Champlin Oil & Refining Co. v. Chastain

• Citation: 403 S.W.2d 376
• Decision Date: 10 November 1965
• Docket Number: No. A--10293,A--10293
• Parties: CHAMPLIN OIL & REFINING COMPANY et al., Petitioners, v. M. B. CHASTAIN et al., Respondents.
• Court: Supreme Court of Texas

Page 376

403 S.W.2d 376

CHAMPLIN OIL & REFINING COMPANY et al., Petitioners, v. M. B. CHASTAIN et al., Respondents.

No. A--10293.

Supreme Court of Texas.

Nov. 10, 1965.

On Rehearing May 11, 1966.

Cantey, Hanger, Gooch, Cravens & Scarborough, Cecil E. Munn, Fort Worth, for petitioners.

Jackson, Walker, Winstead, Cantwell & Miller, Dallas, for respondents.

NORVELL, Justice.

This is a suit to recover sums of money allegedly due under a gas processing contract. Plaintiffs, M. B. Chastain and others, recovered judgment against defendants, Champlin Oil & Refining Company and others, for the sum of $118,076.25. The Court of Civil Appeals affirmed in the main but modified so as to permit recovery for only such sums as were not barred by the four-year statute of limitations. 379 S.W.2d 938.

The Issues in the Case

While there are a few subsidiary problems, hereinafter mentioned, the two main issues before us relate to the petitioners' contentions that the Court of Civil Appeals erred (1) in holding that the trial court was correct in refusing to give petitioners' requested special issues designed to submit petitioners' theory that the contract sued upon should be reformed because of a mutual mistake, and (2) in holding that the trial court correctly disregarded the jury's answers to special issues designed to submit petitioner's theory that respondents should not be allowed to recover upon the contract as written because of an asserted equitable estoppel. As both these holdings were made as a matter of law, we are required to view the facts from the standpoint most favorable to petitioners. In many respects, however, the facts are established by the undisputed evidence.

Statement of the Facts

The petitioners here and defendants in the trial court are Champlin Oil and Refining Company, Hugh M. Briggs, Ben R. Briggs, Clyde H. Alexander, Creston H. Alexander, individually and as independent executor of the estate of Euna M. Alexander, deceased, Helen Mae Dimit and Charles E. Dimit and Norman V. Kinsey, Jr. Champlin Oil and Refining Company was the operator of the processing plant involved in this litigation and acted for and on behalf of its co-defendants, and hereinafter such parties will for the most part be referred to as Champlin. The plaintiffs, respondents here, are M. B. Chastain, Vincent A. Hughes, John P. Costello and Bennett L. Wooley. M. B. Chastain acted for and on behalf of his co-plaintiffs and this group of litigants will hereinafter be referred to as Chastain.

The contract which is the basis of this lawsuit was negotiated during the year 1956 by M. B. Chastain and Charles B. Johnson, Jr., the Champlin Vice President in charge of the company's processing business. For a number of years prior to this time, Champlin had operated a processing plant near Carthage, Texas, which extracted and manufactured from natural gas certain liquid petroleum derivatives generally referred to as 'plant products' which consisted of propane, iso-butane, normal butane, liquid petroleum gas, gasoline, fuel oil and kerosene. Champlin's predecessor, the Chicago Corporation, had negotiated an agreement with the Panola County Royalty Owners Association evidenced by a letter dated June 8, 1948, under which a procedure was established whereby the amount of liquid chemical elements making up the manufactured products and contained in the natural gas submitted to the plant could be measured. This measuring process is a highly involved technical procedure from a chemical engineering standpoint and not one easily understood even by experienced producers of petroleum. The measuring device or method set out in the Panola County Royalty Owners Agreement has been in use at Champlin's Carthage plant since 1948 and will be referred to as the 'plant formula.' In addition to the gas which it produced, Champlin also processed the gas produced by other operators in the field, and the purpose of the 'plant formula' was to enable the company to return to the gas producers in the form of processed or manufactured products all of the chemical elements contained in the gas produced by them. For its processing service, Champlin received a percentage of each producer's manufactured products. This percentage varied somewhat depending upon the nature of the gas processed and was a subject of negotiation between the processor and the producer.

Prior to the time of the Chastain negotiations in 1956, Champlin had prepared a form of contract relating to its processing operations. However, through oversight or misadventure, paragraph No. 8 of the contract, instead of setting forth the Panola County Royalty Owners' formula (the plant formula), embodied an older formula somewhat similar in form and wording, but different in several respects. Champlin says that this formula was an outmoded one, used primarily for the purpose of ascertaining the amount of condensate only contained in gas, rather than one designed to measure the various forms of liquid hydrocarbons actually produced by the plant. The Champlin plant was modified in 1948 so as to extract not only condensate but also propanes, butanes and other products classified as 'plant products.' The formula actually set forth in the contract will be hereinafter referred to as the 'contract formula.' It is evident that such formula was placed in the contract through misadventure for since the year 1948 no allocation of 'plant products' has been made by Champlin in accordance with the 'contract formula,' but on the contrary the 'plant formula' had been used to measure the 'plant products' produced and was being used at the time the Chastain contract was negotiated.

In his negotiations with Johnson, the Champlin Vice President, Chastain contended that he should be charged a comparatively smaller processing percentage because the gas from the four wells which he proposed submitting to the processing plant was rich gas in that it contained liquid elements in excess of the average producing well in the area. There was little discussion as to the terms of the measuring formula to be employed in evaluating Chastain's gas, although there is testimony that Chastain and his associates made some investigation relating to the 'contract formula.'

Certain changes and corrections were made in the contract submitted by Champlin and thereafter it was finally approved by the contracting parties. The Chastain wells started producing to the plant in the summer of 1957. Each month thereafter, Champlin sent Chastain its regular accounting statement based upon the 'plant formula' which showed the actual allocation of the total plant recovery of all liquids from every well (including Chastain's) producing to the plant.

In 1958, Humble Oil and Refining Company and Pan American Petroleum Corporation conducted an audit of Champlin's books and called Champlin's attention to the fact that the allocations being made by Champlin in accordance with the plant allocation formula were not in accordance with the formula contained in the contracts which it had with some 165 producers. Champlin then was confronted with a decision as to its future course of conduct. Should it continue to allocate according to the 'plant formula' or should it attempt to adjust to the 'contract formula' and in so doing, make further payments to some producers and attempt to recover a portion of the payments theretofore made to the other producers? It seems that generally speaking, the 'contract formula' would call for more payments to 'rich gas' producers than would the 'plant formula.' It does not appear, however, that the 'plant formula' failed to allocate to the 'rich gas' producer, all the liquid hydrocarbons contained in his gas.

Faced with this dilemma, Charles B. Johnson, on behalf of Champlin with the approval of the Company's general counsel, prepared and mailed the following letter, dated September 12, 1958, to all 165 producers, including Chastain, who were affected by the variance between the contract and plant formulae:

'Humble Oil & Refining Company and Pan American Petroleum Corporation have just completed an audit of Champlin's books covering our Carthage Plant operations for the period from August 1, 1955, through December 31, 1957. Since commencement of processing at the Carthage Plant in 1946, these two companies have audited the operation of this plant for themselves and on behalf of others four separate times starting in the year 1950.

'During this most recent audit (just completed in 1958) a question was raised for the first time as to the language in the processing agreements as compared to the actual procedure used by Champlin for the allocation of plant liquids which procedure was agreed upon and set forth in a letter agreement dated June 8, 1948, between the Panola County Royalty Owners Association and The Chicago Corporation (now Champlin Oil & Refining Co.) and a letter from the Royalty Owners Association to The Chicago Corporation dated June 11, 1952.

'The procedure used in allocating plant liquids since this agreement was made with the Royalty Owners Association is fully reflected in the 'Gas and Liquid Production and Disposition Report', complete copies of which you receive monthly. After a review of the matter, Humble agrees with Champlin that this procedure, which has been in actual use since 1948 and as adjusted slightly in 1952, is most equitable and after reviewing the entire matter Pan American expresses no disagreement with the procedure.

'Certainly, a prime requisite for a fair and equitable allocation of liquid products derived from a commingled stream of gas is that the allocation method and procedures for each and every source of gas be identical. We have, therefore, been employing the procedure worked out with the Royalty Owners Association consistently during all this time, and all parties have been fully advised of the allocation through the monthly reports mentioned above.

'We take this opportunity of...