Fleming Oil Co. v. Anco Gas Corporation, 4562.

• Decision Date: 26 May 1948
• Docket Number: No. 4562.,4562.
• Citation: 217 S.W.2d 29
• Parties: FLEMING OIL CO. et al. v. ANCO GAS CORPORATION et al.
• Court: Texas Court of Appeals

Page 29

217 S.W.2d 29

FLEMING OIL CO. et al. v. ANCO GAS CORPORATION et al.

No. 4562.

Court of Civil Appeals of Texas. El Paso.

May 26, 1948.

Rehearing Denied June 30, 1948.

Appeal from District Court, Dallas County; Wm. M. Cramer, Judge.

Action by Fleming Oil Company and others against Anco Gas Corporation and others for damages for an alleged breach of contract requiring defendant, Anco Gas Corporation, to account to plaintiffs for a stated percentage of gross proceeds derived from sale of condensate or other products made by defendant's plant from gas furnished by plaintiffs and their predecessors. From the judgment, plaintiffs appeal.

Judgment reversed and rendered in accordance with opinion.

Maurice Cheek, of Fort Worth, for appellants.

W. B. Harrell, of Dallas, Simmons & Jacobs, of Corsicana, and Angus Wynne, of Longview, for appellees.

PRICE, Chief Justice.

This is an appeal from the judgment of the District Court of Dallas County, 44th Judicial District. Fleming Oil Company, Fleming & Kimbell, Carter-Gragg Oil Company, Kay Kimbell and Wm. T. Fleming, individually and as Trustee and Independent Executor, sued Anco Gas Corporation, B. E. Byrd, W. O. Whiteside, Margaret Clark, a feme sole, Jack Frost and D. H. Byrd to recover damages for the alleged breach of a contract between their predecessors in interest and the Anco Gas Corporation. The individual defendants were guarantors of the performance of said contract by Anco Gas Corporation with the predecessors of the above enumerated plaintiffs. The trial was before the court without a jury, and judgment that plaintiffs take nothing. On the motion of plaintiffs the court made up and filed findings of fact and conclusions of law.

In the contract sued on the plaintiffs' predecessors in interest are called "sellers" and the defendant Anco Gas Corporation "buyer". This designation will be used here, although one of the parties plaintiff was a party to the original contract, the others, as stated, having succeeded to the rights of the original sellers. The defendants other than the Anco Gas Corporation will be referred to as "guarantors". Such guarantors were and are stockholders in Anco.

Sellers and their predecessors in title were owners of interests in gas wells in the Long Lake field in Anderson County.

Buyer is and was at all relevant times the owner of a recycling plant by means of which it extracted condensate or distillate from the product of gas wells in said Long Lake field. It has never refined or processed said gas further than to extract therefrom this distillate. Such distillate is not an end product, but was sold and further processed and used as an important basic element in the production of end products such as aviation gasoline, butane, kerosene and several other end products.

On or about February 12, 1940, sellers entered into a contract with buyer providing in substance that buyer should through its plant process gas from certain wells of sellers, sell the liquid extracted from the gas, and pay to sellers the sum of 55% of the gross sale of the product and retain 45% thereof. This contract is long and goes into minute detail governing and conditioning the duties imposed and rights conferred upon the parties thereto. Paragraph 5 thereof is deemed of vital importance, and is here set out:

"Price: (1) Buyer shall pay Sellers for the petroleum and other liquid content extracted from said gas delivered hereunder fifty-five per cent (55%) of the gross proceeds derived from the bona fide sale by Buyer of the condensate or other product made by Buyer's plant from the gas delivered hereunder; and, in determining such gross proceeds, the actual gross sale price shall govern, after deducting therefrom gross production taxes. It is agreed, however, that any losses in transit which Buyer is required to bear in its sale of such products to other parties and any over or short settlement made between Buyer and the purchaser of such product shall be shared or borne by all interested parties on the basis of prorated settlement in the month in question. No other deduction whatsoever, either for credit losses, sales costs, or otherwise, shall be made in determining said prices provided, however, that Federal or State excise taxes (such as the present motor fuel tax) which may be included in invoices to customers shall be treated in the same manner as gross production taxes. Seven-eighths (7/8) of said fifty-five per cent (55%) of said gross proceeds shall be paid to Lessees and one-eighth (1/8) thereof shall be paid to the Royalty Owners, the calculations to be made as to each lease separately. Sales made to any subsidiary or affiliate of Buyer or to any officer, director or stockholder of Buyer, or to any firms or corporations in which Buyer or any officer, director or stockholder of Buyer owns either individually or collectively as much as a ten per cent (10%) interest shall not be considered bona fide sales for the purpose of this contract, and in the event of any sales by Buyer which are not bona fide sales, as specified Sellers, at their option shall have the right to require Buyer to account and make payment on the same basis as if Buyer had sold such products for the highest current price received by any other person, firm or corporation selling products of like kind extracted from gas in the Long Lake field."

The parties operated without friction under this contract up to December 1942. Buyer extracted distillate from the seller's gas and sold same to a processing plant or refinery which is located in the Long Lake field near the recycling plant of buyer. This refining plant was known as the Inland Refining Company and was operated by a partnership. On or about December 1942 the stockholders of buyer rented this refining plant from the owners thereof with an option to buy same. This option said stockholders exercised, and purchased said refining plant and have since such date operated same as a copartnership under the name of Inland Refining Company. Before the purchase of said plant, the then owners thereof had notified Anco they would not alter their plant so as to be able to produce aviation gasoline. Prior to the purchase of the Inland plant by the stockholders of buyer, said buyer had sold the distillate to said Inland Refining Company and accounted to sellers for 55% of the sale price. At the time the said copartnership acquired the Inland Refinery there was a contract of sale between such refinery and buyer. This contract was continued and after that the Inland Refinery purchased from buyer the distillate produced by its recycling of the gas of sellers. The Inland Refining Company further processed the distillate. In this processing said distillate was mixed with other oil products and end products were produced, such as aviation gasoline, butane and other products. The Inland Refining Company sold these products and appropriated the proceeds to the benefit of the copartnership. Sellers claim that on the sales made of the products produced by the Inland Refining Company they were entitled to 55% of the gross proceeds under paragraph 5 of the contract hereinbefore quoted.

The contention of sellers is they were to receive 55% of the price received on a bona fide sale made by the buyer; that the sale by the buyer to Inland Refining Company was not a bona fide sale. This contention is based on the provisions of paragraph 5 of the contract. Beyond any question this sale was to a copartnership in which the stockholders of buyer had more than a 10% interest, in fact one of the contentions is that there never was a sale made until after the further processing of the distillate by Inland Refining Company, and that sellers are entitled to 55% of the proceeds of such sale, in fact by inference, at least, the contention is that title never really passed from buyer to the Inland Refining Company. Paragraph No. 5 does certainly contemplate that the price to be divided in a proportion of 55% and 45% between the sellers and buyer was for a bona fide sale within the meaning of that contract. The sanction that the buyer would sell for a fair price at a bona fide sale was its own self interest; if the buyer looked for some profit out of the sale other than the price received this sanction was removed.

The contract provides for the contingency of non-bona fide sale of the product within the meaning of the contract. In that event "and in the event of any sales by buyer which are not bona fide sales, as specified sellers, at their option shall have the right to require buyer to account and make payment on the same basis as if buyer had sold such products for the highest current price received by any other person, firm or corporation selling products of like kind extracted from gas in the Long Lake field."

The findings of fact and conclusions of law filed by the trial court on the motions of appellant are detailed and comprehensive, and it is thought their reproduction in full will facilitate a discussion of the case:

Findings of Fact.

"1. The contract marked Exhibit `A' attached to Plaintiffs' petition was made and entered into by and between Defendant Anco Gas Corporation, as Buyer, and the predecessors in title of Plaintiffs to whose rights and obligations Plaintiffs have succeeded other than Carter-Gragg Oil Company which was an original party to the contract, as Seller, by virtue of which Plaintiffs and those under whom they claim were bound to sell and said Anco Gas Corporation was bound to purchase petroleum or other liquid content extracted by Buyer from the gas produced from certain leases enumerated in said contract by Seller, and to account to Seller for 55% of the gross proceeds derived from the sale by Buyer of condensate or other product made by Buyer's plant from said gas after deducting therefrom gross production taxes. Large quantities of condensate were extracted and bought by Buyer from the gas produced by Seller under said...