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07/07/87 John Carey Oil Company, v. W.C.P. Investments Et Al.

July 7, 1987

JOHN CAREY OIL COMPANY, INCORPORATED, PLAINTIFF-APPELLANT

v.

W.C.P. INVESTMENTS ET AL., DEFENDANTS-APPELLEES



APPELLATE COURT OF ILLINOIS, FOURTH DISTRICT

511 N.E.2d 727, 159 Ill. App. 3d 333, 110 Ill. Dec. 550 1987.IL.963

Appeal from the Circuit Court of Macon County; the Hon. John L. Davis, Judge, presiding.

APPELLATE Judges:

JUSTICE KNECHT delivered the opinion of the court. GREEN and LUND, JJ., concur.

DECISION OF THE COURT DELIVERED BY THE HONORABLE JUDGE KNECHT

This case presents the issue of whether a co-owner of an oil leasehold, who is also the sole operator of the leasehold, may assert an oil and gas lien against the fractional working interest of a co-owner of the same leasehold.

On October 15, 1985, John Carey Oil Company, Inc. (Carey), filed a complaint for foreclosure of oil and gas liens against, inter alia, W.C.P. Investments (a partnership), Farmers and Merchants State Bank of Bushnell , and Enterprise Finance Company (Enterprise). The complaint alleged Carey was at all relevant times a co-owner and operator of various specified oil and gas leases in which WCP held undivided working interests. In operating the premises and the oil wells thereon for the production of oil, Carey supplied various goods and services in, on, or about the leased premises and wells, all of which were supplied with the knowledge and at the request of WCP. Carey furnished these goods and services, and WCP became indebted to Carey for its proportionate shares of the costs. Carey sent WCP a statement and demand for payment of these costs, but WCP had not paid them, and an amount remained due after allowing all just credit and setoffs.

Carey further alleged that on October 15, 1985, it filed in the office of the Macon County recorder of deeds a claim for a statutory oil and gas lien on WCP's interests in the jointly owned leaseholds, which should be foreclosed in conformity with the Oil and Gas Lien Act (Ill. Rev. Stat. 1985, ch. 82, pars. 71 through 95). Finally, Carey stated Enterprise and F&M were made defendants because they might claim interests in WCP's working interests in the oil leaseholds by virtue of assignments, mortgages, security agreements or other reasons. Carey asserts the interests claimed by Enterprise and F&M are inferior to Carey's lien because Carey began furnishing labor and materials for the benefit of "the other named defendants" prior to the time any interest may have been created in favor of Enterprise and F&M.

The complaint requested any interests of Enterprise and F&M in the jointly owned leaseholds be held inferior to those of Carey; the amount found due be decreed a first and paramount lien on WCP's interest in the leaseholds, the oil and gas produced therefrom and the proceeds thereof; and entry of judgment in this amount in favor of Carey and against WCP together with interest, costs, and attorney fees. The complaint requested foreclosure of the above-mentioned lien if the sums found due were not paid.

Following a hearing, the circuit court granted motions of Enterprise and F&M to dismiss Carey's complaint for failure to state a cause of action, with leave to file an amended complaint stating a cause of action other than foreclosure of lien.

On March 27, 1986, Carey filed a motion for certification pursuant to Supreme Court Rule 308 (87 Ill. 2d R. 308) of the question of whether it could assert an oil and gas lien against the working interests of WCP under the facts of this case. The circuit court allowed the motion by order entered July 22, 1986. This court subsequently allowed Carey's petition for leave to appeal pursuant to Rule 308.

Carey contends the relevant statute does not prevent imposition of an oil and gas lien under the circumstances of this case and asserts the sole pertinent Illinois decision, Kinne v. Duncan (1942), 315 Ill. App. 577, 43 N.E.2d 425, is inapplicable to the present fact situation, because the case at bar does not involve a mining partnership. Also, Carey contends the decisions from other jurisdictions cited in the relevant portion of the Kinne decision do not prevent imposition of an oil and gas lien under the circumstances present here. Furthermore, Carey notes the supreme court has never held an oil and gas lien may not be imposed under the circumstances of this case, and maintains instead, a supreme court case involving mechanics' liens (E. W. Blatchford & Co. v. Blanchard (1895), 160 Ill. 115, 43 N.E. 794) strongly supports imposition of an oil and gas lien under these circumstances. Finally, Carey asserts principles of law relating to imposition of mechanics', execution and landlord liens on the individual interests of co-tenants and co-owners of property support its right to impose an oil and gas lien under the facts of this case, as does the language of the relevant provisions of the Oil and Gas Lien Act.

Enterprise argues Kinne, as well as cases from other jurisdictions relied upon by the Kinne court, are dispositive of the issue presented by this case, and the fact Kinne involved a mining partnership and the present case does not is of no consequence. Enterprise contends the important fact is co-ownership of the leasehold, since the Kinne decision was intended to prevent the purported vice of allowing co-owners to assert secret liens against the interests of other co-owners of the same leasehold. Also, Enterprise asserts Blatchford is factually distinguishable from the present case, and there are cases other than Blatchford which do not allow a co-owner to assert a mechanic's lien against the interest of another co-owner of the same parcel of real estate. Enterprise further contends the language of the Oil and Gas Lien Act, being in derogation of the common law, must be strictly construed, and language contained in that act which provides an oil and gas lien is imposed on the whole of a leasehold estate precludes Carey from asserting a lien against WCP's interest in the oil and gas leaseholds here at issue. Finally, Enterprise maintains allowing such a lien as the one claimed by Carey would encourage collusive lawsuits by co-owners of oil and gas leaseholds designed to frustrate the rights of secured creditors of the co-owners.

F&M asserts Kinne and cases cited therein support the principle that a co-owner cannot assert a lien against its own property and thus preclude imposition of a lien under the circumstances here present. F&M also contends a holding that Carey's purported lien is superior to its interests would be unfair and would be "disruptive to well established relationships between creditors and debtors which have developed subsequent to the Kinne decision." Also, F&M maintains whether or not Carey and WCP were mining partners is of no relevance, and their status as co-owners of the same leaseholds precludes Carey from imposing a lien on WCP's interests in the leaseholds. Finally, F&M asserts allowance of an oil and gas lien under these ...


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