33 F.2d 248 (8th Cir. 1929), 8284, Southwest Pipe Line Co. v. Empire Natural Gas Co.

Docket Nº:8284.
Citation:33 F.2d 248
Case Date:May 06, 1929
Court:United States Courts of Appeals, Court of Appeals for the Eighth Circuit

Page 248

33 F.2d 248 (8th Cir. 1929)




No. 8284.

United States Court of Appeals, Eighth Circuit.

May 6, 1929

Page 249

John B. Meserve, of Tulsa, Okl., for appellant.

J. W. Finley, of Chanute, Kan., Hayes McCoy, of Bartlesville, Okl., R. E. Cullison, of Iola, Kan., and Warren T. Spies, of Bartlesville, Okl., for appellee.

Before KENYON, Circuit Judge, and FARIS and SANBORN, District Judges.

KENYON, Circuit Judge.

This is an appeal from a decree of the United States District Court for the Northern District of Oklahoma enjoining appellant from interfering with certain rights of appellee to secure the natural gas on real estate hereinafter described. Appellee and the Revelle Oil Company in 1923 entered into a contract of the standard form of gas purchase contracts in Oklahoma, by the terms of which it purchased at the mouth of the wells upon a certain leasehold (the west one-half of the southeast quarter of section 19, township 17 north, range 9 east) owned by said oil company all the merchantable gas in its natural state as produced from wells then existing

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upon the leasehold or thereafter to be drilled. Appellee had an extensive pipe line system, and established markets for the delivery and consumption of natural gas. In 1923 appellee constructed a pipe line 13 miles long to the fields where this leasehold was situated, connecting with its main line, at a cost of $125,000. In 1926 it spent on account of a decline in initial pressure an additional $35,000 to construct a compressor station to assist in marketing the gas. The land upon which the Revelle Company had an oil and gas lease was in part the homestead allotment, and in part the surplus allotment, of Albert Big Mosquito, a full-blood Creek Indian, who in 1912 executed an oil and gas lease on the land in favor of one Shirley, which was duly approved by the Secretary of the Interior. A series of properly approved assignments brought said lease to the Revelle Oil Company as its property. Appellee went upon the leasehold, constructed its pipe lines thereon, connected the three wells on the property with the branch of its main line, and installed structures necessary for the exercise of the rights granted to it by the contract.

May 4, 1926, the Revelle Oil Company executed to the Bu-Vi-Bar Petroleum Corporation assignments covering the leasehold, and the Bu-Vi-Bar Corporation executed assignments to appellant, all of which were duly approved by the Secretary of the Interior. The Department of the Interior had relinquished its supervision over the southeast quarter of the southeast quarter of section 19, township 17, range 9, as a proper alienation thereof had been made by the allottee. As to the other 40 acres of the land involved, departmental supervision was retained. The gas contract involved in this case was not approved by the Secretary of the Interior.

After the assignment by the Revelle Company to the Bu-Vi-Bar Corporation, appellee accounted to said corporation for the gas received from the lease, and the marketing of the gas proceeded until the lease was sold by the Bu-Vi-Bar Corporation to appellant, who, in January, 1927, disconnected appellee's lines from the wells without any notice to appellee, and proceeded to take the gas.

Appellee by its bill sought relief in equity to prevent appellant from interfering with its obtaining the natural gas from the leasehold, and it asked that appellant be required to make specific performance of the contract entered into between appellee and the Revelle Company.

The trial court decreed that appellant and its assigns be enjoined from piping or removing the natural gas from the leasehold in question or from interfering with the possession of the Empire Natural Gas Company and its successor for the purpose of obtaining the production of natural gas from the leasehold, and that appellant be required to perform the terms of the gas purchase contract executed by the Revelle Oil Company and the Empire Natural Gas Company in 1923.

A number of questions are here presented. The first contention of appellant is that the bill of appellee should have been dismissed for want of equity, for the reasons (a) that the contract sued on is lacking in mutuality; (b) that the contract, if valid, creates no interest in real estate of any sort, but is simply an executory contract for the sale of personal property when produced, and that there is no proof that appellant assumed the obligation of the contract between the Revelle Company and appellee, or that appellee has accepted appellant in lieu of the original obligor, and that appellee is not entitled to equity to enforce against appellant the contract which was made by appellee with the Revelle Company. These in their order.

This court has had occasion in many cases to discuss the question of mutuality in contracts for the future delivery of personal property. It is well established that such contract cannot be enforced, if the will, wish, or want of one of the parties determines absolutely the quantity to be delivered. It that situation exists, there is want of mutuality. Cold Blast Transp. Co. v. Kansas City Bolt & Nut Co. (C.C.A.) 114 F. 77, 57 L.R.A. 696; A. Santaella & Co. v. Otto F. Lange Co. (C.C.A.) 155 F. 719; Hutchinson Gas & Fuel Co. v. Wichita Natural Gas Co. (C.C.A.) 267 F. 35; Midland Steel Sales Co. v. Waterloo Gasoline Engine Co. (C.C.A.) 9 F. (2d) 254. It the quantity, however, is 'ascertainable otherwise with reasonable certainty,' the contract can be sustained. Cold Blast Transp. Co. v. Kansas City Bolt & Nut Co., supra; Hutchinson Gas & Fuel Co. v. Wichita Natural Gas Co., supra. 'The contract is to be construed as a whole,' and, if it is possible to give it an interpretation such as to make it mutual instead of unilateral, it will be done. 13 Corpus Juris, pp. 333 and 539.

With these general rules in mind, we turn to the contract in question. It provides as follows:

'The undersigned vendors, in consideration of One Dollar ($1.00) in hand paid, receipt

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acknowledged, hereby sell and agree to sell and deliver at the mouth of the wells to Empire Natural Gas Company, vendee, and the vendee agrees to receive in the usual conduct of its business ratably with other producers in the same field having gas in the same producing horizon or sand, and in accordance with approved practice in the industry, all the merchantable gas in its natural state as produced (except casing-head gas) from wells now drilled and hereafter to be drilled on the following described premises, situated in Creek County, Oklahoma, to-wit:

'Vendee shall not be required to take gas when same cannot be delivered in commercial quantities and at sufficient pressure to enter its lines against the varied working pressure therein, nor connect with unprofitable wells, nor continue connection with such wells after same become unprofitable to it.'

It is urged by appellant that, notwithstanding the provision that appellee is to take all the merchantable gas in its natural state as produced, the limitations thereon strip the contract of mutuality, and leave it a naked agreement on the part of the appellee to take only so much of the gas as it wishes to and what it may not happen to obtain from other sources; that the amount the vendee is to take could be measured or ascertained by any standard; that there is no promise to take the gas to the extent of appellee's business demands, nor any promise that the vendor shall be the exclusive source of the vendee's supply; that the agreement is in fact to take such gas, as vendee's business needs, which is not supplied from other sources. The uncertainties of the contract arise by virtue of the limitations upon and exceptions to the agreement to take all 'the merchantable gas in its natural state as produced. ' The limiting phrases are 'in the usual conduct of its business,' 'ratably with other producers in the same field,' 'in accordance with approved practices in the industry. ' Further, that vendee shall not be required to take gas when same cannot be delivered in 'commercial quantities,' nor 'at sufficient pressure to enter its lines,' etc. The term 'commercial quantities,' is, of course, a well-understood term in the oil industry, and is commonly used contracts of this nature. Some of these provisions, such as those relating to sufficient pressure for gas to enter its lines, and not being compelled to connect with unprofitable wells, nor continue connections after a well becomes unprofitable, certainly bear little, if at all, on the question of mutuality. They are usual and necessary precautions incident to the taking and delivery of natural gas by pipe lines.

A contract need not contain definitely and specifically every fact in detail to which the parties may be agreeing. If the phrases used can be made certain by proof, that is sufficient.

The testimony shows that in the business of conveying natural gas by pipe line companies it is not good business or usual to take the full amount of gas a well produces; that 10 per cent. is the fair amount to be taken from each well. This gives a longer life to the well than to take 25 per cent. which is the amount the Corporation Commission of Oklahoma, according to the testimony of witness Long, restricts the operator to. The conservation officers in the Osage Nation restrict producers to 20 per cent. It is apparent there is difference of opinion as to the proper standards of conduct in carrying on pipe line systems for the distribution of natural gas. This court said in Brewster v. Lanyon Zinc Co., 140 F. 801, 814: 'The object of the operation being to obtain a benefit or profit for both lessor and lessee, it seems obvious, in the absence of some...

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