Sartor v. United Gas Public Service Co

• Decision Date: 01 February 1937
• Docket Number: 34131
• Citation: 186 La. 555,173 So. 103
• Court: Louisiana Supreme Court
• Parties: SARTOR et al. v. UNITED GAS PUBLIC SERVICE CO

173 So. 103

186 La. 555

SARTOR et al. v. UNITED GAS PUBLIC SERVICE CO

No. 34131

Supreme Court of Louisiana

February 1, 1937

Rehearing Denied March 1, 1937

Appeal from First Judicial District Court, Parish of Caddo; T. F Bell, Judge.

Action by Mrs. J. M. Sartor and others against United Gas Public Service Company. From judgment for defendant, plaintiffs appeal.

Affirmed.

G. P Bullis, of Vidalia, for appellants.

Wilkinson, Lewis & Wilkinson, of Shreveport, and Sholars & Gunby, of Monroe, for appellee.

Hugh M. Wilkinson, of New Orleans, amicus curiae on behalf of Richland Parish Royalty Owners Protective Ass'n.

Garland & Johnston, of Shreveport, amici curiae.

ODOM, Justice. FOURNET, J., concur.

OPINION

ODOM, Justice.

By contract dated November 30, 1928, plaintiffs granted to O. E. Hodge the exclusive right to explore forty acres of their land for oil, gas, and other minerals. Hodge assigned the contract to the Louisiana Gas & Fuel Company, a corporation, which drilled one gas-producing well. The contract and the well finally passed into the hands of the United Gas Public Service Company, the defendant in this case.

The gas royalty clause in the contract reads as follows:

"To pay the Lessor two hundred dollars each year for each well producing gas only, until such time as the gas shall be utilized or sold off the premises, and at that time the royalty above named shall cease, and thereafter the grantor shall be paid one-eighth (1/8) of the value of such gas calculated at the rate of not less than three cents per thousand cubic feet, corrected to two pounds above atmospheric pressure."

During the years 1930, 1931, and 1932 the defendant corporation took from the well 477,873,000 cubic feet of gas and paid to the plaintiffs as royalty one-eighth of the value thereof, calculated at 3 cents per thousand cubic feet.

The payments were made in monthly installments, the amount of each payment being one-eighth of the value of the gas taken during the previous month, calculated at 3 cents per thousand cubic feet, less one-eighth of the severance tax. Attached to each of the checks sent to plaintiffs was a statement showing the amount of gas taken, its value at 3 cents per thousand cubic feet, and showing that the entire amount of the severance tax had been paid by defendant and that one-eighth thereof was charged to plaintiffs. These monthly statements were accepted by plaintiffs without complaint.

Plaintiffs brought this suit in May, 1933, alleging that they had accepted these royalty payments on the supposition and belief that the market value of gas in the Richland field, where this gas was produced, was only 3 cents per thousand cubic feet, whereas in fact the market value was 6 cents. In paragraph 8 of their petition they alleged that "defendant and its predecessors took fraudulent advantage of its knowledge and the ignorance of petitioners, to pay them less than the amounts due them."

They asked judgment for the difference between the total amount paid them during those years and the amount which they would have received had the value of the gas been calculated at 6 cents instead of 3 cents.

Plaintiffs further alleged that they owed no part of the severance tax and prayed for judgment ordering defendant to refund the amount, $ 119.47, charged to them by defendant in the statements.

Defendant pleaded acquiescence and estoppel, grounded upon the proposition that plaintiffs, having accepted payments based upon the value of the gas calculated at 3 cents, and having acquiesced in the charge made against them by defendant for one-eighth of the severance tax due the state, cannot now be heard to say that 3 cents per thousand cubic feet was not the market value of the gas during those years or that the severance tax charge was not correct.

The trial judge heard evidence on this plea and overruled it. Defendant then answered. Its defense, in sum, is that 3 cents per thousand cubic feet was the market value of the gas taken and that plaintiffs were required by law to pay one-eighth of the severance tax.

From a judgment rejecting their demands in toto, plaintiffs appealed.

Under the mineral lease granted by plaintiffs, they were to be paid as royalty one-eighth of the market value of the gas extracted from their land. Three cents per thousand cubic feet was stipulated as the minimum value of the gas, but no maximum value was fixed, and it is conceded by defendant that plaintiffs were entitled to royalty payments based upon the market value.

Where there is no stipulation to the contrary in a lease contract of this kind, "market value" is understood to mean the current market price paid for gas at the well or in the field where it is produced. Wall v. United Gas Public Service Company, 178 La. 908, 152 So. 561; Sartor v. United Carbon Company, 183 La. 287, 163 So. 103, 104.

Plaintiffs' land is in what is known as the "Richland field," and in order to prove the "market value" of natural gas in that field they filed in evidence eight documents marked for identification as P-5 to P-13, inclusive. These documents are contracts entered into by large corporations engaged in the business of producing and selling natural gas in the various gas fields of North Louisiana, with pipe-line companies, which are engaged in the transportation to and sale of gas at the town borders of various towns and cities in several states. They all relate to the sale of gas produced in the Richland and Ouachita fields and show the prices paid to producers by the pipe-line companies.

Plaintiffs' Exhibit 5 is a contract between the Industrial Gas Company, a producer, and the Arkansas Louisiana Pipeline Company, a purchaser, and Plaintiffs' Exhibit 8 is an agreement between the Palmer Corporation, a producer, and the Arkansas Louisiana Pipeline Company. The defendant, United Gas Public Service Company, is the successor to and owns all the rights and contracts formerly owned by the Industrial Gas Company and the Palmer Corporation. These two contracts, both made on May 10, 1929, are almost, if not quite, identical in terms and extend over a period of ten years. They show that the prices of gas agreed upon were as follows: For the first three years and four months, 4 1/2 cents; for the next three years and four months, 5 1/2 cents; and for the remainder of the term, 6 1/2 cents.

Plaintiffs' Exhibits 6 and 7 are contracts between the Industrial Gas Company, a producer, and the Dixie Gulf Gas Company, a purchaser, both dated May 10, 1929. They stipulate minimum and maximum prices to be fixed by arbitration within the following limits: From the date of the contract, May 10, 1929, to November 20, 1929, a minimum price of 3 cents and thereafter 4 cents; and a maximum price of 5 cents up to October 31, 1932, and thereafter 6 cents.

Exhibit 9 is a contract between the Industrial Gas Company and the Mississippi River Fuel Corporation, and Exhibit 10 is one between the Palmer Corporation and the Mississippi River Fuel Corporation. Each contract is dated August 1, 1929, and runs for a period of fifteen years. The prices fixed in these contracts are 5 cents for the first three years, 6 cents for the next two years, 7.6 cents for the next five years, and 8 cents for the last five years.

Exhibit 11 is a contract between the Industrial Gas Company and the Southern Natural Gas Corporation, and Exhibit 12 is one between the Palmer Corporation and the Southern Natural Gas Corporation. These contracts are dated January 15, 1929, and run for fifteen years. The prices fixed in each are the same, as follows: 4 1/2 cents for the first three years, 6 1/2 cents for the next two years, 8.1 cents for the next five years, and 8 1/2 cents for the remaining five years.

Exhibit 13 is a contract between the Texas-Louisiana Pipeline Corporation and the Louisiana Power & Light Company, in which the producer agrees to sell to the power and light company gas delivered at the corporate limits of certain towns in Richland parish at prices ranging from 10 cents to 25 cents per thousand cubic feet.

Plaintiffs offer no other testimony to sustain their allegations that the market value of gas in the Richland field exceeds 3 cents, the price they were paid by the defendant. These contracts, except Exhibits 6 and 7, show that the minimum price at which the producers agreed to sell gas to the pipe-line companies during the years 1930, 1931, and 1932 exceeded 3 cents. In each of the contracts except two, the prices agreed upon ranged from 4 1/2 cents for the first three years, to 8 1/2 cents for the last years of the periods over which the contracts run; these periods being ten years in some and fifteen years in other cases.

These contracts show that the pipe lines owned by the purchasers of the gas extend into the fields where the gas is produced and that the producers obligated themselves to deliver the gas into the pipe lines at one specified point in each of the gas fields.

It is argued on behalf of the plaintiffs that the prices received by the producers from the pipe-line companies should be accepted as the "market value" of the gas in the field, as that term is used in the lease contract. The trial judge was not impressed with this argument. Neither are we.

The testimony shows that there are two large gas fields in North Louisiana, one known as the "Richland field" and the other as the "Ouachita field." The Richland field comprises an area within the parish of Richland, where the record shows that innumerable oil and gas leases have been granted by landowners. This field has been extensively developed and is, or was at one time, one of the greatest gas-producing areas in the South. Just how many gas-producing wells there are in this field is...