Norum v. Ohio Oil Co.

MR. JUSTICE GALEN delivered the opinion of the court. In this action the plaintiff seeks to recover from the defendants the sum of $539.20, royalty on oil produced from his land, alleged to have been by them wrongfully withheld from him. In his complaint the plaintiff alleges, in substance, that he was and is the owner of certain lands in Toole county, which on May 28, 1920, he leased for a period of twenty years to one Gordon Campbell for the exploration and development of oil and gas, which lease was thereafter *356 assigned and transferred to the defendant, 'the Sunburst Oil & Refining Company; that subsequently, on May 19, 1924, the latter company entered into an operating agreement with the defendant Ohio Oil Company for the development and operation of a portion of the leased premises under the terms of the lease; that the Ohio Oil Company entered into the possession of the land, and on or about November 1, 1924, completed a well thereon, which has ever since been producing oil in commercial quantities; that immediately after the last-mentioned date the plaintiff notified the defendants that he desired payment of the royalty due him under the terms of the lease, delivered to his credit, or order, in pipe-lines with which the wells on the land were connected; that defendants failed and neglected so to do, withholding two per cent of the production, because of plaintiff’s alleged liability to pay a license tax to that extent for engaging in and carrying on the business of producing petroleum within the state of Montana, pursuant to the provisions of sections 2397 to 2408 of the Revised Codes of Montana of 1921, as amended by Chapter 67 of the Laws of the Eighteenth Legislative Assembly. Demurrers to the complaint having been overruled, the defendants answered separately, each alleging affirmatively the lawful right to retain two per cent of the royalty due under the terms of the lease on account of the plaintiff’s proportion of the license tax due the state of Montana under the law, and alleging an estoppel because of statements rendered to the plaintiff and settlements made with him without objection or protest, constituting an account stated. Replies were filed to the answers, and upon issues so joined the parties submitted the case to the court for decision upon an agreed statement of facts supplemented by the testimony of witnesses. After submission of the controvery, the court made findings of facts and conclusions of law in the plaintiff’s favor, and judgment was entered in accordance therewith for *357 the full amount by plaintiff alleged to be due, from which this appeal was prosecuted. There is no conflict as to the facts, and sufficient thereof appear from the synopsis of the complaint above set forth. Defendants’ several assignments of error present two questions determinative of the controversy, viz.: (1) Were the defendants warranted in charging the plaintiff with his proportion of the gross production license tax imposed by the law upon persons engaged in producing oil within the state? And (2) did the statements rendered the plaintiff, with accompanying cheek for royalty, accepted by him, constitute an account stated, so as to prevent him from recovery in this action? These questions will be by us separately discussed, considered and determined. 1. As to the plaintiff’s liability to pay his portion of the tax imposed, we are required to construe and apply the language employed by the statute. It is by the Act provided that: “Every person engaging in or carrying on the business of producing, within this state, petroleum, or other mineral or crude oil, or engaging in or carrying on the business of owning, controlling, managing, leasing or operating within this state any well or wells from which any merchantable or marketable petroleum or other mineral or crude off is extracted or produced, sufficient in quantity to justify the marketing of the same, must, for the year 1923, and each year thereafter, when engaged in or carrying on any such business in this state, pay to the state treasurer, for the exclusive use and benefit of the state of Montana, a license tax for engaging in and carrying on such business in an amount equal to two per centum of the total gross value of all petroleum and other mineral or crude oil produced by such person within this state during such year.” (Sec. 2398, Eev. Codes 1921, as amended by Chapter 67, Laws of 1923.) It is the contention of the defendants that, while the tax imposed by the Act is a license tax, it applies to the land *358 owner, royalty holder or lessor equally with the producer or lessee, to the extent of his interest; that the land owner, royalty holder or lessor is engaged in the business of owning and leasing wells, and therefore comes within the provisions of the Act. The language employed appears clear, free from ambiguity and is easy of interpretation. It imposes an occupation license tax, as distinguished from a property tax (Mid-Northern Oil Co. v. Walker, 65 Mont. 414, 211 Pac. 353), and applies only to persons engaged in the business of producing oil. The owner of the land, as such, is not engaged in the business within the purview of the Act. He merely grants a right to the operator to engage in such business upon his land. Under the lease, the well is drilled and the oil produced therefrom by the operator, not by the land owner, and the well is subject to the exclusive control of the lessee so long as he performs all of the conditions of the lease. The word “leasing,” as used in the statute has reference to persons who engage in the business of obtaining such leases, rather than to the owner of the land who leases it. Clearly, it has application alone to those who operate wells on the land from which the oil is produced in paying quantities, as distinguished from the owner of the land. The correctness of this conclusion is further demonstrated by provision in the Act, in the same section, as to the method of determining the tax. It is provided that “in determining the amount of such tax there shall be excluded from consideration all petroleum, or other crude or mineral oil produced and used by such person during such year in connection with Ms operations in prospecting for, developing and producing such petroleum, crude or mineral oil.” It will be noted that the tax is expressly imposed upon the person engaged in the business of producing the oil, and thus it is made plain that it applies only to the operator. The exclusion from consideration of oil used in connection with operation in computing the amount of the tax, can have reference only to the operator. However, all possible *359 question is completely removed by further provision contained in the same section: “That in the doing of any such work, or in the drilling of any oil well, or in such prospecting, exploring or development work, any merchantable or marketable petroleum or other mineral or crude oil in excess of the quantity required by such person for carrying on such operation shall be produced sufficient in quantity to justify the marketing of the same, then such work, drilling, prospecting, exploring or development work shall he deemed to he the engaging in and carrying on of such business within this state within the meaning of this section The character of the occupation to which the tax applies is, in our opinion, clear and explicit. It applies to the operator, and not to the owner of the lands leased, from which the operator produces the oil from wells drilled thereon. Texas has a like enactment, which has been given similar interpretation by the supreme court of the United States. (Oklahoma v. State of Texas, 266 U. S. 298, 69 L. Ed. 296, 45 Sup. Ct. Rep. 101.) In that case it is held that, as between owners and lessees, the production tax is chargeable to the latter, since the tax is laid upon those who engage in the business of producing oil. The legislature has seen fit to exact the tax from the operator, producing oil from the lands, rather than the owner .of the land, as such owner, although the owner is benefited by the production. This was entirely within its province. In the imposition of a license tax, the lawmakers are not required to tax all occupations equally or uniformly under sections 1 and 2 of Article XII of our Constitution; they may tax all, or select for taxation certain classes, and leave others untaxed (Hale v. County Treasurer of Mineral County, 82 Mont. 98, 265 Pac. 6). And in the Act under consideration the legislature has seen fit to impose the tax solely upon the operator. Cases cited and relied upon by plaintiff’s learned counsel, involving net proceeds taxes and ad valorem taxes, have no application in *360 determining the proper interpretation and application of the Act under consideration. 2. Under the terms of the oil and gas lease it was the duty of the defendants to deliver to the plaintiff’s credit “free of cost in the pipe-lines to which they [the defendants] may connect their wells, or in tanks at the wells, the equal of 12% per cent of all of the oil produced and saved” from the premises, “or will pay in cash the equal of 12% per cent of the market value” of the oil, method of payment to be “optional” with the plaintiff. Notwithstanding such provision in the contract, it is agreed that during all of the time subsequent to the completion of the first well upon the land, and prior to the first day of December,' 1925, the defendant Ohio Oil Company made full and correct monthly statements, which disclosed upon their face the total amount of oil produced from the land each month and the amount to which the plaintiff was entitled under the terms of the lease, all of which were regularly transmitted and received by the plaintiff, payments being made each and every month to the plaintiff, in manner and form as demanded by him, which were accepted and received without objection, protest or complaint, and with plaintiff’s knowledge at the time that two per cent of the amount of the total royalty agreed to be paid was deducted for the purpose of defraying and liquidating the plaintiff’s proportionate share of the oil producer’s license imposed by law; in fact, after he had made assertion of his legal rights. The district court held that the defendants never made any settlement with the plaintiff, precluding his right of recovery in this action, and entered judgment surcharging the accounts rendered with the deductions made because of the tax as by the plaintiff demanded. In our opinion, the court was in error, and the judgment cannot be upheld. An account stated is defined by Bouvier as “an agreed balance of accounts; an account which has been examined and accepted by the parties.” And this definition *361 is generally accepted as correct. (1 Cal. Jur., p. 189.) Entirely consistent with it, this court has heretofore defined an account stated as “a new contract arising out of an account existing between the parties — an agreement that the items of the account and the balance struck are correct, with an agreement, express or implied, for the payment of such balance. The consideration for the new contract is the original account (Martin v. Heinze, 31 Mont. 68, 77 Pac. 427), or, speaking with greater exactness, the consideration is the settlement of the original account (Johnson v. Gallatin Valley Milling Co., 38 Mont. 83, 98 Pac. 883).” (Petroleum Co. v. Campbell-Kevin Syndicate, 75 Mont. 261, 242 Pac. 540.) It is an agreement between the parties, either express or implied, that all the items are correct. (Voight v. Brooks, 19 Mont. 374, 48 Pac. 549; Martin v. Heinze, supra; Johnson v. Gallatin Valley Milling Co., supra; O’Hanlon Co. v. Jess, 58 Mont. 415, 14 A. L. R. 237, 193 Pac. 65.) It constitutes a new contract, either express or implied, for which the original contract, or the performance thereof, furnishes the consideration; it thereupon becomes in itself an agreement, conclusive on both parties, and supersedes the original contract. (1 Cal. Jur., p. 203.) Being an agreed balance of accounts, examined and accepted by the parties, either expressly or by conduct, it implies an admission of the correctness of the accounts. “The meeting of the minds of the parties upon the correctness of an account stated is usually the result of a statement of account by one party and an acquiescence therein by' the other. The form of the acquiescence or assent is, however, immaterial, and may be implied from the conduct of the parties and the circumstances of the ease.” (1 C. J., p. 687.) Where, at the time of stating an account and making settlement, the adverse party knew of the error, or should have known thereof, having had ample means of knowledge before him, such an account will not be reopened, in the absence of proof of fraud or mistake. (Johnson v. *362 Gallatin Valley Milling Co., supra.) In the case of O’Hanlon Co. v. Jess, supra, this court said -correctly: “It is quite generally held that, where parties have been engaged in a course of dealings, and there is an antecedent indebtedness in favor of one as against the other, and an account or bill purporting to be a statement of the account is rendered by the creditor to the debtor, who retains the same for an unreasonable length of time without objection, this is evidence of his assent to the correctness of the account, and, accordingly, is an account stated.” “No practice could be more dangerous than that of opening accounts which the parties themselves have adjusted, on suggestion supported by doubtful or by only probable testimony.” (Chappedelaine v. Dechenaux, 4 Cranch (U. S.), 306, 2 L. Ed. 629; Johnson v. Gallatin Valley Milling Co., supra.) Applying such basic principles of law to the admitted facts, it is clear, as a matter of law, that the plaintiff is debarred of right of recovery. Under the law he was not required to pay the tax, and the defendants had no right to charge him with any part thereof, and by the express terms of his contract, with the terms of which he was familiar he was entitled to all of his royalty oil or payment of the market value thereof “free of cost” to him. He was chargeable with notice of his legal rights under the law and the express terms of the contract. However, the plaintiff regularly received the monthly statements rendered by the defendants, and accepted and received settlements made in accordance therewith without objection during a course of dealing of more than two years, with full knowledge, that deductions were regularly made of two per cent of the total royalty agreed to be paid in liquidation of his alleged proportion of the tax. It must be held that this constituted an implied account stated by acquiescence, and the plaintiff may not now recover the deductions so made from the royalty to which he was rightfully entitled under the law and the terms of the contract. While, in our opinion, the monthly accounts so. settled *363 are final and conclusive, yet as to subsequent settlements, made or to be made, tbe plaintiff is not estopped by his previous course of conduct from insisting upon payment of the royalty due him without such deduction. The law and his contract are controlling as to his rights, except as to past settlements, settlements made and accepted upon implied agreement to such deductions. Plaintiff’s learned counsel argues that the doctrine of accord and satisfaction is applicable, rather than account stated; but, whether the transactions noted be treated as an account stated or an accord and satisfaction, the result is the same. An accord is an agreement whereby something different is accepted in extinction of the obligation, something different or less than a person is legally entitled to. (Sec. 7556, Rev. Codes 1921; State ex rel. Bishop v. Keating, 56 Mont. 526, 185 Pac. 706.) For the reasons stated, the judgment is reversed and the cause remanded to the district court of Toole county, with direction to enter judgment against the plaintiff. Reversed and remanded. Mr. Chief Justice Callaway and Associate Justices Myers, Stark and Matthews concur. (Submitted October 2, 1928. Decided December 4, 1928.)