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Shannon v. Stookey

OPINION FILED APRIL 6, 1978.

NELL E. SHANNON, PLAINTIFF-APPELLANT,

v.

STEPHEN M. STOOKEY ET AL., DEFENDANTS-APPELLEES. — JOHNSIE M. BERGER, PLAINTIFF-APPELLANT,

v.

WILLIAM L. HERSCHENBACH ET AL., DEFENDANTS-APPELLEES. — JACK L. RATLIFF ET AL., PLAINTIFFS-APPELLEES,

v.

A.R. FRANK, D/B/A FRANK'S PETROLEUM EXPLORATION, ET AL., DEFENDANTS.



APPEAL from the Circuit Court of Wayne County; the Hon. HARRY L. ZIEGLER, Judge, presiding.

MR. PRESIDING JUSTICE EBERSPACHER DELIVERED THE OPINION OF THE COURT:

Rehearing denied May 4, 1978.

This is an appeal by appellants, Nell Shannon and Johnsie Berger, from judgments entered by the circuit court of Wayne County following a bench trial of three causes of action which had been consolidated for purposes of trial. The actions involved two oil and gas leases; Shannon is the lessor of the Shannon lease and Berger is the lessor of the Williams lease. The appellees herein are the holders of a majority of the working interest in both leases. In No. 76-L-6, Shannon brought an action against the appellees alleging abandonment of the Shannon lease and equipment thereon. In No. 76-L-8, Berger brought a similar action against appellees alleging abandonment of the Williams lease and equipment. The third cause of action, No. 75-CH-6, had been brought by appellees against A.R. Frank, who, under contract, was the operator of the two leases, and others to obtain the appointment of a temporary receiver to operate the two leases, and for other relief. Frank was found in default in this action by his failure to answer or appear and he is not a party to this appeal.

Following trial of the three actions, the court found, in 76-L-6 and 76-L-8, in favor of appellees and against appellants, and in 76-CH-6, the court found the equities to be with the appellees and against Frank and ordered in connection therewith the appointment of a receiver pendente lite and other relief.

On appeal, appellants' argument centers on two questions; (1) whether the lower court erred in finding no abandonment on the two leases; and (2) whether the court erred in 75-CH-6 in appointing a receiver.

The evidence at trial showed that A.R. Frank was a promoter and operator of oil and gas wells. He obtained the two leases herein which he ultimately assigned in part to appellees to finance the development of wells on those leaseholds. Investments in the two leases appear to have totaled in excess of $150,000 per lease. In a written agreement with appellees, Frank was designated as the operator of the leases, which position he would hold for the duration of the life of the leases. The investors in the wells subsequently became concerned over certain misrepresentations by Frank and his mismanagement of the operations, all of which first led them to consult appropriate State and Federal governmental officials and eventually to bring suit, No. 75-CH-6 herein.

The Shannon lease was executed on January 9, 1974, and was extended to run until July 23, 1974, or as long thereafter as oil or gas was produced. Although no gas or oil was produced, drilling operations continued until January 1975, at which time all operations ceased.

The Williams lease was executed on September 2, 1974, for a period of seven days or as long thereafter as oil or gas was produced. Oil was subsequently produced until January 1975, at which time operations also ceased.

Thereafter, on June 19, 1975, appellees filed the complaint in 75-CH-6 against Frank and others. Complaints alleging abandonment against appellees were filed by Shannon in 76-L-6 on January 30, 1976, and by Berger in 76-L-8 on March 4, 1976.

• 1 Abandonment is an intentional relinquishment of a known right. (38 Am.Jur.2d Gas and Oil § 208 (1968).) The question of an abandonment of an oil and gas lease is generally one of fact and may be shown by a cessation of operations for an unreasonable length of time. (Spies v. DeMayo, 396 Ill. 255, 72 N.E.2d 316.) Equipment abandoned with the oil and gas lease becomes the lessor's property. Spies v. DeMayo.

• 2 In the case at bar it is undisputed that cessation of operations in January 1975 were a result of acts taken solely by Frank. Testimony showed that appellees did not intend to have the operations cease and that they thereafter expended considerable effort to at least obtain a salvage of the equipment on the Shannon lease and to restart oil production on the Williams lease. However, they were hampered in their efforts by the operator's agreement with Frank. To protect their interests, appellees first sought assistance from governmental officials and thereafter they sought advice from legal counsel. Appellees should not be expected or compelled to have breached the operator's contract themselves. They took the most proper avenue of conduct open to them by seeking redress in a court of law. Suit was filed by appellees approximately five months after cessation of operations. All delay thereafter must be ascribed to the normal and orderly processes of the law. In light of appellees' effort and diligence under the circumstances, it cannot be said that the cessation herein was for an unreasonable length of time.

• 3 Unlike the Williams lease, the evidence was undisputed that during the primary term of the Shannon lease as extended, no oil or gas had ever been produced. Thus this lease had expired under its own terms prior to the alleged abandonment. However, in the lower court, the evidence and argument of Shannon centered on the question of abandonment and the judgment of the court against Shannon was limited to this issue. Further, in appointing a receiver the court ordered:

"That the Receiver shall immediately investigate the feasibility of continued production of the leasehold estates, or in the alternative, the salvage thereof for the benefit of the owners of the working interests as their interest may appear and shall report to the Court his recommendations in connection with the leasehold estates. * * *"

In this manner the judgment order of the court left unsettled the question of whether the Shannon lease had expired by its own terms. We trust however that the appointed receiver will, under the circumstances of the Shannon lease, remove all salvageable equipment therefrom for the benefit of the holders of the working interest ...


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