Cruce v. Pierce Oil Corp.

279 F. 728 | 8th Cir. | 1922

Lead Opinion

TRIEBER, District Judge.

The suit was originally instituted in a state court against the defendant Pierce Oil Corporation, the purchaser of and the owner of the pipe line to which the oil was delivered. The corporation was to pay to the plaintiff the royalties he was entitled to under the lease. The oil was delivered to it merely as a purchaser from the Kewanee Oil & Gas Company (hereafter referred to as the Kewanee Company), the lessee of the plaintiff. The Pierce Oil Corporation filed an answer in the nature of an interplea, setting up that fact, and that it held the difference between the sum paid to the plaintiff and that claimed by him, as a stakeholder for the plaintiff and the Kewanee Company, brought the money into court and asked that the Kewanee Company be made a party defendant, and it be discharged. The Kewanee Company thereupon was made a defendant in the cause, entered its appearance, and upon its petition the cause was removed to the District Court of the United States. There was a stipulation in writing waiving a jury, and after a hearing the court rendered judgment for the defendants.

The royalties on the basis of one-eighth had been paid to the plaintiff by the Pierce Corporation, who accepted it under protest, and an agreement that the acceptance was without prejudice to his claim for fine difference between the one-eighth and one-sixth royalty, he claiming to be entitled to a royalty of one-sixth. Pie based his claim on the ground that a correct construction of the lease entitled him to it, unless each of the wells on the leased ground produced less than 50 barrels of oil daily, while the contention of the defendant was that under the. lease the plaintiff was only entitled to a royalty of one-eighth of the oil produced, unless each of the wells produced 50 barrels or more daily. The provision in the lease material to a determination of this cause is:

“To deliver to the credit of the first party, his heirs or assigns, free of Tost in the pipe line to which it may connect its wells, the equal one-sixth (1/6)'part of all oil produced and saved from the leased premises when said wells produce each per day of twenty-four hours fifty (50) barrels or more, and when said wells produce less than fifty (50) barrels per day each then and in that event the lessee shall deliver in said pipe line the equal one-eighth (1/8) part of all oil produced and saved, and party of the second part agrees to pay the first party a sum of money equal to one-sixth (1/6) of the net proceeds arising from the sale of gas from each and every well on said premises when the same is sold from the lands herein leased.”

The court found and “concluded that the lease contract is not ambiguous, and that the plain construction of it, without extrinsic evidence, is that the plaintiff is not entitled to recover, as the test or standard upon which the price of the oil was to be paid is clear by the terms of 1he contract, viz. that in order to entitle the plaintiff to a one-sixth royalty each of the wells must have reached the capacity of fifty barrels or more daily and that there is no claim that they had that capacity,” and thereupon rendered judgment for defendants.

There were 10 wells on the 160 acres, constituting the leased premises. The undisputed evidence shows that during the entire time involved in this controversy the 10 wells on the leased premises produced daily considerably less than 5C0 barrels of oil, nor is there any evidence that any of the wells produced as much as 50 barrels on any one day.

[1] The contention of the plaintiff in the court below, as well as this c ourt, is set out in the assignment of error as follows :

“The court erred in rendering judgment in favor of the defendants and ia overruling the motion of plaintiff to find generally in his favor upon the law for the reason that the lease contract sued upon, when rightly construed, entitled the plaintiff to a judgment for the one-sixth royalty, instead of a one-eighth royalty.”

The only instruction requested by plaintiff, which was refused and (xcepted to, was that:

“The court to declare the law with reference to the lease contract introduced in evidence in his favor to the effect that said contract is not ambiguous i nd sustained the plaintiff’s contention in this case; and we also pray the court that, in the event said contract may he held ambiguous by the Circuit Court of Appeals to which this case will be appealed, to declare the facts in this ease in favor of the plaintiff.”

In the brief of the learned counsel for plaintiff, his first statement is headed:

“The court was correct in holding the contract unambiguous, but fell into error in attaching to it the particular significance and meaning which it did.”

We agree with the construction of this clause by the learned trial judge, that in order to entitle the plaintiff, under the lease, to a royalty of one-sixth of the oil produced, each well must produce 50 barrels or more daily.

[2] But, if we should be in error as to this construction of the lease, c.nd the terms of the contract are held to be ambiguous, the judgment is correct. The evidence shows that, as pleaded in the answer, it is the universal custom and usage in that field, a usage well known to all oil producers, lessors, and lessees in that field, that if there a number of small producing wells on the leased premises, to conduct the oil from the mouths of all the wells to such number of receiving tanks as may be necessary for temporary storage of the production until it can all be run into the pipe line of the purchaser, and that only the aggregate daily quantity of oil turned into such tanks as a whole can be ascertained. That it is a reasonable custom is beyond question, for otherwise the lessee would be required to erect a separate tank, with a measuring' gauge, for each producing well, no .matter how small the production of the well may he. In the instant case the undisputed evidence is that the entire daily production of the 10 wells on the leased premises was considerably less than SCO barrels, and the expense of erecting separate tanks for each of them would be prohibitive. Nor would the purchaser, the owner of the pipe line, be willing to incur the expense necessary to keep 10 separate accounts, which would be necessary in order to calculate the amounts to be paid to the lessors, regardless of the fact that some wells may produce only a few barrels daily, if such a custom did not prevail.

[3] A general custom or usage is the common law itself and becomes a part of a contract. Robinson v. United States, 13 Wall. (80 U. S.) 363, 20 L. Ed. 653; Hostetter v. Park, 137 U. S. 30, 39, 11 Sup. Ct. 1, 34 L. Ed. 568; St. Paul F. & M. Ins. Co. v. Balfour, 168 Fed. 212, 93 C. C. A. 498; Burton v. Jennings, 185 Fed. 382, 107 C. C. A. 438; Hartford, etc., Ins. Co. v. Pabst Brewing Co., 201 Fed. 617, 626, 120 C. C. A. 45, Ann. Cas. 1915A, 637; Eames v. Claflin Co., 239 Fed. 631, 634, 152 C. C. A. 465; Walls v. Bailey, 49 N. Y. 471, 10 Am. Rep. 407; Turner v. Huff, 46 Ark. 222, 55 Am. Rep. 580; Paepcke-Leicht Lumber Co. v. Talley, 106 Ark. 400, 153 S. W. 833. In- conformity with lhat custom and usage the defendant erected only one tank for the 10 wells, into which the aggregate daily production of all the wells was conducted. It was here gauged and then delivered in the pipe line of the purchaser, the Pierce Corporation, who retained for payment of the royalties the amounts clue the plaintiff, and paid them to him semimonthly as required by the terms of the lease. There was only one way to determine the product of the wells, and that was by averaging the oil delivered as one-tenth for each well.

So, whether the construction placed on the terms of the lease by the trial judge, or the custom and usage of that field, is right, the plaintiff has received all he is entitled to, and the judgment is right, and therefore affirmed.

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Concurrence Opinion

STONE, Circuit Judge,

concurs in the result reached, basing such concurrence on the ground of the failure of the evidence to show that plaintiff in error is entitled to recover.