Appeal from the Circuit Court of Fayette county; the Hon. WARD
P. HOLT, Judge, presiding. Decree affirmed.
PRESIDING JUSTICE SCHEINEMAN DELIVERED THE OPINION OF THE COURT.
Rehearing denied April 20, 1960.
The plaintiff, Rufus H. Troop, and the original defendant, Walter L. Rust, were the owners of the working interest in an oil lease (hereafter referred to as "this lease"). Troop owned 3/4ths and Rust 1/4th. Troop was the manager of this lease which had two producing wells, and he also owned the entire working interest of another lease adjoining to the south, which had two producing wells, and he managed that also. Troop filed this suit in equity to foreclose a partnership lien, because Rust had not paid his share of operating expenses over a period of some eight years. Rust counterclaimed on various grounds, the important one being a claim that Troop had wrongfully and fraudulently commingled the oil from this lease with that of his other lease, and failed to divide in proper proportions. Before final decree Rust died and his executor was substituted. There are no important questions on the pleadings.
The Chancellor heard voluminous evidence and entered a final decree finding that Troop had tortiously commingled the oil from the two leases, that it was impossible to determine how much of the oil from this lease had been retained and not accounted for, therefore, the court applied the confusion of goods doctrine, awarding 1/4th of all the oil to Rust, from both leases. The court also made a finding as to the total cost of operation of the leases, and charged 1/4th to Rust, giving Troop a set-off against the amount awarded to Rust. The net judgment for the period of years involved was $11,560.23.
On this appeal by Troop errors asserted are: that Rust does not come into Equity with clean hands; that the Chancellor's findings are contrary to the manifest weight of the evidence; that he erred in refusing to admit certain evidence offered by plaintiff; that he erred in refusing to charge 1/4th of Troop's allowed management fee to Rust; and that he improperly applied the doctrine of confusion of goods in treating the total production from both leases as if all of it came from this lease, thereby assigning 1/4th of the total to Rust. To consider these several alleged errors requires a review of the evidence.
Rust testified that, after Troop had taken over the management of this lease, there had been a reduction in the amount of oil produced from this lease while there had been a large increase on the lease to the south. Rust had filed a previous suit against Troop charging mismanagement and other faults. This was prior to 1951. The present suit concerned the years 1951 to 1956. The court refused to admit into evidence the files and correspondence pertaining to the former suit, as not being relevant to the issues in this suit. This is the ruling on exclusion of evidence to which objection is made.
In 1949 an employee of Troop made production tests of the wells on this lease. He was a witness for plaintiff and testified that the total production from this lease at that time fluctuated from a minimum of 3 1/2 to a maximum of slightly less than 5 barrels per day. About that time Rust employed a man to make some tests of production, and his results were about the same. The prior suit was never pressed.
Vacuum was first applied to the wells on this lease in 1951. Prior to that time Troop had retained an expert to make a study of this lease and his lease to the south. Troop called him as an expert witness in this case, and he testified as to his findings prior to 1951. He estimated the available oil in place and the probable future production. He recommended the application of vacuum and estimated the probable production from this lease under vacuum at 12 to 14 barrels per day.
This witness had prepared a chart with graphs showing the monthly production from this lease and the lease to the south, for the years 1941 to 1955 inclusive. The figures used as a basis were obtained from the companies which purchased the oil from the two leases (different companies). These graphs show production from this lease only slightly less than that from the adjoining lease to the south from 1941 to September of 1946. The figures in that month were 214 and 231 respectively. The difference is about 8 per cent. Troop acquired his interest in and took over the management of this lease in 1947. He acquired the other lease in the previous year. After 1946, the graphs show a continued decline in production from this lease and a very pronounced rise from Troop's adjoining lease. In September of 1947 the production from Troop's lease is shown to be ten times that of this lease. After vacuum had been applied on this lease in 1951, the graph shows a continued decline with various ups and downs, and at the end, in 1955, the south lease is shown producing twelve times as much as this lease, and it had been up to almost 20 times.
An employee of Troop testified that tanks and pipes for gathering oil had been entirely replaced in 1951. A picture of the arrangement prior to that date was offered in evidence but the court ruled it was not relevant in this suit. The witness described the pipe system installed in 1951 as being three pipes laid in the same ditch. They ran from the wells on this lease to its tank. Between the wells and the tank there was a valve and an oil pipe connecting the line from that point to a point near a heater on the south lease. He said this line was not connected to the heater until 1953 and that thereafter oil from this lease was commingled with the other on rare occasions when the weather was bad, but he then pumped an equivalent amount back through an overhead pipe to the tank on this lease. He said the original purpose of this connection was to permit operation of the two leases together if they came under one management, and the connection was made because there was freezing in severe weather, so that heating was necessary.
He testified as to the valve in question that when closed it prevented oil from this lease going into the tank thereon, and the oil would flow onto the heater on the other lease, and from there it could be sent back to storage tanks. When the valve was open the oil would flow directly into the tank on this lease and would not go onto the other lease which was at a higher elevation.
This witness admitted that in his deposition taken more than two years prior to trial, he had testified that the connection had been made in 1951, not recalling the exact date. He had also stated under oath that the commingling of oil thereafter had been continuous practically the year round, that the wells produced mixed oil and water and the oil did not settle out without the heat treatment.
The plaintiff, Troop, also gave the year of connecting the leases as 1951, and that commingling occurred off and on thereafter. He admitted that the underground system had been installed without informing Rust about it. He stated that he had kept no records of daily production from the leases, and had no reports thereof from his pumper. He said daily run tests were not possible because of the mixture of oil and water, so the total volume of liquid could be measured, but not so as to show how much was oil. He had discussed with Rust the purchase of the latter's interest.
For a period of 18 months beginning in 1954 a different operator was employed by Troop. This man testified that in this entire period all the oil from this lease had been put in its own tank, none was ever diverted to the other lease, that he did not need the heater to separate the oil from water, that there was a chemical pump in the equipment, so that he had no trouble separating the oil and marketing it. He said he did not know of the underground connection from this lease to the other. He had seen a valve in the field but had never bothered with it and had not closed it in the morning ...