale Braden's alleged actual knowledge should be imputed to Texas Oil on the basis that Braden was the agent of Texas Oil. We quickly dispose of the contention as the proof is unequivocal that Braden was an independent broker dealing in oil and gas leases.

Appellant Wasp Oil argues that the chancellor erred in refusing to strike the Arkansas Oil lease from the record book since the lease, as originally photocopied, did not contain an acknowledgment. Obviously, if Arkansas Oil's lease is struck from the record book then Wasp Oil's lease would advance to the status of the first recorded lease. We reject the argument. The lease to Arkansas Oil was properly acknowledged, and because it was properly acknowledged, it was subject to recording. Ark.Stat.Ann. § 16-101 (Repl.1979). It was the duty of the recorder to properly record it. Ark.Stat.Ann. § 16-105 (Repl.1979). The fact that the recorder failed to record the acknowledgment is not a valid reason to strike the instrument from the record book. When a properly executed and acknowledged lease is filed for recording, it protects the parties to the lease against intervening rights of third parties even though it is not properly recorded. Ark.Stat.Ann. § 16-114 (Repl.1979); Rowland v. Griffin, 179 Ark. 421, 16 S.W.2d 457 (1929).

The chancellor's rulings with regard to the petition to quiet title are affirmed.

A counterclaim and third party complaints alleging defamation were also filed. Appellant John F. Brown, the third party defendant below, contends that the trial court erred in refusing to dismiss him from the third party complaints for defamation. He advances the proposition that a defamation action may be brought only in the county in which the defendant, or one of several defendants, resides or is summoned. Ark.Stat.Ann. § 27-613 (Repl.1979). See Robinson v. Missouri Pacific Transportation Co., 218 Ark. 390, 236 S.W.2d 575 (1951). His argument seems enhanced, at first glance, by the stricture of the Rules of Civil Procedure that the rules do not extend jurisdiction or venue. ARCP Rule 82. Appellant contends that he was a resident of Sebastian County and could not be properly made to answer a defamation action pending in Yell County. Again, we affirm the trial court.

The procedure can be conceptualized in three tiers. The first tier is the complaint of plaintiff Wasp Oil, Inc., against Arkansas Oil and Gas, Inc., the landowners named Crowell, and Texas Oil and Gas Corporation. The complaint to quiet title was local in nature and Wasp properly filed the action in the county where the land was located. Ark.Stat.Ann. § 27-601 (Repl.1979). See Fidelity Mortgage Co. v. Evans, 168 Ark. 459, 270 S.W. 624 (1925).

The second tier is the counterclaim and third party complaint for defamation filed by Arkansas Oil against Wasp Oil and its president, John F. Brown. Both Wasp and Brown reside in Sebastian County. The alleged defamation arises directly from the leasing transactions and a logical relationship exists between the complaint, the counterclaim and the third party complaint. Much of the evidence is applicable to both actions. The trial judge was correct in holding the counterclaim was compulsory. Venue of the counterclaim against Wasp was fixed by Wasp's filing of the original suit. ARCP Rule 13(a). The venue statute, Ark.Stat.Ann. § 27-613 (Repl.1979), does not purport to fix venue for a compulsory counterclaim. See B-W Acceptance Corp. v. Colvin, 252 Ark. 306, 478 S.W.2d 755 (1972) (involving a comparable earlier statute). Arkansas Oil, in the same pleading and stating the same cause of action, made John F. Brown, the president of Wasp Oil, a party to the proceeding. Such joinder is authorized under ARCP Rule 13(g) and ARCP Rule 20(a). The issue becomes whether Wasp's waiver of venue as to the counterclaim by filing the original action will carry over to cover third parties joined to the counterclaim. This requires an examination of ARCP Rule 13(g).

Joinder of Additional Parties. Persons other than those made parties to the original action may be made parties to a counterclaim or cross-claim in accordance with the provisions of Rules 19 and 20.

ARCP Rule 13(g) contemplates joinder under either Rule 19 or 20. The notes following Rule 19 state that Ark.Stat.Ann. § 27-615 (Repl.1962) remains unaffected by the rules. However, since the counterclaim was compulsory, the principle of ancillary jurisdiction extends to the additional party. Further, the provision in Rule 13(a) which excludes from its definition of compulsory counterclaim those which require for their adjudication "the presence of third parties of whom the court cannot acquire jurisdiction" does not compel a different result. This restriction is limited to cases of inability to obtain personal jurisdiction over the additional defendant and is not a matter of venue. Basic considerations of fairness dictate that the potential parties cannot be forced to enter litigation without service of process upon them and the compulsory counterclaim rule is limited to permit this principle. See United Artists v. Masterpiece Productions, 221 F.2d 213 (2d Cir.1955).

The third tier is the intervention and third party complaint filed by Dale Braden, the president of Arkansas Oil, against Wasp Oil and its president, John Brown. His intervention is permissive. ARCP Rule 24(b). The intervention was a matter of discretion with the trial judge and the judge did not abuse that discretion. The third party complaint was for relief jointly with Arkansas Oil. It involves the same cause of action, requires most of the same proof, and is interwoven with the counterclaim filed by Arkansas Oil. Braden's third party complaint and Arkansas Oil's claim have common questions of law and fact. His joinder as a third party plaintiff was permissive. ARCP Rule 20(a). Jurisprudentially, since the jurisdiction of the court over a counterclaim against the plaintiff is not referable to the location or residence of the plaintiff, but rather to its cognizance of the "transaction or occurrence," there is no basis on which to differentiate between the counterclaim and third persons interested in the transaction or occurrence. The Second Circuit Court of Appeals, with Learned Hand sitting on the panel, termed this "ancillary jurisdiction" and reasoned that ancillary jurisdiction does not require independent grounds for either jurisdiction or venue. Lesnik v. Public Industrial Co., 144 F.2d 968 (2d Cir.1944); contra, King v. Shepherd, 26 F.Supp. 357 (W.D.Ark.1938). Of course, if the third party complaint was not a bona fide part of the original transaction or occurrence the result would be different.

The trial court correctly refused to dismiss appellant John...