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JULY 1975VOL. 9, NO.3

THE OFFICiAl PUBLICATIONOF THE

ARKANSAS BAR ASSOCIATION

OFFICERSRobert C. Compton. PresidentHerschel H. Friday. Vice·PresidentJames M. Moody. Secretary-Treasurer

EXECUTIVE COUNCILRobert Hays WilliamsThomas F. ButtG. Alan WootenDavid SolomonWayne BoyceRandall W. IshmaelJohn A. Davis. IIILeRoy AutreyJoe D. WoodwardLeonard ScottRobert D. Ross

EX-OFFICIORobert C. ComptonHerschel H. FridayJames M. MoodyJames 8. SharpSamuel C. HighsmithBoyce Love

EDITORC. E. Ransick

EDITORIAL COMMITTEEDonis B. HamiltonSamuel C. HighsmithRobert T. Dawson

~

ArkansasLawyer

SPECIAL FEATURESThe Strohacker Doctrine-

An Arkansas Rule of Property.Gerald L. DeLung 85What Is Your Ethics Rating? .......... .. ....... 94Construction Mortgages

-Addendum Donis B. Hamilton 971974-75 Honorees 100Seek The Law Leon Jaworski 102Medical Malpractice Insurance............ . ..... 106Partnership Taxation in the

Estate Situation Lawrence J. Lee 109Pension Reform Act of 1974 -

A Brief Review George N. Plastiras 1121975 Fall Legal Institute 116Arkansas Model Jury Instructions

(Civil)-Revisions 119

REGULAR FEATURESPresident's Report. . Robert C. Compton 82Juris Dictum C. R. Huie 95Legal Economics Richard A. Williams 98Law School News J. Steven Clark 105Oyez-Oyez B. Tarkington 83In Memoriam 117Executive Council Notes James M. Moody 96Service Directory 108Aegis 93

Published bi-monthly by the Arkansas Bar Association, 400 West Markham. UtIle Rock. Arkansas 72201. Second class postage paid at Little Rock. Arkansas.Subscription price to non-members of the Arkansas Bar Association $6.00 peryear and to members $3.00 per year included in annual dues. Any opinion ex·pressed herein is that of the author. and not necessarily that of the Arkansas BarAssociation. The Arkansas Lawyer. or the Editorial Committee. Contributions toThe Arkansas Lawyer are welcome and should be sent in two copies to the Arkansas Bar Center. 400 West Markham. Little Rock, Arkansas 72201.

All inquiries regarding advertiSing should be sent to The Arkansas lawyer.above address.

July 1975/Arkansas Lawyer/Bl

PIISIIIIT~S

BEPOITby Robert C. Compton

This is my first report to the membership. I wouldlike to reiterate some of the thoughts shared with theDelegates at the House of Delegates' Meeting onJune 6th, when I assumed to the presidency.

"Our Association has been well led. Because of thispast leadership, we have a foundation and bar centerwhich is the envy of many of our larger and richerneighbors. We have been instrumental in bringingabout landmark legislative enactments and supremecourt rules which have so improved our substantiveand procedural laws that we are frequently paid theultimate compliment of being copied by ourcolleagues in other states.

"We maintain an active interest in academic andcontinuing legal education. We are current on mattersrelating to the economics of the law practice,specialization, advertising, group legal services andother innovative changes which are proposed for thelegal profession.

"We are a unified non-unified bar association inthat sUbstantially all of the practicing lawyers inArkansas are voluntary members of this Association.

"Therefore I propose nothing new, controversial ordevisive. Rather I propose that the Arkansas BarAssociation now seek to take the accumulatedfacilities of our Association to our members throughout the state. I propose that we bury hatchets, letwounds heal, realize our great potential as an activeprogressive bar association and strive together tomake ourselves better lawyers and our professionmore responsive to its responsibilities.

"We are beseiged by criticisms of our profession.Many say we are not ethical and point to Watergate.Some say we are not responsible and point to themany Americans who cannot obtain adequate counsel.

"The lawyer cannot possibly get away from the factthat his is a public task. It calls for something more

B2/July 1975/Arkansas Lawyer

than a mere merchant-customer contract. Rather it isakin to a fiduciary relationship.

"The public has a need for and a right to aprofessional man in whom it can repose a particulartype of confidence whenever it is faced with somedistressing problems, often of a very personal nature.

"Hence the most important aspect of the practice oflaw is the fact that it is. and the inherent nature ofthings demands that it always shall be, a profession.

"We are not going to solve the problem of violationsof ethical conduct within our ranks by occasionalbreast beating when one of our own is caught with hishand in his client's pocket or is tried and found guiltyof violating the law.

"We will begin to solve this problem only wheneach of us. as an individual licensed lawyer, is willingto abide strictly by our own Code of ProfessionalResponsibility. As Disralei once said, 'Too often ratherthan letting our conscience be our guide. we make itour accomplice.'

"We will make further inroads towards solving theproblem of violations of ethical conduct if and whenwe become unwilling to tolerate unethical conductamong any of our colleagues.

"We must know and willingly accept the fact thatwith the privilege granted to us to practice law, thereis coupled the responsibility of ethical public servicethat only we as individual practicing lawyers can provide. If such is not provided by each of us individually,all group action will fall far short. We will become justanother trade or business regulated by 'Big Brother'and we will have sold our birthright - the wonderfulprivilege of being a lawyer - very cheaply.

"Each of us must shoulder our own responsibilityas a member of the greatest of all professions and bewilling to conduct our own practice in an ethical andresponsible manner.

"We can do no more. We must not do any less."J-~_.

OYEZ·

OYEZ!

By B. Tarkington

R. A. Eilbott, Pine Bluff. new appointee to the state Police Commission.has been elected its chairman. Munici·pal Judge Lindsey J. Fairley was apPOinted In February to a four-year termas a part-time U.S. Magistrate for WestMemphis. H. William Allen, Little Rock.has been nominated to the AmericanBar Association Board of Governors.representing the ABA's Young Lawyers'Sections. William R. Stringfellow, LittleRock. will serve as chainran of the Arkansas Commemorative Commission.Senator Dale Bumpers was the luncheon speaker at the 27th Annual Law Dayin Norman. Okla. Henry Jones, LittleRock. has been appointed as a memberof the University of Central Arkansas

Board of Trustees. Robert M. McHenry,Little Rock. has been re-elected to a second term on the Little Rock School District Board of Directors. Eugene P. Levy,of the Cromwell. Neyland. Truemper.Levy & Gatchell. architect engineeringflrm. has been made Executive VicePresident. John R. Lineberger, Fayette·ville. has been apPOinted judge of thenew Circuit Court Division of the 4thJudicial District. Joe E. Griffin has beennamed Texarkana City Attorney replacing Willis B. Smith, Jr. Mr. Smith was recently appointed administrator of thestate Alcohol Beverage Control Commission. Phillip Carroll was the guestspeaker at the March meeting of the Ar·kansas Association of Women Lawyers.New officers for the Student Bar Association at Little Rock have been elected:

David Cahoon, President ShawnaBrown, Treasurer: Diana lord, Secre·tary: and Henry LaHaie, Vice-President.The law flrm of Frierson. Walker. Snellgrove & Laser has announced that Stan·ley R. langley has become a partnerand Paul M. Ledbetter has become anassociate. William H. Sutton has beenelected Arkansas State Chairman of theDefense Research Institute. McHenry &Bryant of Little Rock announce that JoeA. Polk has become a partner. The lawfirm of Laser. Sharp. Haley. Young &Boswell IS the first tenant In the No. OneSpnng Street BUilding at Markham &Spring. Delbert Mikel is now associatedwith Greene. Cottrell. Craig & Claar lawfirm In little Rock. Howell. Price Howell& Barron has announced Gary P. Barketas a member of the law firm. Hugh W.Harrison has gone Into practIce for himself w'ith offices at 624 So. Main. Jonesboro. J. Scott Brown, formerly of Florida.IS now associated with Crane & Hawkins. Solicitors. London. Murray FrankArmstrong, a recent graduate hasopened his office for the practice of lawin Star City. Chle' Juslice Carleton Harris has appointed Judge Milas Hale,JUdge Dean Morley, Judge EdwardGrauman as delegates to the NationalConference of Special Judges to be heldin Canada during August. Eugene L.Schieffler, West Helena. has announcedthat Jesse E. Porter, Jr. and Harvey L.Yates are associated with him and thefirm formed as Schieffler. Yates & Porter.Harry T. Moore, a recent graduate, hasbecome associated with the firm ofCathey. Brown, Goodwin & Hamilton of

Paragould. Judge Mary Burt Nash served as chairman of the ABA Family LawSectlon's Schwab Memonal Award 1m·plementation Committee. Craig Burns,formerly of Uttle Rock. has opened hislaw office in Smackover. Orville Clifthas JOined the law firm of Yates & Turner. Ozark. as an associate. Byron Eiseman, Jr., Little Rock. was guest speakerat the Western Arkansas Estate PlanningCouncil dinner held in May. State Senator Bill H. Walmsley addressed the Maygraduating class of Newark High Schoolat Batesville. Dan Felton and Dan Dane

have combined their law practice andare now under the firm name of Dane &Felton. Ltd. Richard S. Smith, Jr., formerly of Jonesboro. is now a partner inthe NLR law firm of Southern, Alexander.

Nicholson & Smith. Mrs. Frances Holtzendorff I President of the Ark. Association of Women Lawyers. presented Mrs.Sandra Munday, BUSiness Educationteacher at Parkview High School. theliberty Bell Award for outstanding community service. Gary M. Vinson, a '75graduate IS now associated with Highsmith. Tatum. Highsmith. Gregg & Hartof Batesville. J. H. Evans, Ft. Smith. hasbeen appointed to fill a vacancy on theState Board of Law Examiners. TheSmith. Williams. Friday. Eldredge &Clark law firm has relocated its offices inthe First National Building. 20th Floor.Recent graduate. B. Frank Mackey, Jr.has become associated with the Spitzberg, Mitchell & Hays law firm. RickSpencer, a recent graduate has openedhis law office In Mountain Home andW. B. Guthrie Just being licensed hasopened hiS offices for the practice of lawIn Hazen and Des Arc. Edwin R. Beth·une was the speaker at the April meetingot the Searcy Rotary Club. Ned Wright,little Rock. has been elected Presidentof Youth Home. President-Elect Her'schel H. Friday IS the current Chairmanof the ABA's Standing CommIttee onContinuing Legal Education of the Bar.30vernor Pryor has announced delegates to the Constitutional Conventionand four are ASSOCiation members: Edward L. Wright, H. David Blair, Frank J.Huckabay and Tom B. Smith. Richard P.Osborne, formerly of Fayetteville, hasJOined the Governor's staff as a specialASSistant and Legal Counsel. CleburneCounty Bar has new officers: Neill Reed,PreSident: Hoyt Thomas, Vice-President;Earl Olmstead, Treasurer; and EvelynDrake, Secretary. Benton County Barelected new officers: Sidney H. McCollum, PreSident; John Elrod, Vice-President: and Douglas L. Wilson, SecretaryTreasurer. Sebastian County Bar hasnew officers: Robert L. Jones, III, President; Bill Thompson, Vice-Presidentand Philip J. Taylor, Secretary-Treasurer. J-_.....

July 1975/Arkansas Lawyer/83

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84/July 1975/Arkansas Lawyer

THE STROHACKER DOCTRINEAN ARKANSAS RULE

OF PROPERTY-Gerald l. Delung

(Editor's note: Mr. DeLung presented his paper on this important subject at the 14th Annual Arkansas Oil & Gas Institute, February 26-March 1, 1975.)

On my first business trip to Arkansas, in 1955, I was introduced toa mysterious concept known as the"Strohacker Doctrine".

I was employed by Gulf Oil Corporation and. like most of the major companyemployees who were working in theArkoma Basin at that time. my experience in the oil business stemmedfrom Oklahoma. It was bad enough tomove from a state where every courthouse provided the lUxury of a tract index to the agony of Arkansas' grantorgrantee index, but to find that a reservation or conveyance of "minerals" mayormay not have included oil and/or gas,was almost too much. At that time, theArkoma Basin play was in its lease acquisition phase. and Gulf and Humblewere the principal competitors. Neithercompany was paying more than a dollarper acre bonus consideration. so leaseswere purchased on the basis of recordcheck rather than abstract examination.Both companies sought advice fromArkansas counsel on the problem presented by the Strohacker decision. Thelate Jack Smallwood gave an opinion toHumble and John P. Woods advisedGulf. Both companies finally followedthe same procedure. We attempted toidentify from record check all possibleclaimants of oil and gas under eachtract. and we bought leases from each ofthem whenever possible. This procedurelooked forward to the use of several Arkansas statutes to ultimately resolveownership and assure the operator of afull working interest with respect tothese problem tracts.

Section 53-115 A. S. A. permitted integration of production in drilling units.

although at that time the Arkansas Oiland Gas Commission did not grantpenalties or forced leases. Under thepartition statute (Section 34-1801, etseq., A. S. A.) it was possible to securethe appointment of a receiver to executean oil and gas lease covering a problemtract. but to use this procedure it wasnecessary to secure the cooperation ofan interest owner to serve as plaintiff. so.in those situations where none of theclaimants could be located. this statutewas of no help. Section 52-201, et seq..A. S. A.. was also in effect, but it posedthe same problem in 1955 in that alessee was not privileged at that time topetition for the appointment of a receiverto lease lands owned in joint tenancy, incommon or in caparceny. so. even if aninterest owner could be located andleased. the procedure couldn't be usedunless such an owner would agree toserve as a plaintiff. Assuming that allclaimants of interest could somehow beleased or committed by integration, section 27-816 A. S. A., could be resorted tofor the purpose of interpleading royaltiesattributable to the problem tracts within aunit.

When the major lease play began inthe Arkoma Basin. four cases had beendecided by the Arkansas Supreme Courtand one by the U. S. District Court forthe Western District of Arkansas, whichbore upon the so-called Strohacker doctnne. The leasing procedure we used tocover tracts affected by Strohacker typereservations or conveyances was designed to protect the operator. regardless of any change in position the Arkansas Supreme Court might take. At thetime there was considerable speculationthat the Court might change the position

it took in the 1941 case of MissouriPacific Railroad Co., Thompson,Trustee, v. Strohacker, 202 Ark. 645, 152S. W. 2d 587, even though the Court hadalready announced in its 1949 decisionin the case of Briuolara Y. Powell, 214Ark. 870, 218 S. W. 2d 728, that the Strehacker rule had become a rule ofproperty in Arkansas which should notbe disturbed.

During the 20 years since the beginning of the Arkoma Basin play, Ihave seen a lot of landmen come toArkansas from Oklahoma, Texas,Louisiana, New Mexico and otherproducing states.

Practically all of them have expressedthe same dismay at the dilemma presented by the Strohacker ru Ie that wemust have shown 20 years ago. TheStrohacker Doctrine is an Arkansas Ruleof Property, but it still requires explanation to every newcomer to Arkansas law.I think it may serve a good purpose to review the Strohacker rule from today'sperspective. In doing so. I will discussall of the cases out of the ArkansasSupreme Court which bear upon the socalled "Strohacke(' rule as well as certain cases out of the United States District Courts for the Western and EasternDistricts of Arkansas which have beenthe subject of appeals to the UnitedStates Court of Appeals for the EighthCircuit. or which have been reported atthe District Court level. Although the ruleunder discussion has consistently required where there is ambiguity as to theminerals actually embraced in instruments purporting to conveyor to reservecertain unspecified .minerals under

Continued on page 86

july 19751Arkansas lawyerl85

Doctrine,Continued from page 85

generalized terms. that a factual determination be made as to the true intent ofthe parties, the Court has actually reliedupon the contemporary facts and cir·cumstances surroundmg the executionof the Instrument In questIOn, and hasdetermined the Intent of the parties so as10 be consistent with and limited tothose minerals commonly known andrecognized by legal and commercialusage in the area where the Instrumentwas executed.

The language I have Just used wastaken from the case of Frank Ahne, etux., v. The Reinhart and Donovan Com·pany, et aI., 240 Ark. 691, 401 5. W. 2d565, which IS the last case decided bythe Arkansas Supreme Court In the lineof so·called Strohacker doctrine cases.It would be welt. however. to considerthose cases decided by our SupremeCourt prior to the Strohacker case in order to understand the legal foundatIonupon which It was based. and in order tobetter understand the development ofthe doctrine as It was last expressed In

the Ahne case.The earliest reported case out of the

Arkansas Supreme Court which Involvedminerals. mines or mining was Kansas &Texas Coal Company v. Brownlie, 60Ark. 582, which was decided in 1895.and which dealt with a charge of negligence In the employment of a 14 yearold boy in a coal mine. The next reportedcase appeared In 1901 and Involved theadoption of local mining regulations withrespect to the development of miningclaims on public lands. Between 1901and 1911. fifteen cases were decided bythe Arkansas Supreme Court whichdealt with problems arisIng in the miningof coal or In connection with miningclaims on public lands. In 1911. the firstcase was decided by our Supreme Courtinvolving 011 or gas. This case wasMansfield Gas Co. v Alexander, 97 Ark.167, and although the case did not bearupon the question under review. it IS In·terestlng since It Involved development

GERALD L DELUNG, Partner, Warnerand Smith Law Firm, Fort Smith. LLB.,Vanderbift, 1952; Private practice, WestVirginia, 1953-54; Exploration Department, Gull Oit Corporation, 1954-58; Attorney-Landman, Samedan Oil Corporation, 1958-{}2; Private practice, Arkansas,1962-75; Member, American Association


of the Mansfield Gas FIeld which wasdiscovered In 1901. and which becamethe Ilrst commerCial production of gas or011 In Arkansas In 1902.

The next case reported out of the Supreme Court was the landmark case ofOsborn Y. Arkansas Territorial Oil &Gas Co., 103 Ark. 175, 146 5. W. 122,which was decIded In 1912. In thIS casethe Court held that natural gas was amineral and that. In place. It was part ofthe realty. The Court further held that aconveyance of gas reqUired all of the for·mahtles of a conveyance of any other Interest In land. and poInted out that a conveyance of land without any reservationpassed to the grantee the IItle to thenatural gas beneath the surface.

Between 1912 and 1923 the Supreme Court decided 12 cases involving mines and minerals.

all had been discovered In UnIon.Columbia and Ouachita Counties in1920. and the tempo of litigation involvIng oil and gas began to increase. Noneof the 12 cases mentIOned above. however. had any bearing on the questionunder review.

In 1923. the Supreme Court decidedthe case of Bodcaw Lumber Co. Y.Goode, 160 Ark. 48, 254 5. W. 345.Citing the Osborn case for authority. theCourt held that "minerals" in land, including 011 and gas. are part of the landuntIl severed. and are subject to ownership separate from the ownership of thesurface. and may be the subject ofseparate sate.

Between 1923 and 1941. the number ofcases decided by the Arkansas SupremeCourt in the field of oil and gas law andmining law greatly Increased. Caseswere decided which ran the gamut ofproblems affecting development of oiland gas properties. Of these cases. onlyfive bore dIrectly on the creation of asevered minerai estate.

In 1928 the Supreme Court deCidedthe case of Belleville Land and LumberCo. v. Griffith, 177 Ark. 170, 6 5. W. 2d36, and held that minerai rights reserved

of Petroleum Landman and American,Arkansas and West Virginia Bar Associations; Former Director, American Association of Petroleum Landman; FormerChairman, Arkansas Bar Association'sMineral Law Section and EnvironmentalLaw Committee; Co·Chairman, 8th Annual Oil and Gas Institute.

10 a deed are held In perpetuity.In 1929. the Supreme Court decided

the case of Rowland Y. Griffin, 179 Ark.421,165. W. 2d 457, and held that. If agrantor could reserve the minerals In hiSdeed conveying the land. and thussegregate them. he could. by an appropriate conveyance pass title to theminerals, retaining the surface.

In 1930. the Supreme Court decidedthe case of Goodson Y. Comet Coal Co.,184 Ark. 192, 31 5. W. 2d 293, and heldthat a coal lease was not a conveyanceof the present title to coal In place. anddid not constitute a severance of thecoal.

In 1938. the Supreme Court decidedthe case of se9ars v. Goodwin, 196 Ark.221, 117 5. W. 2d 43, and held that a1936 deed covenng ...... an undIVIdedone-half (1/2) Interest In and to all of the011. gas and other minerals In. under andupon .. .. certain lands in UnionCounty. Arkansas. conveyed absoluteownership of an undiVided one-half in·terest In the 011. gas and other mineralsunder the lands conveyed subject onlyto a then-eXisting lease.

In 1939. the Supreme Court decidedthe case of Sheppard v. Zeppa, Trustee,199 Ark. 1, 133 5. W. 2d 860, and heldthat a 1937 reservation of .. themineral rights in. upon and under.certain lands In Union County. Arkansas, served to reserve the oil and gas un·der said lands to the grantor.

Another line of cases had beendecided by the Arkansas SupremeCourt prior to its decision in theStrohacker case which had an effect upon the Court's reasoning inthat case.

In 1873 the Court decided the case 0,Swayne v. Vance, Executor, 28 Ark. 282,and held that. where there IS ambiguityIn the language of a deed. the Court mayresort to extraneous circumstances toascertain what the parties really intended by the language employment: not forthe purpose of changing the contract oragreement. but for the purpose of ascer·

talnlng what the parties referred to andIntended at the tIme of makIng the WritIng. The court followed thIS decisionWIth a line of cases holding that. todetermine the intention of the parties. adeed must be construed as a whole. and.If consistent with rules of law. the intentIon of the parties must be given effect.Wilson v. Stearn, 202 Ark. 1197, 149S. W. 2d 571 (1941); Dent v. IndustrialOil & Gas Co., 197 Ark. 95, 122 S. W. 2d162 (1938) Citizens Investment Co. v Armer, 179 Ark. 376, 16 S. W. 2d 15 (1929).The Court also overruled the commonlaw rule that language contained In thehabendum clause of a deed which wasrepugnant to language In the grantingclause must be rejected. The Court reasoned that. If In other parts the deed wascomplete. the office of the habendumwas sterile but that. If the parties choseto utilize It to explaIn what estate was Intended. there was no reason why thecontract thus consummated should bejUdIcially disregarded in order that atechnical rule may be ..... reverentiallyembraced as it totters under the weightof antiquity." Stewart Y. Warren, 202Ark. 873, 153 S. W. 2d 545 (1941);Beasley v. Shinn, 201 Ark. 31, 144 S. W.2d 710 (1940); Luther v. Patman, 200Ark. 853, 141 S. W. 2d 42 (1940).

Having set the scene by reviewingsignificant cases decided by the Arkansas Supreme Court prior to its decisionIn the Strohacker case. let us now summarize the posture of Arkansas decisions at the time of the Strohacker case.The Court had held that ··minerals·· wereconSIdered real property until produced.and that they were subject to separateownership in perpetuity. and were further subject to separate conveyance orreservation In whole or In part. The Courthad further held that. where ambiguityeXisted In the language of a conveyanceor reservation. the instrument of conveyance or reservation must be viewed as awhole In order to determine the intentionof the parties. and that resort could behad to extraneous Circumstances toascertain such intentIon. The Court hadfurther held that. If consIstent WIth rulesof law. the intention of the parties mustbe given effect. As was later shown In

the Strohacker deCision itself. the Courtwas also aware of the U. S. SupremeCourt's deCISion In the case of Boyd Y.

United Slates, 116 U. S. 616, 29 L. Ed.476, 6 S. Ct. 524, wherein the UnitedStates Supreme Court had endorsed thedoctrine of "contemporaneous construction" as "best and most powerful Inlaw."

Professor Summers. at Section 135 ofhis text. states that the word "mineral" isnot a definite term. and its meaning mustnecessarily depend upon the intent withwhich it was used. He recognized thatthere was much apparent conflict

among the courts as to whether oil andgas were Included WIthin the term"minerals." but observed that. If the cases are all vIewed from the standpoint ofintention of the parties, they may be entirely consistent. HIS definItion of thegeneral rule on thIS POint IS that: " ... aconveyance or exception of mInerals in

cludes all and gas. unless from the language of the Instrument. or from factsand Circumstances surrounding the parties at the lime of ItS execution. It ISfound that the term was used In a morerestricted sense Professor SummersCited numerous cases to poInt up thedivergent views adopted by the variOusprodUCing states. Running through all ofthe cases was the central thread of intention. The dIfferences arose where themethods of determining intention wereconcerned. We must assume that. sincemost of these methods had beendeveloped by the lime of the StrohackerdeciSion. the Arkansas Supreme Courtmade a conscious choice in citing theBoyd case and the doctrine of "contemporaneous construction."

With the foregoing background,we can examine Ihe 51rohackercase ilself more objectively.

The lands involved in the Strohackercase are located in Miller County. Arkansas. and were acquired by the St. Louis.Iron Mountain & Southern Ry. Co. byway of grants from the United States ofAmerica. Said lands were subsequentlyconveyed to Big Wood Lumber Co. bythe railroad in 1892 and 1893 via deedswhIch contained reservations of "allcoal and mInerai deposits." The surfaceowner. Strohacker. sought to qUIet titleIn himself as to oil and gas under saidlands contending that the reservationsby the railroad were not Intended to in

clude 011 and gas. The Chancellor sustained the plaintIffs contention. and therailroad appealed contending that thereservatIons were Included In the deedsto protect the railroad on ItS warranty In

the event that the United States shouldsubsequently reclaim any minerals under saId lands through the reservation of··all minerai lands Within the limits of thegrant" which appeared In the Act ofCongress which accomplished thegrant. The railroad argued that the reser·vatlon of "coal and mineral depoSIts" byIt was Intended to be as broad as anypossible reservation by the governmentunder the federal statutes. The railroadthen argued that the government wasaware of the pOSSibility of oil and gasproduction at the time of its grants to therailroad. and that the railroad intended.therefore. to reserve anything which thegovernment was aware of and might reclaim under its grants. The ArkansasSupreme Court stated that. "just what ismeans by the reservations affecting

lands conveyed to Iron MountaIn underthe land grant acts IS not controllinghere. Our task IS to deCide what IronMountain meant when It reserved 'allcoal and mineral deposits.' .. In arrivingat ItS deCISion. the Court found the reservation of "all coal and minerai deposits"to be suffICIently ambIguous to requireinterpretation. The Court held that the"purpose of grantor and grantee" shouldbe ascertained from the writing Itself orfrom the general custom. and should begiven effect If It IS pOSSIble to do soWithout ImpingIng a settled rule of law.The Court then cited the Boyd case andendorsed the .. contemporaneous constructIon" rule. In ItS opInion. the CourtreVIewed the eVIdence upon which theChancellor has based hiS deCision. anddIscussed the rules of Interpretation employed by other JUrisdIctions In determinIng what substances are included withInthe term "mineraI"' when It IS used in aconveyance or reservation. In affirmingthe Chancellor. the Court stated:"Although there were court decisionsholdIng oil and gas to be minerals. suchwas not the general construction; andthis was partiCUlarly true in a countrywhere oil and gas were not given theslightest commercial consideration inconnection with land values. 'AII coaland mineral deposits' undoubtedly werethought to mean. in addition to coal.deposits of substances commonlyrecognIzed as minerals; and. as to suchthe reservations were good." The Courtfurther observed that: ''If the reservationshad been made at a time when oil andgas productIon. or explorations weregeneral. and legal or commercial usagehad assumed them to be within the term·mlnerals.· certainly appellant shouldprevail."

The Slrohacker case arose In a countywhich had expenenced drilling activityas early as 1916. and which had been anall and gas prodUCing county since1930. It is understandable that theMiSSOUri PaCIfic Railroad Co. would notgive up eaSily on ItS contention that thereservations of "minerals" or "mineraldepoSits" by ItS predecessor did include011 and gas. The railroad companyowned thousands of acres of minerals Incounties throughout the state withsimilar all and gas potentIal. It IS not surprisIng. therefore. that the railroad company would prosecute an appeal to theArkansas Supreme Court In 1946 In acase which Involved the identical problem presented by the Strohacker case,contending that the Strohacker caseshould be overruled as being unsoundand not in accord with the weight ofauthority. The case of Missouri PacificRailroad Co. Thompson, Trustee, v. Furqueron, 210 Ark. 460, 196 S. W. 2d 588,




involved deeds by the railroad companyIn 1892 and 1894 covering land in MillerCounty, Arkansas, which reserved'all coal and mineral deposits in andupon said lands .. " The Court heldthat the principles of law announced andset forth in the Strohacker case werecontrolling. and specifically cited headnote 5 from Its opinion in that case "Byexcluding from deeds executed in 1892and 1893 .all coal and mineral deposits'pertaining to lands in Miller County, Arkansas. accruing to railroad companythrough government grants. the company no doubt had in mind. as did itsgrantees, only substances then commonly recognized as minerals; and inview of such intent the language was notsufficient to reserve oil and gas."

Two years later (1948). the railroadcompany was again before the Court inthe case of Carson v. Missouri PacificRailroad Co., Thompson, Trustee, 212Ark. 963, 209 S. W. 2d 97, which involveda deed from the railroad companyexecuted in 1892 covering land in SalineCounty, Arkansas, which reserved'all coal and mineral deposits in andupon said lands ..." The Court held thatthe reservation covered. in addition tocoal. deposits of substances commonlyrecognized as minerals, and found it insufficient to reserve bauxite. a quite different substance. which was practicallyunknown in this state at the time thedeed was executed. The Court cited theStrohacker and Furqueron cases andheld that bauxite was not in thecontemplation of the parties to the contract when this reservation of mineralrights was made."

One year later (1949) the Court decided the case of Brizzolara v. Powell, 214Ark. 870, 218 S. W. 2d 728, which againinvolved interpretation of a reservationcontained in a deed from the railroadcompany. Said deed was executed in1897 covering land in Johnson County,Arkansas, and reserved .. all coaland mineral deposits in and under saidlands Unfortunately. the Chancellor had held as a matter of law thatthe reservation did not include oil andgas. He based his decision on the Strohacker and Furqueron cases which hadconstrued identical reservations madebetween 1892 and 1894. The Court pointed out that the parties, as well as theChancellor. had overlooked the pointthat the rule dealt with questions of factrather than law, and, since neither partyhad offered proof as to the intent withwhich the words of reservation wereused in the 1897 deed, the case was nottully developed. The Court remanded thecase so that the facts could be ascertained. No further action appears to have

B8/July 1975/Arkansas Lawyer

been had in the case, This IS certainlyunfortunate. but It does serve to add tothe line of decisions under discussionhere because as I have said, the Courtannounced that the Strohacker rule hadbecome a rule of property which shouldnot be dIstu rbed.

During the same year (1949). the caseof Dierks lumber & Coal Co., v. Meyer,BS F. Supp. 157, was tried in the UnitedStates District Court for the Western Dis·trict of Arkansas. This case involved areservation of an undivided interest inthe "minerals" under certain lands inGarland County, Arkansas. The deedcontaining the reservation was executedin 1940 and the Court held that the reservation covered novaculite, since it wascommonly known and recognized for itscommercial value in the vicinity. TheCourt went further, however, and pointedout that the evidence proved that thegrantors in the deed had aclual knowledge of the existence of novaculite onthe land in question. I wonder, therefore,whether the federal court was adheringto the settled rule of property announcedin the Strohacker case. or whether Itbased its decision on proof as to thesubjective intenl of the parties.

The next case to come before the Ar·kansas Supreme Court on the Strohacker rule was Stegall v. Bugh, 228Ark. 632, 310 S. W. 2d 251 (1958), whichInvolved a deed executed in 1900 covering land in Union County, Arkansas, andcontaining the following language: " ,excepl the mineral interest in said lands

. ," In this case, the claimant under thequoted exception based his case onproof that the grantor subjectively intended to except from said conveyancethe oil and gas, In commenting on suchproof the Court agreed that a chancellormight have been Justified in finding thatsaid grantor actually meant to reserve allof the oil and gas. but held that the word"mineral" in its accepted legal and com·mercial usage, did not include oil andgas in Union County in 1900. The Courtstated: "We think that the meaningwhich this court has heretofore andshould hereafter give to the word"mineral," in connection with its use insituations similar to those of this case, isgoverned not by what the grantor meantor might have meant. but by the generallegal or commercial usage of the wordat the time and place of its usage."Justice McFaddin dissented in this caseand wrote a dissenting opinion in whichhe contended that petroleum wasgenerally considered to be a mineral inArkansas in 1900, He proposed that adate at January 1. 1900. be establishedas the date upon which petroleum became generally considered in Arkansasto be a mineral in order that uncertaintyin the matter could be done away with.

In 1962, two cases were reportedout 01 United States District Courtsin Arkansas which dealt with theStrohacker rule.

The case of Singleton v. MissouriPacific Railroad Co., 205 F. Supp. 113,arose in the Eastern District and involved a deed executed in 1934 coveringlands in Pope County, Arkansas, whichcontained a reservation of .. all theminerals. ," under said lands. Judge J.Smith Henley cited the rule quotedabove In Stegall v. Bugh, and found. asa matter of fact" that .. , , . for a numberof years prior to 1934, leasing of lands inthe western portion of Pope County .for oil and gas purposes was quite common, and that the production of naturalgas in western Pope County and In

Johnson County was well established ona commercial basis ..." In holding thatthe reservation included oil and gas,Judge Henley stated: "It is a well-knownfact that when oil and gas activity, in

cluding leasing of lands for the purposeof drilling for oil and gas. becomes common In a given area. the people in thatarea soon incorporate it into their concept of 'minerals' and the term 'minerals'comes to be understood in commonspeech as including oil and gas."

The other 1962 case was Mothner v.Ozark Real Estate Co., 300 F. 2d 617,which arose In the Western District. andwhich involved Johnson County lands.Unlike Brizzolara v. PowelL proof wasdeveloped on the factual issues. Thefacts were complicated by a question asto whether a certain 1891 deed from oneJ. Richard. absolute on Its face, wasreally an equitable mortgage which hadbeen satisfied by payment of the debt secured by it. Judge Miller held that theplaintiff. who asserted the mortgage. hadfailed to prove that it was a mortgageand had further been barred by lachesfrom even asserting it. In this connection, the court stated: "Yet here we havea lapse of 67 years from the time theplaintiffs state their claim accrued in1893. and during all that time no movewas made by anyone to assert thisclaim. notwithstanding the wide publicinterest in gas in the Arkansas ValleyArea and in Johnson County. until afterthe defendants. Stephens ProductionCompany and Murphy Corpo;ation, afteran expenditure of over $350,000.00, incurred at their sole risk, cost and expense. drilled and completed the aforesaid two gas wells." The court went onto find that. even if the suit had beenbrought in a timely manner. and a mortgage proved, any interest J. Richard hadin the oil and gas would have been can·veyed by his deed executed in 1897covering" ... all coal and minerals.under said lands. The court based thisfinding on the fact that the grantor. J.

Richard. had himself attempted to reserve oil and gas specifically in an 1893deed. The Court stated that "Richard knew about gas and its value.as evidenced by his attempted reservation in the Griffin deed." From a reviewof the court file on this case, and particularly the transcript of the Judge's oralopinion at the conclusion of the trial. it isapparent that Judge Miller based hisfinding that the term "minerals" included oil and gas in Johnson County In1897 on the subjective intent of thegrantor in that particular conveyance.judge Miller found, as a matter of fact,however. that a subsequent deed in thechain of title to said lands executed in1906 covering' . all coal and minerals..." included oil and gas. In doing so.he reviewed the facts that gas was produced in commercial quantities at Mansfield in Sebastian County In 1902. andthat exploratory attempts had been madein Sebastian County without success asearly as 1888. He pointed out that oil andgas leases had been recorded in Johnson County as early as 1916. and thatgas had been found in commercialquantities in Johnson County in 1922and 1926. and that by 1927 the City ofClarksville was using natural gas fordomestic and commercial purposes. Inaffirming Judge Miller. the Eighth Circuitstated that he had not only" ... reacheda permissable conclusion. but a just andcorrect result:' It is interesting to notethat Judge Miller cited the Mothner casein his opinion in the Middleton case.which will be discussed later. and statedthat he had found that· ... the use ofthe word 'mineral' did not include oil andgas in a conveyance of property in Johnson County. Arkansas in 1891."

The last case presented to the Arkansas Supreme Court in the Strohackerline of cases was Ahne v. The Reinhartand Donovan Co., 240 Ark. 691, 401S. W. 2d 565, which was decided inApril. 1966. The case involved a deedexecuted in 1905 covering land in LoganCounty, Arkansas, which conveyed ..... coal. oil and mineral .. .'. under saidlands. The deed was executed pursuantto an option agreement executed in1901. The case was filed by our firm onbehalf of Gose Petroleum Corporationand its lessor. the Reinhart and DonovanCo., in the Chancery Court for the Northern District of Logan County, Arkansas.seeking a declaratory judgment that the1905 deed also covered gas. The casewas presented to the Chancellor uponwritten briefs. accompanied by documentary evidence in exhibit form bearing upon the factual issue as to whethergas was a commonly recognizedmineral in Logan County when the 1905deed was executed. The Chancellorfound for the plaintiff. and the ArkansasSupreme Court affirmed his factual find-

jng that gas was commonly recognizedas a mineral In Logan County in 1905.and reaffirmed the rule stated in theStegall case using the language which Iquoted at the outset of this review. It issignificant that the Middleton case.which will be discussed later. had beendecided by Judge Miller and was takenInto consideration by the ArkansasSupreme Court in its deliberation on theAhne case. The dissent of JusticeMcFaddin in this case is also of interest.since he again insisted that a specificdate be fixed when it was generallyrecognized that 011 and gas wereminerals on a statewide basis. He contended that the Court had drifted like aship without a rudder on a question vitalto property law. He reviewed each casebearing on the Strohacker rule and contended that the Court had gone fromwhat the grantor intended in theStrohacker case. to what the parties intended In the Furqueron and Carsoncases. back to what the grantor intend·ed in the Brizzolara case. then to whatthe word mineral was generally understood to mean at the time of the conveyance in the Stegall case. and finally to acounty by county determination of whenoil and gas became recognized asminerals in the Ahne case.

In June of 1966, the Eighth Circuitdecided the case of Western Coal andMining Co. v. Middleton, 362 F. 2d 43,which had been decided by JUdge Millerof the Western District in 1965. As I havepointed out previously. the Middletoncase had been tried (Judge Miller's decision is reported in 241 F. Supp. 407) andwas before the Arkansas Supreme Courtduring its deliberations on the Ahnecase. As a matter of fact. attorneys forWestern Coal and Mining Co. filed anamicus curiae brief in the Ahne case.and the Eighth Circuit delayed its decision in the Middleton case appeal untilthe Ahne case was decided. The Middleton case involved a deed from the feesimple owners of certain lands near FortSmith in Sebastian County, Arkansas, toWestern Coal and Mining Co. (a subsidiary of Missouri Pacific Railroad Co.)which was executed on April 2, 1904,and which covered ..... all and singularthe coal. fireclay and other minerals contained within and underlying ..." saidlands. The Eighth Circuit affirmed JudgeMiller and concluded that his findingsand jUdgment were supported by substantial evidence. and were not clearlyerroneous. The finding of Judge Millerthus affirmed was that" ... although thebusiness community regarded oil andgas as a valuable mineral. the commonand commercial usage of the term'mineral' and 'other minerals' in Sebastian County did not include oil and gason April 2, 1904." It is difficult to understand how the Eighth Circuit could affirm

the decision in this case when you consider the language of the Ahne casewhere the Court set up legal orcommercial usage ..... as the standardby which the terms "minerals" or "otherminerals" were to be measured. JudgeMiller specifically found that the"business community" regarded oil andgas as valuable minerals on April 2,1904. in Sebastian County. By definition.the words "business" and "commerce"are synonymous. and it is our feelingthat Judge Miller was actually guided bysome standard other than" ... legal orcommercial usage ..... in this case. Although he did not say so. Judge Millermay have followed the rule of "ejusdemgeneris" which is defined by Black'sLaw Dictionary as ". . Where generalwords follow an enumeration of personsor things by words of a particular andspecific meaning, such general wordsare not to be construed in their widestextent. but are to be held as applyingonly to persons or things of the samegeneral kind or class as those specifically mentioned ..." The deed in theMiddleton case described coal and fireclay and followed such particularenumeration with " ... and otherminerals .. .... Applying the ejusdemgeneris rule. oil and gas would be excludable as not being of the same kind.class or nature as coal and fireclay. Although Judge Miller specifically statedthat the subjective intent of the partiesto the transaction" ... is not the governing criteria in determining what is included by the use of the term 'minerals'or 'other minerals' ", it is noteworthy thathe also stated" ... The failure of theparties to specifically refer to oil and gaswhen it was of commercial value in thecommunity is strong evidence that suchinterest was not intended to pass underthe instant deed ... As applied to theseparticular parties, the grantee had no apparent interest in any possible oil andgas as a mineral as it had at that timeshown no interest in the development ofthis particular industry. Its business wasthe development and production of coalreserves. Had it sought the possible oiland gas estate. it wou Id have specifically provided for it as it did with respectto the coal and fireclay ..." This type oflanguage is very similar to that used inthe so-called "Dunham Rule" cases inPennsylvania. The Pennsylvania Courtrecognizes oil and gas as minerals in ascientific sense, but requires theirspecific mention in conveyances orreservations, and does not construe thegeneral term "minerals" to cover them.The Pennsylvania rule is referred to asthe "minority" rule and Pennsylvania isthe only state which follows it. Neitherthe "ejusdem generis" rule. the subjec·tive intent approach. nor the "Dunham




Rule" are acceptable to the ArkansasSupreme Court.

In my opinion, Judge Miller wasclearly in error when he did not findoil and gas to be included withinthe term "other minerals" in theMiddleton case.

He discussed in his opinion various legal documents which were of record in1904. and which clearly demonstratedthe legal community's knowledge of oiland gas, and which recited consideration indicating a commercial traffic insuch minerals. In view of this, and hisspecific finding that the "business community" considered oil and gas to beminerals, he should have reached anopposite conclusion from that which hereached. and the Eighth Circuit shouldnot have affirmed him for the same reasons. The Eighth Circuit did affirmJudge Miller, however. so we mustestimate the weight which may be givento the Middleton decision by courts insubsequent cases. It is my opinion thatcourts will not give great weight to theMiddleton case because it so clearly departs from the standard laid down by theArkansas Supreme Court in the Stegalland Ahne cases.

The next case in the line of casesbearing on the Strohacker rule wasDiamond Shamrock Oil and Gas Co. v.Commissioner of Revenues, et at,which was decided by Judge Williams ofthe Western District in 1969. This caseinvolved three tracts of land in LoganCounty, Arkansas, under which the ....coal. oil and mineral .... was conveyedon July 21. 1905. August 5. 1905 andJanuary 16. 1905. All three of the deedswere secured pursuant to options whichhad been secured from the owners of feesimple title by George Heim. who wasthe grantee in the deed involved in theAhne case. The deed in the Ahne casewas dated july 26. 1905. covering landthree miles from the land involved in thiscase. and was executed on a form identical to that employed in connection withthe three transactions described above.The Diamond Shamrock case arose asan interpleader action by DiamondShamrock to determine whether gasroyalties should be paid to the successorin title to the grantees under the threedeeds described above, or to the surfaceowners under their claim that gas wasnot conveyed by the deeds. The ownersof the interests created by said deedsmoved for summary judgment contending that no triable issue of fact remainedafter the holding in the Ahne case thatgas was commonly known and recognized by legal and commercial usage asa mineral in Logan County in 1906.Judge Williams sustained the motion for

9O/July 1975/Arkansas Lawyer

summary jUdgment saying that the Ahnecase was dispositive of the issues, andthat as to any conveyance ofminerals in Logan County. Arkansas,SUbsequent to 1901 no ambiguity as tothe meaning of the term is presented... " The Court took ludicial knowledgeof the fact that the lands involved in theDiamond Shamrock case were" inthe same community ..." as those involved in the Ahne case. The court appears to have relied on the doctrine of"stare decisis" in so holding. To do so,the Court necessarily ruled that the priordecision in the Ahne case had, as a matter of law, disposed of this case, sincestare decisis revolves around thepresentation of the same legal problemin a later case involving different parties.An appeal was taken in the DiamondShamrock case, but notice of appealwas filed prior to entry of judgment. although JUdge Williams had delivered awritten opinion, and after briefs had beensubmitted and the case argued orally tothe Eighth Circuit. the Eighth Circuitfound that the premature notice of appeal had the effect of depriving it of jurisdiction to do more than remand the caseto the Western District for further action.The Western District then entered judgment after remand. but no further appealwas taken. If a rUling of the type made byJudge Williams in this case is Ultimatelysustained by reviewing authorities.another dimension will have been addedto the Ahne case holding which prescribed "Logan County" as the area affected by the decision.

The next case in the line of cases in·volving the Strohacker rule was decidedby Judge Miller of the Western District inMarch of 1971. The case of Mining Cor·poration of Arkansas v. InternationalPaper Co.. 324 F. Supp. 705, involved areservation contained in a deed coveringlands in Clark County, Arkansas, whichwas executed in 1911. The purportedreservation was as follows: " ... also re·serving all minerals, coal. oil and gas onsaid lands ..." The plaintiff claimed under said reservation that it owned thecinnabar and mercury under said lands.For reasons not pertinent to this discussion, the Court held that the entirereservation was ineffective, but the Courtwent on to say: .. Even if the reservationin the deed of "all minerals, coal, oil andgas,' should be considered as a validreservation at the time, May 10, 1911,such reservation did not include cinnabar or mercury for the reason that underthe law of Arkansas a reservation whichused the term 'minerals' only includesthose minerals known to exist in the areaembraced in the deed at the time of theexecution of the deed. and cinnabar ormercury was not known to exist at thattime." The Court cited the Mothner, Middleton, Singleton and Strohacker cases

as authority for this holding. Here again,Judge Miller has shown a reluctance toadopt the Arkclilsas Supreme Court'sstandard as expressed in the Stegall andAhne cases and we wonder what thisfinding would have been if the evidencehad indicated that said minerals were"known to exist" in Arkansas in 1911.but no showing could be made that theywere commonly recognized in legal andcommercial usage as minerals at thattime.

The last case in the line of cases involving the Strohacker rule was decidedby Judge Henley of the Eastern Districtin January of 1973. The case of RosaThomas, el al., v. Markham & Brown,Inc., et al., 353 F. Supp. 498, involving areservation contained in a deed coveringlands in Pulaski County, Arkansas,which was executed in 1953. The reservation was as follows: .. . One/Fourth(1/4) of all oil. gas and mineral rights inand to said lands." The defendants whowere grantees in the deed in questionwere quarrying and selling a form ofgranite known as pulaskite, and refusedto account to the plaintiffs. who weregrantors in said deed, for any portion ofthe proceeds. The plaintiffs brought suitcontending that the mineral reservationin the deed extended to pulaskite. Thedefendants took two positions. First. theycontended that pulaskite was not amineral in the technical or scientificsense. Alternatively, they contendedthat. apart from any scientific characterization of pulaskite as a mineral, itwas not generally considered to be amineral in 1953 and that unde~ rUling Arkansas cases it did not fall within theterms of the reservation. The Courtfound that stone material such as pulas~

kite was not generally considered to bea mineral in 1953. and that a generalreference to minerals or mineral rights ina deed or lease at that time would nothave been understood in the commercial or legal usage as inclUding suchstone. The Court cited the entire line ofcases involved in the so-called Strohacker rule. He summarized the holdings of all of the cases in the followingmanner: "In construing a mineral grantor reservation in which the mention ofspecific minerals is followed by ageneral reference to 'other minerals' or'mineral rights', the courts of Arkansasdo not take a ejusdem generis approachwhich would limit the scope of thegeneral language to minerals of thesame generic class as those specificallymentioned. Rather, the question is treated as being one of fact and is to be answered ultimately by reference to the intent of the parties. It should be emphasized, however. that the intent withwhich the courts concern themselves isobjective or presumed; it is not the subjective intent of either the grantor or

grantee. It does not matter what a particular grantor or grantee Intended to beincluded in or excluded from the scopeof general terms like 'mlnerals' or'mineral rights.' The question is whetherat the time of the grant the substance In

question was generally considered to bea 'mineral.' If in common speech orusage at the time of the grant the general terms that had been mentioned included the substance In questIon. thenthe substance IS considered to be included in the grant or reservation, other·wise. it is not."

Judge Henley had concluded hisopinion after makIng the finding of fact.citation of cases and summary of lawwhich 1 have referred to, I would con·sider It an excellent opinion. Unfortunately. the judge felt it was "worthwhIle to menllon" a recent decisIon fromthe Texas Supreme Court (Acker v.Guinn, 464 S. W. 2d 348) In which theTexas court held that. unless a contraryintention clearly appears. a mineral conveyance or reservation should not beconstrued so as to include mineralswhich cannot be extracted or utilizedwithout destroying the surface of theland as by stripping or quarrying. JudgeHenley noted the similarity to the Arkansas Supreme Court decision in the Car·son case which involved bauxite. ThIscauses us to wonder whether the JUdgewas moved by thIs consideratlon morethan by the findings of fact and application of legal principles first discussed inhIS opinion.

Before turning to the applicationof the legal authorities I have reviewed, we should take note of thefactual data afforded us by evidence introduced in the variouscases I have reviewed.

The documentary eVidence in theAhne case is probably the most comprehensive. and was designed to prove therequisite "common recognition in legaland commercial usage" of oil and gasas minerals at as early a date aspossible. From such documentary evi·dence we see that the earliest gas showrecorded in the state occurred inFayetteville. Arkansas (WashIngtonCounty) during the drilling of a waterwell In 1878. Gas shows were reported In

two dry holes dnlled In the City of FortSmith (Sebastian County) in 1888. Theearliest geologic map of Arkansas waspublished in 1892 in the Annual Reportof the Geologic Survey by John C. Branner. This map indicated the ClarksvilleAnticline in Johnson County and thePrairie VIew and Pine Ridge AntiClinesin Logan County. The Prairie View AntIcline was described as lying across theArkansas River south of the ClarkSVilleAnticline, and evidence in the Ahne caseindicated that thIS land was first leased

for 011 and gas purposes in 1916. As amatter of fact. the evidence in the Ahnecase indicated no leases were recordedfor oil and gas purposes In LoganCounty before 1896. From the Mothnercase. as well as the Ahne case, the factappears that the first commercial production of gas In Arkansas occurred atMansfield in the southern-most part ofSebastian County in 1902. The Mothnercase also pOints up the fact that the earliest oil and gas leases recorded inJohnson County were taken In 1916,whIch corresponds to the date of leasingactivity on the Praine View AntIclineacross the river In Logan County. We arealso told in the Mothner case that theearliest commercial production of gas inJohnson County occurred in 1922. although the records of the Arkansas 011and Gas CommiSSIon Indicate that thediscovery well in the Clarksville Anticline was drilled In 1921. In evaluatingany Strohacker type conveyance orreservatIon. resort should be had to anycase involving lands near the affectedtract. The Oil and Gas Commission rec·ords indIcate the dates of the first drillingactivity in each of the counties in Arkansas. The records in the Circuit Clerk'soffIce in each county proVIde factualdata as to the earliest traffic in oil andgas leases in that county. It can be seen,therefore that there is a body of factualinformation readily available to the landman and attorney to which the legalrules created by the cases can be applied. In order to apply these rules. wemust determine what the issues wouldbe if the specific problem presented by aStrohacker type reservation or conveyance were litigated. Regardless of themanner in which the litigation mightarise, whether by a suit for a declaratoryJudgment. a quiet title suit or by an interpleader action. the Arkansas SupremeCourt has sought to answer the essentialquestion of what substances were included within the generalized term "mineraI" appearing in a conveyance or reservation. The Court has indeed madeseveral subtle shifts in its approach tothIS question. but after the Stegall andAhne cases there can be no doubt thatthe Court has settled on an approachwhich requires a factual determination ofwhether the substances in question in agiven case were commonly known andrecognized as minerals by the legal andcommerCIal usage of the area where theinstrument was executed at the time ofits execution. In spite of several U.S. Distnct Court cases which seem to turn onthe subjective intent of the grantor. or ofboth parties. or on the "ejusdemgeneris" rule. or on the Pennsylvania"Ounham" rLile. or upon a determinationof minerals "known '0 exist" in the areaat the time of conveyance or reservation.the Arkansas Supreme Court has ex·

pressed itself in its own decisions, andhas not endorsed any of these rules.

From today's perspective, then,how should you deal with a Strohacker type conveyance or reservation?

If the conditIons under which you areoperating are the same as those whichprevailed in 1955, i. eO, you are trying tosecure a lull oil and gas leasehold interest at a low bonus consideration. Iwould stay with the procedure we usedthen. I would purchase leases from allclaimants of oil and gas interest underproblem tracts, If this is not possible. 1would secure a commItment of unleasedInterest by way of the statutes whichhave been discussed. Since the 1963amendments, both the conservationstatute and the receivership statuteshave been Improved from this standpOInt.

If you are unable to secure leases orother commitment of all interest in aproblem tract. or if the bonus consideration IS so high that it is not feasible topay multiple bonuses. you may have tomake a reasoned choice of claimants.This would be particularly true in situa·tions where a series of conveyancescontaining mineral reservations havecreated numerous claimants rather thantwo opposing claimants under a tract.Under such CIrcumstances, the landmanshould assemble as much factual dataas pOSSIble WIth regard to traffic in orany transactIons Involving oil and gasleases. or conveyances of oil and gas byname. He should also develop the factswith regard to drilling activity or otherproduction or development of 011 andgas In the county where the tract IS. Werecommend that all surrounding counties be Similarly checked. When thIS Information has been developed. the attorney should revIew It. along with anyfactual data already supplied by priorcases. In order to estimate an approximate point In tIme when the term"minerals" would Include oil and gas.When VIewed next to such an estImate.the chOIce of claimant may be obVIOUS.or It may be very close. Under these circumstances. the operator must make abusiness decision as to whether he WIllrisk all on one claImant's positIon. orbite the bullet and lease all of theclaImants under the tract.

If you happen to be representIng aclaimant under one of these problemtracts, your deCision IS somewhat eaSIersInce you have no choice to make.USIng the same approach as an 011 andgas operator would use In making achoice. you should evaluate your Client'sclaIm. DependIng upon ItS relativestrength or weakness. you can thenfashIon an approach to a JudIcial deter·


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A homeowner suffered a loss of some valuable antiques throughburglary. After five months of negotiations he could not reacha satisfactory settlement with the insurance carrier. He thenreferred the matter to an attorney who had represented him inprior dealings. The attorney orally agreed to handle the case.

After a short period of time, the client allegedly asked theattorney to withdraw from the case because he wanted to pursuethe matter on his own.

Nothing more was accomplished and the statute of limitationsran out. The insurance carrier refused settlement because theone year in which to file suit had lapsed. The claimant theninitiated a professional liability suit against the attorney for hisalleged failure to protect the interest of his client.

A compromise settlement was made through the attorne{sprofessional liability insurance policy because of the conflictingtestimony between the attorney and his client as to the scopeand duration of the representation.

Always conlirm in writing to the client when the scope or nature01 the representation changes or ceases.


WHAT IS YOUR ETHICS RATING?

Professional Ethics is a "musf' subject! However, many law schools do nothave an Ethics Course; many lawyers have not read the Code of ProfessionalResponsibility (adopted by the Arkansas Supreme Court). We are indebted tothe New York State Bar Association for permission to reprint four Ethics Quizzes, recently published to remind its members of their professional responsibilities. Score yourself on how well you know the Code. Quiz NO.1 only takesa few minutes. Passing mark: 100.

1. Maya lawyer contribute to the campaign of a judicial candidate beforewhom he may appear in the future as an advocate?

2. Mayan attorney charge a client interest on a long-delinquent unpaidbill?

3. Maya lawyer send to clients for whom he has drawn wills a notice everyfive years suggesting that they come in and review their wills for anynecessary updating?

4. Maya City Councilman serve as a lawyer for a corporation which competes for city contracts?

5. Maya personal injury lawyer make a personal loan to a client to help himover some" rough spots" on the understanding that the attorney will be reimbursed but only out of the settlement or judgment eventually obtained frompending litigation?

6. Maya lawyer represent both husband and wife in a "friendly" separationor an uncontested divorce if he has explained any possible conflicts of interest to the parties and both have knowingly consented to the arrangement?

7. May the name of a law firm continue to include the name of a partnerwho serves as a part-time District Attorney but continues to practice regularlywith the firm?

8. As a Legal Aid attorney, Mr. Goodfellow represented Ms. Abercrombie inher dealings with the Welfare Department regarding supplementary stipends.He subsequently learns that Ms. Abercrombie had thereafter inherited a sizable amount of money from her uncle. Must he automatically report that factto the Welfare Dept.?

9. Assume Ms. Abercrombie asks Goodfellow again to represent her at awelfare hearing and Goodfellow confirms from his conversation with her thatAbercrombie has failed to report her inheritance on her welfare applications,as the law requires her to do. Does this fact change your answer to question8?

10. Mayan attorney use a tape recorder to keep a record of his telephonecalls without advising the parties on the other end of the line?

Yes No Don'tKnow

Now check your answers against the correct responses. Give each answer a weight of 10. How's your score? If youscored below 100 you should sit right down and read through the Code of Professional Responsibility! Answers are onpage 97. :J-_~


JURIS DICTUMby C. R. Huie

Executive Secretary, Judicial Department

TRAFFIC COURT JUSTICEOf interest to all attorneys who may from time to time represent clients accused of traffic violations when they are brought to trial in

municipal, city, or justice courts is the activation of Senate Concurrent Resolution No. 17 adopted by the General Assembly on March13, 1975.

Senator Bill Walmsley of Batesville authored the resolution which is quoted in full as follows:

SENATE CONCURRENT RESOLUTION

RELATING TO A STUDY OF THEPENALTIES FOR OPERATING ANAUTOMOBILE OR OTHER VEHICLE INA MANNER NOT IN COMPLIANCEWITH THE LAWS OF THE STATE OFARKANSAS TO DETERMINE THE ADVISABILITY OF ESTABLISHING ADDITIONAL PENALTIES AND OPPORTUNITIES FOR REHABILITATION FOR TRAFFIC OFFENDERS.

WHEREAS, it has long been recognized that a person who operates anautomobile or other vehicle in a mannernot in compliance with the traffic laws ofthis State poses a significant threat tothe safety of himself and others; and

WHEREAS, the number of personswho operate an automobile or othervehicle in a manner not in compliancewith the traffic laws of this State continues to increase; and

WHEREAS, the penalties now provided by law are capable of being revised to incorporate alternatives to sentencing which would not be undulyrestrictive, but which have been provensuccessful in deterring a person fromoperating an automobile or other vehiclein a manner not in compliance with thelaws of this State;

NOW THEREFORE,BE IT RESOLVED BY THE SENATE OFTHE SEVENTIETH GENERAL ASSEMBLY OF THE STATE OF ARKANSAS,THE HOUSE OF REPRESENTATIVESCONCURRING THEREIN:

That the "Committee on Traffic CourtJustice" is hereby created to make acomprehensive study of, among otherthings, the alternative sentences notnow uniformly available to the Courts of

Arkansas which would or could be effective in deterring an individual fromoperating an automobile or other vehiclein a manner not in compliance with thetraffic laws of the State of Arkansas andto determine the advisability of implementing one or more of these alternatives.

The "Committee on Traffic Court Justice", hereinafter called committee, shallbe composed of eight members. Thecurrent President of the MunicipalJudges' Council shall serve as theChairman of the Committee. Theremaining seven members shall be appointed by the Chief Justice of the Arkansas Supreme Court. Such appointments shall be made within two monthsof the adoption of this resolution.

The committee is further requested tostudy, in addition to alternative sentences, any material relating to the problems of the Arkansas Traffic Courts.These further studies may include, butshall not be limited to, a Code of Ethicsfor Traffic Court Judges and a UniformBond Schedule.

BE IT FURTHER RESOLVED fhat theLegislative Council shall cooperate fUllywith the "Committee on Traffic CourtJustice", to the end that the report of thecommittee of its findings shall be madeto the Arkansas General Assembly notlater than ten (10) days from the convening of the next regUlar session of theGeneral Assembly.

In response to the resolution, ChiefJustice Harris appointed the following asmembers of the Committee called for bythe resolution: Chairman, Judge DeanMorley of the North Little Rock Municipal Court and President of the Arkansas

Municipal Judges' Council. Other members are: Municipal Judge LawsonCloninger of Fort Smith; MunicipalJudge Lindsey Fairley of West Memphis;Municipal Judge Charles Goldberger ofPine Bluff; Joseph McQuany, Director,EOA Alcoholism Program; Ed Bethune,Esquire, Attorney, of Searcy; HonorableTommy Mitchum, Member of the Houseof Representatives, of Batesville, and author of present law pertaining to drivingwhile under the influence of alcohol; andMs. Arlene Heath, Deputy ProsecutingAttorney of Pulaski County.

In a recent address to the PulaskiCounty Bar, Chairman Morley invitedsuggestions from not only the lawyerspresent, but also from those attorneysover the state interested in seeing thatthe ends of justice are served in our traffic courts. He requested that correspondence be directed either to him at theMunicipal Court in North Little Rock orto the Judicial Department, JusticeBuilding, Little Rock, Attention: BobWellenberger, Chief of Traffic CourtsDivision.

MODEL JURY INSTRUCTIONSCRIMINAL

The Supreme Court Committee onModel Jury Instructions - Criminal hasbeen reactivated following a temporaryrecess pending completion of the workof the Criminal Code Revision Commission. Now that the new Criminal Codehas been adopted, and the proposedRules for Criminal Procedure now pending before the Supreme Court will be acted on by the Court in the near future, application has been made to the ArkansasCommission on Crime and Law Enforcement for funding continued work of theCommittee. Approval of the application



EXECUTIVE COUNCILNOTES

By James M. MoodySecretary·Treasurer

The Executive Council has met twicesince the last issue of the Arkansas Lawyer.

At its March 8, 1975 meeting, theCouncil heard a report from the Professional Utilization Committee. The committee made a number of specificrecommendations including writing toeach JUdge and Chancellor to determine the need for lawyers in their district; expanding the Bridging the Gapseminar to include a five day course inFaye«eville in addition to the one in little Rock; and to request that law students be inctuded in Career Day at theUniversity of Arkansas at Little Rock andat the Fayetteville campus.

The Council approved the resolutionwhich had been proposed to the Houseof Delegates asking the Supreme Courtto adopt a rule permitting attorneysresiding out of the State to practice before Arkansas courts after meeting certain standards. The Supreme Court in aper curiam orde' dated May 12, 1975 in-

Juri. Dictum,Continued from page 95

is expected in June, and Judge PaulWolfe of Fort Smith, new Chairman ofthe Committee, is expected to ask hisCommittee to begin work in July, JudgeWolfe succeeds Judge Charles Light ofParagould who has retired.

Other members of the Committee appointed by the Supreme Court are; Associate Justice George Rose Smith of theArkansas Supreme Court; Circuit JudgeWilliam Lee, Clarendon; Circuit Judge0, H, Hargraves, Forrest City; Bill Wilson, Esquire, Attorney, Little Rock; JackL Lessenberry, Esquire, Attorney, LittleRock; John C, Calhoun, Jr., Esquire, At-


vited members of the bar to make suggestions and comments to them by June11, 1975,

President Sharp made the followingappointments to the Arkansas Law Review Board: Judge William H, Enfield fora five year term, Mr. Henry Woods for afive year term, Mr. C. B. Nance, Jr. for afive year term and William R. Wilson tofill the position of Judge Richard B,McCulloch.

Col. Ransick reported that the firststage of the bicentennial project is funded after receiving $2,(X)() from the Bicentennial Commission.

At its May 16 and May 17 meetings atthe Red Apple Inn, the CounCil approvedfor consideration by the House of Delegates a functional plan for Implementinga statewide lawyer referral service.

Richard Hatlield, Chairman of the Prepaid Legal Aid Committee reported onrecent developments and the "ChicagoAmendments" which place open andclosed plans on the same level. The

torney, Little Rock; Circuit Judge HarrellSimpson, Pocahontas; Circuit JUdgeBobby Steel, Nashville; Mahlon Gibson.Esquire, Prosecuting Attorney, Fayetteville; and William I. Prewitt, Esquire, Attorney. EI Dorado. Executive Director isFrederick S. Ursery, Esquire, Attorney,Little Rock.

The Committee will welcome suggestions from both Bench and Bar and anyother person who desires to make helpful contributions. Communications maybe directed to Frederick S, Ursery, Esquire, Attorney, The First National Building, Little Rock 72201, phone: 376-2011or the Judicial Department, JusticeBuilding, Little Rock 72201. 1....

CounCil approved the "Chicago Amendments" for consideration by the Houseof Delegates as a proposed amendmentto the Code of Professional Conductadopted by the Supreme Court,

President-elect Bob Compton announced the discontinuance of severalexisting committees and the creation ofnew Medical-Legal and Specializationcommittees.

President Sharp reported that 15 of theBar's legislative bills had been enactedinto law; that the two which failed of passage had not been processed throughthe Association's normal proceduresand that. in addition, $50,000 had beenobtained to fund the operation of theSupreme Court's Civil Procedure Comminee for two years under the chairmanship of JUdge Andrew Ponder,

A Rememberance Resolution for thefamilies of the past presidents of the Barwho died this year will be prepared byPresident Sharp and will establish a precedent in such cases.

The Council voted a "Do Pass" to theproposed Uniform Rules of Evidence.The rules will be considered by theHouse of Delegates at a special meetingin Fayetteville at the Fall Legal Institutefor inclusion in the next bar sponsoredlegislative package.

Ballots for contested positions on theHouse of Delegates were tabulated onMay 22. Harley Cox, Jr. won a seat fromJefferson County and the winners inPulaski County were Chris Barrier,Charles Brown, Joe Buffalo, AbnerMcGehee and Larry Wallace,

Membership continued to remain at arecord high with 1.988 members as ofMay 15,1975 compared to a membershipof 1,860 on May 11, 1974 and 1,712 as ofMay 11, 1973, J--__

Construction MortgagesIn Arkansas . . .Questions andPartial Answers

-by Donis B. Hamilton

~ ...-~.-z_.....~~ s.:.

ADDENDUMIn the discussion of intervening

liens for fixtures on pages 52 and 53of the article "Construction Mortgages in Arkansas - Questions andPartial Answers" in the April issue ofThe Arkansas Lawyer, the effect ofthe amendment to Section 85-9-313of the Statutes by Act 116 of 1973was omitted.

In House, Trustee v Long, 244Ark. 718, 426 SW. 2d 814. it washeld that the security interest in aheating and cooling system tookprecedence over the prior recordedconstruction mortgage to the extentthat advancements had been made

Answers to Ethics Quiz(No Peeking! Mark your own

answers to the quiz first.)1. Yes. Providing the following

conditions are observed: the contribution is not unreasonably large; itis made to a committee rather thanthe candidate himself; neither thecontributor nor the committee informs the candidate of the contribution. In this case. as in all others involving ethical issues. any doubtsabout the propriety of the donationshould be resolved against it. as "alawyer shou Id avoid even the appearance of impropriety". Canon 9.

2. No. This does not include, however. interest awarded by the court ifthe debt is reduced to judgment.

3. Yes. Such renewal notices mayin fact be required if there has beena material change in fact or lawsince the will was drawn. At anyrate. such a renewal notice systemdoes not violate the prohibition ofsolicitation contained in DR 2-104(A), since the person notified already is a client.

4. No. Even if no actual conflict ofinterest were to be involved in such

under the mortgages before thegoods were affixed to the real estate. After the effective date of Act116 of 1973 (January 1. 1974) theconstruction money mortgagewould take precedence over thesecurity interest in the fixture whether or not the security interest wasperfected prior to the installation ofthe fixture. However. the construction mortgage priority may be subordinated where the mortgagee hasconsented in writing to the securityinterest or has disclaimed an interest in the goods as fixtures or wherethe debitor has a right to remove thegoods as against the mortgagee.

a situation, a lawyer should avoidactions which even suggest impropriety. See DR 5-101; DR 8-101;Canon 9. This conduct may also beproscribed by conflict-of-interestlaws. as in New York City. Consentof the city agency. however. wouldnot cure the problem.

5. No. Generally, a lawyer shouldnot acquire a proprietary interest inhis client's litigation. While a lawyermay advance to a client the costs oflitigation, other monetary assistanceshould not be provided. See EC5-7;EC5-8; DRS-103 (A) (B).

6. No. A lawyer should not represent mUltiple clients where a possible conflict of interest may arise.While disclosure to the clients of therisk of conflict and their subsequentconsent to multiple representationwill often allow such an arrangement to proceed. the possibility ofprejudice in the divorce situation issufficiently great that multiple representation should be avoided regardless of the parties' consent.

7. Yes. The test for maintainingthe names of part-time public officials is generally whether they practice "actively and regularly". See

An interesting feature of the newprovisions of Ark. Stats. Section 859-313 is that a refinancing of theconstruction mortgage carries withit the superiority of the constructionmortgage lien over the security interest in the fixtures.

For an excellent comparison ofthe old and the new provisions ofArk. Stats. Section 85-9-313. seeGoodkin. "The Ambiguous StatutoryMachinery Pertaining to Fixtures under the Uniform Commercial Code:Whether the New 9-313 Provision Effectively Eliminates Prior Criticismof the Old 9-313" 27 Ark. L Rev. 482(1973) :J-~

EC2-12. Of course. local laws andagency regulations regarding limitations on practice by part-time officials must always be considered.

8. No. See next answer.9. Yes. A lawyer is not ordinarily

under an affirmative obligation to reveal such information to the government and may properly assume thathis client will do so. He becomes soobligated if he receives information"clearly establishing" that his clientor another person has committedfraud. In this case. the receipt of evidence of deliberate failure to disclose the inheritance on the part ofthe beneficiary would bind the lawyer to call upon his client to rectifythe omission. and, if she does not.to inform the Welfare Department ofthis fact. See DE 7-102 (B).

10. Even though such a recordingby one party to a conversation maynot be illegal, the obligation to becandid and fair makes it unethicalfor an attorney to make any secretrecording of his conversations withothers except under special circumstances sanctioned by jUdicial orother proper authority. !I_ ....


THE TEAM APPROACH orHELP! MY SECRETARY'S GONE TODAY!

By Fran Shellenberger·

Economics

Anthony Advocate and Lawrence Lawyer. partners In a firm of five attorneys.met In the hallway enroute to their adJOining offices early one morning. Eachhad bUsy schedules for the day andmany Items ready for his secretary. Inaddition. Anthony was preparing for anout-ot-town trip and was finishing a complex agreement to mail to his client thatafternoon.

Anthony and Lawrence each workedclosely with his own personal secretarywhose desk was stationed near her lawyer's office. Louise, Lawrence's secretary. was equipped with an automatictypewriter while Audrey. Anthony'ssecretary. used a standard electricmodel.

Upon arrival at his office. Anthony wasgreeted by Louise. who brought him themorning mall and the message that hissecretary. AUdrey. would not be In the offlce that day due to the illness ot heryoungest child.

O,d Anthony hurry to call the firm's office manager with an urgent request forsecretarial help that day? Did the officemanager have to arrange for someoneelse's secretary to assist him? Whatabout temporary help from an outsideagency for the day? Can they get someone experienced? Old Anthony decide tocall hiS client and explain tactfully thathis secretary IS away and he'll have towalt for her return next week to completethe client's agreement?

Fortunately. Anthony dldn't have to doany of these things because he and Lawrence Instituted a "team approach" lastsummer, The two lawyers and the twosecretaries agreed to work together as ateam of four. Anthony and Lawrence proVided work for both Audrey and Louisewho in turn shared the secretarial dutiesfor both lawyers. Audrey and Louise divided the duties so that Louise handledthe document preparation for both lawyers on her automatic typewriter and


Legal

Audrey handled correspondence. appointments, filing. answering the telephone. etc.. for both lawyers.

Louise enjoyed the freedom from offlee Interruptions when she was preparing lengthy documents and soon became the office expert With her automatiC typewriter. She found time to asSiSt other lawyers In the firm with theirworkload occasionally. While she wassatisfied with the arrangement and enJoyed the personal contact with the twoat1orneys. she felt at times that Audreydid not appear to have very much to doand wondered if the arrangement wasfair. Also. the steady typing workloadwas exhausting at times.

Audrey found that she could offer bothlawyers administrative support andcould become closely connected Witheach lawyer's practice. Because she became knowledgeable about the chents'affairs and the chents themselves. shewas able to assume more and more responsibility when the lawyers themselves were unavailable to their clients.However. she was uncomfortable attimes because it seemed that someoneelse was doing her old job for her. Shemissed the feeling of accomplishmentassociated with the completion of alengthy typing assignment.

Louise and Audrey agreed that although the team approach was helpful.each would like to have at least part ofher old Job back. So they carried therr"job sharing" a step further. Each secretary traded Jobs With the other longenough to learn the other's Job. Theytook the time to prepare a desk manualof Instructions for carrying out the varIOUS aspects of their Jobs. Each was ableto use the other's manual when problems arose or when one of them was absent. In addition. Audrey took a fewdays' training to learn how to operateLouise's automatic typewriter. She foundshe learned even more from Louise herself, however. because Louise had developed innovative techniques for her

typewriter which were not mentioned In

the training sessions.LOUise enjoyed the variety of Audrey's

duties and appreciated the time awayfrom her typewriter. LoUise was overwhelmed at how little she could accomplish during the day due to the almostconstant interruptions. She marveled atAudrey's ability to handle difficult situations and bragged that Audrey couid tella client or adverse counsel to go to (expletive deleted) and convince him thathe would enjoy the trip! Each secretarydeveloped a new awareness of theother's abilities and an appreciation forthe other's duties by understanding themfulty.

The team approach benefited themembers In ways which surprised all ofthem. LOUise and Audrey found that theycould eaSily schedule time away fromthe office for appointments. etc.. because the other secretary could carry onalone for short periods wllhout creatinga criSIS for the lawyers. Anthony andLawrence were delighted with the arrangement because they now had mosecretaries who were familiar with theirwork and were rarely Without experthelp. If the workload demanded it. eachlawyer could utilize the help 01 bothsecretaries for a time, When Lawrencewas preparing for a triP away from thecity, both secretanes assisted in gettingthe work taken care of before he left.While he was gone, both secretarieswere available to Anthony. who neededsome extra help by then.

On thiS particular morning, Anthonyand Lawrence discussed the prioritiesfor that day's work. LOUise. the team typing specialist. spent part of the dayassisting Anthony with hiS agreement.and both lawyers continued With business as usual even though Audrey wasabsent.

·Secretary for Richard A. Williams. theregUlar author of this column. J....

Governor David Pryor is shown, presenting the Law Day Proclamation to Association President James B. Sharp. In the backgroundfrom right to left are Elizabeth Brooks, Chief Justice Carleton Harris, Ralph Sloan, Judge Dean Morley and Col. C. E. Ransick.

President James D. Fellers of theAmerican Bar Association congratulatesH. William Allen of little Rock. nomineefor the ABA's Board of Governors. AnAssociate in the Little Rock law firm ofWright. lindsey & Jennings. Allen is amember of the ABA Special Committeeto Survey Legal Needs and the Councilof the Young Lawyers Section. He isChairman of the Young Lawyers Section's Committee on liaison with theAmerican Medical Association. He wasChairman of the Arkansas YLS DisasterRelief Committee. A native of Brinkley.Arkansas. Allen received a B. A. degreefrom Southwestern at Memphis in 1966and a J. D. degree from WashingtonUniversity in 1969. He was admitted tothe bars of Arkansas. Illinois andMissouri in 1969 and served as assistantU. S. attorney. Northern District ofIllinois. in 1969-70. He served as a special assistant to Edward L. Wright whenMr. Wright was ABA President 1970-71.He also is a member of the Illinois, Arkansas and Pulaski County, Ark .. barassociations. J-~

July 1975/Arkansas Lawyerl99

As far back as the 16th century, Sir Francis Bacon, Britishessayist. philosopher and statesman, put his views in thesechallenging words: "1 hold every man a debtor to his profession; from the which. as men of course do seek to receivecountenance and profit. so ought they of duty to endeavorthemselves by way of amends. to be of help and ornamentthereto...

Two centuries later. Thomas Jefferson wrote to a friend of theRevolution who he thought was backsliding on his obligationsof citizenship that "there is a debt of service due from everyman to his country. proportioned to the bounties which natureand fortune have measu red to him."

Debtors we are. indeed. and our debts are posted on theledger of our respective professions and vocations. Currentlywe must take inventory of ourselves anew to ascertain: Whereare the credits, where are the ornaments?

In a recent edition of Freedom at Issue, the Board of Trusteesof Freedom House issued a statement proposing a seven-pointcredo. I thought the third was the most striking and authentic ofthese several points: "The individual has lost track of his relationship to government. expecting government to handlealmost everything for him. He has lost the belief that he hasmuch control over his destiny. too often taking refuge in aspurious nostalgia for the past. Government cannot do everything, and what it does undertake will succeed or fail by the individual's own behavior."

Indeed we are looking for informed. intelligent leadership.We are looking for the type of leaders so well identified by Peri·cles who, according to the Athenian historian, described hiswarriors as having earned praise that will never die and alongwith this a home in the minds of men-an enduring home, if youplease.


"SEEK THE LAW"-Leon Jaworski

His address to the General Assembly of the 77th AnnualMeeting of the Arkansas Bar Association on June 5,1975

In pondering the characteristics of the men and women thatare to lead America. we can prayerfully Join the poet Gillman:

"God send us men with hearts ablaze.All truth to love. all wrong to hate:These are the patriots nations need.These are the Bu Iwarks of the state."But when we search for leaders - we are not merely casting

our eyes at the top rung of the ladder. We mean leadership atall levels. Especially do we mean citizenship leadership at thecommunity level. Today our concern is leveled at the challengeour free society faces in the maintenance of a citizenryobedient to law.

Every now and then I hear a great sermon. I heard such a ser·mon last year when the Pastor of the First Presbyterian Churchin Philadelphia filled the pulpit in the New York Avenue Presbyterian Church in Washington. His sermon was on the subject ofseeking a city, taking his text from Hebrews 11:10 "For helooked for a city which hath foundations. whose builder andmaker is God." When in his sermon this illustrious preacherlaid out the elements of a city "which hath foundations," hesaid: "Seek the Law, Seek the Word. Seek to do good. The oldtruth remains. you see. that you cannot achieve good by evilmeans. Apparently nothing is so difficult to understand in ourpresent society. The tired old excuse is still that the endjustifies the means. It has always been wrong. It is wrong still."

We must recognize that this preachment is as true today as itwas when our nation was formed under law.

Still fresh on my mind is the sadness of seeing one of thegreat tragedies of modern history - men who once had fame intheir hands sinking to infamy - all because eventually theirgoals were of the wrong dreams and aspirations. The teachingsof right and wrong had been forgotten and little evils were per·mitted to grow into great evils - small sins to escalate into bigsins. How did Alexander Pope put it? "Unblemished. let me liveor die unknown. Give me an honest fame. or give me none."

Perhaps the most incredible of all conditions I encountered inWashington during the investigations was not only a flirtingwith the truth by some high officials but a blatant flouting of thetruth - a contemptible course of conduct that breaks down allconfidence in integrity. responsibility and leadership. To paraphrase the words of James Russell Lowell - the "cause of evilprospered" temporarily. but in the end it became evident againthat "truth alone is strong."

Painful to this nation as were the trials and tribulations ofWatergate. there were many in foreign lands who looked withadmiration upon the workings of our democratic processes. Ireceived a number of letters from citizens of other countries soexpressing themselves. One of these came from far away Allahabad in India. in which the writer said: "The bold manner inwhich the people of the United States tackled the Watergate af·fairs shows a new path to the lovers of democracy the worldover. I am sure that through this single example. the UnitedStates has proved the immense superiority that the free systemhas over the system practiced in countries behind the Iron Curtain." Then he added: "The misuse of power should be stoppedon an international basis just as it is being stopped in yourcountry. "

If we are to turn back the pages of history. we find that thosewho gave birth to this nation almost two hundred years agosought a dream of domestic tranquility. They laid out a patternto form "a more perfect union." They offered bloodshed and

suffered privation to lay the foundation for such a nation. Theyentrusted what they had founded. with all of its freedoms andnatural riches. to succeeding generations until it came into ourhands. The question is. how are we administering this trust? Anhonest appraisal compels us to admit that we find in our midsttoo much factionalism - we find far too much divisiveness. theresult of which is to disrupt the formation of "a more perfectunion.

It was only a few weeks ago that I stood in the hallowed roomin Independence Hall in Philadelphia. where the Declaration ofIndependence was signed, and after four months of debate.deliberation. study and prayer. our Constitution was adopted.As I contemplated Ihe setting. as it existed almost two hundredyears ago. there crossed my mind. more deeply than every before. the hardships. the service. and above all else the selflessness of these great patriots who gave so much to earn forgenerations to come the freedoms that are ours today. And as Iwalked away from this historic place. there returned afresh theeloquent expressions of dedication and devotion that meant somuch to them and which they hoped would be as fervently embraced by us. To remind me - almost to haunt me - came therecollections of immortal words they penned - "That all menare created equal" - "life. liberty and the pursuit of happiness"- and finally. the pledge to each other of "our lives. our fortunes and our sacred honor," Then I paused to wonder - arethese just empty phrases to many of us today - or are they stillas radiant. as inspirationaL and as binding in our pursuits asthey were to these great founders of freedom and seekers ofjustice?

It was not by accident that our nation's founders structured asystem ot government so unmatched in strengths of freedomsand social progress as to attain for us a position of leadershipamong the countries of the world. Neither was it by accidentthat. once attained. this position of preeminence has beeII retained throughout the years that followed. The undergirdingforce was. and has been through the years. the spirit ofAmerica. a spirit born in sacrificial dedication and nurtured by adevotion that places country above sell. But the spirit is waning- especially the readiness to offer leadership - and only aresurgence of this once indomitable spirit can meet the critical

challenges of today. But the spirit SO sorely needed is not selfgenerating and without manifestations of leadership. selflessand courageous. on the part of many individuals at many levels.it will be lost.

We know Ihat our nation was founded on the premise that theindividual citizen is to enjoy the Constitutional guaranties oflife. liberty and property. but the premise does not end there. Itis a two-way street and the citizen has the reciprocal responsibility of discharging the duties of citizenship. and thismeans that whatever contributions he can make to society andto good government. he is under obligation to discharge. Andthis obligation rests especially on the shoulders of those whoby training and experience have a particular competence inmatters of government and in citizen leadership.

In the trying and tragic Watergate days. the institutions of ourgovernment discharged their responsibilities. The Americanpeople insisted that constitutional action be taken and therewas sufficient leadership to respond in places where actionwas needed. But if once the people and their leaders. tried andtrue. are not boldly to speak out and condemn wrongs ingovernment. if they are to be indifferent and their representatives in government apathetic. what will follow?

To find the answer in history. we need be no more retrospective than to review the disastrous experience of Nazi Germany.There we saw. as the consequence of people's silence, timidityand indifference. the tragic deterioration of a proud nation thathad given SO richly to the culture of the western world. It retrograded to uncontrollable lawlessness and with anarchy as thethreat. a dictatorship arose. In the end, we saw the shambles with concentration camps, barbarities and depravities as theremaining fragments of what was once a nation toasted forachievement in art and literature and science.

The despicable ideology of Nazism did not grip Germanyovernight. It came as a cancerous growth, which by easy stages substituted wrong and evil for freedom and right and humandignity. As Edmund Burke warned - '"All that is needed for theforces of evil to win is for enough good men to do nothing."And. in fact. - to paraphrase Burke's admonition - there wereenough good men and enough good women in Germany. who.during the growth of Nazism. did nothing. They disapproved ofwhat they saw. but as they did nothing about it. the wrongsescalated from day 10 day. Once the stranglehold of Nazismwas applied to the free institutions of Germany and the schoolswere poisoned. places of worship silenced. and the courtsprostituted. the freedoms of protest and resistance were annihilated and the voices of good men and women were lastinglystilled.

There is great need today for instituting in our schoolsthroughout our country an enlarged and improved program ofyouth education in the fundamentals of law in a free society andin the responsibilities of leadership.


July 1975/Arkansas Lawyer/l03

Law,Continued from page 103

We call on our young people lor greater activity In undergird·109 our Institutions of government; we gIve them greaterresponsibilities at an earlier age than in generations past. butare we fair to them and to society in these respects unless wealso prepare them with the knowledge and the understandingnecessary to discharge these obligations? The theme of LawDay, U S. A a year or two ago- called on "Young Amenca to"Lead the Way" In regard to the changing of bad laws. thepreservation of good laws. and the making of better laws So farso good. yet how IS this mandate to be executed unless there ISpresent the ability to differentiate between good and bad laws?Whatever changes are made must be within the framework oflaw as It applies to our constitutional form of government. and Ifthe baSIC principles that pertain to them are not thoroughlycomprehended. the wrong course IS likely to result. To diS·charge thiS duty of prepanng our young people for the tasksthat Will be theirs. we must obtain in our schools. beginning asearly as the elementary grades. a revitalized curriculum of education In the real meaning of citIzenship.

There is in progress now a movement sponsored by theAmerican Bar AssociatIOn designed to cope wIth this need. Ihope that you will embrace It - takp It home with you andmake certain that It becomes a part of the life of this com·munlty Its sale aim IS to Improve and extend educational programs In law and in our democratic processes in our primaryand secondary schools.

When Daniel Webster said that Justice IS man's greatest Interest on earth. what did he mean? Certainly he did not meanthat lawyers alone could provide this Justice. He did not meanthat they could assure it nor did he mean that they could preclude it. To obtain Justice. our society must have not only lawyers of Integrity but. even more so, courageous Judges who Willnot be swayed by public clamor - It must have fair·mindedJurors who Will not be governed by bias or prejudice - and itmust have upright witnesses who Will not taint the truth.

You and I. and others like us. inherited the freedoms and theglones we enJoy today. They have been preserved perforce therule of law. We know that we hold them In trust. not only for ourselves but for generations of beneflclarles yet unborn. Let it beour commitment and our endeavor that history record that wehave been faithful trustees. :.I...

Pension,Continued from page 115

fit rate base or any combination of these.The maximum benefit to be covered

under the PBGC for any participant willbe $750 a month but no more than 100%of his average compensation during hishighest paid five years.

If a Plan terminates and the PBGC pro·vides unfunded covered benefits. theemployer is liable to reimburse thePBGC for the benefit in an amount of upto 30% of the employer's net worth forwhich a tien against the employer"sproperty may be asserted.

PREEMPTION OF OTHER LAWSEffective January 1. 1975. all provi

sIOns of the law except those applyinge)(cluslvely to qualified plans, supersedestate and local laws Insofar as they relate to any Plan that is subject to thefederal law. In general. state laws regulating banks. Insurance companiesand seCUritIes. and general criminallaws are not affected by the Act.

CONCLUSIONObviously. it is too early to realistically

appraise the total merits of the PensionReform Act of 1974. The pendulum hasmade its move: and no doubt the Act willaccomplish many of its recited objec·tives and afford added protection forbeneficiaries of Pension Plans. Whenviewed in this light. the Act is clearly justified. Whether the Act has added toomuch administrative supervision. technicalities and costs for the long-rangegood sought to be accomplished andwhether it will deter Pension Plans thaIwould otherwise be created. remains tobe seen. [1--.....

l04/July 1975/Arkansas Lawyer

Doctrine,Continued from page 9J

mination of its status. If it is a strongclaim with great potential value. you maywant to take the initiative and sue toquiet title. If it is questionable. you maywant to advise your client to lease to anoperator so that development can proceed. If production is obtained. you canthen adjust the cost of your efforts to theamount of royalty Interpled by theoperator.

Since most of you are oil and gasonented. I have talked In terms of 011 andgas operations today In dOing so. I don'tmean to suggest that the Strohacker ruleIS limited in its application to oil and gascases. The Carson case Involved bauxite. The Dierks case involved novaculite.The Mining Corporation of Arkansascase involved cinnabar. Whatever thesubstance involved. the same basic approach should be used to evaluate aclaim to it under a Strohacker type con·veyance or reservation. Since the conservation statute is not available to youin connection with minerals other thanoil and gas. however. your statutoryassistance would be more limited whenyou are dealmg with other minerals. Asoriginally passed In 1937. the receivership statute contained a definition ofminerals which Included...... oil. gas.asphalt. coal. iron. zinc, lead. cinnebar,bauxite. clay, slate and all otherproducts and substances that may bemined. separated, removed and soldfrom the soil for profits." This Section

(Section 52-212 A. S. A.) was repealedby the 1963 amendment. It is my opinionthat the statute would still be availablefor use in connection with a broad rangeof minerals. Ideally. however, you shouldsecure leases or some form of voluntarycommitment from all of the disputingclaimants of the substance involvedprior to commencement of operations,so that. upon the development of a fundof royalties or other monies claimed bythe disputing parties, you would be ableto file an appropriate Interpleader actionIn Chancery Court for the purpose ofdetermining ownership of the fund andof future payments.

At the first Arkansas Oil and Gas Institute in 1962. Sam Sexton. Jr.. gave apaper pertaining to the Strohacker doctnne In which he concluded that: ''Theresults reached by the Arkansas Su·preme Court have brought about a sltua·tion where the grantor loses that whichhe did not sell. for which he has not beenpaid. and with whIch he did not intend topart while the grantee obtains that forwhich he did not pay and which he didnot e)(pect to receive." He closed hispaper with the hope that the Court wouldprovide a clarification which deals moreequitably with all parties.

I know that the clarification providedby the Ahne case did not fulfill Sam·shopes, Whether or not you agree withhiS conclusion as to the effect of theStrohacker rule, it is. as the title of thispaper states. "An Arkansas Rule ofProperty"· J - _.

By J. Steven ClarkDirector of Admissions

Dean Wylie H. Davis is pleased to announce that Distinguished ProfessorEmeritus Robert A. LeHar has conlribul·ed five thousand dollars for furnishingsin the faculty lounge and library in thenew Waterman Hall complex. The building. remodelization and furnishing of thenew complex should be complete by thebeginning fall semester.

Commencement was held Saturday,May 17th at the Fayetteville campus inthe ballroom of the Arkansas Union. Thecommencement address was given byDr. Robert A. Lellar. Messrs. Steve H.Nickles. Roger D. Osburn. James R.Williamson and Ms. Susan Webber allgraduated with high honors. The honorsgraduates were Ms. Mary V. Currie andMessrs. Lonnie R. Beard. Mark AllenBreedinback. Paul Edward Danielson,Jackson Murry Jones, Karlton Kemp. Jr..George L. Mallory. and Paul B. Young.Jr.

Mr. Vannoy Culpepper of the graduation class was selected as the first recipient of the Wayne W. Owen award. Mr.Culpepper was selected because of academic improvement since enrollmentand demonstrated potential to be a successful attorney. The award consists ofthree hundred dollars and a plaque.

Mr. Kim Smith of the graduation classwas presented the Trial AdvocacyAward. The award of one hundred

dollars goes to the student selected asthe best trial advocate in the studentmoot court trial competition.

Professor Albert M. Witte will spendthe summer as a visiting professor at theUniversity of Oklahoma School of Law.Professor Witte will teach contracts. Inaddition. Professor Witte will attend as adelegate a special NCAA convention todiscuss reducing inter-collegiate athletic costs.

Mr. Garry Wann of Batesville has beenelected as President of the Student BarAssociation at the Fayetteville campus.Mr. Mike Hays of Wilson is the newlyelected justice of Garland Chapter of PhiAlpha Delta law fraternity.

Professor Milton Copeland will spendeight weeks as a visiting professor atDrake School of Law this summer. Professor Copeland was recently promotedto the rank of full professor.

New members of the National MootCourt Team for the Fayetteville campusfor 1975-76 are Messrs. David Gearhartof Fayetteville, Steven Curlee of Elkins,and John Bynum of Russellville.

Professor George Skinner attended aninstitute on microforms and also the annual meeting of the southwest chapter ofthe American Association of Law librarians, April 3. 4. and 5 at Columbia,Missouri. While at the meeting he wasalso named the program chairman for

the association's 1976 meeting in NewOrleans.

The School of Law is pleased to announce the appointment 01 five new persons to the faculty at the Fayettevillecampus.

Ms. Ellen Bass has been appointed asan Assistant Professor and Director ofAdmissions. Ms. Bass has been servingas a clerk ior the Honorable G. ThomasEisele. U. S. District Judge. She is a graduate of the University of Virginia Schoolof Law.

Mr. Howard Brill has been appointedas an Assistant Professor. He comes toour faculty from private practice in RockIsland. Illinois. Mr. Brill is a graduate ofthe University of Florida School of Law.

Mr. Richard Atkinson has been appointed as an Assistant Professor. Professor Atkinson is a Yale law schoolgraduate. He joins our faculty from private practice with the law firm of Kingand Spalding In Atlanta. Georgia.

Mr. George Knox has been appointedas an Assistant Professor. He comes toour faculty from practice as the DeputyCity Attorney of the city of Miami,Florida. Mr. Knox is a graduate of theUniversity of Miami School of Law.

Mr. Charles Sullivan has been appointed as an Associate Professor. Professor Sullivan is a Harvard law schoolgraduate. He comes to our faculty fromthe School of Law University of SouthCarolina where he has taught the pastthree years.

Additionally, Or. Hoyt Kirkpatrick, orthopedic surgeon from Fort Smith. hasbeen appointed as a Lecturer in Law andMedicine. Or. Kirkpatrick assists Professor Fred Spies in the instruction of theseminar in Law and Medicine.

Finally. this author is pleased to announce his appointment as AssistantDean of the School of Law Fayettevillecampus.

1974-75 Law Review Writing Awards- Price A. Dickson Award for the bestComment to James R. Williamson. ofVienna. Illinois, for "Search of the Person Incidental to Arrest." in 28 Ark. L.Rev. 79 (1974). Arkansas Bar Foundation Award for the Second best Comment to Gary M. McDonald. of Tulsa.Okla" for "Pre-Trial Detention: Constitutional Standards," in 28 Ark. L. Rev. 129(1974). Arkansas Bar Foundation Awardfor the Third best Comment to KarltonH. Kemp. Jr.. of Little Rock. for "RecentObscenity Cases" (not yet published).Arkansas Bar Foundation Awards forthe Best and Second Best Casenotes a tie - to Martha L. Grubbs. of littleRock. for "Trademark Protection by Oes~

criptive Name and Color" (not yetpublished): and to Jackson Jones, ofHarrell. Ark .. for"A Defeat for the GuestStatute." in 28 Ark. L. Rev. 29 (1974).

J-~

July 1975/Arkansas Lawyer/lOS

MEDICAL MALPRACTICEINSURANCE

Mr. James B. Sharp. President ofthe Arkansas Bar Association. hasasked the Association's LegislationCommittee. of which I am Chairman. to investigate the so-called"malpractice crisis" from the standpoint of the Bar and to make recommendations to its policy makingbodies. In view of the apparentdisposition in some quarters tomake lawyers the "goats" of thissudden, alleged "malpractice crisis," he has also asked me to appear at this hearing to make a statement.

Newspapers have published accounts that St. Paul. the majorcarrier, is now threatening to leaveArkansas if a very substantial increase in rates is not afforded for itsexcess coverate. i. e., coverage over$100.000. Some representatives ofthe insurance industry, who are anxious to divert the stream of negative publicity attendant upon thesudden and unexplained radical increases in premiums and arbitrarytermination of group programs, haveattempted to generate public andmedical profession antagonism

Association President James B.Sharp requested that the Associa·lion's Legislation Committee serveas an Ad Hoc Committee to consider the so-called"medical malpractice insurance" problem in Arkansas. Following a committeemeeting, Chairman Henry Woodswas directed to appear before theArkansas Insurance Commissionto make recommendations concerning the medical malpracticeinsurance rate increases soughtby the industry. Chairman Woods'remarks at the recent hearing before the Commission Bre reproduced here for the benefit of allconcerned.

lOO/July 1975/Arkansas Lawyer

against attorneys who representpeople injured through the carelessness of some few physicians or hospitals.

Lawyers do not create malpractice cases. The medical profession,as with any other industry or profession. contains a small percentage of people who practice theirprofession carelessly and harmmembers of the public. I regret tosay there are such people in the legal profession. but I am proud to saythat within the last few years the legal profession has set up an activedisciplinary program to inhibit suchconduct.

In the area of medical malpractice, perhaps more than in any othersingle field, the trial bar can point toan unequaled record of contributingto the protection of the public bycompelling scrutiny and improvement of the medical profession. Theinfamous case of Dr. Nork, theSacramento surgeon responsible forinjury to so many people. is but asingle example. This doctor. analleged drug addict for over tenyears, performed unnecessary backoperations in an incompetent andbungled fashion, resulting in thebutchery of over fifty persons. Hiscolleagues. some of whom had reason to know or suspect his incompetence. did nothing about it. Thehospital where he performed hisoperations had no system to monitor the action of its doctors. Forexample. whiie Dr. Nork's postoperative reports would always indicate that the patient was making aremarkable recovery and was progressing beautifully, the nurse'snotes would invariably show that thepatient was suffering excruciatingpain and was having terrible problems. It was a trial lawyer fromSacramento who, through weeks

and months of investigation. uncovered what this man was doing.Neither his colleagues, highly reputable physicians. nor the hospital administration had anything to do withthe uncovering of Dr. Nork. Manypeople in the health care professions themselves attest to thecontribution in the improvement ofmedicine worked by the very existence of malpractice suits. (See. forexample, the report of the Secretary's Commission on Medical Malpractice, Department of Health. Education and Welfare. January 16.1973)

There is no question but that St.Pau I is attempting to impose drasticincreases in insurance premiums fordoctors. Yet I saw a quotation ofCommissioner Ark Monroe in thepress to the effect that in the last fiveyears St. Paul had not paid a singleclaim on excess coverage. the areain which they are seeking the increase. The fact that verdicts. likeeverything else, have increasedsteadily with inflation over the pasttwo decades is a fact well-known toall concerned. Why then is theresuddenly a "crisis in medical malpractice insurance?"

Some say that the "malpracticecrisis" was precipitated by the threatof the Argonaut Insurance Companyto withdraw from New York becauseof "soaring" or "skyrocketing" increases in malpractice su its. Theonly official figures are filed by theOffice of Court Administration of theState of New York which annuallyprepares a complete breakdown ofall cases filed in New York courts.These statistics show not thousandsbut 412 malpractice cases wereplaced on the court calendars inNew York for the 1962-63 JudicialYear, 398 cases in the next year, 274in 1966-1967 and 284 in 1971-1972. In

the most recent full year endingJune 30. 1974. the total was one-halfthat of ten years ago or only 218malpractice cases. According tofigures released by the New YorkState Medical Society. there were935 claims for medical malpracticein 1962. In the year 1972. there were1.191 such claims. During thisperiod. the number of physicianscovered rose from 16.000 to 20.000.One can. therefore. see that therehas been no growth whatsoever inmedical malpractice claims in NewYork.

In 1973 the Employers InsuranceCompany of Wausau. the previousinsurance carrier. took inS36.500.000 in premiums and paidout $17.452.000 in losses. Simplearithmetic says that for the 20.000 insured physicians. this comes out toless than $1.000.00 per doctor. Infact. doctors paid an averagepremium in 1973 of $1.350 (not$40.000 or $50,(00).

In 1974 the Argonaut InsuranceCompany received premium payments of $74.000.000.00 - justabout double that which the Employers took in in 1973. based uponan 197% increase in premiums.These premiums were collected inadvance and. presumably. wereavailable for investment at 10% interest a year. They have. as yet. disposed of only two claims and have.as a result. incurred almost no losses. They should almost be able topay their losses out of the intereston the premiums received sincethey will have received two to fouryears of interest on these premiumsbefore any significant number ofclaims become payable. Why thenhas Argonaut Insurance Companytaken the position that it has? Theanswer is that it has suffered lerriblelosses as a resu II of poor stockmarket investments and is requiredto retrench so as to maintain adequate reserves.

This analysis is confirmed in theWall Street Journal of January 30.1975. which indicates that ArgonautInsurance Company was countingon making a profit through successful investment of its premium income from doctors before having topayout any sizable amount inclaims. One must. therefore, askArgonaut if it is not in fact the decline in the stock market rather thanany increase in verdicts which was

responsible for their financial difficulties.

The only thorough governmentalstudies of the medical malpracticearea essentially exonerate the trialbar from all of the charges beinghurled presently by the insurance industry. The 1973 Report of the HEWCommission concluded that thevast majority of malpractice claimsare legitimately based on valid inJuries and some reasonable beliefon the part of the claimant that hehas been the victim of malpractice.The Waxman Select Committee ofthe California Assembly. reporting inJune of 1974. declared that therewas little eVidence of any substantial number of non-meritoriousmedical malpractice suits havingbeen filed in California. The HEWCommission Report concluded thatthe contingent fee system in no wayinduces lawyers to file dubious ordoubtful malpractice cases. This report found that plaintiffs' at10rneysearnings from malpractice cases ifprorated to an hou rly basis werecomparable in range to the earningsof the lawyers for the defense whoare paid by insurance companies onan hourly basis.

The HEW Commission actuallywent so far as to recommend thatorganized medicine "establish anofficial policy encouraging members of their professions to cooperate fully in medical malpractice actions so that Justice will be assuredfor all parties: and the Commissionencourages the establishment ofpools from which expert witnessescan be drawn." (Report. page 37.)

The Waxman Committee concluded that the average closing payoutfor malpractice claims in Californiawas between Seven Thousand andEight Thousand Dollars.

In Arkansas the situation is evenmore favorable to doctors. In myyears of practice in Pulaski County Irecall only one successful jury verdict against a doctor and that wasfor a modest amou nt. In the lasttwenty years two malpractice judgments in favor of the jury awarded$2.500 for the death of a nine-yearold black child. as the resu It ofgrossly irregular treatment for askull fracture. In that case sevendoctors testified against the defendant doctor. In the other there wasan award of $50.000 against a physician who had operated on the

wrong leg. Arkansas doctors havefared even better than their counterparts in other states where plaintiffswin one out of five jury cases. according to the above-mentionedHEW report.

The law in Arkansas could hardlybe more favorable to doctors andtherefore to their insurors. Res ipsaloquitur is not permitted. Medicaltestimony of negligence is required:the locality rule is in force: and thereis a subjective standard as to care(the only such instance in tort law).The statute of limitations. contrary tothat In any other tort situation. runsfrom the date of the negligence andnot the date when it is discovered. Ifan instrument IS left inside a patient's abdomen and not discoveredfor more than two years. the claim isbarred. Incidentally. the statute oflimitations in malpractice is twoyears. while in other negligent tortsit is three years.

The Bar stands ready to meet withour friends and colleagues in themedical profession to iron out anymisunderstandings that may havearisen in a highly charged and emotional atmosphere. The Bar and themedical profession have enjoyedfine relations in Arkansas. We arenot averse to some type of screening procedure to weed out thepossibility of unjustified suits beingfiled against physicians. Certainlyno professional likes to be sued.and he should not be sued withoutadequate basis. No competent lawyer wants to handle such a suit. Malpractice cases are expensive. timeconsuming and difficult to try withonly a small chance of success before a JUry (one In five nationalty).My law firm has tried only four malpractice cases to a JUry. In two werepresented defend"nt doctors andin two we represented inJured patients against doctors. We won theformer and lost the latter. All of themrepresented an enormous expenditure of time and effort.

I would like to suggest that ourvery able Insurance Commissionerchair a meeting composed of fivedoctors appointed by the Presidentof the Arkansas Medical Associationand five lawyers named by the Arkansas Bar Association to discussfirst of all whether there is a real"malpractice crisis" in this stateand. if one does exist. to find waysto solve it. J- .__


BookReview

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Reprinted FromOregon State Bar Bulletin

May. 1974

-Robert W. McMenaminMember Committee on

Public Service & Information 0

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~4w7..~HOW TO MAKE MONEY

PRACTICING LAW. by Volney F.Monn. IS a book first published in1966. but the new Fifth Edition IS

as up-ta-date as a new hairstyle.The price of 512.95 seems high.but every other page contains anugget as to how to increase earnings from a law practice. The bookis highly readable. practical. andis a great refresher course, fromIvar Publications. P.O. Box 1855.Los Angeles. California 90028.

The author's main thrust - tohave a zero accounts receivablebalance by the use of deposit fees- is intriguing. I cannot see thiSmethod working In all stiuatlons,but any progress would result In ahigher collection ratio for feescharged. The author points outthat equipment for a modernsecretary station will probably costfrom 510.000 to 520.000. and payments must be met. He clearly explains practical methods of securIng legal bUSiness and more ImfX>rtant. as to how to keep clientsafter original engagement.

The sections on public relationscover Involvement With client, staffand other attorneys. These sections should be read and reread byevery lawyer In public or privatepractice, Morin's statements are aunique blend of psychologicalpnnclples and personal experience.

I do not agree With the entireoutline for the operation of a successful law practice. but theauthor has some tned and provenmethods. The book Will make youstop and re-examine your ownmethods of operation and unlessyou are a successful genius, youwill find some ideas to adapt intoyour own system. The cost of thebook can be earned from betterrelations With your next client.LEnERHEADS

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lOS/July 1975/Arkansas Lawyer

One of the often encountered but les~

ser understood problems facing thoseadvising estates is how to handle the decedent's partnership Interests for income tax purposes.

Assume a common situation: Decedent ("'D") IS a partner In Slip. Shod.Filch and Hacker ("SSFH"). attorneys.who report. for income tax purposes onthe cash method and calendar year, Ddies on July 1. To these basic facts otherembellishments will be added to Illustrate the various nuances in partnershiptaxation,

There are two basic issues:1, What is reported on D's final IndIvi

dual Income tax return?2. What does hiS estate or other suc

cessors In interest report on their tax returns?

THE TAXABLE YEARA. Decedent's Individual ReturnThree taxable years are involved: D's

year lor individual reporting on form1040: SSFH's year for information reportIng purposes on form 1065: and D's partnership taxable year,

Generally speaking. the death of apartner does not terminate a partnership's taxable year 1 , The partnership'syear continues both as to the survivingpartners and the deceased partner.2

Thus. as a general rule. SSFH's taxable year continues to December 31(and renews itself on January 1 next succeeding and so on). D's interest as apartner is still reported on the calendaryear. But D's individual taxable year forpersonal reporting of income does terminate with his death. D ceases to be ataxpayer on July 1 and hiS last year forIndividual reporting is January 1 throughJuly 1. Under partnership Income taxrules. D is required to include in his finalshort-year (January 1 through July I) hisdistributive share of SSHF's taxable income or loss for any year ending with orin D's taxable year. J But, since SSFH ison a calendar year, it has no taxableyear ending with or in the period January1 through July 1. Hence. 0 has no partnership income to report on hiS finalshort-year return. As will be explainedbelow. this is good and bad. but mostlybad.

Partnership TaxationIn the Estate Situation-By Lawrence J. Lee

To Illustrate this further. change thefacts a bIt so that SSFH's taxable year ISa fiscal year ended June 30 (whichwould be unusual since all partners herewould presumably report on a calendaryear basls).l If the fiscal year was so,then Os final Short-year return for January 1 through july 1 would Include D'sdistributive share of SSFH's taxable in

come or loss for SSFH's fiscal year justended on June 30, On a current annualbaSIS, 0 would pIck up his share ofSSFH's IOcome lor ItS year July 1. 1973through June 30, 1974. because that is apartnership year ended with, or in, D'sIndivIdual taxable year,S

The approach which keeps the partnership's taxable year alive applies.strangely enough. to two-person partnerships,6 It would be assumed that the survivor cannot be a partner with himself.but such IS possible for income tax purposes.

B. The two-Person PartnershipA two-member partnership does not

terminate for Income tax purposes solong as the estate or other successor inInterest of the deceased partner continues to share in the profits or losses ofthe partnership.7 So long as the estate orsuccessor in interest continues to receive payments from the partnership inany of the following forms:

1. guaranteed payments, usually in theform of salary continuation. where thedecedent was and is entitled to a salaryregardless of the profit or loss of thepartnership:

2. distributive share of partnership In~

come, as where D's estate would continue to receive D's share of billed, butuncollected time or subsequently billedand collected time or a share of fees derived from clients or accounts which Dhad originated: or

3. payments in exchange for the deceased's interest In the partnership, as,for example. In exchange for D's capitalIn the partnership (hiS Investment In office furniture, fixtures, office machines,law library. etc.):the partnership continues and the partnershlp's taxable year runs ItS usual 12month (52-53 weeki cycle.' The partnership IS terminated and its taxable yearends only when the enllre Interests of thedecedent In the partnership are paid off,

C. The Effect of Buy-Sell AgreementsSuppose that upon D's death there

was In force a buy-sell arrangement

whereby surviving partner Slip agreed topurchase D's partnership Interest. Reg.Section 1.706-1 (c) (3) (ivi states: "If. under the terms of an agreement existingat the date of death of a partner, a sale orexchange of the decedent partner's interest in the partnership occurs uponthat date. then the taxable year of thepartnership with respect to such decedent partner shall close upon the date ofdeath."

Under thiS rule, the conclUSionsreached under Topic A-'"Decedenfs IndiVidual Return'"-change. Now. not onlydoes D's Individual taxable year terminate. but also D's partnership taxable yearends (or. strictly speaking. the taxableyear of SSFH with respect to D closes).What are the results?9

First. D's reporting year is January 1through July 1. This final short year re~

turn includes D's other income. but nowincludes D's distributive share of SSFH'sIncome for the taxable period January 1through July 1. As to D. it is as if SSFH'staxable year ended on July 1, which IS apartnership year which ends with or In

D's short taxable year (January 1through July 1). If D died on July 1. 1974.his final return would Include hiS shareof SSFH's Income or loss for the periodJanuary 1. 1974 through July 1. 1974.

Second. conSider the result If SSFH ISon a fiscal year ended June 30. In such acase, D's final return would include hISshare of SSFH's taxable Income or lossfor SSFH's fiscal year ended June 30.1974. plus one day of SSFH's Income.That one day would be the extremelyshort SSFH taxable year as to D, namelythe start of SSFH's new fiscal year onJuly 1, 1974 (which would ordinarily run


Lawrence J. Lee is a member ofShimmel, Hill, Bishop & Gruender,P.C., of Phoenix, Arizona. SA (illinois), 1955; J.D. (Cornell), 1958;LL.M. (Georgetown), 1961. TrialAttorney, Civil Rights Division.Department of Justice, Washing~

ton. D.C., 1958-1960. Law Clerk toJUdge Ernest Van Fossan. U.S.Tax Court. 1960-1962. Member:American Bar Association (Chairman, Committee on ContinuingLegal Education, Section of Taxation. 1970-1974); American Law Institute.

July 1975/Arkansas Lawyer/l09

Taxation,Continued from page 109

to June 30. 1975) but which ends as to Don July 1. 1974. since that IS the assumed date of D's death.

The "sale or exchange" enVIsioned bythe above Quoted rule does NOT Includeany transfer of o's partnership interestby reason of Inhentance or testamentarydlSposltlon. 1o Further. the buy-sell arrangement must be wIth another partneror a stranger to the partnership and NOTwith the partnership Itself. The buy-outcannot be funded with partnership assets.

Compare here. for discussion purposes. the result achieved In the diSCUSSion of the two-person partnership(Topic 8 - "The Two·Person Partnership",. It was there observed that even atwo-member partnershIp IS not terminated lor Income tax purposes so long asthe decedent's estate or successors In

interest is receivng a pay-out lrom thepartnership. Obviously. the same ruleapplies if the pay-out is being made by asurviving ten-man partnership. This result is not different whether that pay-outis regarded as the liquidation of a deceased partner's interest in a partnershippursuant to the uniform partnership actor as being pursuant to a buy-sell agreement. Thus. if it is the partnership itselfwhich is paying out pursuant to the buysell arrangement. the buy-sell arrangement does not terminate the partnershipand the partnership's taxable year runsits normal cycle,

But. as everyone knows. buy-sell arrangements are not carried out at the instant of death, It sometimes takes yearsbefore the estate or beneficiaries arepaid-out under the terms of the agreement. What happens In the meantime?Assuming that the buy-sell rlrrangemenlIS not With the partnership itself. but witha stranger. the rule IS that o's partnership taxable year In respect of SSFH isterminated and for Income tax purposes.o IS no longer a partner. 1 t It wou Id seemthat much depends on what the buy-sellagreement states.

If, to take one IIlustrallon. It clearlystates that O's Interest In SSFH terminates on July 1 - date of death - andthat Mr. Slip immediately succeeds tohiS Interest effective that date. mattersare fairly eaSily resolved. o's estate hasgain or loss on the sale of D's partnership interest (which gain may in part betaxed as ordinary Income, see IRC Section 751). O. as Indicated above. picksup on hiS final return his share of SSFH'sincome or loss for the penod January 1through July 1. Mr. Slip picks up the Income attributable to o's Interest whichSlip purchased from july 2 until the endof SSFH's normal year, December 31.Presumably, the partners understoodthat Mr, Slip would be pIcking up extra


ordinary Income from date of death andthe purchase price was adjusted for theordinary Income tax Mr. SlIp would payIn taking over D's Interest.

On the other hand. suppose a less precise arrangement. 0 IS expected to enJoyhiS proportionate share of SSFH's income or loss, such as it may be. as frombilled but uncollected accounts, receiptsfrom whIch are received after D's death.but to which 0 IS entllied. until Mr. Slipgets around to paying the purchaseprice to O's estate for o's partnership interest. The Income tax regulations slm·ply do not handle thiS Situation,

ConSider. on thiS problem. the language contained In Reg Section 1.706-1(C) (3) liv) quoted above: ··If. under theterms of an agreement existing at thedate of death of a partner. a sale or exchange of the decedent partner's mterest In the partnership occurs upon thatdate "Occurs upon that date"means what? The agreement is effectiveas of the date of death? The literal closIng of the sale IS effected on that date?What IS obViously Intended IS that thebuy-serl agreement becomes effectiveas of the date of death of the partner andhas the effect of taking the decedent outof the partnership as of the date of death.

However. In the Illustration cited. thearrangement was not so precise. Rathero's estate continued to draw hiS share ofordinary Income from SSFH although itwas contemplated that Mr Slip. with reasonable dispatch, would purchase D'spartnership Interest. Probably. as a practical conSideration, the estate and Mr.Slip Will walt until year end and effect thebuy-out on January 1. A practical approach should be taken: (1) o's estateshould report hiS dlstnbutlve share ofSSFH 5 Income until his Interest is In factpurchased by Mr. Slip: (2) Mr Slip Willcommence to pick up the Income attnbutable to 0'5 share of SSFH at the effective day of the purchase,

The Internal Revenue Service IS notlikely to question such reporting unlessthe ordinary Income is going untaxed, Ofcourse, variOus interpretations and viewpoints can apply. For example. o's estate may regard the sale for all Intentsand purposes as "done" on the date ofO's death and treat all cash receipts(whether received from SSFH or Mr. Slip)as payments against the purchase pricewhich the estate Will report as capitalgain. ThiS leaves the burden of ordinaryIncome to either Mr. Slip or Mr. Slip andthe other partners of SSFH. Such confusIon POints to the necessity that buy-sellarrangements must be preCisely drawn.

The same practIcal approach must betaken If SSFH IS the purchaser, The Income attributable to 0'5 share of SSFHWill be picked up by the surviving part·ners. or not. depending on what the par-

ties have agreed In theIr buy-out arrangement.

D. Continuance of the PartnershipYear

Assume that no buy-sell arrangementapplies. 0 simply dies, and the handlingof his interest In SSFH must await anegotiated settlement. Unless o's deathworks a termination of SSFH. the followIng applies (which summarizes the preVIOUS diSCUSSion):

1. o's individual year closes and o'sestate must make D's final return.

2. As to SSFH Income. o's final returnIncludes Income. or not. depending onthe facts. If SSFH IS on a calendar year,o returns nothing. If SSFH IS on a fiscalyear which ends at any time betweenJanuary 1 through July 1. o's final returnIncludes D's share of SSFH's income forthat fiscal year, but no share of incomefor any period of tIme between the end ofsuch fiscal year and the date of D'sdeath.

3. O's estate. or successor In Interest.su bstltutes for 0 as a partner for Incometax purposes and It reports the Incomederived thereafter. Thus. If SSFH IS on acalendar year so that O. who died July 1.did not Include any of that current yearsIncome Into hiS final return. O's share ofIncome for the calendar year endedDecember 31, IS reported by hiS estate(or successor In Interest).

E. Death of Partner Terminates Partnership

Where the death of a partner terminates the partnership. the partnershipyear terminates on the date of death forall partners. 12 Thus. II o's death effecteda termination of SSFH. then SSFH's partnership year. assuming. ordinarily. acalendar year, IS January 1 through July1 D's IndiVidual taxable year closes andso does hiS partnershIp year. SSFH'staxable year closes and thus It closesthe partnership year for all the other partners (Mr. Slip et al.). ThiS IS good or bad.depending on the facts. The new SSFH(reconstituted after ils tax termination)may have a choice of a new tax year. Income may be pocketed Into a short year.But. if SSFH is a real estate partnershipthe resu It may not be a happy one. Theremay be loss of baSIS in the property. andthe real estate becomes used therebyknocking out accelerated depreciationand perhaps the use of the componentmethod.

Ordlnanly, however. o's death will notterminate SSFH except under these circumstances: 1J

1. 0 IS the only active law partner sothat SSFH's bUSiness IS discontinuedand no part of any bUSiness. finanCialoperation or venture of the partnershipcontinues to be carried on by any of itspartners In a partnership form.

2. 0 owns more than 50% in the capItal and profits of SSFH and his interest ispurchased effective at the date of deathby someone other than SSFH itself.

3. In a two-member partnership. if O'spartnership interest IS immediately purchased by the surviving partner and 0ceases to derive any pay-out from whatwas before hiS death - the partnership.

REPORTING BY THE ESTATEOR SUCCESSOR IN INTEREST

A. Income in Respect of DecedentThe income which the estate or suc

cessor in interest picks up which is at-tributable to the decedent prior to hisdeath is income in respect of the decedent under Section 691. 14 This has various effects in administermg the estatewhich will not be discussed here otherthan to make the point. For example. recalling the basic facts heretofore used.assume that SSFH is on the calendaryear ended December 31, 1974. D diesJuly 1, 1974. Because SSFH's calendaryear ended December 31,1974, does notend in or with o's short year. January 1through July 1. 1974, D does not pick uphis distributive share of SSFH's incomein o's short year. Instead. o's estate (orsuccessor in interest picks up that income effective December 31. 1974 andIn doing so. the estate is picking up IRCSection 691 income in respect of thedecedent. The tainted income is that partof the income attributable to January 1.1974 through July 1. 1974: the balance ofincome for July 2. 1974 through December 31. 1974. is not tainted.

B. Reporting by SuccessorAs indicated by the example given in

the preceding paragraph (Topic A "Income in Respect of Decedenf'l. 0did not report income. but his estate wasliable to. In the example given. thiswould be one full year of SSFH incometo be reported by D's estate. As suggested at the outset of this paper. this isgood and bad. This is good. for example.if 0 prior to his death had substantial ordinary income to be reported in his finalshort-year return. Shifting SSFH's income to the estate - another taxpayer- may have given both taxpayers a ratebreak under the graduated rates. On theother hand. 0 might have had extensivepersonal deductions (medical. etc.). and,indeed. might have been planning forthe tax by the acquisition of tax shelterinvestments. Allor most of these deductions might be wasted on his tax returnespecially if his only income was SSFHsource. The estate. having few. if any.deductions (and a distribution to gainthe advantage of distribution deductionto beneficiaries might at that point bepremature), will be hit with all the SSFHsource income. To help mitigate whatmight otherwise be a bad result. Reg.

Section 1.706-1 (cl (31 (1111 prOVides asfollows:

(III) If a partner (or a retiring partner).In accordance with the terms of the partnership agreement. deSIgnates a personto succeed to hIS Interest in the partnership after his death. such designatedperson shall be regarded as a successorin interest of the deceased for purposesof this chapter. Thus. where a partnerdeSignates hiS widow as the successorIn Interest. her distributive share of income for the taxable year of the partnership ending within or with her taxableyear may be Included In a J0tnt return Inaccordance with the provisions of Sections 2 and 6013 (al (21 and (31.

Few lawyers appreciate thiS planningmechanism. Note that deSignation of thesuccessor in interest must be made Inthe partnership agreement. If it is silenton the appointment. then presumably allthe probate law problems of a bequest ina nontestamentary instrument come intofocus. However. the designation in thepartnership agreement is somewhatsimilar to the exercise of a power of appointment and this may be an approachto the probate law problems. if the Will issilent on the subject. Presumably a Willcan be drafted to meet the problem.

The reason this mechanism has notbecome fashionable is that it can be adangerous weapon. Matters have to stayfairly static to avoid problems. The entirepartnership interest must be disposed ofby the decedent. This involves problemsof balanctng bequests. The widow's inclusion into her income of the communIty half of the partnership's income tosome degree solves the income taxproblem. However. it can be a useful device. For example. if the decedent knowsthat one of his children, a music teacher.will never have a substantial income andsuch child is a beneficiary of a substantial portion of the estate anyway. it mightbe safe to designate the musician as thesuccessor in interest to the partnershipInterest thereby Shifting the final year'spartnership income to the musician.

In any event. to be effective. the designation or appointment as successor ininterest must be contained in the partnership agreement and must actually assign to the successor each element ofthe decedent's interest in the partnership.15 It is not clear. for example. whatthe result is if the decendent"s capital interest is assigned to the widow. but theright to receive his distributive share ofIncome is assigned to a child.

APPLICATION OF ABOVE RULESTO ALL TYPES OF PARTNERSHIPS

The tax rules discussed above applyto general partnerships and to limitedpartnerships: the Code knows no distinction between the two types of partnerships.

However. In revieWing the literature ontax shelters and the use of limited partnerships. there IS always great concernas to the adverse tax results If the limitedpartnership IS termmated for tax purposes. The death of a partner does notterminate the partnership. and smce.generally speaking. the general partnerowns only one or two percent of the partnership. there can be no shIft in 50% ormore of the partnership Interests. 16 Whatthen is the concern. for example. If thegeneral partner dies?

Those famIliar with partnership taxwork appreciate that a lImited partnership succeeds. as such. and not as anaSSOCiation taxable as a corporation.only If the limited partnership lacks cerlain corporate characteristics. Onecharacteristic reflecting partnership andnot corporation is that the limited partnership terminates upon the death of thegeneral partner (see A.R.S. Section 29320). But. under IRG Section 706. recallY if " ... the operations of the partnerships are discontinued and no part ofany business. financial operation. orventure of the partnership continues tobe carried on by any of its partners In apartnership." Assuming that the syndicate has but one general partner who isan indiVIdual. hiS death should terminatethe partnership. Why? Because no "rightthink 109" limited partner would wish tocontinue the business of the syndicateas a partnership. To do so subjects themto general partner liability. IS It can safelybe assumed for income tax purposesthat the limited partners will do anythingexcept operate as a partnership and.hence. the partnership will terminate asof the date of death"

1. Reg. Section 1.706-1 (c) (3) (i)2. Ibid.3. Reg. Section 1.706-1 (a) (1)4. See Reg. Section 1.706-1 (b) (1) (ii)5. Reg. Section 1.706-1 (c) (c) (ii)6. Rev. Ruf. 54-55, 1954-1 G.B. 1537. Reg. Section 1.706-1 (c) (3) (i) and

Reg. Section 1.708-1 (b) (1) (i) (a)8. Reg. Section 1.736-1 (a) (1) (ii) and

(a) (6)9. Reg. Section 1.706-1 (c) (3) (vi),

Example (2) and Rev. Rul. 67-65,1967-1 G.B. 168

10. Reg. Section 1.706-1 (c) (3) (iv)11. Rev. Rul. 54-55, 1954-1 G.B. 15312. Reg. Section 1.706-1 (c) (3) (i)13. Reg. Section 1.708-1 (b)14. Reg. Section 1.706-1 (c) (3) (v)15. See Rev. Ruf. 68-215,1968-1 G.B. 312

(cf, Rev. Ruf. 68-195,1968-1 G.B. 3(5)and Rev. Ruf. 71-271, 1971-1 G.B. 206

16. Estate of Guy B. Panero, 48 T.G. 147(1967)

17. Reg. Section 1.708-1 (b) (1) (i)18. A.R.S. Section 29-30719. There will usually be a very quick in

corporation J ~-~

July 1975!Arkansas Lawyer!111

by George N. Plasliras

PENSION REFORM ACT of 1974A BRIEF REVIEW

Title I of the Act contains labor lawprovisions which apply generally to employee benefit plans (in addition to Pension Plans, these include employee welfare benefit plans, such as hospitalization or medical reimbursement planswhich are not discussed herein) of employers or employee organizations established in or affecting interstate commerce and replaces the Welfare andPension Plan Disclosure Act. Title II contains tax law provisions which apply totax-qualified plans. Title III provides forjurisdiction. administration and enforcement. Title IV establishes the PensionBenefit Guaranfee Corporation("PBGC") and provides for plan termination insurance program for certain Pension Plans.

Certain provisions of the Act are applicable to an individual account planpopularly known as a "defined contribution plan" and others to a "defined benefit plan." The former provides for individual accounts for the participants andinclude profit sharing. money purchasepension plans. so-called target plans.

-a member of the law firm ofDAVIDSON, PLASTIRAS & HORNE. Ltd..of Little Rock, one of the firstlegal professional corporationsin Arkansas.

vestments by the Plan is not subject toan income tax or capital gains tax sothat the Plan is permitted 10 accumulatetax-free income. Generally, favorable income tax treatment or lower tax rates areavailable to the retired participant whenthe funds are received because of amaterial reduction at retirement age inhis income from wages, the extraexemptions and other favorable tax provisions. In addition, the Pension Plan receives favorable estate tax treatment.

As a practitioner you have undoubtedly been bombarded with a mass of literature concerning the Act and feel a needfor at least a nodding acquaintance wifhthe Act. Hopefully. if the reader can keepfrom nodding, such an acquaintancecan be derived herefrom. An attorney'srole in Pension Plan matters may bevaried. He may be a shareholder in aprofessional corporation and wear thehat of an employer; a professional employee receiving benefits as an employee-participant; or he may fulfill thetraditional role as counsellor of theregulator. ernployer or employee.

Major topics under the Act include:(1) Reporting and Disclosure: (2) Participatin9 and Coverage: (3) Vesting:(4) Funding: (5) Fiduciary Responsibility:(6) Administration and Enforcement;(7) Self-employed Individual Plans:(8) Individual Retirement Accounts("IRA"): (9) Limitations on Contributionsand Benefits; (10) Lump sum Distributions; (11) Salary Reduction Plans;(12) Plan Termination Insurance; and(13) Pre-emption of other Laws. For convenient reference these are reviewed inthat sequence.

The Act will be clarified by futureregUlations and rulings, which will undoubtedly modify some of the commentsmade herein. In addition to the IRS. theDepartment of Labor has certain supervisory and administrative responsibilitiesunder the Act.

The Act substantially affects everyPension Plan now in effect in the UnitedStates and will have a significant impacton decisions as to future Plans.

Symbolically on Labor Day. September 2. 1974, President Ford signed intolaw the Employee Retirement IncomeSecurity Act of 1974 (Public Law 93-406)which has been known popularly as thePension Reform Act (" Act"). The Act.which is voluminous. makes complexand comprehensive changes in the rulesunder which an employee pension bene·fit plan ("Pension Plan" or "Plan") is tobe established and operated.

The Act is designed (at the expensesof more rigid supervision) to cure certainabuses which have occurred in the pastand to better protect the interests of theparticipants and their beneficiariesSome 01 the problem areas were:

(1) loss of retirement benefits afterlong periods of employment becausethey were not vested;

(2) loss of promised benefits resultingfrom inadequate contributions to thePension Plan: and

(3) loss of anticipated benefits whenunscrupulous employers terminatedtheir Pension Plan after they, the owners,received the bulk of the Plan's funds before the necessary funds had been otherwise accumulated in the Plan for thebenefit of other participants and theirbeneficiaries.

With the establishment of professionalcorporations in the 1960's. PensionPlans became increasingly popular andthey were brought to the public's attention as the principal tax advantage. Aqualified Pension Plan permits an employer to currently deduct its contribution while the employee defers the income until the benefits are remitted fromthe Plan. Further. income earned on in-


stock bonus plans and thrift and savingplans; the latter is a pension plan otherthan a defined contribution plan.

In general. the Act does not apply togovernmental plans. non-electingchurch plans. plans maintained solely tocomply with workmen's unemployment.disability or compensation laws. plansmaintained outside the United States pri~

marily for the benefit of non-residentaliens. employee welfare plans. excessbenefit plans. unfunded deferred com·pensation arrangments. plans es·tablished by labor organizations. orplans of certain other organizations.

Effective dates under the Act vary withthe different provisions depending uponwhether the Pension Plan was effectiveon January 1. 1974 or not however. allprovisions become effective no laterthan plan years beginning after December 31. 1975.

REPORTING ANO DISCLOSUREEach Plan is now required to report

annually certain financial and actuarialdata to the Secretary 01 Labor. TheSecretary of Labor is granted theauthority to prescribe forms for reports tohim paralleling similar authority alreadyavailable to the Secretary of Treasurer.An audited financial statement will be required: and in addition. defined benefitplans must have a certified actuarial re·port. Other reports are required at thetime of a Plan's termination. For planswith fewer than 100 participants. simplified reports may be authorized. Contentsof the annual reports are specified in theAct.

Each Plan is to retain on behalf of itsparticipants an independent qualifiedpublic accountant who annually is toprepare an audited financial statementof the Plan's operations.

An enrolled actuary must prepare anactuarial statement on an annual basisfor every plan subject to the funding re~

quirement of Title I. The actuarial state~

ment generally is to indicate the presentvalue of all plan liabilities lor non-forfeitable pension benefits.

Each administrator of a Pension Planis required to disclose to each participant and each beneficiary by furnishinga summary plan description (the "Sum·mary") written in a manner calculatedto be understood by the average Planparticipant or beneficiary (whatever thatmeans). The Summary is to include allimportant Plan provisions. identificationof the persons responsible for Plan investment or management. a descriptionof benefits. the circumstances that mayresult in disqualification or ineligibilityand the procedure to be followed in presenting claims for benefits under thePlan. If there have been amendments tothe Plan. an up-dated Summary is to befurnished to participants every five

years: and in any event. a new Summaryis to be furnished every ten years.

The annual report and Plan documents are to be made available forexamination by participants or benefi~

ciaries by the Plan adm inistrator whoshould provide reasonable access tothese reports and documents at the principal office of the Plan and other placesas necessary Each participant also is tobe furnished an annual schedule of Planassets and liabilities and receipts anddisbursements as submitted with the annual report.

Upon written request. the Plan admini~

strator is required to furnish a completecopy of the comprehensive Plan description. the latest annual report and otherinstruments under which the Plan isestablished and operated. total accruedbenefits and the nonforfeitable pensionbenefit rights which have accrued to theparticipant or beneficiary. No more thanone such request per year is permitted.

When a participant of a Plan terminates his employment during a Planyear. he is to be furnished a copy of thestatement of his deferred vested benefitswhich will also be furnished to the SocialSecurity Administration.

PARTICIPATION AND COVERAGEGenerally an employee cannot be ex·

eluded fror.. participation in a Plan if hehas attained the age of 25 and has had atleast one "Year of Service." The Act permits a three-year service requirement ifthe Plan provides full and immediatevesting for all participants. A definedbenefit pension plan can exclude an em·ployee from participation who is hiredwithin five years of attaining his normalretirement age (normally 65) under thePlan.

A "Year of Service" means a twelve·month period during which the em~

ployee has completed at least 1.000hours of service measured from whenthe employee enters service. The em~

ployee would then be admitted to thePlan within six months of his anniversarydate of employment or by the beginningof the first plan year following his firstanniversary date. whichever occurs earliest.

The Plan would not require admissionof an employee if he "Separates fromService" before his applicable ad·mission date for participation. "Separation from Service" does not mean temporary absences due to vacation. sickness. strike or seasonal layoff.

If a seasonal or part-time employeehas at least 1.000 hours of service duringa Plan Year. he may not be excludedfrom the Plan. In the case of seasonal in·dustries where the customary period ofemployment is less than 1.000 hours. theterm Year of Service will be determinedby Department of Labor regulations.

A Plan is permitted to exclude em·ployees hired pursuant to collective bargaining for purposes of anti-discrimina~

tion rules where there is evidence thatretirement benefits have been the subJect of good·faith bargaining. Alas. thereis a built·in employer benefit from collec·live bargaining. If union employees arecovered under the Plan. then benefits orcontributions must be provided for themon a non-discriminatory basis.

VESTINGAn employee's accrued benefit is vest·

ed (i. e.. nonforfeitable) when a participant or his beneficiary has a legally enforceable claim against the Plan to receive suCh benefit. either immediately orat some time in the future. In a definedcontribution plan a participant's accruedbenefit is the amount in his individualaccount under the Plan. In a definedbenefit plan. a participant's accruedbenefit is determined under the Plan andis expressed either in the form of an annual benefit commencing when he obtains his normal retirement age specifiedin the Plan or as the actuarial equivalentthereof.

That portion of a participant's accruedbenefits not vested is subject to forfeiture. A forfeiture of the employer-derivedaccrued benefit arises when a participant who has Separated from Service incurs a one·year Break in Service (500 orless hours of service). However. a participant who completes more than 500hours of service. but less than 1.000hours of service the following year. doesnot have a Break in Service. but neitheris he a participant. For lack of a betterdescription. such as employee's hoursof service may best bedescribed as an''In·Between Service Period."

A defined contribution plan may provide that Years of Service after a one~

year Break in Service are disregardedfor the purpose of determining an employee's vested right to his pre-breakemployer-derived accrued benefit.

The Act provides full and immediatevesting of all benefits derived from employee contributions. With respect toemployer contributions. a Plan mustsatisfy one of three alternate vestingschedules. In setting up a Plan. the alternates which an employer may elect are:

(1) 100% vesting after 10 Years of ServIce:

(2) 25% of the benefits vest after 5Years of Service. 5% vests alter each ofthe next 5 years and 10% vests aftereach of the next 5 years: or

(3) 50% vests when an employee hascompleted at least 5 Years of Service.and age plus service equals at least 45or. if earlier (after 10 Years of Service) anadditional 10% vests after each subsequent Year of Service.



Act,Continued from page 113

However. the IRS retains certain rightsto acceterate vesting If such a schedulediSCriminates in favor of employees whoare officers. shareholders or highly compensated.

Generally. vesting provisions are toapply to all Years of Service of an employee with an employer. A Year of Service has the same meaning for vestingas it does for participating. Preparticipation service and service performed before the effective date of the Act are included lor purposes of determining theemployee's place on the vesting schedule. However. the following servicesneed not be included for vesting purposes: (1) service for which an employeedeclined to make contributions if required by the tan: (2) service with an employer for a period for which the employer did not maintain the Plan or a predecessor Plan; (3) service of less than1.000 hours in a year; and (4) In some instances. service performed prior to age22.

An employee's right to benefits attributable to his own contributions maynever be forfeited. An emptoyee's rightto accrued benefits attributable to hisemployer's contribution. once vested.are not forfeitable except for a limitednumber of instances.

If a Plan terminates or there is a complete discontinuance of contribution under the Plan, full vesting of all accruedbenefits is required.

Certain other provisions have beenadded by the Act which pertain to a participant's accrued benefits. If a Plan provides for a retirement benefit in the formof an annuity. the participant has beenmarried for the one-year period endingon the annuity starting date. and the parIIclpant does not elect otherwise, thenthe Plan must provide for a joint and survivor annuity. The participant must besupplied with a written explanation inlaymen's language as well as a dollarand cents illustration of his election totake or waive the joint and survivor annuity.

All Plans must have a spendthrift provision: however. it may provide that aftera benefit is in pay status. an employeemay make a voluntary revocable assignment not to exceed 10% of any benefitpayment (garnishment and levy is notconsidered a voluntary assignment).

Increases in Social Security benefitsmay not be used to reduce benefits toparticipants that are already in paystatus.

A Plan is generally required to providefor commencement of benefit paymentsnot later than 60 days after the end of theplan year in which the latest of thefollowing events occur:

(1) The participant attains age 65 or an


earlier normal retlrement age specifiedIn the Plan:

(2) Ten years have lapsed from thelime the participant commenced participation In the Plan; or

(3) The participant terminates hiS service with the employer

FUNDINGOnce an employee becomes a partici

pant. the employer must contribute tothe Pension Plan on his behalf which isknown as funding. Funding may be noncontributory. i. e.. the employer pays allthe cost: it may be mandatory, i. e" anemployee is required to contribute inaddition to the employer: or it may bevoluntary. i. e.. an employee may voluntarily contribute on his own behalf.

The new funding requirements applyto defined benefit and money purchasepension plans but not to profit sharing orstock bonus plans.

Money purchase pension plans andtarget plans that maintain individual participants accounts are exempt from thefunding standards. except when the required annual contribution is not made.

Each Plan subject to the new fundingrequirements must maintain a "fundingstandard account" as a vehicle for funding. In addition to funding current costs.the employer must amortize each year aportion of past liabilities, as yet unfunded. starting immediately.

For plan years beginning after January1, 1975. contributions made after theclose of the plan year may relate back tothat plan year for purposes of funding ifthe contributions are made within 2 1/2months after the close of that plan year.

FIDUCIARY RESPONSIBILITYA new federal fiduciary standard IS

established to protect against defalcation or other misuse of pension funds.Title I applies standards and remediessimilar to those of traditional trust law togovern the conduct of fiduciaries. Title IIapplies an excise tax on disqualified persons who violate the new prohibitedtransaction rule. Each fiduciary underthe Act is now subject to certain standards. requirements, limitations. and prohibitions which include: (1) a "prudentman" standard: (2) the requirement thatall Plan funds be used for the exclusivebenefit of the employees. (3) a diversification requirement. (4)a limitation on thepurchase of employer securities and employer real properties, (5) certain prohibited transactions, and (6) certainother additional prohibitions. There aresome exemptions to the above. providednotice thereof is given to all interestedparties.

A fiduciary with respect to a Plan is aperson who exercises any authority orcontrol in the management or disposition of Plan assets or any discretionary

authority In the management or admlnlstratlon of the Plan. or who has theauthority or re.:..ponslbility to render investment adVIce for a fee or other compensation. The term applies to plansponsors (generally employers), plan admlnlstrators. plan trustees. Investmentmanagers and Investment adVisors andmay apply to others as well.

The Act specifically prohibits Planfiduciaries and any "party·in-interest"from engaging in certain transactions involving the direct or indirect sale. exchange or lease between the Plan and a"party-in-interest" of property. the loaning of money or other extension ofcredit. the furnishing of goods. servicesor facilities. the transferring of any PlanIncome or asset. or the uSing of plan income or asset.

A "party-in-interest" means any fiduciary (including any administrator. officer, trustee or custodIan, counsel. employee or a Plan. a person providing services to a Plan. the employer. the employee organization. a relative of thesepersons. and an employee. officer. director of 10% shareholder of such persons.

Strict standards are established forany person who is a fiduciary and willfulviolators are subject to fine and imprisonment. (Fiduciaries may not be re·tieved of their obligations and existingexculpatory agreements are void. Tothe extent permitted by law, however.certain specified fiduciary obligationsmay be delegated to others. White afidUCiary may be insured against potential personal liabilities for Plan losses,such Insurance may not be acquiredwith Plan assets. The flduclary or theEmployer may purchase such insurance.The Act generally requires every fiduciary of an employee benefit Plan andevery person who handles funds or otherproperty of a Plan to be bonded.

A party-in-interest who has engaged ina prohibitive transaction IS subject to atax of 5% of the amount involved in thetransaction per year and a second tax of100% is imposed if the transaction is notcorrected after notice that the 5% tax isdue.

ADMINISTRATION ANDENFORCEMENT

In general. the Secretary of Labor hasthe responsibility for the administrationof Title I of the Act. and the InternalRevenue Service has such responsibilityfor Title II. Both have a Significant andappropriate role in the enforcement ofthe participation, vesting and fundingstandards. There are general guidelinesfor the coordination of administration between both departments.

The Secretary of Labor may bring action for breach of fiduciary responsibilityor to enjoin any act or practice whichviolates provisions under Title I or to ob-

taln any other appropriate relief to enforce any provisions of that Title. TheIRS retains the administrative responsibility for Initial determination of whe·ther a Plan qualifies for the special taxbenefits: and for the later determinationof whether a Plan continues to qualify forthe special tax benefits once operatIonal.

The Act further provides a procedurefor obtaIning a declaratory Judgmentfrom the U S. Tax Court with respect tothe tax-qualified status of an employeebenefit plan effective for petitions filedmore than one year after the date ofenactment.

A participant or beneficiary may bringa CIVil action against any person who interferes with hiS rights which are protected under the Act. In addition such person may be subjected to a fine of510.000. one year imprisonment or both.Civil action may be brought by a participant or beneficiary to recover benefitsdue under the Plan. to clarify rights to future benefIts or for relief from breach offiduciary responsibility.

Any person who willfully violates anyprovision of Title I relative to reportingand disclosure may be subjected to afine of $5.000. one year imprisonment orboth.

If a Plan administrator fails or refusesto furnish to a participant or a beneficiary such information as is required.the administrator may be personally liable to the participant or the beneficiarylor up to $100 per day Irom the date 01the failure or refusal. A Court may ordersuch other relief as it deems proper.

SELF·EMPLOYED INDIVIDUAL PLANS(HR 10 PLANS)

The Act Increases the maximumdeductible contribution on behalf of selfemployed individuals to the lesser of15% of earned income or 57.500. Thesame provision is made with respect todeductible contributions on behalf ofSubchapter S corporation shareholderemployees. In addition to the percentagelimitalion. not more than 5100.000 at earned income may be taken into account.Self-employed persons (but not shareholder-employees) are permitted to setaside up to 5750 of earned income a yearwIthout regard to the percentage of limitation.

Upon the issuance of regulations bythe Treasury Department. self-employedpersons may convert the 15%/$7.500limitation contributions into approximateequivalent limitations on benefits whichindividuals can receive under a definedbenefit plan.

A 6% excise tax is levied on excesscontributions to plans for self-employed.The tax on premature distributions wasincreased to 10%.

INDIVIDUAL RETIREMENT ACCOUNT("IRA")

An individual who is not an active partlClpant In another qualified retirementplan is permitted to establish his ownPlan In the form of an IRA account forthe most part. the IRA is treated for laxpurposes comparable to other Plans.The Individual may make contributionsInto such Plan himself or contributionsmay be made by hiS employer. Husbands and wives are eligible Individuallyand each can make contributions totheir own IRA. The maximum deductionIS the lesser of 15% of earned compensation or $1.500. The assets of anIRA may be Invested in a trusteed orcustodial account with a bank. savingsand loan. credit Union. annuity contractor certain life Insurance endowmentcontracts

The deduction for IRA contributions isavailable to taxpayers starting in 1975.Funds in the account accumulate taxfree until distribution commences noearlier than age 59 1/2 nor later than70 1/2. Distributions received by the participant or his beneficiary are fully taxable as ordinary income and are not subJect to the federal estate tax exemption.Rules on creation of the individual retirement accounts. annual contributions;and penalties for excess contributions,premature distribution and improper accumulations are comparable to HR-lOplans.

One of the most flexible provisions ofthe Act permits a terminating employeewith a vested accrued benefit undereither a corporate Plan or HR-10 Plan totransfer such funds into an IRA ("rollover"). If this transfer is made withinsixty days alter funds are available. noincome tax is payable on the rollover.

A taX-free rollover may also be madefrom an IRA to a subsequent employer'squalified Plan If the new employer's Planpermits It. Finally. rollovers are permittedfrom old to new IRA but only once everythree years.

LIMITATIONS ONCONTRIBUTtONS AND BENEFITSIn the case of a defined benefit pen

Sion plan. the hIghest annual benefit thatcan be paid from a qualified plan to aparticipant IS not to exceed the lesser of100% of the partIcipants average compensation m his high three years of employment or 575.000. Both of these ceilings may be adjusted to reflect cost ofliving increases. This adjustment is notavailable for HR-10 plans or IRA.

In the case of a defined contributionplan. such as profit sharing or moneypurchase plan, the annual additions forthe year cannot exceed the lesser of25% of the participants compensation of$25.000 (subject to annual cost of living

Increases). The term "annual additions"mean the sum of (1) the employer's contribution. (2) the lesser of (a) 1/2 of all theemployee's contribution or (b) the employee's contribution in excess of 6% toother compensation and (3) any forfeitures which are added to the employee'saccount. Annual additIons do not include rollovers from a qualified plan ormdlvldual retIrement account.

A specIal formula IS provided for theIndiVidual who is covered by both a defined benefit plan and a defined contribution plan,

LUMP-SUM DISTRIBUTIONSEffectIve for distributions paid in

taxable years beglnOing after December31. 1973. new tax treatment applies tothe lump-sum portion of a "total distribution." The pre-1974 portion of the taxabledistribution which (excluding employeecontrlbUtlons. net unrealized appreciation on any distribution of employerstock and guaranteed annuities) is taxedas long-term capital gain. To determinethe pre-1974 portion. a simplified methodhas been introduced. using the ratio ofthe member's years of participation priorto 1974 to his total participation. Thebalance at the lump sum is the post-1974portion and is to be treated as ordinaryincome except that it is taxed at a lowertax rate based on a 10-year averagingdevice and uses the tax rate schedule forunmarried taxpayers.

SALARY REDUCTION PLANSSome employees took a voluntary

reduction in salary in order for their employer to establish a Pension Plan. and aquestion was raised whether suchreductions should be treated as incometo the employees In the current year. TheAct sanctions as employer contributions.salary reduction plans prior to June 27.1974 and will continue to do so at leastthrough December 31. 1976. If the Planwas not In existence on June 27. 1974.then contributions are to be treated asemployee contributions (income to theemployee) until January 1. 1977 or untilnew regulations by the Treasury Department are preSCribed.

PLAN TERMINATION INSURANCEAll qualified defined benefit plans ex

cept plans 01 professional seNiee employers haVing twenty-five active participants or less under the Act are requiredto participate In a program of plan termination insurance which is administered by a new government corporation. PBGC. to be established within theLabor Department. Initial premiums areminimal and in subsequent years thePBGC may set premiums using the percapita rate base. the unfunded insurancebenefit rate base. the total insured bene-


July 1975/Arkansas Lawyer(.1l5

FALL LEGAL INSTITUTEDOWNTOWN MOTOR LODGE

STUDENT UNION BUILDINGUNIVERSITY OF ARKANSAS

OCTOBER 16-18

FAYETTEVILLE

The 1975 Arkansas v. Texas game has been moved back to Fayelleville for Saturday afternoon, October 18th.

The 1975 Fall legal Institute will be held in Fayelleville, October 16-17. The Special Meeting of the House ofDelegates is scheduled for Saturday morning, October 18th.

The Institute will cover the new Arkansas Criminal Code, effective July 1, 1975.

The Downtown Motor lodge will be the Institute's headquarters. The program sessions will be held in theStudent Union Building of the University of Arkansas.

Kindly make your room reservations right away at one of the many motels in Fayetteville - with the Texasgame, accommodations will be hard to find later on.

Arkansas ys. TexasSaturday, October 18, 1975


lfn memoriamBe strong and of good courage, do not fear or be indread of them; for it is the Lord your God who goeswith you; he will not fail you or forsake you.

-Deuteronomy 31:6

CARL E. lANGSTON1913-1975

Carl Eugene langston. aged 62, a little Rock lawyer who ran unsuccessfullyin 1970 for Little Rock Municipal Judge.died May 10. 1975.

Mr. Langston was born at Coal Hill(Johnson County). and was graduated in1930 from Coal Hill High School. He received a bachelor's degree in 1934 fromthe College of the Ozarks at Clarksville.In 1937 he was graduated cum laudefrom Notre Dame University School ofLaw, and a year later, he received hisJuris Doctor degree from the school.

From 1938 to 1941. Mr. langston practiced law in partnership with Troy W.Lewis. For the next two years he was inpartnership with Fred A. Isgrig. He laterserved as assistant attorney general during the administration of the late Guy E.Williams.

Mr, Langston was commissioned asan ensign in World War II and was assistant to the executive officer of RadioWahiawa at Oahu, Hawaii, where theJapanese radio code was broken. He remained active in the Naval Reserve afterWorld War II, and retired from the Reserve as a commander in 1970. He was aformer commander of the Reserve Officers' Training School at Little Rock.

He was a member of Trinity MasonicLodge 694, the Arkansas Consistory,Scimitar Shrine Temple and the RoyalOrder of Jesters.

He was a former chairman of the Official Board of Highland United MethodistChurch.

In 1946 Mr. Langston entered in topartnership with the late MunicipalJudge Quinn Glover. When JudgeGlover died in 1970, Mr. langston ranunsuccessfully to fill the unexpired term.

Since Judge Glover's death, Mr.Langston had been in partnership withhis son, John Langston, in the firm ofLangston and langston.

He was a member of the PulaskiCounty, Arkansas, and American BarAssociations, and was a former member

of the Pulaski County Planning Board.Besides his son and partner, he is sur

vived by his wife, Mrs. Muriel WadeLangston, of Little Rock. who is courtreporter for Pulaski Chancellor DarrellHickman; a daughter, Mrs. C. AllenMcKnight of Little Rock; two brothers,Porter langston of Coal Hill and WilliamEdward Langston, Jr.. of San Diego,Cal.; four sisters. Mrs. Florence Smrekerof Fort Smith. Mrs. Ora Mae Marvel ofClarksvilie, Mrs. Violet Matthews of EIPaso, Texas. and Mrs. Cora Lee Marvelof Coal Hill.

COURTNEY C. CROUCH1912-1975

Courtney C. Crouch, aged 62, ofSpringdale, past president of the Arkansas Bar Association and a past memberof the Arkansas Bar Association's Boardof Examiners died May 7, 1975.

80m at Collins, Missouri, he wasgraduated from the University of Missouri Law School at Kansas City in 1933and had practiced law in Springdalesince then.

He was a trustee of the Arkansas LawSchool Foundation. a member of theexecutive committee and trustee of theSouthwestern Legal Foundation atDallas, and a special justice of the Arkansas Supreme Court.

Mr. Crouch was a member of the FirstUnited Methodist Church in Springdale,and a member of the Church's Board ofStewards. He was a member of theSpringdale Memorial Hospital Board ofTrustees. He was elected mayor ofSpringdale at age 23 in the 1930's. andwas believed to be the country's youngest mayor at the time.

He was past president of the Springdale Rotary Club and was a member ofthe Chamber at Commerce Board ofDirectors for many years. He was pastchairman of the Washington CountyDemocratic Central Committee.

Mr. Crouch was a director of the FirstNational Bank at Springdale and a mem-

ber at the Northwest Arkansas RegionalAirport Committee.

Mr. Crouch served as Arkansas BarAssociation Vice-President in 1964-65,and President in 1965-66; he served onthe Executive Committee for a number ofyears, and held various committee chairmanships; and was an Arkansas BarFoundation Fellow and Patron.

Survivors include his wife. Mrs. MarieLoftis Crouch: three sons. CourtneyCrouch, Jr., of Hot Springs, Dr. MichaelE. CrOUCh of Minnesota, and James E.Crouch of Springdale; a sister, Mrs. J. E.Nanney of Tennessee, and two grandchildren.

J. CllB BARTON1903-1975

J. Clib Barton, well-known attorney,businessman and civic leader in FortSmith for many years. died April 22,1975, at the age of 71.

Mr. Barton was currently chairman ofthe board of Superior Federal Savingsand Loan Association. He was the organizer and a past president of HarbourHouse. Inc.. and was active on the Boardthere.

He began his law practice in FortSmith in 1927, joining his uncle, G. C.Hardin, in the firm of Hardin and Barton.Active in charitable projects, he was apast member of the Sebastian CountyWelfare Board, Red Cross and waschairman of Doss Cutton CharitableFoundation and of Godfrey-ThomasCharitable Foundation.

Mr. Barton was a past vice president ofAlma Canning Co.. Good Canning Co.and Charleston Canning Co., and wascnairman of the Young Democrats inFort Smith 1927-34.

He was a 32nd Degree Mason, a pastmember of the Chamber of Commerce,past board member at First UnitedMethodist Church, and a member ofHardscrabble Country Club.


July 1975!Arkansas lawyer!117

MEMORIAL GIFTS

··It is more blessed to give than to receivc"-Ifowever, a memberprofits both ways "'ith a memorial gift to the Arkansas Bar Founda·tion. One's gift is a beautiful way of honoring a former colleague.The family must be most aPI)rcciative of such remembrance. Thegift is noted in the Foundation's Memorial Book and, of course, istax deductible. Memorial gifts may be sent to the Arkansas Bar Ccn-ter. The memorial card (below) of the Arkansas Bar Foundation isformal and is I)romluly delivered "I)on receipt of the memorial gift.

WE ACKNOWLEDGE WITH GRATEFUL APPRECIATION

THE RECEIPT OF A GENEROUS MEMORIAL GIFT

FROM

0'

IN MEMORV OF THE LATE

.':1",{, . (>/,..;{n nJ,oJ ,-:1t3a,.. .~r.u n'k,lt61"

LITTLE ROCK. ARKANSAS

'-

Memoriam,Continued from page 117

Mr. Barton had received the SilverBeaver Award from the Boy Scouts.

He was an Arkansas Bar FoundationFellow.

Mr. Barton leaves his wife, Wilma; adaughter, Mrs. Patsy McDonald of Newport: two sons, the Rev. John Barton, Jr.,of Hot Springs. and James of WalnutCreek. California, and seven grandchildren.

NICHOLAS J. GANTT, JR.1879-1975

Nicholas J. Gantt, Jr.. aged 95, of PineBluff. who practiced law in that city formore than 70 years. died April 28. 1975.

Mr. Gantt was named the State's Outstanding Lawyer in 1961 by the ArkansasBar Association and the Arkansas BarFoundation.

He was president of the Arkansas Barin 1940 and a past president of the Coun·cil of Past Presidents of the Association.The Past President's Room at the Arkan·sas Bar Center at Little Rock is namedfor him. and he was an Arkansas BarFoundation Fellow and Patron.

Born at Magnolia, he was the son ofthe late Nicholas J. and Laura BrowningGantt. He was graduated from HendrixCollege in 1898 and was named a Distin·guished Alumnus of the College in 1973.

Mr. Gantt received a masters degreefrom Vanderbilt University at Nashville,Tenn. in 1901 and a law degree fromVanderbilt in 1903.

He was admitted to the bar in 1903,and began the practice of law in PineBluff. and continued to do so until hisdeath. In 1911, he formed the law firmthat is now known as Coleman, Gantt,Ramsay and Cox.

Mr. Gantt was City Attorney at PineBluff from 1929 to 1932 and was city at·torney for Altheimer for a number ofyears. He was a member of the JeffersonCounty Bar ssociation and a fellow ofthe American College of Probate Counsels.

Mr. Gantt was a member of the Jeffer·son County Board of Health, to which hewas first appointed in 1925. He was apast president and member of the Boardof the Reliable Abstract and Title Company in Pine Bluff, a senior vice president and member of the Board of theFirst Federal Savings and Loan Association of Pine Bluff, a former president ofthe Board of Directors of the Coca-ColaBottling Company of Southeast Arkansas and a member of the Board of the Ar·kansas Oak Flooring Company.

Mr. Gantt was a member of FirstUnited Methodist Church in Pine Bluff.and selVed on its Official Board for manyyears and was on the Building Committee when the present church was built.


He was a co-founder of the QuawpawMasonic Lodge No. 730, the first potentate of the Sahara Shrine Temple in PineBluff, a member of the Lafayette ChapterNo. 7 of the York Rite Bodies, theDamascus Commandery No.1. the Royal Order of Jesters and a charter member of the Red Cross of Constantine No.29.

Survivors include his wife, Mrs.O'Donley Gantt.

WOODY MURRAY1895-1975

Woody Murray, aged 79. a retired Cir·cuit Judge of the 14th Judicial D,strlctand Harrison attorney for almost 50years, died March 3. 1975.

Mr. Murray had been in politics andthe practice of law all his adult life. Hewas Harrison City Attorney and CityClerk for 12 years. selVed two terms inthe Arkansas House of Representativesfrom 1934 to 1937. was Circuit Judge ofthe 14th JudiCial District for 16 years,from 1951 to 1966. He was active in theFirst Baptist Church in Harrison for over40 years and was Sunday Schoolteacher of the Men's Bible Class in theChurch for about four decades.

He received his BA and LLB degreesfrom Southwestern University LawSChool in Washington, D.C.. and passedthe Arkansas State Bar examination.

He was born October 28, 1895. at Murray, the Newton County communityabout 12 miles South of Jasper. whichwas named after hiS family.

In World War I. he spent six months inthe Army Air Corps at Vancouver Barracks, Washington, and was honorablydischarged in December of 1918. return-

ing to his parents' home for about a yearbefore passing a U.S. Civil Service examand taking a position in Washington.D.C. where he attended law school andworked.

He began practicing law in Harrison in1926 as a junior partner with Virgil Willisand then opened his own law office in1926. Later he served in partnershipswith Shouse and Rowland and with W. J.Cotton.

He was a member of the HarrisonLions Club and the Boone County BarAssociation and Arkansas Bar Association and American Legion.

Survivors inClude hIS wife. Mrs. ClaraHubbard Murray: a son, Noland PatricMurray, of Conway: three brothers, Royof Kansas City, Mo., Denver of Rogers,Regal of Dallas. Tex.: two sisters, Mrs.Olive Ireland of Globe. Ariz., Mrs. ErnestJackson of Ft. Smith: and two grandchildren.

J. H. MARTIN1887-1975

J. H. Martin died October 21. 1973, atthe age of 82.

Mr. Martin was born in Missouri, wasan ex~school teacher, worked for theRock Island Railroad for a number ofyears. and later became a Certified Put>lic Accountant in Little Rock. He wasassociated with his brother. E. C. Martinof Kansas City, under the firm name ofMartin & Martin of Kansas City and LittleRock. as a firm of Certified Public Accountants.

Mr. Martin was a member of the Ar~

kansas Bar Association.He was never married. ../" -.

ARKANSAS MODEL JURY INSTRUCTIONS (CIVIL)-Revisions Resulting from Act 367 of 1975-

Prepared by theArkansas Supreme Court Committee on Model Jury Instructions (Civil)

Henry Woods, Chairman

AMI 612 (Revised 1975)

ASSUMPTION OF RISK-GENERAL____ contends that assumed the risk of his own (injuries)

(damages). To establish that defense, has the burden of provingeach of the following propositions:

First: That a dangerous situation existed which was inconsistent with thesafety of ( ) (and) ( 's property).

Second: That knew the dangerous situation existed and real-ized the risk of (injury) (damage) from it. (In determining whether _knew of the dangerous situation and realized the risk of (injury) (damage)from it you may take into consideration whether the danger was (open and)obvious.)

Third: That voluntarily exposed himself to the dangerous situa-tion which proximately caused his claimed (injuries) (damages).

NOTE ON USEIf it is contended that the plaintiff's

claim is barred or diminished by his having assumed the risk of the negligenceof someone other than the defendant. itis recommended that the case be submitted on interrogatories. See fifth paragraph of Comment.

See AMI 613 for assumption by passenger of risk of driver's intoxication.

COMMENTBy a 1975 legislative enactment. the

common law defense of assumption ofrisk is no longer a complete bar in an action for damages. Act 367 of 1975. Actsof Arkansas; Ark. Stat. Ann. Section__. Conduct which constitutes assumption of risk is now. like negligence,embraced within the concept of "fault"and therefore is to be compared with anyfault on the part of those parties fromwhom recovery is sought. See Chapter21 and AMI 2115.

For a discussion of the distinctions between assumption of risk and contributory negligence see Prosser. Law ofTorts. Section 68 (4th Ed. 1971).

Although the doctrine of assumptionof risk is generally applied in employeremployee cases, it is a distinct principleof law which is also applicable in othersituations. Bugh v. Webb. 231 Ark. 27.328 S.w.2d 379. 84 A.1.R.2d 444 (1959);Haynes Drilling Corp. v. Smith. 200 Ark.1098. 143 S.w.2d 27 (1940).

Knowledge and appreciation of thedanger have been emphasized as importan elements of this defense. MercuryMining Co. v. Chambers, 193 Ark. 771.102 S.w.2d 543 (1937); Carroll v. Lanza,116 F.Supp. 491 (ED.Ark.19531. affirmedin part and reversed in part. Lanza v.Carroll. 216 F.2d 808 (8th Cir. 1954). reversed 349 U.S. 408. 75 S.Ct. 804. 99L.Ed. 1183 (1955). However. it has longbeen recognized in the employeremployee cases that "the servant assumes ordinary risks and dangers, including those hazards known to him andthose which are open and obvious". Leev. Pate, 198 Ark. 723. 131 S.w.2d 8(1939); Hall v. Patterson. 205 Ark. 10. 166S.w.2d 667 (1942). The use of the phrase"in the exercise of ordinary care should

have known" In paragraph "Second"appears to be justified by the opinion inGoodin v. Boyd-Sicard Coal Co.. 197Ark. 175. 122 S.w.2d 548 (1938). However. such language has been held to bein error when used in an assumption ofrisk instruction. Walther v. Cooley. 224Ark. 1027, 279 S.W.2d 288 (19550. Thestandard of care to be applied is a subjective one. of what the particular plaintiff in fact sees. knows. understands, andappreciates. McDonald v. Hickman. 252Ark. 300. 478 S.w.2d 753 (1972); Price v.Daugherty. 253 Ark. 421. 486 S.w.2d 528(1972).

In J. Paul Smith Co. v. Tipton. 237 Ark.486. 374 S.w.2d 176 (1964) it was heldthat a passenger in an automobile canassume the risk of the negligence of thedriver of the automobile in which he is apassenger. In such a case assumption ofrisk may operate to bar or diminish aparty's recovery against a third party.See Note. 18 Ark. l. Rev. 360 (1965). Seealso Hass v. Kessell. 245 Ark. 361. 432SW2d 842 (1968).

For a comprehensive discussion of assumption of risk see Cowart v. CaseyJones. Contractor. Inc.. 250 Ark. 681. 487S.w.2d 710 (1971) and Rhoads v. ServiceMachine Co.. 329 F.Supp. 367 (ED. Ark.1971).


July 1975/Arkansas Lawyer /119

Instructions.Continued from page 119

AMI 631 (Revised 1975)ASSUMPTION BY PASSENGER OF RISK

OF DIVER'S INTOXICATION___ contends that assumed the risk of (his) (their) own in-

juries. To establish that defense, has the burden of proving eachof the following four propositions:

First: That (plaintiff's driver) was under the influence of intoxi-cants to the extent that his ability to drive his vehicle was impaired.

Second: That knew that (plaintiff's driver) was inthat condition and realized the risk involved in riding with him.

Third: That voluntarily accompanied (plaintiff's driver)despite (his) (their) knowledge and realization of the risk involved.

Fourth: That any injuries sustained by were proximately causedby such intoxication of (plaintiff's driver).

AMI 2101 (Deleted 1975)COMPARATIVE NEGLIGENCE-WHEN OTHER

DEFENSES ARE SUBMITTED

Chapter 21COMPARATIVE FAULT-GENERAL VERDICT

(Introduction Revised, 1975-Supersedes page 250, AMI2d)

NOTE ON USEDo not give AMI 607 when this instruc

tion IS given. If the plamtlff passenger issuing the dnver of another vehicle alone.and It IS contended that the plaintiffsclaim IS barred or dlmmlshed by his having assumed the nSk of his own dnver'sintoxication, It is recommended that the

The instructions In thiS chapter are deSigned only for use with a general verd,ct and are based upon Act 367. Acts ofArkansas of 1975: Arl<. Stats. Ann. Subsection __. Smce 1955 Arkansas hasnot followed the common law rule that"contnbutory negligence" Will bar anyrecovery for damages. The "comparatlve negligence" doctrine, Initially adop.ted by statute In 1955, was modified bythe General Assembly In 1957 and againIn 1973. The latter enactment created apnnclple of "comparatlve fault." However, the "fault" of the parties to be compared under the 1973 Act was limited to"conduct actionable In tort," a definitionwhich did not embrace the affirmatIvedefense of assumption of nsk.

Act 367 of 1975 defines "fault" as "anyact. omiSSion. conduct. nsk assumed.breach of warranty or breach of anylegal duty which IS a proximate cause ofany damages sustained by any party."The fault of a claiming party does not barrecovery unless it equals or exceeds indegree any fault on the part of a party orparties from whom a recovery is sought.On the other hand. if the fault of a claimIng party is of less degree. his damagesare merely reduced in proportion to the

July 1975!Arkansas Lawyer!120

case be submitted on Interrogatones.

COMMENTFor a discussion of the doctrme of as

sumption of nsk In general. see theComment to AMI 612.

This Instruction Will usually be usedwhen both the dnver and his passengers

degree of hiS own fault.Act 367 IS effective July 9. 1975. Whe

ther Act 367 IS to be afforded retroactiveapplication IS necessanly a questionwhich addresses Itself to the SupremeCourt of Arkansas Pending a resolutionof thiS Issue. the Committee urges caution In utiliZing JUry InstruCtions whichembrace assumption of nsk wIthin theconcept of "comparatlve fault" In casesinvolving causes of action anslng pnorto the effective date of the 1975 Act.

Under present Circumstances, the vastmaJonty of cases Will Involve a compan-

COMMENTThe defense of assumptlon of risk as a

complete bar to recovery having beenmodified by statute, an appropnate comparative fault instruction will define theeffect of any defenses raised in casessubmitted on general verdict.

have been engaged In a drmklng party.In the earlier cases. when contributorynegligence was a complete defense. theCourt held that the members of such adnnklng party were engaged in a Jointenterpnse. so that the dnver's negligence was Imputable to the passengers.Sparks v. Chitwood Motor Co.. 192 Ark.743. 94 S.w.2d 359 (1936): see alsoLeWIS v. Chitwood Motor Co.. 196 Arl<.86. 1t5 S.W.2d 1072 (1938). Mer thecomparative negligence statutes wereadopted. the Court discarded the theoryof 10lnt enterpnse and recognized thatthe situation actually Involves assump.tion of risk. Hurley v Peebles, 238 Ark.739. 364 S.W.2d 261 (1964). Under thiSlatter pOInt of view the defense of assumption of risk Will ordinarily present aquestion of fact for the IUry. as IS usuallythe case In other situations involVing thedoctnne of assumption of nSk. SeePalmer v. Mykelbusl. 244 Ark. 5. 424S.w.2d 269 (1968).

When the plaintiff IS found to have assumed the nsk of hiS own driver's negligence or Willful and wanton conduct.that negligence or misconduct will baror diminish hiS recovery. J. Paul SmithCo. v. Tipton. 237 Ark. 486. 374 S.W.2d176 (1964). See Comment to AMI 612.

son of neglIgence on the part of a claim,ng party With negligence on the part ofthe party or parties from whom recoveryIS sought. Therefore. most of the instructIOns In thiS chapter are phrased in termsof comparative negligence. However.since It IS Impossible to prepare modelInstructions on comparative fault whichWill cover every conceivable situation. 0

number of different forms are presentedIn thiS chapter. These can readily beadapted to fit a partIcular set of facts. Forexample. If a defendant-counterclalmantIS a personal representative, the methodof Identifying parties employed In AMI2103 can be used In modifying slightlyAMI 2104. see also AMI 2404. an Illustrative set of instructions which contains acombination of AMI 2112 and 2103.

Whether AMI 2101 has any continuingvalidity will depend upon a judicialresolution of the question of possibleretroactive application of Act 367 of1975. Acts of Arkansas. See third paragraph of Introduction to this chapter.

J-~

..

Arkansas statutes Annotated

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