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Muth v. Aetna Oil Co.

decided: May 8, 1951.


Author: Major

Before MAJOR, Chief Judge, and KERNER and DUFFY, Circuit Judges.

MAJOR, Chief Judge.

This is an appeal from a judgment adverse to the plaintiff, entered August 7, 1950, in an action wherein plaintiff sought relief in a variety of forms by reason of an oil and gas lease in which he at the time of its execution acquired a one-half interest. The cause was referred to a Special Master who, after hearing, made findings of fact and conclusions of law, which in the main were approved by the trial court. Consistent with such report, the court entered the judgment from which plaintiff has appealed.

There is little, if any, dispute concerning the facts as found by the Master. Plaintiff's contention in the main is that the court applied erroneous legal principles to the facts as found. In the beginning, it appears appropriate to show the connection of the various parties with the subject matter of the litigation, together with some of the more salient acts and transactions upon which plaintiff asserts his right to relief. On October 6, 1947, the defendants Arthur Oeth and Robert Oeth, then operating a business under the unincorporated firm name of The Oeth Drilling Company, parties of the first part, entered into a partnership agreement with the plaintiff John J. Muth, party of the second part, wherein such parties mutually agreed to associate themselves together in securing oil and gas leases, royalties and drilling contracts. In such agreement it was provided, "All Leases or royalties taken for this partnership shall be written in the names of, Arthur Oeth and Robert Oeth, as owners of a One half interest and John J. Muth, Sr., as owner of a One half interest." The agreement provided, "Either party may cancel this agreement by giving a 30 days written notice to the other party," and "either party shall have the right to engage in the same or other lines of business, separate from this partnership, so long as it is not done at the expense of this partnership."

The parties acting pursuant to said agreement obtained a number of oil and gas leases, including the one around which the instant controversy revolves, obtained December 22, 1947 (sometimes referred to as the joint lease), from the defendants Fred J. Keck and Ida F. Keck, his wife, on 67.5 acres of land and in which Arthur Oeth and Muth were designated as lessees. The lease was acknowledged before a notary public and recorded in the appropriate recorder's office. It did not reveal the partnership relation existing between Muth and Oeth, although the court found, "At the time of the execution of said lease it was known to the lessors that the lessees were partners in the business of taking oil and gas leases." The lease was for the primary term of three years from date and as long thereafter as drilling operations were continued. It also provided, "This Lease shall terminate in three months and be null and void as to both parties unless the Lessees or their assigns shall commence or cause to be commenced the drilling of a test well and thereafter continue with due diligence to completion."

On January 5, 1948, Arthur Oeth directed a letter to Muth which, after reciting the cancellation provision contained in the partnership agreement, stated, "As per said agreement, you are hereby notified that I, as one of the partners, do give you notice that said agreement is hereby cancelled." Receipt of this letter was acknowledged by Muth in a letter to Oeth dated January 12, 1948, in which he stated, "The cancellation is agreeable with me." On March 1, 1948, Muth wrote Arthur Oeth a letter in which he stated, "The time for the commencing of a well on the Keck lease is getting short and I would like it if you and Robert would meet with me the earliest possible date and see if we can work out a peaceful and satisfactory dissolution agreement of our jointly owned business." Arthur Oeth made no answer to this letter, but a few days thereafter and without the knowledge of Muth obtained from Keck, who was his uncle, a lease (called the "top lease") for gas and oil on the same land covered by the joint lease. This "top lease" was dated December 22, 1947, the same as the joint lease, and was substantially a copy thereof, with the exception that the time (for drilling a test well) was extended thirty or sixty days. (This lease was subsequently destroyed by Oeth. The circumstances under which it was executed and its purpose will be later discussed.)

The joint lease, by reason of the provision heretofore quoted, became void at midnight on March 22, 1948, unless the drilling of a test well was commenced by that time. On March 19, 1948, Muth entered into a contract with the defendant Boland, by which the latter agreed to commence the drilling of a well on or before March 22, 1948, and made arrangements with one Baldwin to assist him in such drilling. On the 20th or 21st of March, Boland made a survey, and on March 22, hauled some equipment to the Keck farm. The purpose of making Boland a defendant is not clear, but we suspect it was to preserve diversity jurisdiction. It certainly appears that his interests were not hostile to those of Muth. Boland failed to answer and a default was taken as to him. In the state of the record, we are unable to discern whether Boland was a citizen of Illinois, as alleged, or of Indiana. However, no jurisdictional issue is pressed here and we give the question no further consideration.

Keck, on March 23, elected to treat the joint lease as forfeited. The defendant Husk, prior to the time of the asserted forfeiture, had expressed a desire to obtain a lease on the Keck land and had conversed with Keck concerning the same, the last conversation occurring on March 22. On March 23, Muth and Boland went to the Keck farm, and later Arthur and Robert Oeth and Husk also arrived. Shortly afterward, the Oeths, Keck and Husk left in the latter's automobile and proceeded to the city of Evansville, Indiana, and to the offices of attorney Vol Butt. Said attorney prepared for Keck a written notice, dated March 23, 1948, and directed to Boland and Muth, which, after reciting the provision in the joint lease relative to the time when the drilling of a test well was to be commenced, stated, "No well was commenced on or before three months from the date of the lease and no drilling has been commenced even now. You are advised that you are trespassing without right upon my property. I hereby demand that you leave my property and notify you that I shall hold you responsible in damages for all of your acts in trespassing or in continuing to trespass on my land."

This notice was signed by Keck, and in the afternoon of the same day was served upon Boland and Muth. Prior thereto, Arthur Oeth and Husk had advised Keck that they would defend any law suit that might be instituted against him by reason of any prior oil and gas leases on said premises, and with particular reference to the joint lease. Following the service of the notice, Muth and Boland left the premises. On March 27, 1948, Husk obtained an oil and gas lease on the Keck premises for and on behalf of the defendant Johnston Drilling Company, Inc. At the same time, attorney Vol Butt prepared an instrument addressed to the Kecks, signed by Johnston Drilling Company, Inc., Husk and Arthur Oeth, in which it was stated, "However, in the event any claim is made against you by any former lessee, we agree to defend such action and to protect you against whatever claims are asserted by former lessees." On June 2, 1948, defendant Aetna Oil Company took an assignment of a one-half interest in and to said lease of the Johnston Drilling Company, Inc., subject to an overriding royalty of one-sixteenth of seven-eighths interest to an unnamed party, later disclosed to be Husk.

Subsequently, Johnston Drilling Company, Inc. and Aetna Oil Company, under an operating agreement, drilled three producing wells upon the Keck land, the net proceeds of which have been impounded, with the exception of certain royalties paid to Husk. Thus, it will be observed from the facts as related that of the parties to the suit only the plaintiff Muth and the defendants Arthur Oeth and Robert Oeth had any dealings or made any agreements with the defendant Keck until subsequent to midnight March 22, 1948. In fact, the lease of March 27, 1948, obtained by Husk, on behalf of Johnston Drilling Company, Inc., represents the first dealing between those defendants and Keck. This statement perhaps is subject to the limitation that Husk had talked with Keck concerning a lease prior to midnight of March 22, 1948. Aetna Oil Company did not come into the picture until later, when it was assigned an interest in the March 27 lease acquired by Johnston Drilling Company, Inc.

It appears to be the theory of the plaintiff that a conspiracy was entered into among all the defendants (except Boland) the purpose of which was to prevent Muth from performing under the three-month clause so that Keck might declare a forfeiture and thereby void such lease. And the result of the conspiracy is shown, so it is asserted, by Keck's lease to Johnston Drilling Company, Inc., under date of March 27, 1948. If this conspiracy theory has any substance, it must be that it was conceived by Arthur Oeth and Keck, and that the other defendants, with knowledge thereof, later joined and became responsible for its results.

While it is not directly asserted, it is strongly implied that attorney Vol Butt had knowledge of the wrongful acts of Arthur Oeth and Keck and that such knowledge was attributable to the defendants, most of whom he represented at some time, either in court or as a consultant. It is recited in considerable detail that he represented both Johnston Drilling Company, Inc. and Aetna Oil Company in examining title to the leasehold acquired by the former on March 27, 1948; that he prepared on behalf of Keck the forfeiture notice served on Muth and Boland; that he prepared on behalf of Johnston Drilling Company, Inc. the instrument by which it was agreed to indemnify Keck and his wife on account of any claims growing out of former leases, and that he represented Keck and Husk in a state court proceeding growing out of the same subject matter as the instant case. We are not able to discern anything wrong with the activities of the attorney. His first connection with the matter was when he was consulted by Keck, accompanied by Oeth and Husk, as to whether the joint lease in which Muth had a one-half interest was subject to forfeiture because of failure to comply with the three-month provision. He evidently advised Keck that it was, and prepared a notice to be served on Muth and Boland. There is nothing to indicate but that his opinion was sound and given in good faith, but even though be had erred as to the legal situation, it would be no evidence of wrongdoing. And certainly there is nothing inconsistent with his position on that occasion and the fact that he examined and passed upon the title for Keck's subsequent grantee, which stemmed from the March 27 lease, nor was there anything inconsistent with his appearance in court in behalf of those who had relied upon his opinion.

Plaintiff's case must rest on the premise that he was never legally divested of his interest in the Keck land, and this premise must be supported by one of two theories, (1) that plaintiff performed prior to midnight March 22, 1948, under the three-month provision of the joint lease, or (2) that by reason of the so-called "top lease" given by Keck to Arthur Oeth early in March 1948, the time for performance under the joint lease was extended to the same extent as that provided in the "top lease."

As already shown, plaintiff on March 19, 1948 entered into a contract with the defendant Boland whereby the latter agreed to move a cable drilling rig onto the Keck farm and commence the drilling of a well on or before March 22, 1948. Thereupon, Boland got in contact with one Baldwin, who agreed by telephone to assist in such drilling. Boland moved a drilling rig upon the Keck farm late in the afternoon of March 22, 1948. Admittedly, this drilling rig was incapable of drilling a well such as was required by the lease. However, it was suggested by Baldwin that Boland move on the rig he had and that he (Baldwin) would later furnish another rig. More than that, without going into too much detail, it plainly appears that the rig which was moved in on the Keck farm was not equipped to drill and kind of a hole. There was lacking a rope socket, stem and a bit, a bailer, a drill stem, a drill bit, sufficient drilling cable and the necessary tools. The rig, on the evening of March 22, was left in the Keck barn lot, about 700 feet from the location where the well was to be drilled. There it remained until the ...

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