United States v. Continental Oil Company

• Decision Date: 31 December 1964
• Docket Number: Civ. No. 9763.
• Citation: 237 F. Supp. 294
• Parties: UNITED STATES of America, Plaintiff, v. CONTINENTAL OIL COMPANY, Defendant.
• Court: U.S. District Court — Western District of Oklahoma

237 F. Supp. 294

UNITED STATES of America, Plaintiff, v. CONTINENTAL OIL COMPANY, Defendant.

Civ. No. 9763.

United States District Court W. D. Oklahoma.

December 31, 1964.

B. Andrew Potter, U. S. Atty., Leonard L. Ralston, Asst. U. S. Atty., Oklahoma City, Okl., Russell Chapin, Chief, Gen. Claims Section Civil Div., Robert Mandel and Harry Crutcher III, Attys., Civil Div., Dept. of Justice, Washington, D. C., for plaintiff.

Mainard Kennerly, Tomerlin & High, Oklahoma City, Okl., L. David Trapnell, Ponca City, Okl., for defendant.

DAUGHERTY, District Judge.

This litigation involves the interpretation and construction of a written covenant in a quitclaim deed of land and improvements from the plaintiff, the United States of America, as grantor, to the defendant, Continental Oil Company, as grantee. The covenant reads as follows:

"Grantee covenants and agrees that in the event Grantee uses the facilities of the said Plancor 882 for extracting toluene from hydroformate within a period of eight (8) years from and after June 1, 1948, grantee shall and will pay an additional sum of Two Thousand Six Hundred Sixty-Five Dollars ($2,665.00) per month for each month or part thereof that the facilities are used for that purpose, until the end of a period of eight (8) years from and after June 1, 1948."

During World War II the plaintiff built a plant at Ponca City, Oklahoma, known as Plancor 882 on land obtained from the defendant. In fact, the defendant built the plant or caused the same to be built for the plaintiff. At this time the defendant had a facility known as a Hydroformer at its Ponca City Refinery. This facility was patented and licensed by the M. W. Kellogg Company and produced a substance called Hydroformate, which contained approximately six percent to thirteen percent of a substance known as Toluene. The purpose of building Plancor 882 at Ponca City was for it to receive the Hydroformate from the defendant's adjacent Hydroformer and by a distilling and extracting process in Plancor 882 obtain Toluene therefrom of approximately 99% purity which was to be used by the Government in making TNT. This ultimate use was shortly changed by the Government so as to obtain Toluene from Hydroformate of approximately 98% purity to be used as a blending agent in the production of aviation gasoline. During this period of time Plancor 882 was operated by defendant under an arrangement with plaintiff. At the end of World War II Plancor 882 was shut down as the requirement for aviation gas became greatly reduced.

Thereafter, the Government desired to dispose of Plancor 882 and the defendant was interested in buying the same but they could not reach an agreement on the sale figure. In essence, the Government was wanting to get as much of its cost back as it could and the defendant was not interested in such an elaborate plant designed to produce an end product for which the defendant had no marketing capability. Through negotiations a figure was finally agreed upon along with the above quoted covenant in the conveyance.

This controversy centers around the meaning and effect to be given to the technical words "Toluene" and "Hydroformate" as then used by the parties in the covenant in the quitclaim deed. Both parties in the negotiations and final arrangement had the benefit of their own technical experts in the petroleum field as well as attorneys.

All went well until the Korean War came on in 1950, and with it a greatly increased demand for aviation gasoline. To meet this demand the defendant entered the aviation gasoline field and for 13 months produced high purity toluene such as that produced during World War II from hydroformate from its hydroformer. The defendant paid the stipulated monthly sum during this period. The defendant apparently experienced some difficulty with Plancor 882 in the matter of getting the near pure toluene and as a result and by experimentation found that by using an end product from Plancor 882 which contained only from 80% to 85% Toluene and mixing the same with some richer blends it could meet the Government's specifications on aviation gasoline. The specification situation was somewhat different at this time inasmuch as during the operation during World War II the Government established required specifications on Toluene to be produced by the defendant from Plancor 882, whereas during the Korean War the only Government specifications which were involved pertained to aviation gasoline in its final form. Also the defendant found it was cheaper to operate Plancor 882 when only 80% to 85% Toluene was in the end product produced and furthermore it did not have to pay royalty to Shell Oil Company for the process. (No royalty was required by Shell for use of its patented process of extracting Toluene unless the end product contained more than 85% Toluene by weight). Also that a lower shipping rate by rail was available for the 80% to 85% product than the high purity Toluene. Then for 16 months the defendant instead of producing 98% pure Toluene, produced a substance containing only 80% to 85% Toluene, which it called aviation blending compound or abbreviated as ABC. Since the defendant did not consider that it was extracting Toluene during this 16 months period within the intent and meaning of the covenant, it refused to pay the monthly sum mentioned in the covenant.

In the meantime, the defendant replaced its Hydroformer producing Hydroformate with a Platformer producing Platformate. Platformate was substantially the same as Hydroformate but with some slight difference and particularly was cheaper and easier to produce because a different type catalytic reformer (platinum for molybdenum) was used. Then for 25 months the defendant produced ABC from Platformate and took, and now takes, the position herein that it was not...