Court Opinion

ID: 9484362
Source: CourtListenerOpinion
Date Created: 2023-08-05 09:50:30.65474+00
Date Added: 2024-06-11T17:50:11.677985
License: Public Domain

SETH, Circuit Judge,
dissenting:
I must respectfully dissent from the majority opinion as I agree with the determinations made by the United States District Court for the Western District of Oklahoma and by the United States Bankruptcy Judge. Briefly, these were that the “interest” in issue was never part of the Poll, Inc. bankruptcy estate. The “interest” owned by Mr. Rimmer was in the proceeds of the sale of natural gas collected from producing wells and sold to distributors, especially to Oklahoma Natural Gas Company. It apparently was secured from Amcole.
The Bankruptcy Court, in substance, held that Appellee Rimmer owns a separate and distinct interest in 5% of the proceeds of gas and liquids sold through the Poll Gas System, and that this interest was not in Poll’s bankruptcy estate nor impacted by the Trustee’s conveyance of the system.
The “interest” of Rimmer which I consider is only that portion derived from what is referred to as the 1976 Agreement or the Agreement, which is herein described. By the Agreement undivided interests were sold by Amcole outright to “Sellers” who were Rimmer’s predecessors.
The Agreement was an outright sales agreement signed by all the stockholders and directors who thereby sold all their stock in Poll, Inc. (and two gas wells) to Amcole as Buyer. Amcole was also a stockholder in Poll. As consideration for the purchase of the stock in Poll, Inc., Amcole agreed to pay the purchase price in full, and did so. This purchase price, as stated in the Agreement (including some cash also from Poll, Inc.), was:
“an Override of the gross proceeds received by BUYER through Poll Gas Inc. from Oklahoma Natural Gas Company under their existing contract and any and all amendments thereto, and all other gas, and liquids purchased and sold, and all additional connections, gas processing and gathering facilities and systems, through the Poll Gas System ... [in three named counties in Oklahoma].”
The “override” was to total 9% of the proceeds of gas sales and 5% of proceeds from sales of liquids. The Agreement said these were “to be owned” as therein divided among the three named individuals and two corporations. These were the former Poll, Inc. stockholders except for Amcole.
The Agreement was to apply to any purchases of gas or liquids as well by the Oklahoma Natural Gas Company. The Agreement was filed in the county records. Appel-lee Rimmer was not one of these original sellers of stock, as mentioned, but bought interests from them.
The rest of Rimmer’s interest originated in later agreements with other parties. The interests there concerned were also called overriding royalties.
We are concerned with Poll, Inc. as the Debtor, and its bankruptcy estate, not with Amcole. There remained nothing relating to the interests to go into the Poll bankruptcy estate. The ownership had passed by the 1976 Agreement to Amcole, and it as consideration agreed to and did create the “interests,” as above described, out of what it bought — Poll Gas, Inc. I agree with the majority that enforceable interests were created by the 1976 Agreement including that owned by Rimmer, but I must disagree that they were part of the Poll bankruptcy estate.
*959I.
There is a significant aspect of the appeal which relates to the decision of the District Court, and of the Bankruptcy Court, that the “interests” of Rimmer were not part of the Debtor Poll, Inc. bankruptcy estate.
The relationship of the parties and the early transactions, particularly the changes brought about by the 1976 Agreement, must be examined. The Agreement is the source of the particular interests here considered. Before the 1976 Agreement the Poll corporation gathered gas in the field, transported it, and sold much of it to Oklahoma Natural Gas Company under contracts. Amcole decided to acquire Poll, Inc. by the 1976 Agreement. Under the Agreement all stock of Poll which Amcole did not already own vested in Amcole as “Buyer.” All stockholders and directors of Poll signed the 1976 Agreement. The majority holds that Poll, Inc. was bound by the Agreement, and I agree.
The unusual part of the Agreement was that Amcole, as Buyer (of the stock), was obligated to use assets of Poll, that is, the gas sales contracts with Oklahoma Gas Company or the proceeds therefrom to pay the former Poll stockholders — the Sellers. To do this, and it was done, Amcole necessarily had to exercise ownership of these interests formerly of Poll, Inc. The actions of Amcole, and its performance as Buyer for its own benefit, demonstrated this ownership. It was the only way it could perform its obligation. “Control” of Poll could not do this. There would be no ownership of the interests in question after the 1976 Agreement remaining in Poll. Poll obtained no benefits under the Agreement and it lost assets. It undertook the duty to remit sales proceeds formerly its own. This was done in the capacity of a cestui que trust as would arise under an oil payment or similar interest. It had a duty to remit and nothing more. See Corbin on Contracts, § 873 at 823 and § 902 at 853.
Thus the “interests,” which the majority defines as “accounts” under the 1976 Agreement, passed to Amcole as part of the sale of Poll, Inc. U.C.C. § 9-104(e) Supp. They could not then be part of the Poll, Inc. estate. Whether they were part of the Amcole estate the record does not reveal. This is one of the elements supporting the District Court’s holding that the interests were not part of the Poll estate.
II.
There is another reason why the Rimmer interest did not become part of the Poll estate.
The use by the original parties to the 1976 Agreement, and the continued use of the term “override” in later agreements between successors to the interests as a description of the interests created, is significant and cannot be ignored. It was obvious that the parties adopted the accepted characteristics and consequences of “overrides” as applicable and descriptive of the interests created. This was a clear and obvious description for them to apply to the “interests.” It was in commonly used terms in the business. They adopted and applied the consequences and characteristics of such an interest in their agreements. This was clearly expressed, the intent was clear, and it can make no difference that the term is not applied to an interest of the type here concerned if its meaning they adopted and applied. We are not concerned with how the term may have been used by others. Certainly the 17 + years of “continued course of dealing” shows what the parties meant. See U.C.C. (with comments) § 1-102 and § 1-105.
It is apparent that the consequences, nature and scope of an “override” were adopted as descriptive as there were no time limits or period to restrict the perpetual term of such an interest and there was also no dollar limit. With such a permanent interest and without limits of time and money, the use or misuse of the term “override” was a clear expression or description. The nature and scope were well known and accepted.
The years of “continued course of dealing” by the parties and successors adopted its meaning and this should be sufficient under the U.C.C. An “agreement” under the U.C.C. as to consequences which would otherwise flow from the provisions of the U.C.C. includes the effect of a course of dealing (§ 1-102, § 1-105).
*960The intent of the parties must be applied. There is no indication whatever that the Agreement or the interests were in any way intended to be a security agreement. The course of dealing was the equivalent to an “agreement” of the parties as described in the U.C.C., which modifies the U.C.C. terms, and determines the real nature of the interests.
III.
The position taken by the majority is that the interest of Mr. Rimmer was put in the Poll bankruptcy estate by Article 9 of the U.C.C. This position is based only on the theory that the interest fell within the Article 9 definition of an “account,” and if it was an “account” it automatically was included in the Debtor’s estate. This was, according to the majority, to follow regardless of the intention of the parties to the Agreement and the years of “course of dealing.” When the definition was applied it was automatically something none of the parties intended, nor what it actually was as demonstrated over the 17 years. The record shows there was no debt, the interest was paid for in full, the intent was perpetual, and the interest had no dollar limit. There was no hint of commercial financing.
To apply the “account” definition is to reverse the completed 1976 sale and revest the interest in Poll. Rimmer apparently paid several hundred thousand dollars to buy the interest and the application of Article 9 would divest him of the interest. By all indications in the majority opinion he would become at most an unsecured creditor in the estate of the corporation which probably was never the source of interest to permit the application of Article 9.
The consequences of the application of Article 9 demonstrates that it is not applicable. The U.C.C. by fiat cannot change the consequences and legal nature of a transaction contrary to the intent of the parties.
The most that the statute could do, in Article 9, and this may be what it does, is to require the consequences therein provided, that is, to require this to be a security transaction, unless a contrary intention and purpose of the parties can be shown.
I would affirm the trial court.