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MCROBERTS v. PHELPS (01/16/58)

January 16, 1958

MCROBERTS
v.
PHELPS, APPELLANT.



Appeal, No. 125, March T., 1957, from decree of Court of Common Pleas of Allegheny County, Oct. T., 1953, No. 3453, in Equity, in case of H. Theodore McRoberts et al. v. Joseph E. Phelps et al. Decree affirmed, reargument refused February 14, 1958.

COUNSEL

George I. Bloom, with him William S. Yard, Frank C. Roney, Alexander Cooper and Bloom & Yard, for appellant, Great Eastern Gas Corporation.

Thomas Lewis Jones, with him W. Denning Stewart and Dale Cleland, for appellees.

Before Jones, C.j., Bell, Chidsey, Musmanno, Arnold, Jones and Cohen, JJ.

Author: Jones

[ 391 Pa. Page 593]

OPINION BY MR. JUSTICE BENJAMIN R. JONES

This appeal presents a dispute between two groups - one allegedly a joint venture, the other a corporation - over the ownership of an "override" royalty payable from the production of gas from several wells located in Elk County.*fn1

F. B. Oldham and J. E. Phelps met in Philadelphia in April, 1951 and discussed the possibility of jointly engaging in an enterprise to secure leases upon lands in Pennsylvania for the purpose of drilling thereon for gas and oil. This discussion led to the formulation of the following plan: (1) a search would be made by them for lands having gas and/or oil potentialities; (2) in the event such lands were located, then they would negotiate with the owner or owners thereof for a lease for a limited time period within which to drill for gas and oil; (3) upon negotiation of a lease, then they would secure a drilling company to perform the actual drilling on the lands; (4) in the event that gas and/or oil were located, then the landowner and the

[ 391 Pa. Page 594]

    drilling company would enter into an agreement under which the landowner would share with the drilling company on a percentage basis the royalties realized from the production of gas and/or oil. Oldham and Phelps would receive for their services from the drilling company a cash bonus plus an "override" royalty, i.e., a share of the royalties received by the drilling company. To execute his plan, Oldham and Phelps agreed to form a group to be know as the Phelps Prospecting Company (herein called Phels Prospecting), and to finance Phels Prospecting, at least initially, Phelps was to solicit funds from his family and their friends.

Pursuant to this understanding with Oldham, Phelps then solicited and secured $4100 from members of his family and their friends*fn2 during April, May and June ,1951. Neither Phelps nor Oldham contributed any funds.*fn3 All the funds raised - with the exception of Michael Phelps' $100 - were deposited in Oldham's personal bank account and dispersed by him. From this fund expenditures were made for travelling expenses of Oldham and Phelps, a weekly salary of $50 for Phelps, an office sign, stationery, stenographic services, business cards and other kindred items.

Coincident with the happening of these events, Oldham was engaged in the organization of a corporation called the Great Eastern Gas Corporation (herein called Great Eastern), eventually incorporated in Nevada on June 28, 1951. Certain of the appellees were given Great Eastern stock by Oldham,*fn4 while others

[ 391 Pa. Page 595]

    for its services from the drilling company and ...


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