Nicklas v. Olvey , 182 Ark. 31 ( 1930 )

STATEMENT OF FACTS.

This appeal involves the question of liability of J. A. Olvey, appellee, for payment of fees for abstracts of title to lands made by appellant on a block of acreage in Union County upon which Reid Clark, appellee, held oil and gas leases and upon which Olvey, under a written contract, drilled a test well in search of oil and gas, the appeal being from a judgment denying liability.

Clark prior to July 17, 1928, began procuring oil leases covering said block of acreage, and on that day made a written contract with Olvey for drilling a test well thereon, having agreed as a consideration for the leases procured to have such a test well made. The leases were placed in escrow to be delivered upon compliance with the specification to have the test well drilled and the contract was entered into between the lessee and Olvey. Olvey, under the contract, acquired an undivided one-third interest in the block of acreage and was to superintend and control the drilling of the well. It was provided that, in order to obtain money to pay the expenses of drilling the well, some of the leases were to be sold, the entire interest therein, and as the drilling progressed if the proceeds of the sales exceeded the cost of drilling the well any balance or surplus was to be divided between Clark and Olvey as provided in the contract, while, if there was a deficit in such funds, it was to be paid by each party in proportion to his interest. The contract also provided for the acquisition and sale of additional leases and for the operation, management and control of the property in case on was discovered, Olvey to be in exclusive control of the work of drilling the wells. All the contracts with the abstracter, appellant, were made by Clark and the debt for considerable of the amount sued for already contracted before the drilling contract was executed. After the execution of the contract abstracts were ordered from time to time by Clark covering the title to the lands upon which the leases were held in the block of acreage, Clark paying therefor on the total account $207, leaving a balance of $998, for which this suit was brought. The well was drilled and proved a dry hole. Clark left the State shortly thereafter, and appellant made demand up on Olvey for payment of the account and brought suit therefor upon his refusal to pay.

Appellee answered denying that he was interested in the abstracts made and for which the fees were sought to be connected; that he and Clark were engaged in drilling the well and had a partnership agreement therefor, or that they were jointly interested in the drilling and were to share equally in the expense relative thereto or in the preparation and examination of the title to the leases and lands as alleged in the complaint, or that they were to share equally in the profits and losses in the alleged enterprise and all other allegations of the complaint. Denied any indebtedness at all.

Appellant stated that there was no direct contract between him and Mr. Olvey at all, except that he came by his office once to procure a tax statement made by the abstracter at the direction of Clark, which had been demanded by Messrs. Gaughan Sifford, as attorneys; that all the contracts and other dealings were between him and Reid Clark or some of his office force, and all his orders were given him by Reid Clark as trustee of this block of acreage; that these tax statements were prepared under the direction of Reid Clark, and that Mr. Olvey only came by the office to get them.

Olvey testified about the making of the contract for drilling the well, identified it, and it was read as a part of his testimony. He denied any liability whatever for the payment of the account of appellant for making abstracts of title to lands upon which leases were held, and that he had ever given any directions to appellant, made any orders about the abstract or agreed in any manner to pay him for making same.

The contract recites that the first party, Reid Clark, acting for himself and as trustee, etc., is the owner of number of oil and gas leases covering lands in certain named sections and townships in Union County, Arkansas; that the second party, Olvey, has agreed to drill a test well in a described 80-acre tract of land to a depth of 3,500 feet, unless oil or gas is found in paying quantities at a lesser depth, the well to be drilled under the terms as stated in the contract. In the first two clauses the first party agrees to assign an undivided one-third interest in the oil and gas leases held by him in the vicinity of the well, as well as an undivided one-third interest in any other leases "which he is able to procure for the drilling of said well," and in consideration therefor the second party agrees to drill the test well to a depth of 3,500 feet, unless oil or gas is discovered in paying quantities at a lesser depth, and to test all sands encountered where indications of oil are found. The well was to be spudded in on or before August 1, 1928, after the title to the 80-acre tract was approved by the firm of attorneys designated. Funds were to be obtained by the first party selling a sufficient number of leases out of the block of acreage, as the drilling proceeded, to realize $15,000 and to pay, with purchase orders and agreements, as "dry hole money," a sum aggregating about $5,500 which shall be assigned to the second party, and also that any additional orders or agreements obtained by the first party should be assigned to the second party "until a sufficient number have been assigned to assure payment to him of the cost of drilling said well." If a sufficient amount of money was not realized to pay the cost of drilling the well, it was agreed that the balance of the costs should be borne two-thirds by the first party and one-third by the second party. If the test well was a producer, the second party was to have charge of all further developing and operating upon the 80-acre tract, the remaining acreage to be divided between the parties "two-thirds to be allotted to the first party and one-third to the second party, unless it should be mutually agreed to operate the property without partitioning it, in which event developing and operating shall be under the control and supervision of the second party." The contract also recites the second party will drill said well at actual cost for assignment of an undivided one-third interest in the leases held at the time of the execution of the drilling contract, and that either party could sell his interest, first giving the other the option to buy at the price offered. The second party was limited to not incur any single item of expense of a specific amount during the drilling operations without the consent of the other party and was to forfeit his interest in the leases upon failure to drill. The second party, after the well had reached a depth of 2,000 feet, if the first party had not sold sufficient acreage to net $12,000, was authorized to sell additional acreage leases to procure enough funds to defray the cost of drilling the well, the first party agreeing to join in the assignment of the acreage sold. If oil was produced in the test well the second party was given the option of drilling any and all additional wells on said tract at the then prevailing price for drilling wells in that vicinity.

After the contract was executed appellee wrote to Clark relative to the cost of abstracts the following letter:

"July 18, 1928.

"Mr. Reid Clark, Trustee, "City.

"Dear Sir: With reference to the well which I have contracted with you to drill in section 8-17-16, on the J. M. Dumas land, this will confirm our agreement that the costs of abstracts, recording and other expenses incident to clearing the titles, shall be considered a part of the costs incident to the drilling of said well and may be paid out of the funds raised to defray the costs of drilling; it being understood, however, that no charge is to be made by Mr. Goodwin for any services rendered by him in connection with work on the titles to any of the lands included in the block of acreage covered by said contract."

The court tried the cause without a jury and rendered judgment against appellant, from which the appeal is prosecuted. (after stating the facts). Appellant insists that the drilling contract constituted a partnership between Olvey and Clark, and that he was entitled to recover the costs of making the abstracts against the partnership and Olvey as a member thereof, and that the court erred in not so holding under the authority of Stephens v. Neeley, 161 Ark. 114, 25 S.W. 562, 45 A.L.R. 1236, and the tests as prescribed in 20 R.C.L. 823-33.

The intention of the parties is to be arrived at from their contract entered into for the drilling of the test well, and there appears to be no ambiguity about it. The leases were held by Clark, the party of the first part, and he was bound as a consideration for their procurement to have the test well drilled upon the block of acreage acquired by lease. He had already had certain abstracts of title made by appellant, and, after the drilling contract was entered into, he only directed that others be made, it being conceded by appellant that no directions were given him about the making of abstracts or suggestions for payment therefor by Olvey, nor were any of the abstracts delivered to Olvey. It is obvious from the terms of the contract that it was the intention of the parties only to have the test well drilled, which was to be done at the actual cost of the party of the second part, the contract providing how the money should be realized to pay therefor by the selling of the leases by Clark or by Olvey in the event of Clark's failure to procure sufficient money to pay the expenses as the drilling progressed. It was not contemplated by the parties, nor provided in the contract that drilling operations would be continued and oil produced after the test well was finished, in case it should be a producer, without further agreement, the second party only being given an option of drilling any additional wells on the 80-acre tract at the then prevailing prices for drilling wells. In other words, the parties did not contemplate a partnership in the making of the contract or any further on development after the test well came in a producer under the terms of the contract, which provided, in effect, as the lower court correctly held, but a means of compensation or method of payment to appellee Olvey for drilling the test well. Stone v. Riggs, 163 Ark. 211,259 S.W. 412; Mehaffy v. Wilson, 138 Ark. 281,211 S.W. 148.

The letter from Olvey to Clark, reciting that the costs of abstracts and other expenses incident to clearing the titles "should be considered a part of the costs incident to the drilling of said well and may be paid out of funds raised to defray the costs of drilling," expressly recited that "no charge is to be made for any services rendered in connection with the work on titles to any of the lands included in the block of acreage covered by said contract." This expressly negatives any inference of liability for abstracts made to the lands included in the block of acreage contracted about where the test well was to be drilled and, although it recites that there was an agreement between these parties that the costs of certain abstracts should be considered a part of the costs incident to the drilling of the test well that could be paid out of the funds raised to defray the costs therefor, it was not made to nor with appellant or for his benefit, and, in addition, there were no funds on hand raised as provided out of which this cost could be paid, and, there being no partnership, appellant was not entitled to recover such costs against appellee, Olvey, herein.

We find no error in the record, and the judgment is affirmed.