Magnolia Petroleum Co. v. Connellee

• Decision Date: 05 December 1928
• Docket Number: (No. 886-4548.)
• Citation: Magnolia Petroleum Co. v. Connellee, 11 S.W.2d 158 (Tex. 1928)
• Parties: MAGNOLIA PETROLEUM CO. v. CONNELLEE et al.
• Court: Texas Supreme Court

Page 158

11 S.W.2d 158

MAGNOLIA PETROLEUM CO. v.CONNELLEE et al.

(No. 886-4548.)

Commission of Appeals of Texas, Section B.

December 5, 1928.

Error to Court of Civil Appeals of Eleventh Supreme Judicial District.

Action by Earn T. Connellee and others against the Magnolia Petroleum Company.From judgment of Court of Civil Appeals(279 S. W. 597) reversing portion of judgment in favor of defendant, defendant brings error.Judgment of Court of Civil Appeals reversed, and judgment of trial court affirmed.

W. H. Francis, A. S. Hardwicke, and Walace Hawkins, all of Dallas, and Conner & McRae, of Eastland, for plaintiff in error.

Burkett, Orr & McCarty, of Eastland, for defendants in error.

LEDDY, J.

Plaintiff in error manufactured a large amount of gasoline from casinghead gas produced from wells drilled on lands which it had leased from defendants in error.

It is shown without dispute that plaintiff in error paid defendants in error the one-eighth royalty on all the oil which flowed from these wells, and had also paid them $25 per year for each of the wells from which it used casinghead gas.

Defendants in error prosecuted this suit in an effort to recover a large sum, on the theory that plaintiff in error was not entitled to manufacture gasoline from the casinghead gas obtained from said lease by mere payment of the $25 per well stipulated in the oil and gas lease.

The district court denied defendants in error any recovery for the gasoline manufactured from casinghead gas.On appeal the Court of Civil Appeals reversed the judgment of the district court, holding that defendants in error were entitled to recover the value of one-eighth of the gasoline manufactured from casinghead gas from said premises.See279 S. W 597

The view we have taken of the legal questions controlling the disposition of this case renders it unnecessary to set forth the pleadings of the parties, as the basis for the recovery sought, and the defenses urged thereto, will be made to sufficiently appear in our discussion of the legal questions involved.

The oil and gas lease, which is the basis of this controversy, recites a consideration of $7,620 cash paid, for which the lessors conveyed to lessee "all of the oil, gas, and other minerals in and under" the land therein described, "with the right to enter thereon, open mines, drill wells, lay pipes, and erect all structures and appliances, necessary or convenient in searching for, producing, caring for, storing, and removing, any oil, gas, or other minerals found thereon."The lease further provided that when a well completed should be a "producer of oil or gas" the grant should remain in force for the full term of the lease, "without the payment of any other sums of money or other thing than the royalties herein agreed upon and specified."Under the lease, lessee was allowed the free use of oil, gas, wood, and water, in operating and drilling wells on the premises, or lands adjacent thereto, and lessors were allowed free use of gas from any well producing gas thereon for one dwelling on the premises.

The parties to this contract fixed the specific compensation that should be paid to lessors for any minerals produced from the premises according to the following schedule:

1.One-eighth of all oil produced and saved to be delivered free of charge to tanks or pipe lines to the lessors' credit.

2.For each well producing gas only, sold or used off the premises, $200 per year.

3."For casinghead gas when sold or used off the premises, $25.00 per year for each well, payment for gas to be quarterly in advance."

4.For all other minerals, one-eighth of the net profits thereof.

As a basis for recovery on account of gasoline manufactured by lessee from casinghead gas produced from wells on the leased premises, defendants in error insist that casinghead gas is "oil" within the meaning and contemplation of the provision of the lease providing one-eighth royalty on all oil produced and saved from the premises.In support of this theory, a great deal of expert and scientific testimony was adduced.Plaintiff in error likewise introduced a number of expert witnesses who gave testimony to the opposite effect.

Under the plain terms of this contract, we do not regard this issue as material in determining the rights of the parties.Neither do we think it necessary to resort to rules of construction in order to determine the intent of the parties as to the compensation to be paid lessors for the casinghead gas produced under said lease.There are some rules applicable for the construction of written contracts, for the purpose of ascertaining from the language used the manner and extent to which the parties intended to be bound.Courts, however, are not permitted to resort to arbitrary rules of construction where the intention of the parties is expressed in clear and unambiguous language (Pierce-Fordyce Oil Ass'n v. Warner Drilling Co.[Tex. Civ. App.]187 S. W. 516), but will enforce the contract according to its terms (Benskin v. Barksdale[Tex. Com. App.]246 S. W. 360;Perry & Co. v. Langbehn, 113 Tex. 72, 252 S. W. 472;Rankin v. Rhea[Tex. Civ. App.]164 S. W. 1095).As is well said by Chief Justice Cureton in Texas Farm Bureau Cotton Ass'n v. Stovall, 113 Tex. 273, 253 S. W. 1101:

"The primary test of the character of a contract is the parties' intention as manifested by its terms."

At the time of the execution of the oil and gas lease in question, the subject-matter dealt with by the parties was a common one.Oil, or crude petroleum, casinghead gas, or gas coming from an oil well, and dry gas, or gas from a well producing gas only, were wellknown terms, and had acquired a definite, fixed, and popular meaning.In the absence of fraud, accident, or mistake, it will be conclusively presumed that the parties to a contract were familiar with and understood the subject-matter about which they have contracted (Elliott on Contracts, vol. 5, § 4209, Pettit v. State Ins. Co., 41 Minn. 299, 43 N. W. 378), and that the terms used by them were intended to be given their ordinary and popular meaning.

The contract made by these parties is too clear, plain, and unambiguous, to be misunderstood.It is open to but one construction.It was clearly recognized by this contract that from an oil well brought in on the premises there would be produced casinghead gas, and it was specifically provided what compensation the lessors should receive therefor.This court is asked to hold that because casinghead gas is shown to be the result of a separation of the lighter or volatile part of the oil that it should be paid for as oil when the parties have expressly contracted and agreed that it should be paid for in a particular way as casinghead gas.To so hold would require that this court write into the contract language which the parties themselves did not place there.We would be compelled to make for the parties a new and different contract.

By the express terms of the granting clause of this lease, all of the casinghead gas or dry gas in and under said land was conveyed to and became the property of the lessee.Its only obligation to lessors with reference thereto was an agreement to pay them for any of the casinghead gas it might use, aside from gas necessary in operating the premises, the sum of $25 per year for each well it used such gas therefrom.Otherwise, lessors had no interest whatever in the substance defined by the express terms of the contract as "casinghead gas."Under the grant this became the absolute property of the lessee with all the attributes incident to or implied in legal ownership.Stephens County v. Mid-Kansas Oil & Gas Co., 113 Tex. 160, 254 S. W. 290, 29 A. L. R. 566;Humphreys-Mexia Co. v. Gammon, 113 Tex. 247, 254 S. W. 297, 29 A. L. R. 607;Hager v. Stakes, 116 Tex. 453, 294 S. W. 835.Having by the specific terms of the contract purchased and become the owner of the casinghead gas which might be produced from wells drilled on said premises, lessee was privileged to make such use of this gas as it might see fit without (as stated in the lease)"the payment of any other sum of money or other thing than the royalty herein agreed upon and specified."

The fact that casinghead gas contained in vaporous form a substance which might be scientifically or in a technical sense termed "oil" cannot have the effect of modifying or changing in any way rights of the parties to this contract, as lessee's purchase of the casinghead gas produced from any well necessarily included all of the constituent elements it contained.It acquired these elements by its purchase as much so as it became the owner of the constituent elements contained in seven-eighths of the oil, to which it also had absolute ownership, subject only to payment of the one-eighth royalty.

At the time this lease was executed, "casinghead gas" was universally known and understood to be the gas which was emitted from a producing oil well.In fact, the wet or gasoline content of such gas was one of the characteristics distinguishing it from gas produced from a well producing gas only, which was denominated as dry gas.Westcott, Handbook of Casinghead Gas(2d Ed.1918)p. 6, contains this definition of "casinghead gas":

"Casinghead gas is the gas that flows from oil wells coming out between the casing and the tubing."

Page 52, Id., contains this:

"Casinghead gas is the name given to the gas which flows from oil wells, and as a rule comes from the same sand or formation as the oil."

Johnson and Huntley's text entitled "Oil and Gas Production,"at page 170, contains this statement:

"Casinghead gas is the term used to describe the gas accompanying the oil in an oil well, which usually contains gasoline vapor."

The United States government, in the department regulating royalties from casinghead gas, by its rules defines such gas as follows:

"Casinghead gas: The gas from an oil well coming through the casing with oil from an...