Lone Star Gas Co. v. Harris

45 S.W.2d 664

• Court: Court of Appeals of Texas
• Decided: November 27, 1931
• Docket: No. 909
• Status: Published

Opinions

LESLIE, J.

John G. Harris filed this suit on May 29, 1924, to recover royalties, according to his construction of a certain oil and gas lease executed by him to the Ohio Fuel Oil Company on July 12, 1915. This is the second appeal of the case, the first being recorded in (Tex. Civ. App.) 19 S.W.(2d) 178. The judgment of the trial court was there reversed on the ground that it erred in sustaining a general demurrer to the plaintiff’s petition.

The original lease to the Ohio Fuel Oil Company granted and leased plaintiff’s premises-'“for the sole and only purpose of mining and operating for oil and gas.” The lease contract specified the term thereof, a nominal consideration, and, in addition thereto, three-covenants:

“In consideration of the premises the said lessee covenants and agrees:

“1st. To deliver to the credit of lessor, free of cost, in the pipeline to which it may connect its wells, the equal one-eiglith part of all oil produced and saved from the leased premises.

“2nd. To pay the lessor $300.00 each year in advance for the gas from each well where gas only is found, while the same is being used off the premises, and lessor to have gas free of. cost from any such well for all stoves and all inside lights in the principal dwelling house on said land during the time by máking his own connections with the well at his own risk and expense.

, “3rd. To pay lessor for gas produced from any oil well and used off the premises at the rate of $50.00' per year for the time during which such gas shall be used, said payments to be made each three months in advance.”

On November 28, 1923, said lease was duly assigned by the Ohio Fuel Oil Company to the Kokomo Petroleum Company, the former reserving seven thirty-seconds interest in the minerals produced from said lands. A well was ’drilled on the land prior to January 19-, 1924, and it produced gas only. For each of the years 1924, 1925, and 1926, the $300 gas royalty provided for in covenant two was tendered plaintiff, but refused by him on the ground that he was entitled to other and greater sums of money under the terms of his lease.

On January 16, 1924, the Kokomo Petroleum Company and Ohio Fuel Oil Company, by written contract, sold and agreed to deliver to the Lone Star Gas Company, at the mouth of- wells then drilled or to be drilled on said premises, “all the merchantable gas to its natural state.” Such natural gas was thus taken by the Lone Star Gas Company and transported to nearby plants off the premises, and the gasoline content extracted. It is by reason of the foregoing transactions that each'of these defendants is brought into-this suit and charged with default in paying the royalties which the suit is designed to recover under the construction of the contract placed upon it by the plaintiff.

Aftér the cause was returned to the lower-court, Annie A. Harris, wife of John G. Harris, deceased, and executrix of the estate, was; substituted as plaintiff, and has amended the pleadings, and the suit differs to some re-speets from what it was when it reached this court originally. On the last trial the plaintiff sought to recover, not only the $300 Annual gas rental for a gas well only, but, in addition, sought to recover one-eighth, etc., of the gasoline (as oil) recovered by the Lone Star Gas Company.

The trial was before the court without a jury and judgment was rendered in favor of the plaintiff against the Lone Star Gas Company on the last theory as for oil converted, and against the Ohio Fuel Oil Company and the Kokomo Petroleum Company on both theories; that is, for gas from a gas well, and the gasoline extracted therefrom also. The defendants resisted recovery under general denial and plea of limitation.

That our disposition of the case may be more readily understood, it becomes necessary to refer, in some measure, to the record on the former appeal (Tex. Civ. App.) 19 S.W.(2d) 178. The allegations of the plaintiff’s petition (omitting formal parts), which, in our judgment, rendered it good as against the general denial, were:

“In this connection plaintiff would respectfully .represent and show to the court that, by the terms and provisions of said lease, as above quoted, as well as by other terms and provisions of the said lease, all of which are invoked and pleaded as particularly as if herein set forth, that it was contemplated by the parties to said lease, and then and there (agreed and understood that the plaintiff should have l/8th of all the oil produced from the development of said premises and plaintiff would respectfully represent and show to the court that casing-head gasoline and gasoline, is oil within the contemplation of the said contract, and that by the terms and provisions thereof the lessee and this defendant promised and agreed to pay the plaintiff the said royalty as by the contract provided.

“3. IChat the said defendants have produced large quantities of gasoline from said land. * * *

“5. Plaintiff avers that gasoline is oil under the terms and provisions of Exhibit A, hereto attached and made a- part hereof.”

On the last trial, the plaintiff’s amended petition, after setting out the one-eighth oil royalty provision of the lease, and the $300 annual gas rental provision thereof, alleged:

“That thereafter, on or about the 28th day of November, 1923, the defendant, Ohio Fuel Oil Company, entered into a drilling contract with the Kokomo Petroleum Company * * * for the drilling of certain oil and gas wells upon said land and for the full terms and provisions of said contract reference is here made to a copy of same hereto attached, marked ‘Exhibit A,’ and made a part hereof.

“6. Thereafter, on or about the 16th day of January, 1924, a gas well was brought in on plaintiff’s land above described, which produced gas in paying quantities, and whereupon the Kokomo Petroleum Company and the Ohio Fuel Oil Company assigned same to the Lone Star Gas Company. * * *

“7. Under the second provision of the royalty Contract hereinabove set forth, it was the duty of the defendants in advance to pay to the plaintiff $300.00 per year after the coming in of said gas well, but though often requested the defendants have failed and refused and yet fail and refuse to pay the same, or any part .thereof, and to plaintiff’s damage in the sum of $1300.00. Plaintiff here sues for the said royalty of $300.00 per year, together with 6 per cent, interest per annum thereon as provided by law from the date or dates that the same became due, and prays for such interest as a part of the damage in connection herewith.”

It will be observed that thus far the plaintiff’s right of recovery is based upon the fact that the defendants, or some of them, have drilled a gas well on plaintiff’s land, and that the well produced “gas in paying quantities,” and that they have failed or refused to pay the $300 annual gas rental therefor.

The right to recover an additional sum is claimed under and by virtue of the one-eighth oil royalty provision, and by reason of the fact that the gas produced from said gas well contained gasoline which was extracted therefrom by the Lone Star Gas Company. This additional right óf recovery can best be stated by quoting paragraph 8 of the plaintiff’s second amended petition, which is as follows: “Plaintiff would further show to the court that under the first paragraph, of the lease contract above quoted, the said defendants agreed to deliver to the cre.dit of plaintiff, free of cost, in the pipeline to which the defendants should connect said well, the equal l/8th part of all oil produced and saved from said premises. In this connection plaintiff would show the court that the defendants, and each of them, have failed and refused to deliver to the credit of the plaintiff, free of cost, in its pipe with which it is connected with said well, said equal l/8th part of the oil so produced and saved from said premises. The defendant (Lone Star Gas Company) connected its pipeline with said well and at the Desdemona Lone Star Booster Plant, took more than one-half gallon of gasoline per thousand cubic feet from Well No. 2, and then piped the natural gas, together with the remaining oil, from the mouth of said well to its Gordon gasoline plant some 25 miles east of the said well and at said plant, so owned and operated and controlled by the said defendant, separated the remaining oil of more than one-half gallon per thousand cubic feet from the natural gas and ap< propriated and converted all of the said oil to the use and benefit of the said Lone Star Gas Company, and has failed and refused to deliver to the said plaintiff her equal l/8th part of said oil, or to place to plaintiffs credit tlie Talne thereof, but has appropriated all of the said oil and all of the value thereof. * * * ”

Following this allegation were others, seeking, in the alternative, to recover: (1) one-eighth part of said oil (gasoline so extracted) ; (2) or one-eighth of the value thereof; (3) or one-eighth of the amount remaining after deducting the reasonable cost of production, etc. Additional statement of pleadings and testimony in the case will follow where deemed necessary to an understanding of the opinion.

On the first appeal, in passing on the proposition that the demurrer should not have been sustained to the plaintiffs petition, we were merely holding that, by indulging reasonable .intendments in favor of the allegations of the pleading, the charging part of which is above set out, it was sufficient as against the demurrer to allow a development of the facts bearing on the charge of conversion of oil belonging to the plaintiff. In that we were endeavoring to follow the opinion in the case of Reynolds v. McMan Oil & Gas Company (Tex. Com. App.) 11 S.W.(2d) 778, and the fact that a writ of error was refused by the Supreme Court argues that, in some measure at least, we. were correct in so doing. However, in this court's opinion we did not so determine that a lessor could recover the $300 annual gas rental on a gas well as contradistinguished from an oil well producing gas, and at the same time recover the one-eighth of the gasoline manufactured from the gas by virtue of the one-eighth oil royalty provision first above set out. Indulging the reasonable intendments in favor of the plaintiff’s petition on the former trial, it could not be said, under the pleadings then under attack, that the converted gas or oil was not being derived from gas from an oil well. It is true, we said in the former opinion [19 S.W.(2d) 178, 179], that, “If such product [that is, gasoline] alleged to have been converted by the defendants and each of them be oil, it is not believed that it be material by what term or name the well from which it is taken be designated ; that is, whether it be a gas' well, gas from an oil well, or an oil well:”

We thought then, and think now, that the expression quoted stated a correct proposition, and that it logically followed from a reasonable and proper construction of the opinion in the Reynolds Case. Also, in that opinion by this court, and whether it was necessary to a decision of the case or not, we did recognize that, under conditions, the right of recovery for gas from a gas well must be limited entirely to the provision of the lease providing the $300 annual gas royalty. In that opinion we stated that, under the Reynolds Case, “ * * * it occurs to us that there is but one conclusion to be reached from the decisions, and that is'that under the terms of the appellant’s lease in the instant case, and for the considerations noted, the granting clause of the lease placed title to the ‘natural gas’ in the lessee, and clothed it and its assigns with full and complete authority to sell or dispose of the same without incurring obligations other than may be found in the personal obligation of the lessee to pay the lessor $300 and $50 per year, respectively, under the provisions of sections 2 and 3, setting forth the considerations for the lease.”

However, regardless of what was said in our opinion on the former appeal of this case, and regardless of any significance that may be attached to the refusal of a writ of error, it is quite evident that the opinion of our Supreme Court, through the Commission of Appeals, in the recent case of Lone Star Gas Company v. Stine, 41 S.W.(2d) 48, 49, is controlling under the facts and issues presented by this record. In that case the gasoline content about which the litigation revolved “was manufactured from gas which came from the wells as gas.” The Court of Civil Appeals at Fort Worth, in its opinion (23 S.W.(2d) 752), followed the opinion in ‘the Reynolds Case and allowed a recovery for such gasoline as oil under the one-eighth oil royalty provision. Upon that record, such a conclusion, to our minds, was logical under the Reynolds Case, even more certainly than it was required that this court should follow the Reynolds Case in disposing of this case on its former appeal, since the question then presented to us merely involved the trial court’s ruling on a general demurrer, which necessitated the indulgence of reasonable intendments in favor of the rather general expressions in the pleadings. But, the Commission of Appeals, in Interpreting the opinion of the Court of Civil Appeals in the Stine Case, used this language: “As we understand tho opinion of the Court of Civil Appeals, it holds that as a matter of law the gasoline manufactured from the natural gas which flowed from the gas company’s wells was oil within the meaning of the deeds and ‘operating agreement,’ supra. AVe think this holding is error. H. O. & R. Co. v. Poe (Tex. Com. App.) 29 S.W.(2d) 1019, 1020; Magnolia Petroleum Co. v. Connellee (Tex. Com. App.) 11 S.W.(2d) 158.”

The deeds and operating agreement construed in that case did not more certainly convey to the lessee the gas produced from gas wells than does the lease contract in the instant case convey the same to the lessee, Ohio Fuel Oil Company, in consideration of the promise by the latter to pay therefor $300 annually, as provided for in the contract. In the Stine Case the gas company had the right to “drill for and develop gas and take the same free from any charge or royalty,” having paid a large consideration for “natural gas” developed under the contract, while in the instant case the lessee acquired the right to all gas from each well where gas only is found by paying $300 each year for the same.

After setting forth the facts in the Stine Case and fully recognizing the plaintiffs claim for gasoline (oil) extracted from gas wells only, the commission, in its opinion, quoted from the Poe Case the following:

“It is difficult to conceive upon what theory defendant in error was entitled to recover for gasoline which could have been manufactured from gas produced from a gas well, in the face of the provision in the lease that ‘lessee agrees to pay the lessor at the rate of $250 each year, payable quarterly in advance, for the gas from each well where gas onlj, is found, while the same is being used off the premises.’ * * *

“Plaintiff in error acquired the right to use the gas produced from a gas well it might drill on the premises covered by the lease by the payment of the agreed rental of $250 per annum. Having bought and paid for such gas it owned the same, including all of its constituent elements, and therefore had the lawful right to make such use of it as it might deem proper. Wilson v. King Smith Rfg. Co., 119 Okl. 256, 250 P. 90; Shaw v. Fender, 138 Ga. 48, 74 S. E. 792; McRae v. Smith, 164 Ga. 23, 137 S. E. 390; Magnolia Petroleum Co. v. Connellee, supra.”

The application of the principles stated in the excerpt to the facts of that ease, as well as this one, is apparent, and the further significant statement is taken from that opinion: “The evidence in this case conclusively shows that the gasoline in controversy here was manufactured from gas which came from the wells as gas. This gasoline was separated from the gas and became liquid only when it was subjected to the manufacturing process shown above. It is true that the gasoline element was in the gas when it came from the well, but it was then in gaseous form, that is, it was an element or component part of the natural gas, and gas or natural gas was the thing conveyed by the deeds. The legal effect of the deed was to convey ‘all natural gas,’ and by the term ‘natural gas’ is meant all the constituent elements composing the same. The gas company, having become the owner of ‘all natural gas’ in or under this land, has the right to make such use thereof as it sees fit. It may sell the gas in its natural form as it came from the earth, or it may split it into its constituent elements and sell such elements, including the gasoline.”

As before observed, the pleadings and the undisputed testimony disclose that the gas, as it came from the well on the plaintiff’s land, came from a gas well as such. That fact being determined, the rules stated in the Stine Case control the 'disposition of this appeal, and we held that the original lessee acquired said gas with its constituent elements, together with the right to dispose of the same.

On the record here presented, we have not considered it profitable to refer to or undertake to discuss the alleged conflicts in the opinions to be found in the lieynolds and Connellee Cases. If the Stine Case does not overrule the Reynolds Case, it certainly modifies it in material respects. Be that as it may, we endeavor to follow what we consider the latest authorized expressions of the Supreme Court upon the question.

It follows from what has been said that the plaintiff’s right to recover the $300 annual gas rental, aggregating the sum of $910.50, as stated in the judgment, is established, and to that extent the judgment of the trial court is affirmed as against the defendant Ohio Fuel Oil Company and the Kokomo Petroleum Company, but under the pleadings and the testimony, and in the light of the opinion in the Stine Case, she is precluded from any recovery for the gasoline under the one-eighth oil- royalty provision of the lease. Such recovery would be in the nature of a double recovery for an element of gas theretofore sold in its entirety, together with the right of disposal.

We now consider whether or not the defendant’s plea of limitation precludes recovery of any amount whatever under the $300 annual gas rental provision. This suit was originally filed May 29, 1924, .and the appellant contends that nowhere therein did, the plaintiff seek to recover said gas rental. Its proposition very clearly follows the record and presents the point in this language: “The undisputed evidence on the trial of this cause clearly showing that appellee, executrix of the estate of John G. Harris, for the first time, to-wit: On November 18th, 1930, sought a recovery of the Ohio Fuel Oil Company for the annual rentals of $300.00 for the years 1924, 1925, and 1926, as provided for by the terms of the oil and gas lease involved herein, as an added consideration for gas produced from a well drilled on the lands in question, producing gas only, and that under the terms of said lease and the evidence said rentals matured annually on January 19th, 1924, 1925 and 1926, therefore said several sums of money were clearly barred by the four years statute of limitation, and it was material error for the trial court to render judgment against the Ohio Fuel Oil Company for a recovery of the same or any part thereof, the four years statute of limitation having been timely interposed by said appellant.”

We do not think there is any merit' in this proposition, especially in view of the recent act of the Legislature, to be found in chapter 115, General Laws, Regular Session, 42d Legislature, 1931 (Vernon’s Ann. Civ. St. art. 5539b). It is there provided: “Whenever any pleading is filed by any party to a suit embracing any cause of action, cross-action, counterclaim, or defense, and at the time of filing such pleading such cause of action, cross-action, counterclaim, or defense is not subject to a plea of limitation, no subsequent amendment or supplement changing any of the facts or grounds of liability or of defense shall be subject to a plea of limitation, provided such amendment or supplement is not wholly based upon and grows out of a new, distinct or different transaction and occurrence.”

Conceding that the plaintiff, in her second amended petition, filed November IS, 1930, for the first time specifically claimed a right to recover the $300 annual gas royalty by virtue of that provision of the lease contract, nevertheless, such action on the plaintiff’s part amounted to no more than a subsequent amendment, changing some of the facts or grounds of liability in the original suit embracing a cause of action filed at a time when the same was not subject to a plea of limitation. We do not regard the second amended petition in the respect complained of as wholly based upon and growing out of a new, distinct, or different transaction or occurrence from that evidenced by the original petition.

The different appellants have in most respects made common cause in so far as the controlling assignments of error and propositions of law are concerned. They have not been dealt with separately, but considered together.

For the reasons assigned, the judgment of the trial court as against the Ohio Fuel Oil Company, the Kokomo Petroleum Company, B. I. Kudell, and J. L. Lary will be affirmed in so far as it grants the plaintiff a recovery of $910, the past due annual gas royalties under the second covenant of the lease above set out. That portion of the judgment which grants the plaintiff a recovery against the Ohio Fuel Oil Company, Kokomo Petroleum Company, and the Lone Star Gas Company for $1,038.75 for the value of the gasoline extracted from said gas is here reversed, and in that respect judgment is rendered in favor of the said defendants against the plaintiff. In other respects, the judgment of the trial court is also affirmed. It is so ordered.