Magnolia Petroleum Co. v. Aiken

• Decision Date: 29 October 1926
• Docket Number: (No. 231.)<SMALL><SUP>*</SUP></SMALL&gt
• Citation: 289 S.W. 152
• Parties: MAGNOLIA PETROLEUM CO. v. AIKEN et al.
• Court: Texas Court of Appeals

289 S.W. 152

MAGNOLIA PETROLEUM CO. v. AIKEN et al.

(No. 231.)^*

Court of Civil Appeals of Texas. Eastland.

October 29, 1926.

Rehearing Denied December 23, 1926.

Error from District Court, Stephens County; C. O. Homlin, Judge.

Suit by E. P. Aiken and others against the Magnolia Petroleum Company. Judgment for plaintiffs, and both parties bring error. Reversed and remanded.

Scarborough & Wilson, of Abilene, and Hickman & Bateman, of Breckenridge, for plaintiffs.

Conner & McRae, of Eastland, for defendant.

PANNILL, C. J.

The parties will be designated as in the trial court. E. P. Aiken and others filed suit against the Magnolia Petroleum Company. So far as material now, the plaintiff sought an accounting for gasoline produced from gas from wells drilled on premises of plaintiffs under a lease executed by plaintiffs' predecessors in title and for damages to the land on account of salt water from said wells being permitted to flow over the premises.

On a trial a demurrer was sustained to so much of the petition as sought a recovery for gasoline. The issue of damage to the land from salt water was submitted to a jury, and a special verdict returned assessing plaintiff's damages at $1,500. Both parties have prosecuted writs of error.

The petition alleged that large quantities of gas had been produced from such wells and that said gas contained gasoline in large quantities; that gasoline is refined oil, and that under the terms of the lease plaintiffs are entitled to recover one-eighth thereof; that defendant has taken large quantities of gasoline from said wells, the amount being unknown to plaintiff but peculiarly within the knowledge of defendant, for which defendant refused to account and sought an accounting as stated. The other ground for recovery was for permanent injury to the land.

The royalty provisions copied in the opinion in Connellee v. Magnolia Petroleum Co. (Tex. Civ. App.) 279 S. W. 597, are identical with those in the leases now under consideration, and if the decision there made by this court is correct, the trial court was in error in sustaining the demurrer. That case, among others, is relied on by the plaintiffs. It is ignored, however, by the defendant, probably because a writ of error was granted.

In Livingston Oil Corporation v. Waggoner (Tex. Civ. App.) 273 S. W. 903, the court declared that gasoline produced from casinghead gas is oil and the lessee is entitled to one-eighth thereof under a royalty provision for oil. This decision under the authorities received the approval of the Supreme Court by the refusal of a writ of error. Burrell v. Adams, 104 Tex. 183, 135 S. W. 1156. So until the Supreme Court declares otherwise we feel in duty bound to follow the Livingston Case, supra.

The application of the case just referred to is denied by the defendant on the ground that, the lease containing a provision for royalty for casing-head gas, when sold or used off the premises, that therefore the parties have by contract determined their rights and liabilities thereunder and a court is not authorized to construe it differently.

This contention presupposes that casinghead gas and gasoline are synonymous, which is not correct. Casing-head gasoline is produced from casing-head gas, but after such gasoline is extracted there still remains the gas, which is no part of the gasoline. Connellee v. Magnolia Petroleum Co., supra. Many wells produce no oil, but only gas which is rich in gasoline content, and the gasoline produced therefrom is called casing-head gasoline; therefore the royalty provision stated did not provide any royalty for gasoline and none for casing-head gas, except when used or sold off the premises, which clearly means when such gas is used for fuel only.

In the Connellee Case, supra, the proof showed the lease was prepared by the present defendant. The lease there considered and those now under review are identical in the obligations created. Among the cardinal canons for the interpretation of contracts are that the language therein used will be construed most strongly against the party using it, and that an interpretation which makes the agreement fair and reasonable will be preferred to one which leads to harsh or unreasonable results. Williston on Contracts, §§ 620, 621.

With the determination in the Livingston Case that gasoline is oil, we are unwilling to say that the royalty provision for the payment of the insignificant sum of $25 per year for casing-head gas when used for fuel should be construed as conveying to defendant the gasoline in all the gas produced from the lease, which gasoline is alleged to be of the value of many thousands of dollars annually. To our minds it would be as reasonable to say that a lease for salt mining, providing for a royalty on all salt mined and a small rental on water wells, when water only was found, should be construed as giving the lessee the right to the salt by paying the water rental where the salt was found in solution and brought out in liquid form and then separated from the water. The conclusion is that the royalty provision for $25 per year for casing-head gas when used or sold off the premises related to the use of such gas for fuel and did not relieve defendant of its obligation to pay for oil produced, whether such oil is brought up in liquid form or in the form of vapor with the gas and then separated from the gas and reduced to its natural state.

That part of the judgment sustaining the demurrer is reversed.

Plaintiffs did not file any...