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12/15/88 John Carey Oil Company, v. W.C.P. Investments Et Al.

December 15, 1988

JOHN CAREY OIL COMPANY, INC., APPELLEES

v.

W.C.P. INVESTMENTS ET AL. (FARMERS & MERCHANTS STATE BANK OF BUSHNELL ET AL., APPELLANTS



SUPREME COURT OF ILLINOIS

533 N.E.2d 851, 126 Ill. 2d 139, 127 Ill. Dec. 769 1988.IL.1794

Appeal from the Appellate Court for the Fourth District; heard in the court on appeal from the Circuit Court of Macon County, the Hon. John Davis, Judge, presiding.

Rehearing Denied January 30, 1989.

APPELLATE Judges:

JUSTICE RYAN delivered the opinion of the court. JUSTICE MILLER took no part in the consideration or decision of this case.

DECISION OF THE COURT DELIVERED BY THE HONORABLE JUDGE RYAN

Appellee John Carey Oil Company (Carey) operated several oil and gas leases in which it had an ownership interest with its cotenant, W.C.P. Investments . On October 15, 1985, Carey filed a complaint in the circuit court of Macon County to foreclose statutory oil and gas liens it had filed against, among other things, WCP's leasehold tenancies. Also joined in the foreclosure complaint were appellants Enterprise Finance Company and Farmers and Merchants State Bank of Bushnell , holders of security interests in WCP's fractional shares of the leaseholds in question. Appellants EFC and FMB moved to dismiss; the trial court granted this motion and certified its ruling for interlocutory appeal under Supreme Court Rule 308 (107 Ill. 2d R. 308). The appellate court reversed (159 Ill. App. 3d 333), and we granted EFC's and FMB's petitions for leave to appeal. We agree with the appellate court's decision and affirm its reversal of the trial court.

Carey, WCP, and others were cotenants in several oil and gas leases. They agreed to share the costs of developing and managing the properties, with Carey acting as operator of the projects and WCP and the other cotenants promising to pay a proportionate share of the expenses Carey incurred. WCP failed to remit its portion of these expenses. Unlike standard practice in the oil and gas industry, no covenant existed between the parties granting Carey a contractual lien under these circumstances. Instead, Carey filed a statutory oil and gas lien against the leaseholds under the Illinois Oil and Gas Lien Act (Ill. Rev. Stat. 1987, ch. 82, par. 71 et seq.).

Sometime after Carey commenced operations, WCP assigned, mortgaged, or otherwise encumbered its interests in the leaseholds to EFC and FMB. When Carey filed the complaint to foreclose its lien, it joined EFC and FMB as defendants. Carey requested that its lien be accorded priority over any interests EFC or FMB might have in WPC's leaseholdings.

The trial court dismissed Carey's complaint for failure to state a cause of action. Carey sought and was granted certification pursuant to Rule 308 (107 Ill. 2d R. 308) for an interlocutory appeal of the trial court's ruling that the Illinois Oil and Gas Lien Act does not permit liens between co-owners. The appellate court accepted the certification and held that although the trial court correctly applied controlling precedent, the cause must nevertheless be reversed. In so holding, the appellate court overruled Kinne v. Duncan (1942), 315 Ill. App. 577, aff'd in part & mod. in part on other grounds (1943), 383 Ill. 110 (the supreme court opinion does not address the Oil and Gas Lien Act). The appellate court opinion in Kinne held that co-owners of an oil and gas lease could not enforce statutory liens amongst themselves. Both FMB and EFC appealed to this court.

The issue presented in this case is whether an owner-operator of an oil and gas lease can attach a statutory oil and gas lien upon the interest of a nonoperating co-owner under the Illinois Oil and Gas Lien Act (Act). Section 2 of the Act states:

" Any person who shall, under contract with the owner of any land or leasehold for oil or gas purposes, or any pipe line, perform labor or furnish materials, machinery, equipment, tools, or oil well or pipe line supplies, used or employed, or furnished to be used or employed, in the digging, drilling, torpedoing, acidizing, cementing, completing, operating, or repairing of any oil or gas well upon such land or leasehold, or in the construction, maintenance, operation, or repair of any pipe line, or who shall furnish any material, machinery, tools, equipment, or oil well or pipe line supplies, or perform any labor in constructing, putting together, or repairing any of the material, machinery, equipment, tools or supplies used or employed, or furnished to be used or employed, in the digging, drilling, torpedoing, acidizing, cementing, completing, operating or repairing of any oil or gas well, or in the erection, maintenance, operation, or repair of any pipe line, shall be entitled to a lien under this Act for the amount due him for such material, machinery, equipment, supplies, or labor, and interest from the date same was due." (Emphasis added.) (Ill. Rev. Stat. 1987, ch. 82, par. 72.)

Section 1 of the Act defines "person" as "one or more individuals, corporations, co-partnerships or other associations of persons." (Ill. Rev. Stat. 1987, ch. 82, par. 71(a).) No explicit language in the Act details whether a "person" may be a part owner of the property in question. The only case to address this issue was Kinne v. Duncan (1942), 315 Ill. App. 577, aff'd in part & mod. in part on other grounds (1943), 383 Ill. 110.

In Kinne, the appellate court interpreted the Act to exclude part owners as lienors. There, the court held: "We do not think that our own statute contemplates that a part owner of an oil and gas lease who has furnished labor and materials for the development of such lease is entitled to a statutory lien for such labor and materials as against his co-owners." (315 Ill. App. at 593.) In the case before us, the appellate court unequivocally overruled Kinne, stating that Kinne was "not supported by the modern day ...


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