Wilson v. Elliott

Decision Date31 March 1992
Docket NumberNo. 42A01-9111-CV-356,42A01-9111-CV-356
Citation589 N.E.2d 259
PartiesGeorge R. WILSON, Appellant, v. Monous E. ELLIOTT, et al, Appellee.
CourtIndiana Appellate Court

Maurice E. Doll, Vincennes, for appellant.

K. Richard Hawley, Hawley, Hudson & Almon, Mount Vernon, Rabb Emison, Emison, Doolittle, Kolb & Roellgen, Vincennes, for appellee.

BAKER, Judge.

Defendant-appellant George R. Wilson (Wilson) appeals an adverse judgment entered on a claim by plaintiff-appellees Monous E. Elliott, David R. Elliott, and Elbert E. Elliott, D/B/A Elliott and Sons (collectively Elliott and Sons). Elliott and Sons sought injunctive relief to preclude Wilson from interfering with an oil and gas lease given by Wilson to Elliott and Sons. Wilson raises four issues for our review, which we restate as:

I. Whether the trial court erred when it concluded Wilson did not file an adequate affidavit in the Office of the Recorder of Knox County.

II. Whether the court erred when it concluded there was never a one-year period during the time in question when operations and production for oil and gas ceased.

III. Whether the trial court erred when it concluded that production or operations for oil and gas do not necessarily include payment of proceeds to the landlord within a reasonable time or the use of best efforts to market the petroleum.

IV. Whether the trial court erred when it concluded Elliott and Sons forfeited the lease only if operations on the entire 120-acre oil field ceased.

FACTS 1

On April 24, 1965, Elliott and Sons entered into an oil and gas lease with Wilson (Lease No. 1), which covered 140 acres in Knox County. Wilson owned the surface rights and an undivided one-half interest in the oil and gas rights leased to Elliott and Sons, and the State Life Insurance Company owned the other one-half interest. On May 5, 1965, Elliott and Sons also entered into a lease with The State Life Insurance Company (Lease No. 2), which included in part 20 acres also covered under Lease No. 1. The State Life Insurance Company is not a party to this action, however. In accordance with the terms of the oil and gas leases, Elliott and Sons drilled oil wells that produced oil continuously until 1973.

In 1973, Elliott and Sons entered two new oil and gas leases with Wilson (Lease No. 3 and Lease No. 4). These leases partially superseded Lease No. 1. Lease No. 3, commonly referred to as the "Wilson Lease," covered 70 acres, and Lease No. 4 covered 50 acres. A special provision inserted into Lease No. 4 provided for the total 120 acres embraced in the two leases to be deemed a unit. Pursuant to the terms of the Wilson Lease, Elliott and Sons drilled five producing oil wells and one dry hole. Some 40 acres under Lease No. 4 were operated by Spartan Oil Company, and the three oil wells located on the land have produced oil continuously since 1973. The 20 acres originally covered under Leases No. 1 and 2 became part of a waterflood unit 2 and were operated by another oil Elliott and Sons pumped the five wells and produced oil under the Wilson Lease continuously from 1973 until the end of 1987. In 1986, prices for crude oil dropped dramatically and many oil and gas lease operators slowed production pending a rebound in crude oil prices. Oil not sold was stored in tanks. During 1987, Elliott and Sons engaged the services of a geologist to evaluate the Wilson Lease for future production, and it replaced two bottom-hole pumps on the wells. Elliott and Sons also pumped and produced oil from the wells in October and November of 1988, and in January and April of 1989. Oil was sold in May and August of 1987, and oil from storage was sold in April and May of 1989.

company until January 1990. [See Appendix for diagram of land covered under the leases.]

On April 3, 1989, Wilson filed an affidavit in the office of the Recorder of Knox County. In the affidavit he requested the termination of a 60-acre portion of Lease No. 1, including 40 acres also covered under the Wilson Lease and 20 acres in the waterflood unit. He claimed the partial termination was proper because Elliott and Sons did not sell oil between August of 1987 and April of 1989, a period of more than one year. Elliott and Sons filed a responsive affidavit refuting the termination on June 1, 1989.

In the meantime, Wilson obstructed the entrance to the Wilson Lease by putting up cable and a no trespassing sign, and he removed the magnetos from all the wells on the property, thus making the wells inoperable. Elliott and Sons responded by seeking an injunction to enjoin and restrain Wilson from interfering with its lease. The trial court granted the injunction and enjoined Wilson from interfering with Elliott and Sons's right to enter the leased land. Wilson now appeals.

STANDARD OF REVIEW

The trial court entered specific findings of fact and conclusions of law under Indiana Trial Rule 52(A). When reviewing the trial court's findings, we must determine first whether the findings are sufficient to support the judgment, and second whether the evidence is sufficient to support the findings. Vanderburgh County Bd. of Commissioners v. Rittenhouse (1991), 575 N.E.2d 663, 665, trans. denied. We will reverse the judgment only if it is clearly erroneous. Id. A judgment is clearly erroneous when it is unsupported by the findings of fact and conclusions of law entered on those findings. Id. Even if the judgment is supported by the findings of fact and conclusions of law, we may nonetheless reverse the judgment if the findings of fact are clearly erroneous based on the evidence presented. Id.

Here, the trial court entered findings in favor of Elliott and Sons, the party bearing the burden of proof. Wilson therefore appeals an adverse judgment. See id. When a party appeals an adverse judgment, this court decides whether the trial court's findings are clearly erroneous by determining whether there is substantial evidence of probative value to support the findings. Id. Even if there is evidence that supports the findings, we will still find the judgment clearly erroneous if we are left with a definite and firm conviction a mistake has been made. Id. (citation omitted).

DISCUSSION AND DECISION
I Inadequate Affidavit

First, Wilson argues the trial court erred when it concluded the affidavit he filed in the Office of the Recorder of Knox County was inadequate to cancel of record the Wilson Lease held by Elliott and Sons. Because oil and gas leases give the lessee a secondary, non-possessory interest in the real estate, land titles which are encumbered by outstanding oil and gas leases are usually considered unmarketable. A marketable title is generally defined as "one which is free from reasonable doubt and will not expose the party who holds it to the hazards of litigation." Salmon v. Perez (1989), Ind.App., 545 N.E.2d 21, 25 (citation omitted).

IND.CODE 32-5-8-1 sets forth procedures for a record owner of title to remove abandoned oil and gas leases from the land title, and thereby create a marketable title. IND.CODE 32-5-8-1 provides, in relevant part:

[U]pon the written request of the owner of such lands, accompanied with the affidavit of such owner, stating that no rentals have been paid to or received by such owner or any person, bank or corporation in his behalf for a period of one (1) year after they have become due, and that such leases and contracts have not been operated for the production of oil or gas for one (1) year, the recorder of the county in which such real estate is situated shall certify upon the face of such record that such leases and contracts are invalid and void by reason of nonpayment of rentals and is thereby canceled of record, which request and affidavit shall be recorded in the miscellaneous records of said recorder's office.

The ease with which the above provision allows oil and gas leases to be removed from land titles is consistent with the underlying policy of the Indiana Marketable Title Act. IND.CODE 32-1-5-1 to 32-1-5-10. As enacted by the Indiana legislature, the Indiana Marketable Title Act facilitates land title transactions by providing clear and reliable record titles on which purchasers may rely. Salmon, supra.

In this case, the record reveals that on April 3, 1989, Wilson filed an affidavit in which he claimed a forfeiture of part of Lease No. 1, which was executed in 1965. Record at 224. Wilson apparently shifted gears at trial, however, and began claiming a forfeiture of part of Lease No. 3, which was executed in 1973 and known as the Wilson Lease. The trial court concluded Wilson failed to comply with IND.CODE 32-5-8-1 because the affidavit he filed did not correctly describe the lease he sought to have forfeited or the land the lease covered. We agree.

Under the statute, only upon written request of the owner will the county recorder certify on the land title that the oil and gas lease and contracts are invalid and void. See Salmon, supra, at 24. Logically, if the written request incorrectly identifies the land and the lease, the county recorder cannot certify on the appropriate title which lease is null and void. Incorrect certifications destroy the goal of clear and reliable record titles. The trial court did not err, therefore, when it concluded Wilson incorrectly identified both the land and the lease when in his affidavit he sought to have part of the 1965 lease cancelled, but at trial he sought to have part of the 1973 Wilson Lease cancelled. 3 See id. Because filing an adequate affidavit is a condition precedent to having an oil and gas lease rendered void on the record title, and because Wilson did not meet this condition, Elliott and Sons's oil and gas leases are still valid. Even if we were to find that Wilson met the statutory requirement of providing the recorder with an adequate affidavit, we would nevertheless affirm the trial court's judgment on the remaining issues.

II Cessation of Operations and Production

Wilson...

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