is this how it's done ????

[Killer Bee]

I'm not familiar with 87 k10 transfer cases specifically but sounds like weep hole in the yoke.. this allows linear movement of the yoke over output spline during suspension travel without creating hydraulic lock internally.. again, I'm not familiar with your specific transfer case as to what kind of spline sleeve internal seal or o-ring it may have if any.. but you can at least verify whether the yoke has a weep hole and if that's the source of the leak.. it may also make a difference which shaft it is, front or rear, as they may have different seal arrangements..

google "slip yoke weep hole leak transfer case" to see a plethera of articles that may match you symptoms..

hopefully someone more knowledgeable about your specific series of truck will clear this up for you.. and for future reference, a little more descriptive thread title may draw faster pointed answers to your questions

good luck!