Standard Oil Company of Texas v. Lopeno Gas Company

• Decision Date: 16 January 1957
• Docket Number: No. 15947.,15947.
• Citation: 240 F.2d 504
• Parties: STANDARD OIL COMPANY OF TEXAS, Appellant, v. LOPENO GAS COMPANY, Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

240 F.2d 504 (1957)

STANDARD OIL COMPANY OF TEXAS, Appellant, v. LOPENO GAS COMPANY, Appellee.

No. 15947.

United States Court of Appeals Fifth Circuit.

January 16, 1957.

J. C. Hutcheson, III, Wiley N. Anderson, Jr., Houston, Tex., for appellant. Baker, Botts, Andrews & Shepherd, Houston, Tex., of counsel.

Thos. R. Hartnett, III, Turner, White, Atwood, McLane & Francis, Harry S. Welch, Dallas, Tex., for appellee.

Before RIVES, TUTTLE and CAMERON, Circuit Judges.

RIVES, Circuit Judge.

The district court permanently enjoined Standard from delivering, selling, or in any other way disposing of gas produced from one of its wells except to Lopeno. Lopeno claimed the right to purchase the gas under an agreement entered into on January 31, 1935 between American Texas Oil Co. and Nordan and Morris, a co-partnership, purporting to bind American Texas to sell to Nordan and Morris or their assigns all gas produced from wells drilled or to be drilled on certain described premises. Lopeno had succeeded to the rights of Nordan and Morris under said agreement. Standard's well had been drilled under an assignment of the oil and gas rights below 4000 feet on said premises from the successors in interest of American Texas.

Standard had drilled and completed its well about three years prior to the filing of the suit, had consistently refused to deliver the gas produced from this well to Lopeno, and was, at the time suit was filed, using it to drill another well.

Standard asserts two principal defenses. The first is that, while the agreement purported to bind the Seller to sell all gas which might be produced from wells located on certain premises, it did not bind the Buyer to purchase any gas and was, therefore, so lacking in mutuality as to be unenforceable.

The second main defense asserted by Standard is that, even if the agreement constituted a binding contract, it was not applicable to the production from the well in question; that the parties were contracting only in relation to production from the shallow sands which had at that time been discovered and developed and that they did not intend to cover or contract with reference to production from deep wells such as that of Standard.

In addition, Standard makes two contentions directed against the remedy of a permanent injunction. First, it says that, if the agreement be held to be a valid contract and be construed to cover production from the well in question, it is so one-sided and unconscionable an agreement as not to be enforceable in equity. Second, it says that, in any event, the district court erred in granting a permanent injunction after a hearing on an order to show cause why a preliminary injunction should not be issued.

I. Validity of Contract.

The agreement of January 31, 1935 first provided that:

"Seller, in consideration of the sum of One ($1.00) Dollar, and other good, valuable and sufficient considerations, receipt of which is hereby acknowledged, and the covenants and agreements hereinafter set out, hereby sells and agrees to sell and deliver to Buyer, and Buyer agrees to purchase and receive from Seller, in accordance with the provisions hereof, all of the merchantable gas which may be produced from all gas wells now drilled or which may hereafter be drilled on the hereinafter described premises during the terms of the present leasehold or leaseholds thereon, or any renewals or extensions thereof * * *."

The agreement then continued,

"Buyers shall not be under any obligation to take all or any specified proportion of the gas that can be produced from the above described premises during any defined or specified time; but Buyer shall endeavor to take gas from the herein described lands and leaseholds in the same equitable or ratable proportion that it takes gas from lands and leaseholds which it now owns or shall hereafter own, and from the lands and leaseholds of others from whom Buyer is now purchasing and/or may hereafter purchase gas in the gas field in which said premises of Seller are located. It is recognized and agreed that varying operating, mechanical and physical conditions governing the producing of natural gas must of necessity regulate the taking of gas from any given or specific well, and this condition will make it impossible for Buyer to take gas from each and every well in exact ratable proportions. Buyer does agree, however, that it will insofar as varying circumstances and conditions will justify and permit, maintain an equitable or ratable withdrawal of gas from seller\'s lands and leaseholds described herein, as compared with the withdrawals from lands and leaseholds which Buyer now owns or shall hereafter own, and from the lands and leaseholds of others from whom Buyer is now purchasing and/or may hereafter purchase gas in the gas field in which said premises of Seller are located."

Neither party has discussed in brief or argument the effect of the recital of the receipt of a consideration of one dollar, "and other good, valuable and sufficient considerations," and we shall, therefore, assume that in Texas such recital is merely nominal, and does not preclude the seller from disputing generally the fact of consideration. See McKay v. Tally, Tex.Civ.App., 220 S.W. 167, 170.

Appellant insists that, while the agreement purports to obligate the Seller to deliver all gas which the Buyer may desire to receive up to the capacity of the wells, the Buyer is not obligated to take all the gas the Seller can produce or, indeed, to take any particular proportion or quantity thereof; that, while the agreement purports to obligate the Buyer to take ratably from the Seller's leases in proportion to takings from other leases from which the Buyer either produces or purchases gas in the Lopeno field, it does not require the Buyer to take any specified quantities of gas from the Lopeno field as a whole, or even to take from the field any specified percentage of its total requirements of gas; that the agreement to take ratably thus becomes completely illusory and is insufficient consideration to support the promise of Seller.¹

Appellee, on its part, points out that the agreement should, if possible, be construed in such a way as to make the obligations imposed by its terms mutually binding upon the parties;² that appellant's contention that the Buyer is not required to take any gas from the Lopeno field is negatived by the first provision of the agreement obligating the Buyer to purchase and receive all of the merchantable gas which may be produced from all gas wells on the premises; that the provisions for ratable withdrawal of gas from the Seller's lands and leaseholds as compared with the withdrawals from lands and leaseholds of the Buyer or of others from whom the Buyer may purchase gas in the Lopeno field were little more than expressions of what was, in any event, required by Texas statute,³ and did not destroy the mutuality of the consideration;⁴ and, finally, that if there were any doubt as to the mutuality of the obligations of the contract at the time it was made, past performance had rendered the contract valid and enforceable long before Standard's well was completed in 1953.

For its last mentioned contention, appellee relies upon Hutchings v. Slemons, 141 Tex. 448, 174 S.W.2d 487, 489, 148 A.L.R. 1320, in which the Supreme Court of Texas repeated:

"`Though a contract be void for lack of mutuality at the time it is made, and while it remains wholly executory, yet, when there has been even a part performance by the party seeking to enforce the same, and in such part performance such party has rendered services or incurred expense contemplated by the parties at the time such contract was made, which confers even a remote benefit on the other party thereto, such benefit will constitute an equitable consideration, and render the entire contract valid and enforceable.\' Big Four Ice & Cold Storage Co. v. Williams, Tex.Civ.App., 9 S. W.2d 177, 178, writ refused.

"`The test of mutuality is to be applied, not as of the time when the promises are made, but as of the time when one or the other is sought to be enforced.\' Quoted from Edwards v. Roberts, Tex.Civ.App., 209 S.W. 247, 251; Id., Tex.Civ.App., 212 S.W. 673, writ refused, in the Big Four Ice & Cold Storage Co. case."

Appellee points out that another section of the contract provided that the Buyer was obligated to make connections to all existing wells of the Seller within sixty days from the effective date of the contract, and thereafter to make connection to any additional well within sixty days after the well had been completed and equipped. The pipeline gathering system, owned by Lopeno, had been in operation gathering gas under this agreement and under other contracts since 1937. This system is tied in to all of the wells in the Lopeno field, except Standard's well as to which Standard refused Lopeno permission to make connection. For more than fifteen years before Standard completed its well, Lopeno and its predecessor had been operating the pipeline system, taking and gathering gas ratably from the wells in the Lopeno field. Lopeno needs all of the gas purchased in the Lopeno field to meet its obligations, including the gas which Standard's well is capable of producing.

Without further elaboration, we think it very clear that there is no merit to appellant's argument that the agreement lacks the necessary contractual elements of mutuality of obligations and certainty. Indeed, on this score we find ourselves in substantial agreement with each of the appellee's positions as they have been heretofore stated.

II. Construction of the Contract.

Appellant insists that, when the agreement is construed reasonably and in the light of the circumstances existing at the time of its execution, it does not cover production from the well in question. We briefly recount the circumstances relied on. When the agreement was made in 1935, the Lopeno gas field had been only partially...