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Chapman v. Millemon





APPEAL from the Circuit Court of Lawrence County; the Hon. ROLAND J. DeMARCO, Judge, presiding.


In this appeal we consider a dispute between co-owners of the working interest of two oil and gas leases located in Lawrence County. One of the leases, the Gillespie, has 12 producing wells, and the other lease, the Benefiel, has two producing wells, or, with more precision, two sometimes producing wells. Apparently none of the wells are large producers and can be termed "strippers." The issues of the case can best be stated by a recital of the facts.

Plaintiff has been involved in several phases of the oil production business for approximately 40 years. Plaintiff personally supervised the drilling and development of the Gillespie lease in 1946. The Benefiel lease was purchased in 1954, already developed. A D.E. Burford, a resident of Missouri, acquired a three-fourths working interest in the Gillespie lease in 1954 and a one-half interest in the Benefiel lease sometime thereafter. Burford later assigned his interests in the leases to corporations which he, and, following his death, his wife, controlled.

By agreement with the Burfords the plaintiff served as the operator of the leases, receiving $800 per month for supervision and pumping of the wells. His method of handling the accounts was to forward monthly all bills representing the expenses incurred in operating the leases to Mr. Burford or to his widow after Burford's death. The Burfords would prepare a summary of the expenses, including the $800 for plaintiff's supervision and pumping, and allocate the total in proportion to the ownership, 75% to the Burfords and 25% to plaintiff.

The arrangement with the Burfords continued until about July 1973 when, according to plaintiff, defendant, a livestock dealer from Missouri, came to Lawrence County and advised plaintiff that he was checking on the operation of the leases for Mr. Burford. Defendant then suggested that he would operate the leases for three weeks of the month and plaintiff could operate them for one week of the month. Plaintiff refused the offer because the split responsibility for operation would be unworkable. It was defendant's testimony that he was in Lawrence County several times between January 1, 1973, and July 1, 1973, and on the latter date he came to take possession of the leases for Mrs. Burford. He then told plaintiff that "there would be no more pay for him," that he, the defendant, was going to operate the leases for three weeks of the month and plaintiff could operate one week.

Between July 1973 and the end of September 1974 plaintiff continued as operator of the leases. Plaintiff and defendant arranged the allocation of the expenses of the operation on the same 75%-25% ratio that previously had appertained but the $800 for supervision and pumping paid to the plaintiff was excluded.

Defendant acquired the Burford interests in both the Gillespie and Benefiel leases by assignment dated March 20, 1974. Plaintiff continued to operate the leases until October 7, 1974, when the defendant as majority interest holder "took over." On September 6, 1974, plaintiff had filed a complaint against defendant praying for a judgment for $600 per month for defendant's proportionate part of the $800 per month for supervision and pumping of the wells for the period from July 1, 1973, to the date of decree, for a lien against the interest of defendant in the leases and for foreclosure and sale of defendant's interests in the event the judgment was not paid. The complaint also asked for appointment of a receiver for the leaseholds pendente lite and for an injunction which would restrain defendant from interfering with plaintiff's operation. The Marathon Oil Company, the pipeline purchaser of the oil produced from the wells, was made a party defendant to the action, but their position in the cause is that of a "stakeholder" and they are not concerned with the merits of the suit.

On February 10, 1975, plaintiff filed an amended complaint which added a count II to the original complaint. Count II alleged the takeover of operations by defendant, that defendant was incompetent in his operations and that waste had resulted to plaintiff's interest because the defendant had permitted the production from the wells to decrease. Count II further alleged that plaintiff had continued during defendant's operation to pay electric bills for the leases that defendant as operator had failed to pay. Count II concluded with a prayer for judgment for damages by reason of the waste and the payment of the electric bills.

Defendant filed answers to both counts I and II which consisted of denials of the pertinent allegations.

Following a trial conducted by the court sitting without a jury a decree was entered which found plaintiff and defendant to be mining partners of the leases, that mining partners are not entitled to compensation for personal services rendered to the partnership unless agreed upon by all the partners, that defendant owed plaintiff for his proportionate part of operating expenses from March 1974 to date, that defendant (as the owner of three-fourths of the working interest) has the right to operate the Gillespie lease and the plaintiff and defendant have equal rights to operate the Benefiel lease, and that defendant has not incompetently operated the leases and plaintiff is not entitled to damage because of the nonoperation of certain of the wells. Plaintiff was then awarded judgment against defendant for $1,046.24, the receivership and an injunction were denied, defendant was awarded the operation of the Gillespie lease and the parties were ordered to reach an agreement on the operation of the Benefiel lease within 60 days or a receiver would be appointed by the court. Accumulated funds derived from production pendente lite were ordered applied to satisfaction of the judgment.

Plaintiff appeals from the decree asking from this court the relief he was denied by the trial court.

• 1, 2 Neither party seriously challenges the trial court's finding that a mining partnership of plaintiff and the Burfords was established under the facts presented, or that the mining partnership was continued between plaintiff and defendant after defendant acquired the Burfords' interests. The record supports the trial court's finding in this regard and accordingly the differences between these parties must be resolved by application of the legal principles that pertain to that unique entity that arises when more than one person has a hand in the ownership and operation of oil and gas leases or other mining properties. Descriptions of a mining partnership and some of the legal obligations and rights accruing to the partners are furnished by Illinois cases. From Harris v. Young, 298 Ill. 319, 131 N.E. 670:

"Where there is an association of individuals for producing oil or minerals from leasehold properties and the expenses of development and production and sale of the oil are divided or shared according to the holdings of the members of the association in the leasehold property, whether such division of expenses and profits is made with or without formal written or verbal agreement, a partnership exists. * * * In such a partnership, in the absence of a specific agreement, there is no delectus personae [the right to choose one's partner] as exists in ordinary commercial partnerships. In a partnership each co-partner has the right to sell his interest in the firm property whenever and to whomever he may choose. By such a sale he ceases to be a partner, and at the same time that he ceases to be such a partner his vendee or assignee becomes a partner in his stead with the remaining members of the firm. Such a sale does not dissolve the partnership, and death of a member does not dissolve it. The incoming partner will not be liable for the antecedent debts of the firm as between the partners, but he takes his interest subject to the payment of antecedent partnership debts. Each member has a lien upon the partnership property for the debts due to the creditors of the partnership, which lien he may enforce in equity. These liens exist only against the partnership property while it is distinctly such partnership property. Such liens on the oil itself in favor of the members only exist while it is the property of the firm. ...

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