Turman Oil Co. v. Sapulpa Refining Co.

1926 OK 747, 254 P. 84, 124 Okla. 150, 1926 Okla. LEXIS 599

• Court: Supreme Court of Oklahoma
• Decided: September 21, 1926
• Docket: 16729
• Status: Published

Opinion

Opinion by

RAY, C.

November 22, 1921 be Tiu-man Oil Company and the Sapulpa lefining Company entered into two written ontracts, by wbicb it was agreed that the il company would sell and deliver into the alining company’s pipe lines, and the re-niug company would buy, all the crude oil reduced on the Loman and Thompson leases or a period o£ one year beginning December 1, 1922, for which the refining company greed- to pay the posted market price per arrel, on the day it was run, paid by the ’rairie Oil & Uas Company for “Jlid-Conti-íent crude,” and in addition thereto a pre-lium of 35 cents per barrel. At the time be contracts ware made the Prairie Oil & las Company was, and had been for more ban 11 years, posting a single price for all Mid-Continent crude,” without regard to ravity of the oil. The contracts were car-ied out by the parties in all particulars util Nov. inber 22, 1022, when the Prairie >il & Gas Company graded oil produced in he Mid-Continent field into seven grades (•cording to gravity, with separate prices osted for each grade, and ceased the prac-'ce of posting a singlo price for “Mid-Con-Lnent crud’e.” The refining company then laimed that the contracts were at an end, lion the ground that the method of de-ermining the price to bo paid, specified in be contract, had failed, and it was no long-r possible to determine from the contracts be price to be paid. The oil company laimed that, under the contract, it was on-itled to the Prairie Oil & Gas Company’s osted price for oil of like gravity and the remium of 35 cents per barrel. 'It was ben agreed that the refining company bould continue to take the oil run from the tvo leases for the balance of the year, and ay the posted price of the Prairie Com-any for oil of like gravity, and the oil ompany would accept the payment, with-ut prejudice to the rights and contentions f either as to whether the oil company -as entitled, under the contract, to the 35 ents per barrel premium. The latter agree-íent was carried out, and the Turman Oil 'ompany brought this suit against the Sa-ulpa Refining Company and the Aetna Cas-alty & Surety Company, its surety, to re-over the premium of 35 cents per barrel ir the oil delivered between November 22 nd December 31, 1922, inclusive, amount-lg to $6.314.75. and interest, alleged to be uo and payable according to the terms of le contracts. Judgment was for defend-nts, and plaintiff has appealed.

This case was submitted to the trial court pon an agreed statement of facts, the manual parts of which are as follows:

“(2) That the words ‘Mid-Continent crude’ * * * constitute a term used generally among producers, sellers, buyers and refiners of oil in Oklahoma, Kansas, and northern Texas, to designate oil produced from the oil fields in Kansas. Oklahoma, and north Texas, except the I-Iealdton and Cement fields, and that said words were so used and understood among producers, sellers, buyers, and refiners of oil in said territory at the time the contract sued upon herein was made and for a number of years prior thereto.

“(3) That oil produced from the oil fields in Kansas, Oklahoma, and north Texas, other than the Healdton and Cement fields, and designated as ‘Mid-Cont'nent crude’ varied in gravity from below 28 to about 41.

“(4) That from April, 190&, the Prairie Oil &■ Gas Company’s market quotations on crude oil produced and bought by it in the states of Kansas and Oklahoma, then constituting the Mid-Continent field, to and until July 16, 1903, were made and posted without regard to gravity of the oil offered it for purchase, and that a single market price was quoted for all oil produced in said field. That upon July 16. 1903, and thereafter. oil market quotations were made by it on oil produced in the Mid-Continent field, and designated as ‘Mid-Continent crude,’ and offered it for purchase with separate price quotations for ’each field designated according to the following schedule and table, to wit:

“That on June 30, 1909, the schedule of prices on the basis of grade and gravity of oil, immediately above described, was discontinued, and thereafter market quotations we’re posted by the Prairie Oil & Gas Company for crude oil produced in the Mid-Continent field and designated as ‘Mid-Cont'nent crude’ on the basis of the following table and schedule, to wit:

“That upon September 20, 1910, the above and foregoing schedule of prices upon grades and gravities of oil as therein specified was discontinued, and the Prairie Oil & Gas Company posted a single market price for crude oil purchased from the Mid-Continent field, and designated as ‘Mid-Continent crude’ up to November 21. 1922, without regard to gravity of oil offered it for purchase except that from -October 1, 1921, to 'November 21. 1922, oil produced in the fields of the state of Texas and to which the Prairie Oil & Gas Company ran its pipe lines, was separately quoted and posted at a constant price of 25 cents per barrel above the remainder of Mid-Continent crude oil. That since November 22, 1922, the Prairie Oil & Gas Company has graded oil produced in the Mid-Continent field, embracing the states of Oklahoma, Kansas, and Texas, and designated as ‘Mid-Continent crude,’ other than Cement and Healdton fields, into seven grades, according to gravity, with separate prices posted for each grade in the manner indicated and according to the following schedule of gravities and prices, which continued from November 22, 1922, until January 1, 1923, and which said schedule was in effect during the time covered by the matters involved in plaintiff’s suit herein, said schedule being as follows:

November 22, 1922

Below 28 .90

29 to 29.9 1.00

30 to 32.9 1.10

33 to 34.9 1.25

35 to 36.9 1-40

37 to 38.9 1,60

39 and above 1.80

“That immediately before November 22, 3922. and on November 21, 1922, the single price ported' by Prairie Oil & Gas Company for Mid-Continent crude was $1.25 per barrel.

“(5) It is further agreed that defendant Sapulpa Refining Company has paid no premium to the plaintiff ■ for any oil taken by it from the lands described in the petition of the plaintiff since November 22, 1922, but since said 22nd day of November, 1922, and up to and including December 31, 1922, defendant Sapulpa Refining Company took and received from th'e leases of plaintiff, described in its petition, the number of barrels of oil of the gravity set forth and particularly described in Exhibits ‘D’ and ‘E’ attached to the plaintiff’s petition, and it is agreed that the number of barrels of oil, the gravity thereof, and the amount paid by Sapulpa Refining Company therefor, is correctly and truly described by said Exhibits ‘D’ and ‘E.’ That since November 22, 1922, and up to and including December 31, 1922, defendant Sapulpa Refining Company paid to plaintiff for the oil so taken by it the price posted by the Prairie Gil & Gas Company for oil of the grade of such oil taken by Sapulpa Refining Company from the leases belonging to plaintiff, as described in plaintiff’s petition (6) * * *

“(7) It is further agreed that Sapulpa Refining Company, one of the defendants herein, was at the time mentioned and referred to in the plaintiff’s said petition, an independent refining company, and not connected nor affiliated with Prairie Oil & Gas Company, and other large pipe line companies doing a general oil purchasing business in all parts and sections of the Mid-Continent field. That Sapulpa Refin ing Company was the owner of a single re finery situate at Sapulpa, Okla., of a dailj average refining capacity of 6,000 barrels oi oil, and that its purchases of oil in the Mid-Continent field were limited to the require ments of its refinery. That Sapulpa Refin ing Company owned pipe lines extending in to the general vicinity of the Loman anc Thompson leases described in plaintiff’: petition as belonging to it, and into certaú other oil producing sections of the state o: Oklahoma within a radius of approximate ly 50 miles of the refinery at Sapulpa That Sapulpa Refining Company, unlike tht large general purchasers of Mid-Continen oil, had no pipe lines extending throughou nor beyond the Mid-Continent field, anc was not engaged in the business of supply ing refiners beyond the state of Oklahomi with oil for refining purposes, and was no engaged in the transportation of crude oi to coastal refineries. That said Sapulpa Re fining Company is capitalized for - and was at the time of the making of tht contract and bond sued upon herein, de pending for pipe line purchases of oil upoi production which could be secured by i from the vicinity of its lines. That the oi produced from the leases owned by it ant described in its petition was convenient tc the pipe line facilities of the Sapulpa Re fining Company, and the purchase of oi produced by plaintiff was solicited by Sa pulpa Refining Company for purchase anc use in its refinery.

“(8) That prior to the date upon whicl the contracts sued upon by the plaintif herein were made, and when production up on the properties described in plaintiff’s pe tition was first developed, the Indiahomt Refining Company connected to said lease; and ran all oil up to the month of Septem her, 1919, at a premium of 25 cents pe: barrel over the posted market price of sale Prairie Oil & Gas Company. That durinj the month of September, 1919, and abou three months after production was first dis covered upon the above described leases, tb Prairie Oil & Gas Company also connectei its lines to and ran oil from the leases o plaintiff as described in its petition, up un til the month of January, 1922, paying fo oil run by it, the said Prairie Oil & Ga; Company, the market price posted by sai< company for Mid-Continent oil. That tb Sapulpa Refining Company, one of the de fendants herein, began running part of th oil from the aforesaid leases on Septembe: 6, 1919, and continued until December 31 1920, during which time the said Sapulp: Refining Company paid a premium of 21 cents per barrel for oil run from said loase by it. That upon January 1, 1922. the Sa pulpa Refining Company began tb-' runnin; of all oil from said leases pursuant to tin contracts annexed to the plaintiff’s petition and sued upon by plaintiff herein. (9) * * *n

Disposition of the case depends upon the interpretation to be placed upon the price-fixing clause contained in each of. the contracts, which reads:

“The oil purchased and received in pursuance of this agreement * * * shall be paid for to the first party or their assigns * * * it the posted market price per barrel of 12 gallons, on the date the oil is run, paid by the Prairie Oil & Gas Company, for Mid-Oontinent crude, and on account of the quality of this crude oil the party of the second part agrees to pay to the party of the first part, in addition to the Prairie Oil & Gas Company’s posted price, a premium of 35 cents per barrel.”_

Section 5946, O. S. 1921, provides;

“A contract must receive such an interpretation as will make it lawful, operative, definite, reasonable, and capable of being carried into effect, if it can be done with->ut violating the intention of the parties.”

In the interpretation- of contracts it is the duty of the court to ascertain the intention of the parties at the time the contract was entered into, and that intention must be determined by the language of the lontract itself, if possible.

fin the case of Bearman v. Dux Oil & Gas Co., 64 Okla. 147, 166 Pac. 199, it is said:

“In the construction of contracts, it is the duty of the court to place itself, as fails possible, in the situation of the parties it the time their minds met upon the terms )f the agreement, and from a consideration if the writing itself, ascertain their inten-ion, and if this cannot be done from the nstrument itself, the circumstances under which it was made, and the subject-matter bo which it relates, may be considered, and with these aids, the court should so internet the contract as to give effect to the mutual intention of the parties as it ex-sted at the time of contracting, so far as ;hat intention is ascertainable and lawful.”-

To the same effect: Prowant v. Sealy, 77 Okla. 244, 187 Pac. 235, and Withington v. Gypsy Oil Co., 68 Okla. 138, 172 Pac. 634.

It is contended by the plaintiff that the parties to the contract being experienced in ;he oil business, and with knowledge that ;he Prairie Oil & Gas Company had in the last posted prices for “Mid-Oontinent irude,” based upon the gravity of the oil, :hoy must have had in mind it might again, luring the life of the contract, adopt that method of price-fixing, and, therefore, it must be held that it was the intention of he parties, at the time the contract was nade, that if such changed method of price-fixing arose, the refinery company would pay the price quoted by the Prairie Oil & Gas Company lor Mid-Continent crude oil of like gravity of the oil produced from the Thompson and Loman leases, and an additional premium of 35 cents per barrel.

It is argued that, if such had not been the intention of the contracting parties, with knowledge of the past method of the Prairie Oil & Gas Company in fixing prices for “Mid-Oontinent crude,” based upon the gravity of the oil, it would have been so specified in the contract. The defendant contends that since the Prairie Oil & Gas Company had posted a single price for “■Mid-Oontinent crude” for moa-e than 11 years, it would have been written in the contract if the parties had in contemplation a change to price-fixing on a gravity basis, and intended, in such contingency, that the refining company should pay the quoted price for oil of like gravity, and a 35 cent premium.

We think the latter contention must be sustained. To sustain the interpretation contended for by the plaintiff, it would be necessary to read into the contract the words “of like gravity,” or words of similar import, not found in the contract. It is unquestionably true, as argued by plaintiff, that under the agreed definition of the term “Mid-Continent crude,” oil of like gravity to that produced on the Thompson and Loman farms was “Mid-Continent crude.” But it is likewise true, under that definition, that any and all oil taken from the Mid-Continent field was “Mid-Continent crude,’’ including that of lower gravity than that produced by plaintiff. So that plaintiff’s interpretation of the contract necessitates the consideration of the particular gravity of the oil produced at a time more than ten months after the contract was entered into. We know of no rule of interpretation of contracts which authorizes -the consideration of subsequent variations in the quality of the product contracted to be sold, for the purpose of .determining the intention of the parties as to the price to be paid in the absence of language in the contract indicating such intention.

Parties to a contract are bound by its terms and not by subsequent developments. Reference to the varying qualities of the oil produced after the contract was made can only go to the question of whether the contract was a good or bad one, and not to the intention of the parties at the time of contracting.

No better illustration of the evil effects of considering- tile value or quality oí the product, the subject of the contract, in construing the contract, could be iound than this case. The last single price posted by the Prairie Oil & Gas Company for Mid-Continent crude was $1.25 per barrel. Based upon that posted price, November 21, 1922, the refining company paid the plaintiff, including the 35 cent premium, $1.00 per barrel for all oil run on that day. The following day the posted prices based upon gravity of the oil, ranged from 90 cents per barrel for oil below 28 gravity to $1.80 for all of 39 gravity and above. On that same day all oil run from the Loman farm and delivered into the refining company’s pipe, line was above 39 gravity, and paid for at the Prairie Oil & Gas Company’s posted price for oil of that gravity, or $1.80 per barrel, and by the agreed facts it is made to appear that all oil run from that farm November 22nd to December 31st was above 39 gravity. The oil run from the Thompson farm was of lower gravity. November 22nd, the day the method of price-fixing by the Prairie Company was changed, all oil run from that farm was 37.1 gravity, or $1.80 per barrel. All oil thereafter run into the refining company’s pipe line from that farm ranged in gravity and price from 34.8. or $1.25 per barrel, to 37.4 gravity, or $l.f,0 per barrel. November 22nd, by the c.hnnged method of price-fixing, the refining company paid $1.80 per barrel for oil from the Loman farm, and, if 35 cents premium be included, $2.15 per barrel, and for oil from the Thompson farm the price paid was $1.00, if the premium be included, $1.95 per barrel, while on November 21st, the last of single price for “Mid-Continent crude,’’ it paid only $1.00 per barrel, including the premium of 35 cents per barrel.

A further answer to plaintiff’s contention, that it must have been in contemplation of the parties that the Prairie Oil & Gas Company might return to its method of price-fixing based upon gravity tests, as practiced by that company for some years prior to 1910, is that the statute, section 5049, 0. 8. 1921, provides that a contract, is to be interpreted according to the law and usage of the place where it is to be performed, and we think 11 years constant and continued practice of fixing a single price for “Mid-Continent crude” was a sufficient length of time, when the life of an oil field is considered, to establish such practice as a usage within the meaning of the statute. It is argued that the limited area from which the refining company was required to secure crude oil for refining purposes and the proximity of plaintiff’s leases t( its pipe line, are facts to be considered a: shedding light upon the intention of th< parties. As we understand it, the conten tion is that the defendant company, in it; operation of a single refinery, with limitec facilities for- getting oil for refining purposes, and to be obtained in competitior with other larger refineries, was compeliec to pay a premium above the market prici in order to operate its refinery. From thi: it is argued that it must have been the in tention of the parties that the premium o 35 cents per barr'el, to be paid to the plain tiff, was to be a premium above the marke price; and, when the price-fixing mediun fixed the price of “Mid-Continent crude! based upon 'the gravity, the price so fixe! became the market price for oil of like gravl ity, and that the defendant was obligate! by its contract to pay the premium of 3 cents per barrel above the price fixed fo oil of like gravity.

This theory is negatived by the ianguag of the contract;

“* * * And on account of the quality o this crude oil the party of the second par agrees to pay to the party of the first par in addition to the Prairie Oil & Gas Com pany’s posted price a premium of 35 cent per barrel.”

It being specified in the contract that, o: account of the quality of the oil, the pui chaser agreed to pay a premium of 35 cent per barrel, all other reasons for the pay ment of the premium must be excluded 1 construing the contract. Section 5059, C S. 1921, provides:

“All things that in law or usage are cor sidered as incidental to a contract, or a necessary to carry it into effect, are in plied therefrom, unless some of them ar expressly mentioned therein, when all othe things of the same class aré deemed to b excluded.”

This being the statute law of this state we think that when the quality of the o: was mentioned in the contracts, as the reas» for payment of a premium above the Prairi Company’s posted price, all other reason for payment of the premium must be es eluded in construing the contract.

No case is called to our attention, an we know of none.'where similar facts wer involved. Vve think the ease is somewha analogous to that of an executory contractor the sale of goods, providing that th price to be paid shall be fixed by valuer appointed by them. In such case it is un: formly held, so far as we know, that if th •ersons appointed as valuers fail or refuse ;o act there is no sale. Jones v. Pearce, 25 Ark. 545. Elberton Hardware Co. v. Tawes (Ga.) 50 S. E. 904. In the latter case it is held: .

“Where the parties to an executory agrec-nent for the sale of goods agree that the •rice to be paid for the property shall be ixed by valuers appointed by them, there s no contract of sale if the persons ap-iointed as valuers fail or refuse to act: and his is true even where one of the parties o such an agreement is the cause of such ailure or refusal. 1 Benj. Sales, par. ST: leach on Sales, par. 213; Tiedeman on lales, par. 46; Thurnell v. Balbirnie, 2 C. 8. 786; Cooper v. Shuttleworth, 25 L. J. Ex. 14; Vickers v. Vickers, 4 L. R. Eq. 529; Milnes v. Gery, 14 Ves. Jr. 400; Wilks v. Davis, 3 Mer. 507; Hutton v. Moore, 26 Ark. 382; Fuller v. Bean, 34 N. H. 290. Vhere the agreement has been executed by he delivery of the goods, and the purchas-t has done any act which prevents their ■aluation being fixed as the agreement provides, the vendor is entitled in a proper lotion to recover the value of the goods ■stimated by the jury. 1 Benj. Sales, par.87; Beach on Sales, par. 213; Clarke v. Westrope, 18 C. B. 765; Humaston v. American Telegraph Co., 20 Wall. 20, 22 L. Ed. 179; Smyth v. Craig, 3 Watts & S. 14.”

We think when the Prairie Oil & Gas ’ompany, the price-fixing agency named in he contract, ceased to post a single market •rico for “Mid-Continent crude.” as was its ustom when the contract was made and or 11 years prior thereto, the contract ndod. for the reason that the price to be iaid could not be determined from the con-ract.

It necessarily follows that the plaintiff annot. in a suit on the contract, recover he premium provided in the contract on il delivered subsequent to the change in rice-fixing by the price-fixing agency. The court so held, and the judgment is af-rmod.

By the Court: It is so ordered.