Harris v. Lone Star Gas Co. (19 S.W.2d 178, 1929)

LESLIE, J.

On motion for rehearing, the appellant, John G. Harris, concedes that in reversing and remanding this cause a correct result was reached; but he requests the court to amplify its expressions and conclusions on the controlling propositions presented by the appeal. We grant this request, and, although in no respect altering the legal effect of the original opinion, we re-express and amplify the same, withdrawing the original and substituting this one therefor.

The plaintiff’s first amended petition in this cause was filed in the lower court January 6, 1925. Trial was had December 17, 1926, and the court having sustained a general demurrer to plaintiff’s petition and entered a judgment accordingly, the appellant, plaintiff below, appealed, filing the record in this court February 10, 1927. The cause was submitted June 24, 1927, but final disposition thereof has been postponed from time to time, awaiting the action of our Supreme Court on appeals taken in the case of Reynolds v. McMan Oil & Gas Co. (Tex. Civ. App.) 279 S. W. 939, 11 S.W.(2d) 778, 14 S.W.(2d) 819, and the case of Connellee v. Magnolia Petroleum Co. (Tex. Civ. App.) 279 S. W. 59.7,11 S.W.(2d) 158, both of which were appealed from this court, and involving, substantially, the same controverted issues that appear in this record. Such a course has been pursued in the interest of economy in cost to litigants, as well as economy of time and labor to this court, and especially because we have felt the need of an authoritative expression from our Supreme Court upon the points involved and already before that court, as indicated.

The instant litigation grows out of the rights claimed by the lessor and the lessee and its assigns, under and by virtue of the terms of a certain oil and gas lease,, which by comparison we find to be substantially the same as the lease involved in the ease first mentioned above. The consideration in the lease here involved, in so far as royalties and rentals are concerned, is as follows:

“In consideration of the premises the said lessee.covenants and agrees:

“1st. .To deliver to the credit of lessor, free of cost, in the pipeline to which it may connect its wells, the equal one-eighth part of all oil produced and saved from the leased premises.

“2nd. To pay the. lessor $300.00 each year in advance for the gas from each well where gas only is found, while the same is being used off the premises, and lessor to have gas free of cost from any such well for all stoves and all inside lights in the principal dwelling house on said land during the time by making his own connections with the well at his own risk and expense.

“3rd. To pay lessor for gas produced from any oil well and used off the premises at the rate of $50.00 per year for the time during which such gas shall be used, said payments to be made each three months in advance.”

By reference to the opinion in the Reynolds Case (Tex. Com. App.) 11 S.W.(2d) 778, 7S0, it will be seen that the two leases contain similar covenants in the above respect. In the first paragraph of said opinion this language is used: “This case presents the question whether or not a lessor under the mineral lease in common use in this state may recover from the lessee for gasoline manufactured from easing-head gas under the stipulation for the usual royalty on oil produced and saved.” The identical question arises in the instant case.

While there are several counts in the plaintiff’s petition, we will here specifically notice the one (third count for gasoline) wherein the plaintiff, under the “one-eighth oil royalty provision,” seeks to recover one-eighth of the gasoline manufactured from the casinghead gas, which was alleged to be oil, and which, as we interpret the opinion in the Reynolds Case, is held to be such, and so contemplated by the parties in the execution and delivery of the lease. If such product alleged to have been converted by the defendants and each of them be oil, it is not believed that it be material by what term or name the well from which it is taken be designated ; that is, whether it be a gas well, gas from an oil well, or an oil well. The allegations in the plaintiff’s petition set forth that large quantities of gasoline have been produced by the said defendants on lands covered by said lease, and that the share or portion thereof to which plaintiff was entitled under the lease has been converted. Such being the case made by the pleadings,' unquestionably the trial court, in view of the opinion in the Reynolds Case, committed an error in sustaining the defendants’ exceptions to plaintiff’s petition, and it becomes our duty to reverse the judgment of the trial court and remand the cause for a trial on the facts.

As to the “proportion of the gasoline which the plaintiff is entitled” to recover, under his pleadings and upon the specific theory here under consideration, we believe the opinion in the Reynolds Case sufficiently specific. On this proposition the oil royalty provision of the lease is held to be controlling, and this would appear to be a sufficient answer to the question suggested by the appellant’s contention. However, this would be subject, of course, to the qualification contained in the third paragraph of that opinion (Tex. Com. App.) 14 S.W.(2d) 819, 820, which is as follows: “The plaintiff in error likewise seeks a rehearing, and insists that defendants in error are liable for the gross value of one-eighth of the gasoline recovered not charged with the cost of reduction, upon the theory they are trespassers; the argument being that since in law plaintiffs in error were entitled to one-eighth part of the casing-head gas as it was delivered from the ground, the defendants in error, knowing of this right, as they must have known, are not good-faith trespassers to entitle them to their expenditures in treating the gas and recovering the gasoline. It is true the rights of the parties are to be determined by the terms of the lease, which, in turn, presents a question of law; but it does not follow that defendants in error have not acted in good faith. Indeed, the particular right is of such a nature as to challenge the.best thought of all the courts through which the case has passed, and defendants in error should not be mulcted in damages for claiming a right to the gas under such circumstances.”

This, we think, indicates the extent of appellant’s possible recovery, except as the peculiar facts, if any, in this cause and which may be disclosed in the pleadings upon which he elects to go to trial, may present a situation calling for a different measure of damages or a different application of the principles announced in that portion of said opinion above quoted. Under the Reynolds Case, the authority upon which this opinion is specially based, we are of the opinion that the plaintiff’s right to recover for gasoline as oil rests upon the theory presented in the count for gasoline here considered.

A further contention ,of the appellant is that this court erred “in failing to pass Upon and construe and give some expression disposing of the first count of plaintiff’s petition, which is a count for the recovery of the value of all the natural gas appropriated by the defendant, it being clearly pleaded that the plaintiff, by the terms of his lease, which is quoted in said pleading, and which is also attached as exhibit, did not sell any part of his gas, but only permitted, by the terms of his lease, the use thereof, both on the premises and off the premises, and pleaded that the word ‘use’ as employed in the lease, did not constitute a sale of his gas, and wherefore he sued for same, or the value thereof.” In dealing with this contention it must be borne in mind that the question of appellant’s right to a portion of the gasoline is not involved. That matter having received a separate and distinct consideration in the preceding paragraphs of this opinion, we here deal strictly with the appellant’s right in what he designates “natural gas” as stripped of the product known as “gasoline” or containing none. In discussing the third clause of the lease dealing with the considerations involved in the Reynolds Case — a similar clause being contained in the lease involved in the instant case — the Commission of Appeals used this language: “The third clause of the so-called royalty provision stipulates for the lessee to pay to the lessor ‘for gas produced from any oil well and used off the premises at the rate of $100.00 per year for the time during which such gas shall be used, said payment to be made each three months in advance.’ This does not purport to be, nor is it within itself, a grant, an ex-eeption, or a reservation. It is not a grant, for it is an obligation of tbe lessee. It is not an exception, for it is not an estate of a kind with the grant, and it is not a reservation, for it is not an estate or fee of any kind in real property. It is a personal obligation imposed upon the lessee by way of consideration, to be sure, but no more than the ordinary promise of rentals. It is the agreed compensation for a thing — gas—already granted.

“We have said that the stipulation with respéct to gas produced from an oil well does not evidence a grant of such gas. This does not imply there was no such grant, for clearly there was. But the grant arises from the granting clause proper, precisely in the same manner and to the same extent that the oil was granted; the grant being for the .‘sole and only purpose of mining and operating for oil and gas.’ ”

On motion for rehearing in the Reynolds Case (Tex. Oom. App.) 14 S.W.(2d) 820, the court in its opinion used this language: “Clause (2) of the royalty covenant applies only to gas used from a well ‘where gas only is found,’ while clause (3) provides a similar rental for gas produced from an oil well. The clear intention of the instrument as a whole is to except from the grant ‘one-eighth part of all oil produced and saved from the leased premises,’ and to pay and accept a rental per well per annum for gas produced and used off the premises. The ‘gas’ mentioned in both sections, as we have shown in our original opinion, means gas, and not oil. The lease therefore in legal effect grants seven-eighths of the oil in place and all of the gas.” '

The granting clause in the lease involved in this case is as follows: “That the said lessor, * * * in consideration of $10.00 * * * and of the covenants and agreements * * * on the part of lessee * * * has granted, demised, leased and let, and by these presents does grant, lease, and let unto the said lessee for the sole and only purpose of, mining and operating for oil and gas * * * all that certain tract of land,” etc. It thus appears that, under said lease contract, the lessor parted with his title to all the minerals (oil and gas) in place (modified by exception for one-eighth oil royalty), and obtained a money consideration therefor, and, in addition, the usual one-eighth royalty for oil produced, together with $300 each year for gas from a well where gas only is found, while the same is being used off the premises, and $50 per year for gas produced from an oil well and used off the premises while same is so used. It is well understood, and is apparently recognized by the authorities generally, that the above language of the contract means plainly that an actual estate in the land, to wit, the mineral estate, was conveyed, without reservation as to any part of it. Authorities need not be cited upon this construction of such language, but the views . of our Supreme Court upon the question are recorded in the following authorities: Stephens County v. Mid-Kansas Oil & Gas Co., 113 Tex. 160, 254 S. W. 290, 29 A. B. R. 566; Thomason v. Reed (Tex. Civ. App.) 263 S. W. 1069; Summers on Oil & Gas, 197, 198; Ehlinger v. Clark (Tex. Sup.) 8 S.W.(2d) 667.

Under the above authorities, and especially the opinion in the Reynolds Case, it occurs to us that there is but one conclusion to be reached from the decisions, and that is that under the terms of the appellant’s lease in the instant case, and for the considerations noted, the granting clause of the lease placed title to the “natural gas” in the lessee, and clothed it and its assigns with full and-complete authority to sell or dispose of the same without incurring obligations other than may be found in the personal obligation of the lessee to pay the lessor $300 and $50 per year, respectively, under the provisions of sections 2 and 3, setting forth the considerations for the lease.

The record before us does not present a case wherein the lessee or its assigns has failed or refused to pay $300 per year or $50 per year, respectively, for gas from either character of well specified.

The petition of plaintiff alleging as against each and all of the defendants a case of conversion of his interest in oil, the judgment will necessarily have to be reversed and remanded as to all the defendants.

The judgment of the trial court will therefore be reversed, and the cause remanded, and all motions for rehearing are overruled.

EUNDERBURK, J.

(dissenting).

The writer has hesitated to express a dissent in this case. The question involved undoubtedly appears to be foreclosed by the decision in Reynolds v. McMan Oil & Gas Co., 11 S.W.(2d) 778, since the opinion in that case was adopted by the Supreme Court. Such fact .alone may be sufficient to raise some question as to the propriety of a member of this court expressing contrary views. It also happens that the writer was of counsel in the Reynolds Case. His part was a minor one, it is true, being that of local attorney who merely assisted in the trial, but whose firm is, nevertheless, listed as counsel in the reports of the case. This fact adds to a feeling of reluctance to appear as exhibiting an extraordinary concern in the same question.

On the other hand, the writer has never entertained a firmer conviction about anything than-that the decision in the Reynolds Case is fundamentally unsound. This alone would not warrant an expression of dissent, but in the opinion of the writer it is as true as the maxim, “Things equal to the same thing are equal to each other,” that the opinion in Magnolia Petroleum Co. v. Connellee (Tex. Com. App.) 11 S.W.(2d) 158, is in conflict with the Reynolds Case. The opinion in the Connellee Case, if less directly, was none the less certainly and expressly approved by the Supreme Court than the opinion in the Reynolds Case. This results from the express approval of the opinion in Magnolia Petroleum Co. v. Akin (Tex. Com. App.) 11 S.W.(2d) 1113, which for sole justification of the judgment recommended referred to and adopted the opinion in the Connellee Case. May not then a statement be justified which is designed to show that these decisions published for our guidance are in conflict, without subjecting the writer to a charge of unwillingness to yield his judgment to that of the superior court? And further, while candor compels the admission that there exists no just principle of distinction between this case and the Reynolds Case, it may be said with equal candor that the Supreme Court probably may take a different view of the matter. It is thought that the difference in the eases is more substantial, upon which to predicate a legal distinction, than exists between the Reynolds and Connellee Cases. So much by way of what it is feared may be looked upon as a lame effort to excuse or justify the airing of the writer’s personal views upon a question that it may occur to some should be regarded as settled.

This is a “grant, lease and let” lease “for the sole and only purpose of mining and operating for oil and gas,” etc., of certain land. The term of the lease is for five years from date, “and as long thereafter as oil or gas, or either of them is produced from said land by the lessee.” Covenants made expressly in consideration of the grant are:

“1st. To deliver to the credit of lessor, free of cost in the pipeline to which it (lessee) may connect its wells, the equal one-eighth part of all oil produced and saved from the leased premises.

“2nd. To pay the lessor Three Hundred Dollars each year in advance for the gas from each well where gas only is found while the. same is being used off the premises, and lessor to have gas free of costs from any such well for all stoves and all inside lights in the principal dwelling house on said land during the time by making his own connections with the well at his own risk and expense.

“3rd. To pay lessor for gas produced from any oil well and used off the premises at the rate of Fifty Dollars per year for the timé ■during which such gas shall be used, said payments to be made each three months in advance.”

Date of lease, July 12, 1919.

According to allegations of the petition, one well was drilled which was not an oil well but a gas well, the allegation being, “ * * * a gas well was brought in on plaintiff’s land above described which -produced gas in paying quantities,” etc. Throughout the entire pleading there is no .suggestion that any other well was drilled.

There is set out as an exhibit, and referred to and adopted as a part of the pleading, a contract showing a sale of “at the mouth of the wells to Lone Star Gas Company * * * all of the merchantable gas, in its natural state, as produced, except casinghead gas, from all the wells now drilled, and which may hereafter be drilled” on the land. It is apparent that the exclusion from the sale of casinghead gas was because the contract included gas that may have thereafter been produced, and of course was so framed as to take care of the contingency of oil being discovered as well as gas. While there are several alternative claims, they may all be disregarded as having no support in any authority except the claim that large quantities of gasoline had been produced; that such gasoline was oil within the provisions of the contract ; and that seven-eighths thereof belonged to plaintiff and had been converted, to plaintiff’s damage in the sum of $5,000.

It will be well clear of controversial ground to say that the lease vested in lessee title to at least seven-eighths of the'oil and all of the gas in the land. The estate granted is a determinable fee. Stephens County v. Mid-Kansas (ftl & Gas Co., 113 Tex. 160, 254 S. W. 290, 29 A. L. R. 568; Reynolds v. McMan Oil & Gas Co. (Tex. Com. App.) 11 S.W.(2d) 778.

Undoubtedly the lease dealt with two different substances — oil and gas. Each party must be presumed to have thought that both knew the difference between these two substances, since they did not deem it necessary to define either of them in the lease. Such omission cannot be attributed to a supposition on their part that the difference was immaterial, because they expressly fixed their rights with reference to them in entirely different ways. Oil was “to be delivered to the credit ,of lessor free of cost in the pipeline.” The $300.a well for the gas from a gas well was to be paid “each year in advance.” Such payment was to be made only “while the same” was “being used off the premises.” Lessor was to have such kind of gas necessary for stoves and lights -in the principal dwelling house free of cost. No such right to oil for any purpose or gas from an oil well was retained. The gas from an oil well produced and “used off the premises” was to be paid for at the rate of $50 per year for each well. Such payments were to be made “each three months in advance.” It is certain enough that the parties at the time thought they had the same concept as to what was oil and what was gas. Is it a justifiable supposition that either party gave any consideration to the constituent elements of either? Presumably they knew that such elements were variable; that there were light oils and heavy oils; wet gas and dry gas; yet, for their purposes, at the time, it was deemed sufficient to make the general classification “oil and gas,” with only a little difference in the royalty and manner of payment on gas from a gas well and gas from an oil well. Should not the parties be presumed to have known the fact, which is one of common knowledge, that the one thing that principally distinguishes light oil from heavy oil, and wet gas from dry gas, is a common element in both oil and gas, namely, gasoline? When the parties stipulated one royalty and manner of payment on gas from an oil well, and a different royalty and manner of payment on gas from a gas well, is not it too clear for argument that whatever regard was being given to the nature of gas from the standpoint of its constituent elements, it did not extend to the inclusion of oil as one of them?

The judgment in this case, for its validity, depends upon our holding that the lessee, whose unqualified ownership of the gas is nowhere more definitely declared than in the Reynolds Case, has not the right to sell the natural gas from a gas well and appropriate the proceeds, of sale. This court has been called upon to hold, and has held under the authority of the Reynolds decision, that gasoline is oil; that although we judicially know that to produce it in commercial quantities requires a manufacturing process, yet, if the lessee sell the gas and the purchaser can be proved to have maunfactured gasoline out of such gas, together with the amount and value thereof, plaintiff is entitled to recover same as for a conversion of his one-eighth oil royalty; and this, notwithstanding that the royalty stipulated in the lease for the gas from a gas well has presumably been paid.

In the Reynolds Case it was said: “The gas in this instance was not used off the premises.” But that fact does not distinguish the cases, for in the Reynolds Case it was clearly recognized that it was not by payment of the stipulated gas royalty that the lessee became the owner of the gas, but that such royalty or rental is the agreed compensation for a thing — gas—already granted. (Italics ours.) The same idea is a little fuller, but in no wise more certainly, expressed by Judge Leddy in the Connellee Case, as follows: “By the express terms of the granting clause of this lease, all the casinghead gas or dry gas in and under said land was conveyed to and became the property of the lessee. Its only obligation to lessors with reference thereto was an agreement to pay them for any of the casinghead gas it might use. * * * Otherwise, lessors had no interest whatever in the substance defined by the express terms of the contract as ‘casing-head gas.’ ” (Italics ours.)

The purpose already indicated, of attempting to point out certain particulars wherein it is thought the opinions in the Reynolds and Connellee Cases are in conflict, may perhaps best be accomplished by applying the several holdings in those cases to this case. Preliminary to that, however, it is necessary to show that both opinions were dealing with the same thing. Eor manifestly, - if, after making such application, it can be answered that Judge Speer in the Reynolds Case was writing of one thing and Judge Leddy in the Connellee Case another thing, the validity of the conclusion will be largely invalidated. In the Reynolds Case the royalty provision in question was: “To pay the lessor for gas produced from any oil well and used off the premises at the rate of $100.00 per year for the time during which such gas shall be used, said payment to be made each three months in advance.” The provision involved in the Connellee Case was: “For casinghead gas when sold or used off the premises, $25.00 per year for each well, payment for gas to be quarterly in advance.” The oil royalty provision in each lease was, in substance, the same, and if one was an exception of one-eighth of the oil conveyed by the lease, the other was also. Both decisions recognize that the effect of each lease was to convey title to the lessee of all the gas from oil wells as certainly as casinghead gas. Do both decisions recognize that “gas from an oil well” and “casinghead gas” are the same thing? The answer may be stated by employing familiar mathematical terms, letting X=gas from an oil well and Y=casinghead gas, as follows: Both cases recognize as true, not that X>Y, nor that X