De Lukie v. American Petroleum Co.
| Decision Date | 15 February 1926 |
| Docket Number | (No. 172.) |
| Citation | 280 S.W. 669 |
| Parties | DE LUKIE v. AMERICAN PETROLEUM CO. |
| Court | Arkansas Supreme Court |
Appeal from Union Chancery Court; Geo. M. Le Croy, Chancellor.
Suit by F. M. De Lukie against American Petroleum Company. From a decree for defendant, plaintiff appeals. Reversed and rendered.
Kitchen & Harris and J. R. Wilson, all of El Dorado, for appellant.
Mahony, Yocum & Saye, of El Dorado, for appellee.
On the 23d of September, 1923, F. M. De Lukie, hereafter called appellant, wrote the following letter to the American Petroleum Company, hereafter called appellee:
This letter was indorsed:
"Accepted: American Petroleum Company, by Craig F. Cullins, Pres."
The appellee was a purchaser of oil in the Union county, Ark., oil field. It connected its pipe line with the appellant's lease, and began taking oil therefrom under the contract. Some time after the contract was executed, the appellant, at the instance of the appellee, signed what is designated in the evidence as a "division order," in which was set forth the respective interests of the owners of the oil produced from appellant's wells and run into appellee's pipe line under the above contract. This order was addressed to the appellee, and signed by the appellant, and was made effective from the date the contract above mentioned was executed. The division order specified that they were the owners of certain wells on the land described in the contract above mentioned, and that until further notice appellee was authorized to receive oil therefrom, giving credit as therein specified. The order then, among other things, recites:
"You are not expected to receive oil in definite quantities or for fixed periods or to provide storage on the credit balance plan or otherwise, except as and when you shall now or hereafter so agree in writing."
Section 4 provided, in substance, that, in the absence of a written agreement to the contrary, the oil run should become the property of the appellee when delivered to any pipe line designated by it to be paid for to the owners in proportion to their interests "at the price posted by you for the same kind and quality of oil in the particular field on the day when such oil is received by your company." This section then provides for the time and manner of payment.
Section 5 authorizes the appellee to deduct from any moneys due the appellant any taxes that the appellee may have been required to pay for the appellant.
From the execution of the contract until February 4, 1924, the appellant had delivered to the appellee's pipe line 27,000 barrels of marketable oil, which was accepted by the appellee. On the latter date the appellee wrote the appellant as follows:
"B S & W" in the oil industry means "basic sediment and water." This letter was received by the appellant about the 12th of February, 1924. Between the date of the letter and its receipt by the appellant the appellee continued to take oil under the specifications of 2 per cent. B S & W until the 9th of February, 1924, when same was discontinued, and at that date the B S & W in the oil as tested was 1.9 per cent. The B S & W began to increase in the oil exceeding the specifications of 2 per cent. The appellant's oil accumulated at the rate of 500 barrels per day according to the testimony of appellant, and overran his earthen storage tank to the extent of 1,500 barrels, forcing him to enlarge his pits and to put in a treating plant. The change in the specification by the appellee from 2 per cent. to 1½ per cent. B S & W was not communicated to the appellee's gauger, who tested the oil preparatory to running the same, and who was never directed by the appellee to change the specification to 1½ per cent. B S & W. On the 27th of February, 1924, the contract was acknowledged by the appellee before a notary public in Texas, and filed for record in the office of the circuit clerk of Union county, Ark. Thereafter, on March 3, 1924, the appellant learned that the contract had been recorded. He thereupon telegraphed to the appellee at Houston, Tex., the following:
"You have broken contract I demand release of my oil."
On the same day the appellee's attorney wrote to the appellant's attorney the following:
According to the testimony of the appellant, he had succeeded in arranging with the Texas Pipe Line Company to connect with his lease, but on the 12th of March, 1924, that company refused to take his oil, stating in a telegram to appellant's attorneys that it understood that there was a dispute between the appellant and the appellee as to the ownership of the oil, and that it did not care to purchase the oil, as it would be in the attitude of purchasing a lawsuit. The appellant testified that he was put to an expense aggregating $109.51 to enlarge his earthen storage tank to hold the oil after the appellee had refused to take the same. There was testimony in the record to the effect that oil from September 21, 1923, to December 29, 1923, was 40 cents a barrel; from December 29, 1923, to January 10, 1924, 55 cents a barrel; from January 10 to January 21, 1924, 65 cents a barrel; from January 21 to February 8, 1924, 80 cents a barrel; and from February 8, 1924, the price was $1 per barrel. The preponderance of the testimony tended to show that it was customary with oil companies in the El Dorado field during the period of the transactions above mentioned to take oil that did not contain B S & W of over 2 per cent. A preponderance of the evidence likewise tends to prove that on February 4th, at the time the letter was written by the appellee stating that it could not accept Smackover crude that contained more than 1½ per cent. B S & W, and at the time the letter was received by the appellant, a test of the oil showed that it contained less than 2 per cent. B S & W.
On March 25, 1924, the appellant instituted this action against the appellee. Appellant set up the contract, and alleged that the appellee had violated its terms to the appellant's damage in the sum of $2,000. The appellee, in its answer, denied the allegations of the appellant's complaint, made its answer a cross-complaint, and set up covenants 1 and 3 in the division order as a defense to the action, and alleged that the appellant had first breached the contract, and that since the execution of the contract the appellant's lease had produced in excess of 50,000 barrels of oil of the quality specified in the contract. The appellee prayed for specific performance, and that the appellant be required to deliver to it 23,000 barrels of oil, or, in the alternative, upon his failure to do so, that the appellee have judgment against the appellant in an amount equal to the difference between the contract price and the market price of 23,000 barrels of oil.
Upon the issues and the evidence adduced, the trial court dismissed the appellant's complaint for want of equity, and entered a decree in favor of the appellee for damages in the sum of $11,500, from which appellant duly prosecutes this appeal.
1. The letter of September 23, 1923, written by the appellant and accepted by the appellee, evidenced the contract between the parties. We are convinced that the division order executed by the appellant several days after the contract of September 23d, but made effective as of that day, was not intended by the parties as a part of the contract. But, if we be mistaken in this view, and if the division order should be construed in connection with and as a part of the contract of September 23, 1923, we are nevertheless convinced from the testimony in the whole case that at the time the contract was entered into it was the intention of the parties that the appellant should deliver to the appellee 50,000 barrels of heavy Smackover crude oil from his lease, and that the appellee should receive the number of barrels of oil mentioned, and pay therefor the price designated of 50 cents with the usual pipe line deduction on oil runs. We do not see anything in the division order that is in conflict with this construction, even though it be considered as a part of the contract. The division order, as we construe it, was but a guaranty by the appellant to the appellee that the appellant was the owner of the lease from which the oil was being produced and...
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