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Nation Oil Co. v. R.c. Davoust Co.

AUGUST 28, 1964.

THE NATION OIL COMPANY, ET AL., PLAINTIFFS-APPELLEES,

v.

R.C. DAVOUST COMPANY, INC., AN ILLINOIS CORPORATION, LESTER ARMOUR, ET AL., DEFENDANTS-APPELLANTS. YABROVE PETROLEUM COMPANY, MILO OIL COMPANY, JOHN A. REDDING, TRUSTEE FOR CONTINENTAL ILLINOIS NATIONAL BANK AND TRUST COMPANY, FRED C. NEWMAN, TRUSTEE FOR OLD NATIONAL BANK IN EVANSVILLE, SOHIO PETROLEUM COMPANY, A CORPORATION, ASHLAND OIL & REFINING COMPANY, A CORPORATION, THE OHIO OIL COMPANY, A CORPORATION, AND THE PURE OIL COMPANY, A CORPORATION, DEFENDANTS-APPELLEES. R.C. DAVOUST COMPANY, INC., AN ILLINOIS CORPORATION, LESTER ARMOUR, ET AL., COUNTERPLAINTIFFS-APPELLANTS,

v.

THE NATION OIL COMPANY, AN ILLINOIS CORPORATION, NATION DRILLING COMPANY, AN ILLINOIS CORPORATION, AND BEN H. NATION, COUNTERDEFENDANTS-APPELLEES.



Appeal from the Circuit Court of the County of Wayne; the Hon. RANDALL S. QUINDRY, Judge, presiding. Affirmed in part and reversed in part.

REYNOLDS, J.

Suit was commenced by The Nation Oil Company, Nation Drilling Company, and Ben H. Nation, against R.C. Davoust Company, Inc., an Illinois corporation and nine individual defendants, for the sum of $9,004.24 for services and expenses for operating and managing during the term of changeover, oil wells and leasehold estates sold to the defendants by the plaintiffs. Another count of the complaint was for the sum of $24,149.87 for oil in the tanks of the various oil properties as of January 1, 1961, which was the transfer date of the various oil properties. Various oil companies were also made defendants as purchasers of the oil.

The defendants, R.C. Davoust Company, Inc. and the nine individual defendants, answered denying owing the plaintiffs for services rendered and for the oil in the tanks as of January 1st, 1961, counterclaimed for $11,722.09 for oil runs made by plaintiffs-counterdefendants, to Ohio Oil Company; for damages by reason of bond expense in the amount of $2,317.32; and for the court to order plaintiffs-counterdefendants to execute certain transfer orders in order to complete the transaction. Count II of the counterclaim asked that the plaintiffs-counterdefendants be required to account to the defendants-counterplaintiffs, for oil produced by two wells, the No. 5-B well on the Blakely lease and the No. 2 well on the W.P. McIntosh lease, and cease producing and pumping from these two wells about the base of the McClosky lime, claiming the agreement of January 1, 1961, reserved to the sellers only oil produced below the base of the McClosky lime. Count III of the counterclaim claimed three pumping unit substructures each valued at $750 claiming these substructures were included in the transfer agreement effective January 1, 1961. Count IV of the counterclaim was for a stock tank and engine of the value of $1,000 claimed to be included in the transfer agreement.

There are plaintiffs, defendants, plaintiffs-appellees, defendants-appellees, defendants-appellants, counterplaintiffs-appellants and counterdefendants-appellees. For the purpose of this opinion, The Nation Oil Company, Nation Drilling Company and Ben H. Nation will be called "Nation" and R.C. Davoust Company, Inc., and the nine other individual defendants will be called "Davoust." The defendants-appellees, are the purchasers of the oil involved in this case. Treating the sellers as "Nation" and as one group, and the buyers as "Davoust" and as one group, designating the parties as plaintiffs or defendants, appellants or appellees, counterplaintiffs or counterdefendants will not be necessary.

This case involved the sale of operating interests in some 90 oil producing leases in Southern Illinois by Nation to Davoust for a sum of $1,200,000, the original terms of sale being set out in detail by memorandum of agreement signed by Nation and Davoust on August 30, 1960, effective as of July 1, 1960. Under this agreement, the closing date was set for October 1, 1960. For various reasons, the sale was not consummated in accordance with the terms of the agreement of August 30, 1960, and a new memorandum of agreement was entered into by Nation and Davoust dated January 4, 1961. The old agreement was cancelled by both Nation and Davoust, by endorsement on the old agreement these words: "This contract cancelled by mutual consent, and is of no further force or effect," and by their signatures.

After the signing of the new memorandum of agreement dated January 4, 1961, but effective as of January 1, 1961, certain disagreements arose between the parties. Nation was to operate the wells for Davoust until actual take-over. Nation claimed its expenses and charges for this operation which was not paid by Davoust, Davoust claiming that it was entitled to the proceeds of the oil in the tanks, as of January 1st, 1961; that Nation was pumping oil from two wells above the McClosky lime in violation of the agreement, and that Nation had withheld certain pumping unit substructures of the value of $2250, and had withheld a stock tank and engine of the value of $1000. In addition Davoust claimed out-of-pocket expenses in connection of necessary bond expenses because of Nation's refusal to sign oil transfers.

The matter was tried before the court without a jury and the trial court gave Nation judgment for $23,534.50 for the oil on hand and in tanks January 1st, 1961, plus some other small amounts; construed the reservation clauses as to the two wells so as to allow Nation to produce oil from these two wells above the McClosky lime; denied Davoust's claim for $11,722.09 for oil runs held in suspense and not taken in account in the price adjustment, and denied Davoust's claim for $5,411.39 damages for Nation's refusal to sign transfer orders for oil. Davoust appeals from these portions of the decree. The trial court gave judgment to Davoust for $1,194.21, the value of the pumping unit substructures which the court held were covered by the agreement. Nation appeals this portion of the decree.

This appeal raises a number of points, but reduced to their simplest terms, can be designated as follows: — (1) The Blakely and McIntosh well issue; (2) Oil in tanks issue; (3) Suspended Runs issue; (4) Transfer Order issue; and (5) Substructures issue.

In order to resolve these issues, it will be necessary to examine and construe the agreement of January 4, 1961, which spells out the various matters in detail. Both Nation and Davoust were represented by their lawyers at all times during the negotiations and drawing up of the July 1, 1960 agreement and the January 1, 1961 agreement. This court will assume that each party had agreed to the terms of the January 1, 1961 agreement and had cancelled the agreement of July 1, 1960. The language in the January 1, 1961 agreement and the assignment and conveyance dated January 23, 1961, must govern.

The reservations in the sale agreement relative to No. 5 well on the Blakely B lease, and No. 2 well on the W.P. McIntosh lease, were in the following language:

"The Grantors reserve, in proportion to their respective interests, and except from this assignment, the following:

"1. As to that part of the Blakely `B' lease described as the Southwest Quarter of the Northeast Quarter of Section 27, Township 1 South, Range 8 East, in Wayne County, Illinois (being part of Lease No. 6 on Part 5 of Exhibit `A' hereto), all their leasehold rights as to formations below the base of the McClosky lime, together with Well No. 5-B thereon and the equipment of such well except the tank battery.

"2. As to the W.P. McIntosh lease in White County, Illinois (being Lease No. 9 on Part 6 of Exhibit `A' hereto), all their leasehold rights as to formations below the base of the McClosky lime, together with the No. 2 Well thereon and the flow line, pumping unit, and other equipment on or in such well."

It seems to be a practice in the oil industry that ownership may be held in horizontal divisions, that is, one owner may own all the oil or the right to pump oil from a horizontal division such as below the McClosky lime; another may be above or below the St. Louis or the Aux Vases formation. Apparently, these are definite formations in the earth's stratum, and these formations occur in an orderly formation. The McClosky lime formation is below the Aux Vases formation. Thus it is possible to drill through the Aux Vases formation and pump oil from another formation below. That seems to be the situation here. Davoust contends that Nation was restricted to pumping oil from the two wells in question to below the McClosky lime. That by reason of the terms of the agreement, could not pump oil from the Aux Vases formation, which lies above the McClosky lime. Both wells had been drilled to depths below the McClosky lime, and at the time of the negotiations for sale, the McIntosh well was producing from a formation below the McClosky lime and the Blakely well was producing from a formation above the McClosky lime. Davoust claims that the only right ...


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