Wood v. White Eagle Oil & Refining Company

• Decision Date: 15 June 1925
• Citation: 274 S.W. 894,220 Mo.App. 1004
• Parties: E. H. WOOD, IRA A. CUMMINGS, and H. R. WILLIAMS, TRUSTEES, RESPONDENTS, v. WHITE EAGLE OIL & REFINING COMPANY, DEFENDANT, LEEWARD PETROLEUM CORPORATION, INTERVENER, APPELLANT
• Court: Kansas Court of Appeals

274 S.W. 894

220 Mo.App. 1004

E. H. WOOD, IRA A. CUMMINGS, and H. R. WILLIAMS, TRUSTEES, RESPONDENTS, v. WHITE EAGLE OIL & REFINING COMPANY, DEFENDANT, LEEWARD PETROLEUM CORPORATION, INTERVENER, APPELLANT

Court of Appeals of Missouri, Kansas City

June 15, 1925

Appeal from the Circuit Court of Jackson County.--Hon. Willard P Hall, Judge.

AFFIRMED.

Judgment affirmed.

Turpin & Behrendt for appellant.

Harkless & Histed for respondents.

BLAND J. Arnold, J., concurs; Trimble, P. J., absent.

OPINION

BLAND, J.--

This is a suit by plaintiffs to recover from the defendant, White Eagle Oil & Refining Company, the sum of $ 4030.20 representing the balance due plaintiffs by reason of the sale to defendant of a one-thirty-second part of oil that had been produced from certain wells located in Marion county, Kansas. The petition originally prayed for the sum of $ 3617.58 but as oil continued to be produced the petition was subsequently amended so as to ask for $ 4030.20. The defendant answered admitting that it had in its possession the money but pleaded that it was being claimed by the Leeward Petroleum Corporation. With the consent of plaintiffs the Leeward Petroleum Corporation was made a party and filed an intervening petition claiming the money. At the conclusion of the testimony the chancellor rendered a decree awarding the fund to plaintiffs and intervener has appealed.

The facts show that the owner of the fee in one hundred sixty acres of land in Marion county, Kansas, executed on the land in favor of one Forrester an oil and gas lease, reserving a royalty of one-eighth part of the oil. Forrester assigned the lease so far as it affected the forty acres now in controversy to one Curtis. Curtis in turn assigned it to Aikens, reserving to himself a one-eighth royalty in the oil. By mesne conveyances the lease to the forty acres was assigned, "insofar as it covers a three-fourths interest in the oil and gas produced from" said forty acres to D. M. Ward and J. C. Wilhoit. On June 2, 1921, Ward assigned to intervener "an undivided three-eighths interest in . . . said quarter section." On June 22, 1921 Wilhoit, being the owner of a three-eighths interest, assigned a one-eighth interest to plaintiffs, the material parts of this assignment reading as follows:

"Whereas, the said lease and all rights thereunder or incident thereto are now owned by J. C. Wilhoit, as to an undivided three-eighths (3/8) interest in the Northeast quarter (NE1/4) of the above-described quarter section,

"Now, Therefore, for and in consideration of one dollar (and other good and valuable consideration) the receipt of which is hereby acknowledged, the undersigned, the present owner of the three-eighths interest in the said lease and all rights thereunder or incident thereto, does hereby bargain, sell, transfer, assign and convey unto Frank S. Land, Ira A. Cummings and E. H. Wood, as trustees, heirs, successors and assigns, an undivided one-eighth (1/8) interest carried free from expense of operation and development in the oil and gas produced from said Northeast quarter of the northeast quarter (NE1/4 of NE1/4) of Section 8, Twp. 22, Rge. 4 East, Marion County, Kansas, under said lease." (Italics ours.)

This instrument was filed for record in Marion county, Kansas, on June 23, 1921, and duly recorded.

Plaintiffs contended at the trial and now contend that the assignment from Wilhoit to them is conclusive on the question as to what interest plaintiffs have in the oil and having introduced the assignment in evidence, rested. All the evidence introduced by the intervener was objected to by plaintiffs but the court received the same subject to the objections and at the conclusion of all the testimony sustained the objections thereto except "in so far as it (the evidence) relates to the issues of estoppel."

Intervener's evidence shows that on June 22, 1921, Wilhoit and plaintiffs executed a "transfer order" directed to the Prairie Oil & Gas Company, the buyer of the oil produced from the forty acres. This transfer order recited that Wilhoit had sold and transferred a part of his interest in the wells located on the forty acres therein described to plaintiffs; said interest being described as a "one-eighth (1/8) carried working interest." On May 31, 1922, Wilhoit assigned all of his remaining interest in the lease as to the forty acres to intervener. This conveyance to intervener recited that the interest owned by plaintiffs was a "one-eighth (1/8) working interest carried free from expense of operation and development," etc.; that the transfer from Wilhoit to plaintiffs was "recorded in the office of the Register of Deeds for Marion county, Kansas, in Book 20, of Miscellaneous records at page 432;" that Wilhoit was the owner of a one-eighth interest in the total oil run "less the shares payable to plaintiffs;" that "all rental, royalties and profits have been paid except those growing out of the transfer" to plaintiffs. This assignment to intervener was dated May 31, but went into effect the latter part of August, 1922.

Intervener introduced evidence showing that the words "carried working interest," used in the transfer order and other documents to be hereinafter described, meant that the working interest must pay for the cost of development and operation and that the part of the working interest carried (carried free) would not be subjected to that expense. Intervener's evidence further tended to show that the part of the interest reserved by the owner of the land for himself is called a royalty interest; that the interest that the lessee gets is called a working interest; that where the owner reserves a one-eighth interest as royalty and a subsequent lessee reserved to himself another one-eighth of the total production, the total royalty is one-fourth; that the term "working interest" is one used in the oil business and generally understood by those engaged in that business to be the interest owned by the parties owning (working) the lease; that the working interest is that part left after taking out the royalty; that if the royalty is one-fourth, one-eighth of the working interest would be one-eighth of what was left, that is, of three-fourths, or three-thirty-seconds. Here is where the difference between the parties lies. Plaintiffs under the assignment of the lease from Wilhoit, claim the right to four-thirty-seconds or one-eighth of the total production of oil, while the intervener claims that plaintiffs are entitled to only one-eighth of the working interest, which would be three-thirty-seconds of the total production. The controversy, therefore, is over the ownership of a one-thirty-second of the total production.

Intervenor's evidence further shows that the buyer of the oil upon taking over the production requires what is called a "division order" to be signed by the owners of the oil. This division order is furnished by the buyer and contains a form for the name and correct description of the land. It requires that the royalty interest be specified in the order together with the working interest, and is signed by the parties interested. When it is returned to the buying company it is sent by it, with a complete abstract of title covering the property brought down to date, to the buyer's attorney, who examines the abstract and if it is found that the division order corresponds with the title, the order is approved and payment for the oil purchased is made in accordance with the information contained in the division order. Thereafter if any one sells a part of his interest it is required that the seller and purchaser sign what is called a "transfer order" showing what interest has been transferred and thereafter payment of the oil is made in accordance with the division order as amended by the transfer order.

The intervener was the actual operator of the wells and attended to securing the proper papers required by the Prairie Oil & Gas Company, the buyer of the oil. The transfer order in question was sent to plaintiffs by the intervener to be signed; the intervener also sent plaintiffs, who resided at Kansas City, Missouri, a trust agreement to be executed by them. The evidence is that where the division or transfer order shows that the title to a part of the oil appears in trustees, the buyer requires the execution of a trust agreement setting forth and giving information as to the beneficiaries and their interests. The Prairie Oil & Gas Company furnished a form of trust agreement to intervener, who was in active charge of the wells and the business of disposing of the oil, with the request that it see that it was properly executed. Said trust agreement was executed on July 13, 1921, by the trustees. The trust agreement recited that the trustees were "the legal owners of a one-eighth (1/8) working interest of wells," etc. On June 27, 1921, a declaration of trust was executed by plaintiffs and recorded in the records of the Recorder of Deeds in Kansas City, Missouri, the trustees and beneficiaries living in that city. Attached to the trust agreement was a list of property held in trust by plaintiffs for the beneficiaries and it was recited therein that among other property owned was "an undivided one-eighth (1/8) interest carried free in oil and gas lease covering land described as follows." Then appears a description of the forty acres of land in controversy.

Checks were sent by the Prairie Oil & Gas Company twice each month to the various persons owning the oil bought by it, the proceeds of the oil being divided by it in accordance with the information obtained from the division and transfer orders. That company paid on the basis that plaintiffs were entitled to a one-eighth working interest or three-thirty-seconds of the gross...