Opinion ID: 1777204
Heading Depth: 1
Heading Rank: 16

Heading: The Chancery Court Erred in Its Holding As to the Liability of the Estate of Edward B. Launius and Launius' Partners, Robert R. Jacobs and Donald Smith

Text: 1. The Liability of the Estate of Launius The lower court predicated its judgment as to the liability of the Launius Estate upon two factual findings: (1) the second side-letter agreement superseded the first because the parties agreed that it would and (2) the assignment to Wilmena of the 5% overriding royalty was in partial fulfillment of the second side-letter agreement. Wilmena, of course, argues that these two factual findings were erroneous and further argues that under the terms of the first side letter agreement the Estate of Launius is liable to her for 6.25% overriding royalty, one-half of 5% working interest (rather than 3% because Launius' assignment of 2% for legal fees had nothing to do with promoting the lease), one-half of the $86,000-profits the partnership netted (rather than one-half of the $35,000-share Launius netted as a partner), and one-half of the $25,000 Launius received for sale of the lease to Coquina. Accepting the lower court's findings on these two factual issues, which we must under our articulated scope of review, it should be remembered that the second side-letter agreement removed the requirement that Launius share any profits in promoting the lease; in fact, once he sold the lease to Coquina Launius could no longer promote it. Launius did assign Wilmena the 5% overriding royalty, which she sold for a tidy sum of money. The only part of the agreement Launius did not fulfill was assignment of one-half of his working interest. The 2% working interest assigned to Tri-M did cancel $700 worth of legal fees, but contrary to Wilmena's contention, Tri-M also had to pay 2% of the completion costs on the first well and 2% of the development costs on the additional wells drilled. In other words, Tri-M's 2% was part of promoting the farmout in order to meet completion costs. Apparently, Launius did not have enough money for completion costs on the entire 5% of the working interest, but only for 3%. Therefore, the chancellor correctly found that Wilmena was entitled to one-half of 3% of the working interest and that the rest of the second side-letter agreement had been fulfilled. Wilmena argues further that Launius fraudulently concealed profits, overriding royalty, and working interest he obtained from the lease, as well as tricking her into signing the second letter agreement. The elements of fraud are well established: (1) a representation; (2) its falsity; (3) its materiality; (4) the speaker's knowledge of its falsity or ignorance of its truth; (5) his intent that it should be acted upon by the person and in the manner reasonably contemplated; (6) the hearer's ignorance of its falsity; (7) his reliance on the truth; (8) his right to rely thereon; (9) his consequent and proximate injury. See, e.g., Martin v. Winfield, 455 So.2d 762, 764 (Miss. 1984); Hamilton v. McGill, 352 So.2d 825, 831 (Miss. 1977); Crawford v. Smith Brothers Lumber Co., 274 So.2d 675, 678 (Miss. 1973). It is likewise well established that fraud is never presumed but must be proven by clear and convincing evidence. Martin v. Winfield, 455 So.2d at 764; Gulf National Bank v. Wallace, 394 So.2d 864, 865 (Miss. 1981); Clement v. R.L. Burns Corp., 373 So.2d 790, 795 (Miss. 1979); Hamilton v. McGill, 352 So.2d at 831; Crawford v. Smith Bros. Lumber Co., Inc., 274 So.2d at 677. Furthermore, fraud is essentially a question of fact. Martin v. Winfield, 455 So.2d at 764. The only evidence offered that Launius fraudulently concealed his promotional dealings with the lease and tricked Wilmena into signing the second letter agreement was Wilmena's testimony. Because of the Dead Man Statute, her testimony was incompetent on these issues. Even if it had been competent testimony, such evidence surely does not rise to the level of clear and convincing. Furthermore, the unrebutted testimony of Jacobs, Smith and Jackson evidence that Launius did nothing out of the ordinary as far as the usual procedures in the oil and gas industry in dealing with the lease and reaching the point that several producing wells were drilled on the Whittington acreage. In fact, Launius' wheelings and dealings with the lease made Wilmena a rich woman. Fraud has not been proven by clear and convincing evidence, and the chancellor correctly found that the extent of the Estate's liability to Wilmena was one-half of the 3% working interest. This assignment of error as to Launius' Estate is without merit. 2. The Liability of Jacobs and Smith Wilmena seeks to make Launius' joint venture partners, Jacobs and Smith, liable for a 6.25% overriding royalty, one-half of $86,000 in profits, and one-half of the 12.5% working interest, or at least the portion that Launius' Estate cannot pay. Again, these are the terms of the first side-letter agreement with Launius; under the second side-letter agreement the requirement to share profits was dropped. Also, Launius assigned Wilmena the 5% overriding royalty; therefore, all terms of the second agreement were fulfilled except for one-half of the working interest. The question becomes whether or not Jacobs and Smith are liable for their share of one-half of the 12.5% working interest retained by the joint venture in the farmout agreement from Coquina. Wilmena seeks to charge the joint venture partnership with knowledge of the side-letter agreement under Miss. Code Ann. § 79-12-23 (Cumm.Supp. 1987), which states: Notice to any partner of any matter relating to partnership affairs, and the knowledge of the partner acting in the particular matter, acquired while a partner or then present to his mind, and the knowledge of any other partner who reasonably could and should have communicated it to the acting partner, operate as notice to or knowledge of the partnership, except in the case of a fraud on the partnership committed by or with the consent of that partner. In Hults v. Tillman, 480 So.2d 1134 (Miss. 1985), this Court stated that the Uniform Partnership Act, adopted by this state in 1976 and embodied in Miss. Code Ann. § 79-12-1, et seq., applies to joint venture partnerships such as the Launius/Jacobs/Smith partnership. As the Hults opinion states, [a] joint venture might be characterized as a single shot partnership, Hults at 1143, whereby the joint venturers undertake a single project for profit. Hults at 1142. See also Sample v. Romine 193 Miss. 706, 8 So.2d 257 (1942). The partnership among Jacobs, Smith and Launius set out specifically that they were to promote the drilling of an oil well on the Whittington acres and sell the interest therein. It should also be remembered that Launius owned no more interest in the Wilmena lease at this time except for a 7.5% overriding royalty, having sold the lease to Coquina. Out of this overriding royalty, he owed Wilmena 5%, leaving himself only 2.5%. He brought 2.5% into the partnership, not 7.5%, even though he had not yet assigned 5% to Wilmena. Obviously, Launius knew he owed 5% overriding royalty to Wilmena and, therefore, held it for her. When the partnership was formed, the uncontradicted evidence shows that Jacobs knew nothing about the side-letter agreement between Launius and Wilmena and, in fact, knew nothing about it until after Launius died and he found it in Launius' files. All he knew was that Launius held a 2.5% overriding royalty in the Coquina lease from somewhere. Jacobs acquired knowledge of the agreement after the joint venture was terminated, that being after Jacobs had earned all the interest from Coquina under the farmout and assigned interest to all who bought into the farmout. The single-shot partnership was already at an end. Wilmena thus seeks to hold Jacobs and Smith to knowledge of an agreement between her and Launius executed eight years before the partnership was formed, and about which neither Jacobs and Smith knew anything until after the joint venture ended. Furthermore, obtaining the lease was outside the scope of the joint venture. Launius had already obtained the lease eight years before and sold it to Coquina. The obligations of the side-letter agreement were clearly undertaken by Launius alone, and he did not bring those obligations into the joint venture. Jacobs and Smith, then, cannot be charged with knowledge of Launius' agreement because that agreement did not relate to partnership affairs, as required under § 79-12-23. See 59(a) AmJur2d Partnership § 252; 68 C.J.S. Partnership § 175, and cases collected therein. The chancellor was correct when he found that Jacobs and Smith could not be held liable to Wilmena for something Launius agreed to eight years before. This assignment of error is without merit.