Hughes v. Samedan Oil Corporation

• Citation: 166 F.2d 871
• Decision Date: 10 March 1948
• Docket Number: No. 3573.,3573.
• Parties: HUGHES et al. v. SAMEDAN OIL CORPORATION et al.
• Court: United States Courts of Appeals. United States Court of Appeals (10th Circuit)

166 F.2d 871 (1948)

HUGHES et al. v. SAMEDAN OIL CORPORATION et al.

No. 3573.

Circuit Court of Appeals, Tenth Circuit.

March 10, 1948.

Clifford E. Hughes, of Los Angeles, Cal. (Fletcher A. Catron, of Santa Fe, N. M., on the brief) for appellants.

J. O. Seth and Oliver Seth, both of Santa Fe, N. M., for appellees.

Before PHILLIPS, BRATTON and MURRAH, Circuit Judges.

MURRAH, Circuit Judge.

This suit involves the interpretation of the royalty provisions of an "Operating Agreement" on an oil and gas prospecting permit covering government owned lands in Lea County, New Mexico. The permit was issued to appellant, Sarah B. Hughes, in 1926 under authority of the Mineral Leasing Act of February 25, 1920. 41 Stat. 437, 30 U.S.C.A. § 181 et seq. The Operating Agreement entered into in 1927 between Hughes, as permittee, and one Clark, predecessor in interest of appellees,¹ provided inter alia that Clark as "Operator" should drill and develop the land embraced in the permit.

Thereafter, in pursuance of the Operating Agreement, appellee, Samedan Oil Corporation, drilled and completed a producing well on the said lands, and in accordance with the terms of the prospecting permit, the Secretary of the Interior issued to Hughes and the Firm Royalties, Inc. (to which Hughes had previously assigned 13/15ths of her interest), two oil and gas leases. The first lease, designated as Lease A, covering one-fourth of the lands, provided for a 5 per cent royalty to the United States. The other lease, designated as Lease B, covering the remaining three fourths of the land embraced in the permit, provided for a royalty to the United States of from 12½ to 33 1/3 per cent, depending upon the amount of production.

When, in 1945, Samedan drilled and completed a producing well on Lease B, a dispute arose between appellants, as owners of the leases, and Samedan, as "Operator", concerning the overriding royalty payable to the appellants under the provisions of Paragraph 7 of the Operating Agreement, which in material part provided that: "* * * The operator, * * * agrees to pay to the permittee in cash the value at the field market price at the time of production of 7½ per cent of all the crude oil produced, saved and marketed from any of the lands hereby granted to the operator and 7½ per cent of all the gas produced, saved and marketed from any of the lands hereby granted to the operator where the Government royalty under the terms of the Government leases relating to said land shall not exceed five per cent. * * *" Samedan brought this suit for a declaration of its rights under the Agreement, contending that under the foregoing terms of Paragraph 7, appellants were not entitled to any royalty on the oil or gas produced from Lease B, because under the terms of the lease, the royalty provided to be paid thereon to the Government was in excess of five per cent. The appellants answered, contending that under the express provisions of Paragraph 7 of the Operating Agreement, Samedan became obligated to pay appellants 7½ per cent overriding royalty on all oil produced from Lease B, regardless of the amount of royalty payable to the United States. Jurisdiction is based upon diversity of citizenship and requisite amount in controversy, both of which are shown to exist.

The trial court, interpreting Paragraph 7 by its own terms, and in connection with deleted Paragraph 8 of the printed form of the Operating Agreement, held that the appellants were not entitled to any royalty on oil or gas produced from any of the lands embraced in Lease B.

Invoking the so-called last antecedent rule, sometimes applied in the construction of ambiguous statutes and written instruments, appellants argue that the restrictive clause in Paragraph 7, "where the Government royalty under the terms of the Government leases relating to said land shall not exceed five per cent", modifies only the immediately preceding antecedent "gas", and not the remote antecedent "oil", and as thus construed, the restrictive clause relates only to gas, leaving the 7½ per cent applicable to all oil produced from lands embraced in the prospecting permit, including Lease B.

It is a rule of grammatical construction, applicable to ambiguous instruments, that a restrictive word, phrase or clause ordinarily applies to words or phrases immediately antecedent, and are not to be construed as extending to or including others more remote, unless the contrary intention appears. Goldsworthy's Estate, 45 N.M. 406, 115 P.2d 627, 148 A.L.R. 722; American Ins. Co. v. Bean, 232 Ky. 111, 22 S.W.2d 426; Perry v. J. L. Mott Iron Works Co. 207 Mass. 501, 93 N.E. 798; Wussow v. State, 222 Wisc. 118, 267 N.W. 56. It is said in that connection that no comma must be placed between restrictive clauses and that which they restrict; that a...