Opinion
No. 35567.
March 13, 1944.
1. MINES AND MINERALS.
Where gas purchase contract obligated buyer to pay specified prices for gas during years mentioned and on same date owners of various interests in gas lease executed a division order authorizing buyer to receive gas from wells and pay owners for their respective interests in accordance with gas purchase contract, the division order constituted a "contract" establishing gas prices to be paid by buyer to holder of a royalty interest and royalty holder could not recover excess of market price over amount actually received from buyer.
2. MINES AND MINERALS.
Where it was a condition of gas purchase contract that seller would furnish buyer signed division orders directing payment to parties owning gas rights of amounts due for royalties or other interests, a division order wherein owners specified their interests in lease was supported by sufficient "consideration."
APPEAL from the chancery court of Hinds county, HON. V.J. STRICKER, Chancellor.
Harold Cox, of Jackson, for appellant.
The lessee's obligation to pay this royalty interest to appellant was a covenant running with the land.
First National Bank v. Aldridge (Cal.), 92 P.2d 674; 1 Thompson, Real Property, Permanent Edition, Sec. 285.
The right of the appellee to purchase all gas from this well under the terms of the original lease was itself an interest in this realty which was burdened with this covenant to pay appellant the market price for this gas.
Merrill Engineering Co. v. Capital National Bank, 192 Miss. 378, 5 So.2d 666; Sibley v. Pickens (Tex.), 273 S.W. 897, 898; Edgcomb v. Clough (Pa.), 118 A. 610, 614.
The appellee in this case exercised the exclusive rights in this well conferred by this lease and enjoyed all of the benefits therefrom. All the while it knew of appellant's interest therein and knew the market price of this gas during the period in suit to be 9 cents per mcf., and knew that appellant was entitled to that amount, yet it wrongfully paid appellant only 4.5 cents per mcf. for her interest in gas drawn from this well during said time. These privileges exercised and benefits enjoyed by appellee under this lease under the circumstances in this case were burdened with the covenant in said lease to pay appellant the market price for said gas.
24 Am. Jur. 594, Sec. 89; 3 Summers Oil Gas, Permanent Edition, Sec. 553.
Where a person who is a stranger to a contract deliberately enters into relations with one of the parties which are consistent only with an adoption of such contract, and so acts as to lead such party to believe that he has made the contract his own, he will not be permitted afterwards to repudiate it.
Wiggins Ferry Co. v. Ohio M. Ry. Co., 12 S.Ct. 188, 142 U.S. 396; G. H. Coal Co. v. Freeman (Okla.), 16 P.2d 863; Great Western Theatres Equipment v. M. E. Theatres (Wash.), 3 P.2d 1003, 7 P.2d 1119; 13 C.J. 243, Sec. 8; 35 C.J. 1003, Sec. 111; 17 C.J.S. 320, Sec. 4; A.L.I., Contracts, Sec. 5.
The appellee by its course of dealing in this case obligated itself to pay appellant for her gas at the market price thereof as provided by the original lease.
Here appellee has extracted all of the gas from this well without having any express contract with the appellant except as contained in said lease which provides that she shall be paid the market price for her one-sixteenth interest in all gas taken therefrom. No assignee of the lessee has assumed to sell appellant's interest in said gas and the appellee has not paid anyone therefor. The gas purchase contract was executed with the majority owners of the royalty interest in said well but they did not assume to act for the appellant and she was not a party thereto. Under this contract, the appellee extracted the entire output of this well and enjoyed said righ until said well was exhausted. For all intents and purposes, it was thereby constituted in operation and effect as an equitable assignee of said lease insofar as it related to this particular well.
3 Summers Oil Gas, Permanent Edition, p. 428, Sec. 590, pp. 180-181, Sec. 511.
Since appellant was entitled under the terms of the lease to receive the market price for her gas, any supposed agreement with appellee to accept less therefor was without consideration. The rights conferred and benefits enjoyed under this lease were themselves conditioned upon the payment of this rental or royalty therefor. If it be said that this obligation rested solely upon Kyle, as original lessee, to pay this rental or royalty under these facts, still it is axiomatic that there would be no consideration for any obligation of appellant to accept from appellee less than the market price for said gas.
Leggett et al. v. Vinson, 155 Miss. 411, 124 So. 472; 13 C.J. 321, 356; 13 C.J. 351, Sec. 207.
Under the facts in this case, appellant was entitled to relief in equity by reason of her mistake in accepting less than the amount due her for the period in suit for this gas. The appellee is an experienced reputable business concern dealing in natural gas and is familiar with the market price thereof. The appellant had no such knowledge of the value of natural gas in the Jackson field and in ignorance of such fact accepted checks from the appellee ostensibly representing her true interest in said gas at the market price thereof without knowing that said checks represented only half of the amount due her. The appellant under such circumstances was entitled to have a court of equity set aside the releases endorsed on each check therefor and award her the balance of 4.5 cents per mcf. for all of said gas drawn from said well during said period.
Bessler Movable Stairway Co. v. Bank of Leakesville, 140 Miss. 537, 106 So. 445; Powell v. Plant (Miss.), 23 So. 399; Nash Mississippi Valley Motor Co. v. Childress, 156 Miss. 157, 125 So. 708; H.D. Sojourner Co. v. Joseph et al., 186 Miss. 755, 191 So. 418; Streeter et al. v. State ex rel. Moore, 180 Miss. 31, 177 So. 54.
The court will not subject a bill to refined and technical criticism under a general demurrer, and will only require that it reveal enough to see that there is a real and substantial cause of action; in fact, the matter has even been so broadly stated as that if there be sufficient equity on the face of the bill to require an investigation of the facts, a demurrer should be overruled.
Griffith's Mississippi Chancery Practice, p. 291, Sec. 291.
See also Wall v. Wall, 177 Miss. 743, 171 So. 675; Edwards Hotel Co. v. Chambers, 141 Miss. 487, 106 So. 763; Griffith's Mississippi Chancery Practice, p. 313, Sec. 310.
H.V. Watkins and Ralph B. Avery, of Jackson, and Sholars Gunby, of Monroe, La., for appellee.
Purchasers of natural gas customarily require the execution of gas purchase contracts and division orders. The ordinary mineral lease authorizes drilling for both oil and gas, and the public is accustomed to think of the two as being practically identical. Actually, there is vast difference in the producing and selling of oil and producing and selling of natural gas. Oil, being a liquid, can be recovered and stored in tanks in earthen pits or in containers of any kind. Oil can be transported by pipe line, railroad cars, tank trucks, airplanes, and otherwise. It need not be immediately marketed and a purchaser or user of crude oil can store an excess of same at a plant or industry. A purchaser can buy crude oil from many localities and is not dependent on single sources of supply. Natural gas, on the other hand, being a gas, cannot be stored above the ground, economically, and cannot be marketed until pipe line facilities are available for its transportation and distribution. A user of gas usually has only one source from which to obtain the same and, except for emergency fuels, is usually wholly dependent upon the one pipe line serving his particular plant.
An oil company, on bringing in an oil well, is assured of a ready market for its production, but a natural gas pipe line company has to assure itself of available and satisfactory markets for its gas before it can undertake the enormous expense incident to the construction and operation of a natural gas pipe line. It must be sure that the price it has to pay for gas will allow it a sufficient margin to operate, taking into consideration the operation expense and the price at which gas is to be sold. This fundamental difference is recognized in oil and gas leases in that they provide the lessor shall receive one-eighth of the oil in kind but as to gas usually provide that the lessor shall be paid one-eighth of the value of gas at the well. When a purchaser of gas agrees with a lessee who has brought in a gas well on the price, terms and conditions of the purchase and sale of gas, it is necessary for practical operation and for the protection of both parties that a contract be entered into, setting out all of the agreements between the parties. These agreements are universally known as gas purchase contracts.
The court will take judicial knowledge that oil and gas production is a fruitful source of litigation and this has been true over a long period of years in all of the states having the production. It has been facetiously said that oil produces more insanity than all of the recognized medical causes for the disease. So, much companies habitually and universally require, in addition to all other contracts or agreements, that the interested parties all agree upon what terms, for what prices and in what proportions proceeds shall be distributed. These instruments are customarily called division orders.
If appellant had refused to sign a division order in this case and James A. Alexander and J.R. Buford could not have induced her to do so, then they would have failed to comply with the provisions of the gas purchase contract obligating them to furnish executed division orders by all parties in interest. If this had taken place the pipe line company would not have been bound by the gas purchase contract and would have taken no gas from the well until the matter could be cleared up in some manner satisfactory to all parties and evidenced by the division order or other like contract. The facts are, however, that appellant did choose to execute the division order and was perfectly satisfied with the results of her acts for more than five years. Then she decided she wanted more money for her interest than the agreed price to be paid and accordingly filed her suit.
The execution of the division order by appellant was based on valuable consideration.
Stanley v. Sumrall, 167 Miss. 714, 147 So. 786; Miller v. Bank of Holly Springs, 131 Miss. 55, 95 So. 129.
Alexander and Buford had full right to sell all gas from the well.
Curry v. Texas Company (Tex.), 8 S.W.2d 208; Martin v. Amis (Tex.), 288 S.W. 431.
The only liabilities or obligations of appellee to appellant are the terms of the divison order and extent of appellee's liability is determined thereby.
Texas Co. v. Pettit, 107 Okla. 243, 220 P. 956; Amerada Petroleum Corporation v. Melton, 139 Okla. 119, 281 P. 591; Headley v. Hoppengarner (W. Va.), 55 S.E. 744; Robbins v. Martin, 18 La. App. 223, 138 So. 132; 4 Summers on Oil and Gas, 197, Sec. 761; Thuss on Texas Oil Gas, p. 174, Sec. 129; 2 Thornton, Oil and Gas, 672, Sec. 377.
The price appellant was to receive was fixed by the division order.
Sorrells v. Alexander Bros., 165 Miss. 466, 144 So. 560.
Argued orally by Harold Cox, for appellant, and by Ralph B. Avery, for appellee.
Appellant, as complainant in this bill, seeks to recover of appellee, defendant therein, $2,171.36, which is the excess of the market price over the amounts actually paid by appellee to appellant for her 1/16th interest in the output of a gas well located in Hinds County, Mississippi, during the period January 1, 1940, to January 1, 1943. The chancellor sustained a demurrer to, and dismissed, the bill, complainant having declined to further plead.
Appellant contends she is entitled to the market value of the gas during that time. Appellee says it had a contract with appellant fixing the price and it paid her that price. That is the issue.
The bill and exhibits thereto present this situation: On November 12, 1930, appellant was the owner of the forty acres of land on which this gas well is located, except that W.A. Hewitt owned a one-half undivided interest in the mineral rights therein. On that day appellant and Hewitt executed to one Kyle an oil, gas and mineral lease on said forty acres, each reserving a 1/16th interest in such minerals. That lease is not in this record and we do not know the rights, duties and powers of the parties thereto. However, the bill states, and the demurrer admits, it contained this provision: "The grantor shall be paid I/8th of the value of such gas, calculated at the rate of the market price at the well." The lease was recorded. Through mesne conveyances (which are not in this record) James A. Alexander, trustee, and J.R. Buford acquired through Kyle, lessee, a 12/16th working interest in the gas rights under said tract. Alexander and Buford procured the gas well in question to be brought in on said land. On July 24, 1934, they entered into what is called a gas purchase contract with the United Gas Public Service Company. This contract obligates the sellers to sell to the purchaser all gas from this well and any future wells found on said lands during the time covered by the contract; to keep the wells in good condition; install tubing and casing and proper equipment and devices to utilize and control the gas and separate it from foreign matter and deliver it to the gathering line of purchaser at a designated point. It obligates the buyer to accept and receive the gas from this and future wells and to install casings and pipes and all equipment necessary for measuring, receiving and transmitting the gas which may be produced, the installations and equipment evidently imposing immediate and considerable expense on both parties. The contract then provides that the buyer shall pay for the gas 4 cents per thousand cubic feet for the first five years, and 4.5 cents per thousand cubic feet for the next five years, and for the succeeding five years the price is to be determined by mutual agreement or arbitration, but not to be less than 5 cents. The contract contains this provision: "Seller shall, when requested by Buyer, furnish Buyer signed division orders upon regular forms of Buyer, directing the payment to the proper parties owning gas rights in the premises from which gas is being taken, of such amounts as may be due for royalties or any other interest in said gas, and shall furnish Buyer transfer orders from time to time as required upon the regular forms of Buyer. Buyer may, at Buyer's option, pay for seller all royalties which may accrue under the terms of any lease or leases covering the hereinbefore described premises, . . ." and deduct the same from the monthly amounts owing the seller.
On the date of this contract Mrs. Simpson and Mr. Hewitt each owned a 1/16th royalty interest; the Arkansas-Louisiana Pipe Line Company owned a 2/16th overriding interest, and J.R. Buford and James A. Alexander, trustee, owned a 12/16th working interest in the gas rights in said land. On July 26th, 1934, these owners executed a division order to United Gas Public Service Company, in which they certified and guaranteed that they were the legal owners of the gas well in question, "including the royalty interest, and you are authorized to receive gas from said well and pay the owners for their respective interests," setting out the interest as above stated. The division order contains this further proviion: "All of the above interests are to be paid in accordance with and under the terms of that certain Gas Purchase Contract entered into by and between James A. Alexander, Trustee, as Seller, and United Gas Public Service Company, as Buyer, under date of July 24, 1934. In consideration of payment to the above named parties by United Gas Public Service Company of the full amount of all interests for gas taken from the above lease, the undersigned hereby warrant title to all gas delivered to United Gas Public Service Company from said lease, and guarantee to hold said United Gas Public Service Company harmless against any and all claims affecting title to the gas so delivered, and against all costs and expenses which may be incurred by said United Gas Public Service Company in defending the title to said gas."
On September 25, 1937, the United Gas Public Service Company transferred and assigned the Alexander-Buford contract and all rights thereunder to the appellee herein.
The bill further states that for a number of years appellee mailed to her checks for the "monthly settlements of her interest in said gas, and that she has in each instance cashed the checks of the defendant therefor with the notation thereon that it was in full payment and settlement thereof;" that she is inexperienced as to the market price of natural gas and she relied upon "the defendant as a reputable business concern to pay her the actual market price . . ." and she mistakenly assumed "that she was being dealt with fairly in each of said monthly settlements of her interest in said gas," and that her acceptance of said checks for the prices stipulated in the Alexander-Buford contract was under a mistake of fact.
The bill then states that "throughout said period of time the quantity of natural gas in the Jackson Field has been on a rapid decline as the consequence of which the market price thereof at the well has correspondingly increased, and complainant charges that the market price of such gas at the well throughout the period of said time was and is 9 cents per m.c.f."
It is the contention of appellant (1) that the quoted provision in the Kyle lease for payment to her of the market price was a covenant which ran with the land and that appellee is bound thereby, (2) that the division order did not stipulate, or fix, the price, but only described the respective interests of the gas owners, and that, in any event, (3) it is not binding upon appellant because there was no consideration for its execution, and (4) that she is not estopped by receiving and cashing the checks prior to January 1, 1940, she having declined to accept and cash them since that date. Appellee takes issue upon these contentions.
Aside from any other question, this division order establishes and fixes the gas prices to be paid by appellee to appellant. It is a contract between them as to that. It sufficiently identifies and sets out such prices. The Alexander-Buford agreement details the prices to be paid. This division order describes that agreement and says the gas owners "are to be paid in accordance with and under the terms . . ." of that contract. The gas owners warranted the title to all gas to be delivered the purchaser and obligated themselves to defend the title thereto.
The division order was supported by sufficient consideration. It was a condition of the Alexander-Buford contract that they would furnish to the purchaser of the gas this division order. It is evident the purchaser had to expend considerable money to comply with that contract. It is natural that it would not have done so unless and until the gas owners had agreed to the gas prices stipulated therein. That contract fixed the prices to be paid by the purchaser for the succeeding fifteen years. It took a chance on these prices. The gas owners had a guaranteed price for that period. They got an immediate sale for the gas and the arrangement imposed upon others the expense of saving and marketing the gas, as well as the risk in the fluctuating price. It appears that the market price of gas went up about January, 1940. Suppose it had gone down. Or suppose it yet goes down. Appellee is bound to pay the contract price. The division order is directed to the purchaser of the gas in the Alexander-Buford contract. It was the intention and purpose that such purchaser should rely and act thereon. It is not claimed in the bill that appellant was defrauded, deceived or misled into executing this division order, or that there was a mutual mistake resulting in such execution. The method adopted here appears to be the usual method in such cases, and "the division order is a contract between the carrier, or purchaser, and the parties signing." Thuss on Texas Oil Gas, p. 174, Sec. 129; 2 Thornton, Oil and Gas, 672, Sec. 377; Texas Co. v. Pettit, 107 Okla. 243, 220 P. 956; Amerada Petroleum Corp. v. Melton, 139 Okla. 119, 281 P. 591; Robbins v. Martin, 18 La. App. 223, 138 So. 132.
Affirmed.