Carter Oil Co. v. Pacific-Wyoming Oil Co.

• Citation: 37 Wyo. 448,263 P. 960
• Decision Date: 31 January 1928
• Docket Number: 1403
• Parties: CARTER OIL CO. v. PACIFIC-WYOMING OIL CO., ET AL. [*]
• Court: United States State Supreme Court of Wyoming

263 P. 960

37 Wyo. 448

CARTER OIL CO. v. PACIFIC-WYOMING OIL CO., ET AL. ^[*]

No. 1403

Supreme Court of Wyoming

January 31, 1928

ERROR to District Court, Natrona County; BRYANT S. CROMER, Judge.

Action by the Pacific-Wyoming Oil Company and another against the Carter Oil Company. Judgment for plaintiffs and defendant brings error.

Affirmed in part and reversed in part.

Hagens & Murane and James Veasey, for plaintiff in error.

The lease covered the producing life of the property; parol evidence may be offered to show the meaning of a trade term Myers v. Walker, 24 Ill. 134; Willmering v McGaughey, 30 Ia. 205; Mitchell v. Henry, 15 Ch. Div. 181; Dana v. Fiedler, 12 N.Y. 40; Hatch v. Douglas, 48 Conn. 116; Berry v. Kowlasky, 95 Cal. 134; Barton v. McElway, 22 N. J. L. 165; Brown v. Brooks, 25 Pa. St. 210; Daniel v Papas, (Okla.) 220 P. 335; Electric Co. v. Steel Co., (Pa.) 120 A. 116. The doctrine applies even where the words are without ambiguity. An oil and gas lease for a fixed term does not meet the exigencies of the business; they must continue during the producing life of the property whether it be long or short; this is an established custom in the production of petroleum; it is settled law in every jurisdiction that under a lease of the customary type, if the lessee is not producing in paying quantities at the expiration of the definite term, the lease expires, otherwise the lease continues during production, Eaton v. Gas Co., 122 N.Y. 416; Shellar v. Shivers, 171 Pa. St. 569; Young v. Co., 194 Pa. St. 243; Eastern Co. v. Coulehan, 65 W.Va. 531; Ashgrove Co. v. Brick Co., 100 Kans. 547; Roach v. Co., 75 Okla. 220; Poe v. Ulrey, 233 Ill. 56; Gas Co. v. Beales, 166 Ind. 684. "Paying quantities" means sufficient production to pay the operating costs of the property plus some small profit, Cassell v. Crothers, 193 Pa. St. 329; Oil Co. v. Snodgrass, 71 W.Va. 438; Dickey v. Co., 69 Kans. 106; Pelham Co. v. North, (Okla.) 188 P. 1069; as applied to a well, the cost of drilling, equipping and operating must be taken into account, Osborn v. Finkelstein, (Ind.) 126 N.E. 11; Ohio Co. v. Shilling, 127 N.E. 873; Hart v. Co., 84 So. 169. Custom and usage in a particular business presupposes dealings with respect thereto, 17 C. J. 460; Shores v. Stitt, 78 N.W. 563; Maurin v. Lyon, 69 Minn. 257; Hatch v. Douglas, 48 Conn. 116; Carter v. Co., 77 Pa. St. 286; Electric Co. v. Steel Co., supra. The Federal Leasing Act, 41 Stat. 437, authorizes homestead entrymen, upon application, to receive a lease under the same conditions applying to permits issued under Section 13 of the Act; no one is allowed more than one lease within the geologic structure for the same producing oil and gas field.

F. Chatterton and F. A. Williams, for defendants in error.

The cause was first decided on defendants' demurrer to the petition (see 226 P. 193 and 228 P. 284); the agreement in controversy involves lease rights upon surface homestead entries as defined by the Federal Leasing Act; the testimony of appellant's witnesses relates to leases on fee lands and valid placer lands and not to the public domain; the right to operate as long as oil and gas shall be found in paying quantities was given homesteaders by Sections 7 and 20 of the Leasing Act, 226 P. 196; an express written contract, embodying in clear and positive terms the intention of the parties, cannot be varied by evidence of usage or custom, Barnard v. Kellogg, 10 Wall. 383; Grace v. Ins. Co., 109 U.S. 278 (27 L.Ed. 932). Appellant's third defense that the homesteads were within the geologic structure of the same oil and gas producing field, was not supported by evidence; withdrawal was proven, but not classification; the admission of incompetent evidence in a non-jury trial is not reversible if there be other evidence to support the decree, irrespective of inconsistent rulings, Freeman v. Peterson, 45 Colo. 102; Brown v. Bank, 49 Colo. 393. The assigned errors relating to a federal question were not urged. The point is one for federal courts to decide, based on adverse decisions in the State Supreme Court, Browne v. R. R. Co., 267 U.S. 255.

Hagens & Murane and James Veasey, in reply.

Inquiry into the technical meaning of the phrase "for a period as long as oil and gas shall be found in paying quantities" is foreclosed by the former decision of this court in its ruling on appellant's demurrer; so far as appellant's obligation to pay the additional bonus was concerned, it is conditioned upon the homesteaders being vested with the particular title provided for in paragraph 3 of the homesteaders' contract; appellant's contention that they would have gained an opportunity for oil and gas rights for 160 acres only, thus reducing respondents' right of recovery to the sum of $ 5200.00, is not sustainable.

F. Chatterton and F. A. Williams, in reply.

Appellant's contentions were disposed of in the former decisions, 31 Wyo. 314 (226 P. 193 and 228 P. 284).

BLUME, Chief Justice. KIMBALL and RINER, JJ., concur.

OPINION

BLUME, Chief Justice.

This is the second appeal in an action brought by Pacific-Wyoming Oil Company and Glenn Jordan, as plaintiffs, against the Carter Oil Company, defendant. The first appeal was from an order, and judgment thereon, sustaining a demurrer to plaintiffs' petition. This court reversed the judgment and sent the case back for a new trial, holding that the petition stated a cause of action. 31 Wyo. 314, 226 P. 193; 31 Wyo. 452, 228 P. 284. The trial resulted in a judgment for plaintiffs in the sum of $ 44,961.35, from which the Carter Oil Company has appealed. The parties will be designated herein either by name or as in the court below. For a proper understanding of this opinion, it will be necessary to refer to the salient facts, although some of them also appear in the former opinions.

During the year 1917 three citizens of Wyoming, Marks, Marshall and Van Treak, each made an agricultural homestead entry on 320 acres of land in Niobrara County, Wyoming, under the laws of the United States. The oil and gas deposits underlying the land were not at that time, but were subsequently, reserved to the United States. The plaintiff Jordan, and McCall and Crow, obtained contracts from these homesteaders, giving them the right to develop these lands for oil and gas, should the homesteaders, by subsequent legislation of Congress, be vested with that privilege. Thereafter and on March 12, 1919, said McCall, Jordan and Crow, as parties of the first part, entered into a written contract with the Carter Oil Company, as party of the second part, which contract is attached to the petition as exhibit "D," in which McCall, Jordan and Crow agreed to secure the cancellation of the three contracts with the homesteaders above mentioned, and in lieu thereof secure oil and gas contracts executed by the three homesteaders direct to the Carter Oil Company. The latter agreed to determine, immediately after such contracts were obtained, whether or not there were any valid placer petroleum claims upon the lands prior in right to the filing of said homesteaders, and if not, then upon the delivery to it of such contracts, executed by the homesteaders, to pay to first parties, McCall, Jordan and Crow, a cash bonus of $ 7.50 per acre, covering all of said land. The defendant made such examination and satisfied itself that there were no prior petroleum claims against said lands. New contracts with the homesteaders were duly executed, as required by exhibit "D," and delivered to defendant about March 20, 1919, and the cash bonus of $ 7.50 per acre was duly paid to parties of the first part. The contracts with the homesteaders, executed direct to the defendant, are attached to the petition as exhibits "E," "F," and "G." The Pacific-Wyoming Oil Company is the assignee of the rights of McCall and Crow.

The contract of March 12, 1919, above mentioned, attached as exhibit "D" to the petition, provides in part, in section three thereof, as follows:

"If, under said contracts procured from said homesteaders as aforesaid, the second party obtains a valid right to develop and operate said lands, or if the second party, under appropriate legislation, has an opportunity to obtain such right to develop and operate said lands or a part thereof for oil and gas mining purposes, then the second party shall pay the first party an additional bonus of $ 32.50 per acre when it is vested with a valid right to develop said lands for oil and gas mining purposes, or when, by appropriate legislation of Congress, it has an opportunity to secure said right. The intention and meaning of this paragraph being that the first parties are entitled to such additional bonus upon one of two contingencies: (a) when the second party is actually vested with the right to develop and operate said lands for oil and gas mining purposes, for a period as long as oil and gas shall be found in paying quantities; (b) or when the second party, under appropriate legislation, has an opportunity to secure such right. Provided such additional bonus shall be paid upon such acreage only as it actually acquires such right or the opportunity to secure such right. Should the second party be vested with the right to develop and operate said lands for oil and gas mining purposes as aforesaid, then to the extent of the lands covered thereby and upon the vesting of such right, the second party shall pay the first party a royalty of five per cent for all oil produced from said lands, in addition to the 2 1/2 per cent royalty payable to the particular homesteaders, and in addition also to the royalty payable to the United States."

The important parts of contracts "E," "F," and "G," all of which are alike, are sections 3 and 4 thereof, the substance...