Wall v. United Gas Public Service Co.
| Decision Date | 02 January 1934 |
| Docket Number | 32542 |
| Court | Louisiana Supreme Court |
| Parties | WALL et al. v. UNITED GAS PUBLIC SERVICE CO |
Rehearing Denied January 29, 1934
Appeal from First Judicial District Court, Parish of Caddo; T. F Bell, Judge.
Suit by J. Alex Wall and others against the United Gas Public Service Company. From a judgment, plaintiffs appeal, and defendant moves to amend the judgment so as to reject plaintiffs' demands in toto.
Amended and as amended affirmed.
Foster Hall, Barret & Smith, of Shreveport, for appellants.
Wilkinson, Lewis & Wilkinson, of Shreveport, for appellee.
OPINION
Plaintiffs own certain lands in the Rodessa gas field in the parish of Caddo on which they granted leases for the production of oil and gas. The royalty clause in the leases provides that in case oil is discovered the lessees shall deliver to the credit of the lessors, free of cost, in the pipe line to which he may connect his wells, the equal one-eighth part of all oil produced and saved from the leased premises. As to gas, it is provided that the lessees shall pay to the lessor $ 200 each year for each well producing gas only, until such time as the gas shall be utilized or sold off the premises and that thereafter "the grantor shall be paid one-eighth (1/8) of the value of such gas calculated at the market price per thousand feet, corrected to two pounds above atmospheric pressure."
The lessees drilled one well on the leased premises and brought in gas which is strongly impregnated with gasoline. They carried the gas through private pipe lines a distance of approximately two miles where they sold it to the Arkansas-Louisiana Pipe Line Company at 5.8 cents per thousand cubic feet. Approximately one-half gallon of gasoline per thousand cubic feet was extracted from the gas and sold at the market price.
The lessees settled with the lessors for the gas at 4 cents per thousand cubic feet, and for the gasoline at the market price, less costs of extraction. The lessors became dissatisfied with the price received for the gas, it being their contention that they should be paid on the basis of the sale price thereof. They further contend that under their lease contract the lessees were not entitled to any of the gasoline extracted from the gas, but that they, the lessors, should be paid for the entire quantity of the gasoline extracted.
The present suit is for an accounting, the plaintiffs demanding the difference between the price which they were paid for their proportion of the gas and the price at which it was sold. The plaintiffs at the time this suit was filed owned an undivided one-half interest in the mineral rights.
Plaintiffs' contention is set forth in their brief, and, as there stated, they contend that they should receive settlement as follows:
The contention of defendant is that it should settle with the plaintiffs at the market price of the gas at the well, which, it is alleged, was 4 cents per thousand cubic feet; and as to the gasoline, that it is entitled to the same proportion of it as of the gas itself, and that in settling with the lessors it was due to pay the price which it brought in the market, less the expense of extraction.
The district court rejected plaintiffs' demands as to the gasoline, but held that plaintiffs should be paid on the basis of the price received for the gas where sold, less the expense of conveying it to the market. According to the findings of the trial judge, plaintiffs should have been paid slightly more than 4 cents per thousand cubic feet for the gas.
From this judgment, plaintiffs appealed and the defendant moved to amend the judgment so as to reject plaintiffs' demands in toto.
The two questions involved inthis suit are, first, whether the term "market price," as used in these leases, means the current price at which natural gas is sold in the fields in the territory where it was produced, or the gross price received by the producer in the market where sold; and, second, whether under the ordinary oil and gas lease contract, such as this one, providing that the lessor shall have a one-eighth royalty interest in the gas, he is entitled to all the gasoline extracted from the gas by the lessee or only one-eighth thereof.
(1) In the lease contract here involved, the lessee was required to pay to the lessor one-eighth of the value of the gas sold off the premises, calculated at the "market price" thereof. The price to be paid was left open or made to depend upon the "market price" at the time the gas was produced. The lessee settled with the lessors for the gas at 4 cents per thousand cubic feet, which it contends was the "market price" at the well, its theory being that the market price there is the proper basis for the settlement. It admits that it sold the gas at a place two miles from the field at 5.8 cents per thousand cubic feet. The plaintiffs demand settlement on the basis of the sale price of the gas where sold.
There is nothing in the contract itself nor in the testimony to show the intent of the parties touching the question whether the term "market price" meant the price at the well or the price the gas would bring in a market remote from the well. We think it reasonable to assume that the parties intended that, if there was a market for gas in the field, the current market price there should be paid. There is where the gas was reduced to possession and there is where ownership of it sprang into existence. The result of bringing the gas to the surface of the ground in the field was to reduce to ownership there a commercial commodity. Previous to the moment the gas reached the surface of the ground, the parties owned nothing so far as the gas was concerned, except the right to explore for it and reduce it to possession and ownership. But when the gas reached the surface of the ground, the parties owned it in the proportion of one-eighth to the lessor and seven-eighths to the lessee, and, if it had been contemplated or provided in the lease contract that the gas should be divided in kind, it would hardly be disputed that the division should be made at the well. This lease provides that in case oil is discovered, it shall be divided in kind, one-eighth thereof to be delivered to the credit of the lessor "in the pipe line to which he (the lessee) may connect his wells." The division of the oil is made at the well and the lessor's one-eighth thereof is delivered to him there. In like manner, if the lease contract provided that the lessee should deliver to the credit of the lessor "in a pipe line which he may connect with his wells," the equal one-eighth part of the gas produced, the division and delivery would take place at the well just as the division and delivery of the oil is made.
The reason why the division and delivery is made at the well, in cases where there is to be a division in kind, is that there is where the parties come into ownership of the commodity, there is where title vests. The lessor and lessee are vested with title to the gas at the well or in the field in the same proportion as the oil is owned. And while there is to be no division of the gas in kind, it is nevertheless contemplated that there shall be a "division," not of the gas in kind but of its value as fixed by the market price.
Now if the division in kind, where such is contemplated, should be made at the place where ownership vests, it follows that the division of the value or proceeds of the gas should be made there, provided, of course, that the value of the gas can be determined, and that depends upon whether there is a "market price" for it in the field.
The term "market price" does not mean an arbitrary price fixed by the lessee. "Market price" means, according to Webster, "the price actually given in current market dealings." (Italics here and elsewhere ours.)
In Black's Law Dictionary, the term "market price" is thus defined:
"The actual price at which a given commodity is currently sold, or has recently been sold, in the open market, that is, not at forced...
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