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Dilworth v. Messenger

MARCH 5, 1970.




Appeal from the Circuit Court of Cook County; the Hon. GEORGE N. LEIGHTON, Judge, presiding. Decree affirmed.


Rehearing denied April 2, 1970.

Plaintiff, Lloyd Dilworth, brought this action for an accounting against the defendants, Elmer Messenger and M.C. Hilmer, alleging the breach of an oral contract dealing with the drilling of certain oil wells. Prior to trial, defendant Messenger died and the executors of his estate filed their appearance. At the close of all the evidence, the master in chancery found that the plaintiff had failed to prove the allegations of his complaint by a preponderance of the evidence. The chancellor adopted those findings and entered a decree dismissing plaintiff's complaint. Plaintiff appeals, contending that the decree was against the manifest weight of the evidence.

Plaintiff's complaint alleged that defendants were partners engaged in the business of developing oil properties; that about August 1, 1951, defendants orally agreed that they would assign undivided fractional interests in certain oil and gas wells to plaintiff; that they would proceed to drill these wells and would charge plaintiff the actual pro rata cost of drilling and equipping these wells, and that plaintiff would receive his proportionate share of the receipts. By virtue of this agreement, defendants became the agents of plaintiff and owed him a fiduciary duty. The complaint set forth the various transactions, alleging that in each case plaintiff paid a sum of money to defendants which they represented as his share of the drilling costs, and afterwards he paid additional sums for completing and equipping the wells. Plaintiff further alleged that the sums he paid were arbitrary and excessive, and exceeded the actual cost of drilling, completing and equipping the wells. He charged that defendants failed to disclose the true costs, and also failed to inform him of certain rebates received from various contractors.

Defendants in their answer alleged that plaintiff was to pay a fixed sum for original equipment and completion of the wells, and in return was to receive his share of the revenues and salvage value of the equipment; that plaintiff knew that the fixed sum was an approximation, and never objected to statements of account mailed after each drilling; that the fixed cost included services rendered by defendants in obtaining the leases and for other expenses. Defendants denied that they owed plaintiff a fiduciary duty, and alleged that each drilling was a separate and distinct agreement.

Certain facts and aspects of the relationships between the parties were undisputed. Defendants, Elmer Messenger and M.C. Hilmer, were partners engaged in the business of producing oil and gas. They would obtain oil leases in the State of Oklahoma, and sell or assign fractional interests in the leases to various investors, at times retaining fractional interests for themselves. Thereafter, equipment would be purchased and installed, and drilling would commence. The initial costs were supported by the original fractional investments. If the drilling produced no oil, the result was what is known as a dry hole. If there was a dry hole, the equipment would be salvaged and sold, the proceeds being divided among the investors. If the well was successful, additional operating charges were incurred, and copies of the monthly operating charges were sent to investors, including plaintiff. Initial amounts paid by investors and additional charges for completion and equipment were made in round numbers. However, monthly operating expenses were itemized, and each investor was charged his share of these expenses. Records indicated that the actual costs for drilling and completing a well varied. In some instances they were more than the investments; in others, they amounted to less. If a well continued to produce, an independent oil company would purchase the products, and the receipts of these transactions were credited to the investors according to their share. Plaintiff invested in some 64 wells between 1951 and 1959, 48 of which resulted in producing wells, and his total investment amounted to about $250,000.

The issue at trial was the determination of the nature of the transactions between the parties. Plaintiff contended that he was a joint venturer with defendants and was to share in the costs of drilling and completion in accordance with his fractional interests. Defendants contended that plaintiff purchased a fractional interest in each of the wells on the basis of a fixed price, with a supplemental fixed price for completion and equipment where oil was found.

Milton D. Rutherford testified for plaintiff that he had a conversation with Messenger in the spring of 1955 relating to the drilling of wells. Messenger stated the advantages of investing in these transactions and told him that he would get the same deal that plaintiff and the other investors were getting. Rutherford could obtain a fractional share of a lease and pay the actual costs of drilling, completion and equipment. Plaintiff was present, and verified that this was his arrangement. Rutherford subsequently invested in a number of wells. About 18 months later, in a conversation at which plaintiff and Messenger's wife were present, Rutherford asked Messenger why there was never a refund on his initial investments. Messenger explained that it always cost a little more, but that he himself absorbed the loss.

On cross-examination, Rutherford testified that he was being sued by the Messenger's estate for money allegedly owed and unpaid by him regarding the oil well transactions. He never asked for a refund with regard to the 34 wells in which he had invested.

Eugene F. Jewett, an attorney, testified for plaintiff that he had known Messenger since 1951 or 1952. In the spring of 1954, Messenger asked him if he would like to invest in an oil well, and stated that he would be billed on the same basis as plaintiff; that is, he would pay his share of the actual cost of drilling, completing and equipping the well. He subsequently invested in 23 wells.

On cross-examination, Jewett testified that generally, but not always, he would receive bills for the estimated cost before the drilling began, that drilling cost would be in round numbers; and that he would receive bills for completion and equipment charges before the well was completed and equipped. He never asked for or received a statement of actual drilling costs.

Herbert Ostrow, a certified public accountant, testified for plaintiff that in May 1960, at plaintiff's request, he asked Messenger for the records of the drilling transactions in which plaintiff was involved. Messenger replied that he would allow the inspection of the operating accounts, but not those dealing with drilling and completion.

At the close of plaintiff's case, defendants presented a motion for a decree in their favor. The master made provisional findings based solely upon plaintiff's evidence; he made a report that plaintiff had produced sufficient evidence and denied defendants' motion for a decree. The chancellor affirmed the master's report and ordered defendants to proceed with their defense.

Fred Perrin, defendants' bookkeeper, testified for the defense that he did the bookkeeping and accounting for defendants from 1955 to 1962. He took care of all the records which dealt with the drilling of various oil and gas wells. He was familiar with the accounts of plaintiff, Rutherford and Jewett. None of them were ever sent the actual cost of drilling, completion and equipment. He never discussed the terms of his investment with plaintiff, and plaintiff never requested the actual costs. He did have a discussion with Rutherford in 1957 as to the terms of his investment. He took a division order for Rutherford to ...

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