Cities Service Oil Co. v. Pochna

VAUGHN, Judge.

Plaintiff’s recorded chain of title was supported by affidavits as was its status as a purchaser for valuable consideration. It was also established that the Rapp Oil agreement, under which defendants claim, was not of record. We believe, therefore, that the trial judge correctly concluded that only questions of law were presented.

G.S. 47-18 (a), prior to the 1975 amendment, was as follows:

“(a) No conveyance of land, or contract to convey, or lease of land for more than three years shall be valid to pass any property as against lien creditors or purchasers for a valuable consideration from the donor, bargainor or lessor but from the time of registration thereof in the county where the land lies, or if the land is located in more than one county, then in each county where any portion of the land lies to be effective as to the land in that county.”

We hold that the judge was correct when he ruled that the document under which defendants claim is subject to the operation of that statute, and is, therefore, invalid as to plaintiff, a purchaser for valuable consideration.

Defendants offered affidavits to the effect that the Rapp Oil agreement was known in the oil business as a “farm-out agreement” or a “sharing arrangement.” As one affiant explained :

“It has been my experience that while such transactions take many forms, there is a general custom and practice in the oil and gas producing industry that such agreements are seldom recorded. The competition in the business and the need for business secrecy is such that it is generally accepted that to record such agreements would give unfair advantage to competitors as to the desirability of leasehold acreage, prices being paid for acreage and for development and other similar matters forming the basis for competition within the industry. Such agreements are variously designated as farm-out agreements, joint operating agreements, bottom hole letters, dry hole letters, acreage contributions and by other various terms descriptive of the particular transactions. Such transactions are frequently known under the Internal Revenue cases as ‘sharing arrangements’ and they all have in common some joint contribution of capital, labor or services in the cooperative evaluation or exploration of geological prospects for production. Such agreements are uniformly regarded as enforceable throughout the industry, and in my experience are almost never recorded, for the reasons given.”

It may well be that the affiant’s statement of business customs elsewhere is accurate. Nevertheless, it must me assumed that those who engage in the practice are prepared to accept its inherent risks. It seems clear to us that the document purports to convey an interest in real estate and is ineffective against subsequent record purchasers for value. This decision, of course, does not affect the rights of the parties to the Rapp Oil agreement or those who hold under them.

We have carefully considered the remaining arguments ably advanced by counsel for defendants. It suffices to say that we hold that the conveyance from Coastal to plaintiff was not made “subject to” the unrecorded interest of Rapp Oil and that a constructive trust has not been created for defendants. The entry of summary judgment in favor of plaintiff is affirmed.

Affirmed.

Judges Morris and Clark concur.