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District Court of Appeal, Second District, Division 1, California.

ANDERSON et al. v. STANSBURY et al.

Civ. 17980.

Decided: June 25, 1951

A. J. O'Connor, Los Angeles, for appellants. Dunlap, Holmes, Ross & Woodson, Robert H. Dunlap and Kenneth A. Millard, all of Pasadena, for respondents.

March 16, 1921 the federal government, through the Department of Interior, issued an oil and gas prospecting permit to explore for and develop oil and its products upon government land in Kern County. Rights and duties of the parties to oil and gas prospecting permits are defined by the Federal Mineral Lands Leasing Act of Feb. 25, 1920, as amended, U.S.C.A. Title 30, § 181 et seq.

The land is located in a district called Wheeler Ridge by oil men.

In 1922, by agreement among themselves, the following persons became joint owners of the permit: Henning E. Olund, named as the permittee, Alexander Anderson and his wife, parents of plaintiffs in this action, Benjamin M. Stansbury, one of the defendants in this action, and Silas Gillan. Mr. Anderson was to finance the venture up to $10,000, and he and Mrs. Anderson were to each have a one-eigth interest in the permit. The three others were to have a one-fourth interest each.

The permit was assigned February 21, 1923 to General Petroleum Company, and an operating agreement was entered into between the permittees and the oil company, whereby the oil company was to take over permittees' obligation to develop the property. General Petroleum paid $162,905.19 bonus to the permittees.

January 10, 1924 a lease to General Petroleum was made by the Secretary of the Interior, to expire January 10, 1944. The operating agreement was continued.

General Petroleum drilled four wells upon the property. The wells did not produce oil in sufficient quantity to make the lease profitable. So no more were drilled. Two of the wells were put on the pump, and two were not separated.

General Petroleum pumped the operating two wells until the time approached to renew the lease in 1944. Then General Petroleum advised the permittees that it was not interested in continuing the lease, and would turn it back to them, on condition that they pay General Petroleum for its pumping equipment on the lease. The lease contained a preferential right to renew for successive periods of ten years.

In the meantime Mr. and Mrs. Anderson died, and their interest in the permit passed to their children in Minnesota.

So Mr. Stansbury wrote the heirs in 1944 that it was necessary for the permittees to raise money to purchase the pumping equipment and for the cost of procuring a bond required in connection with renewing the lease; and also that it was necessary to find a new operator to take over the lease and go on with the development of the property.

The heirs replied to Mr. Stansbury that ‘after an impersonal analysis of these properties as investments' they did not wish to continue ‘holding these interests;’ and that they would disclaim their one-quarter interest in the permit. And plaintiffs did not join in the application to renew the lease.

Mr. Stansbury then arranged for defendant Mr. Hugh Gordon to take over the Anderson interest, and the heirs executed and sent a general disclaimer dated May 17, 1946 to Mr. Stansbury. The disclaimer reads that plaintiffs having ‘heretofore abandoned and hereby disclaim any and all interest and rights including royalty reserved’ Mr. Olund or ‘any person or persons other than’ plaintiffs may apply for renewal of the lease.

Mr. Gordon financed the purchase of the General Petroleum lease and pumping equipment for $3,357.00, and arranged for the bond required by government regulations. In 1947 the lease was renewed by the Secretary of the Interior to him as lessee. In 1948 Richfield Oil Company took over the lease, with an operating agreement with Mr. Gordon.

After the Anderson disclaimer Mr. Gordon, Mr. Stansbury, and Mr. Gillan were the interested parties in the ownership in the permit.

Mr. Stansbury diligently took care of the many details incident to the purchase from General Petroleum, operation of the property until it was leased to Richfield, and negotiations with the government and with Richfield.

Mr. Gillan contributed delay rental money, but would not enter into any agreement relative to renewing the lease. Later he attempted to share in profits, but was restricted to royalties only. See Gillan v. Stansbury, 97 Cal.App.2d 502, 217 P.2d 1016.

When counsel for Richfield examined the disclaimer of the Anderson heirs, Mr. Stansbury was advised that it was not satisfactory, and that an assignment would also be required. In 1947 Mr. Stansbury conferred in Chicago with the Anderson heirs. Later they executed and sent to him a second instrument, a disclaimer and assignment.

Richfield drilled wells in the area to deeper horizons of oil structures, demonstrated that the property described in the permit was potentially valuable, and paid the remaining permittees $100,000 bonus for the right to operate under the Gordon lease.

Thereafter the Anderson heirs filed this action, alleging that their instrument of disclaimer and assignment were secured by fraud and misrepresentation by Mr. Stansbury; that the second instrument, the disclaimer and assignment, was made because Mr. Stansbury told them it was only to clear title so Richfield would take on the obligations of the permit, and that they would still retain their one-quarter interest.

The complaint prayed for declaratory relief, and for an accounting; also that defendants be adjudged trustees for plaintiffs for the Anderson one-fourth interest.

No written memorandum was made of the agreement which the Anderson heirs claim Mr. Stansbury verbally made.

Mr. Stansbury is an attorney at law. His relations with Mr. Anderson Sr. were close and friendly for many years. Plaintiffs assert that this relationship was one of attorney and client, and carried over to them after their father's death.

When the trial court indicated that in his opinion the promise claimed by plaintiffs to have been made by Mr. Stansbury was within the statute of frauds and could not be established unless some written memorandum of it was presented, plaintiffs offered to prove the asserted verbal agreement by the testimony of several witnesses. To this offer defendants' objections were sustained.

The trial court held that there was no fraud, and that the purported verbal agreement was within the provisions of the statute of frauds, and granted defendants' motion for nonsuit. From the judgment which followed plaintiffs appeal.

Plaintiffs argue that there was evidence of fraud, especially involved in the relationship of attorney and client which they assert existed between them and Mr. Stansbury; that it was error to sustain objections to the offered testimony of the asserted verbal agreement between them and Mr. Stansbury; that there was evidence of sufficient part performance by plaintiffs of repurchase of an interest in the permit to take the case out of the interdiction of the statute of frauds; and that in any event, defendants are estopped to interpose the defense of the statute of frauds the evidence being sufficient to support a constructive or a resulting trust in their favor to a one-quarter interest in the permit.

No fraud appears in the record.

The relationship of Mr. Stansbury and Mr. Anderson Sr. was more in the nature of business men engaged in a joint venture than that of attorney and client. And in any event the record does not establish that there was any fiduciary relation between Mr. Stansbury and the Anderson heirs.

Plaintiffs were fully advised by Mr. Stansbury of their right to participate in keeping the permit in force, and in the renewal of the lease; and of the contribution which they would have to make to do so. In fact he urged them to go along with the other permittees. They did not see fit to go on, and declined to pay any part of the necessary expenses.

They waited for a little over two years before sending their disclaimer to Mr. Stansbury. During this time it was only by the efforts of Mr. Stansbury and his associates that the permit was kept alive at all. The conduct of the heirs and their formal written disclaimer evidence the termination of their interest in the permit when it had little if any value. The heirs were through with it and with the obligations and were quite willing that someone else should go on with it. The second instrument, the disclaimer and assignment, does no more than the first one.

As Mr. Presiding Justice Shinn so aptly said in Gillan v. Stansbury, supra, 97 Cal.App.2d 502, 511, 217 P.2d 1016, 1022: ‘One who has had a fair and equal opportunity with his associates to act with them and who refuses to do so, but ‘sits tight’ waiting for the others to pull the chestnuts out of the fire, has no grounds for complaint if the efforts put forth by his associates fail, and he is left out of a new undertaking which they are obliged to launch. The purchase of the lease and undertaking to operate the property was a distinctly new enterprise and not a mere continuation of the original one.'

The alleged agreement offered in evidence, if true, is barred by the statute of frauds, no memorandum of its terms having been prepared or subscribed by the parties. Objections to testimony relative thereto were properly sustained. Sec. 1973, Code Civ.Proc. Subd. 4. The rights asserted were incorporeal interests in real property. See La Laguna Ranch Co. v. Dodge, 18 Cal.2d 132, 114 P.2d 351, 135 A.L.R. 546.

The first instrument, the disclaimer, being valid and binding, there is no need to discuss principles of equitable estoppel which plaintiffs assert should be applied to the execution and delivery of the second instrument, the disclaimer and assignment. As stated, the rights of plaintiffs in the permit terminated with the first disclaimer.

There is no proof of part performance or of any conduct of defendants after delivery of the first disclaimer that would support a decree imposing a constructive or resulting trust in favor of plaintiffs. See Denio v. Brennecke, 6 Cal.App.2d 678, 45 P.2d 229.

The judgment is affirmed.

DRAPEAU, Justice.

WHITE, P. J., and DORAN, J., concur.

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