Hammett Oil Co. v. Gypsy Oil Co.

McNEILL, J. In October, 1906, the owners of certain land in Creek county executed an oil and gas lease thereon in consideration of a royalty of % of the oil delivered in the pipe line and $250 for gas wells when the gas was sold off the premises. The lease contained the further provision authorizing the lessee to sublease and release any part of the land. By mesne assignments, the lease was transferred to Mr. Hammett, who executed a sublease, containing a recital that the lease was subject to all the requirements, conditions, and stipulations contained in the original lease and conveyed all rights, privileges, and benefits in the original lease, subject, however, to the performance of certain conditions, to wit: Payment of all royalties due under, the original lease according to its terms, and in addition thereto to pay and deliver to Hammett in pipe lines on said land 40 per cent, of the total production of oil, from said land as royalty. The plaintiff, the Hammett Oil Company, by mesne assignment is the- owner of % of the interest retained by Hammett by virtue of the sublease. The Gypsy Oil Company is the owner of all other interests in the lease and sublease. These assignments and transfers were executed in 1906 and 1907. Oil was found in paying quantities and has been divided as follows: To the lessors, 12% per cent.; Hammett Oil Company, 26% per cent.; and Gypsy Oil Company, 00 5-6 per cent. In 1913 the Gypsy Oil Company entered into a contract with the lessors regarding the manufacture of gasoline from casing-head gas produced from said lease and have been manufacturing gasoline from casing-head gas since said time. The Hammett Oil Company brought this suit for an accounting, alleging that the defendant was manufacturing gasoline from casing-head gas. and the same was a part of the oil and by virtue of the lease contract it was entitled to 26% per cent, of the gasoline manufactured from said gas. The defendant, Gypsy Oil Company, filed its answer defending upon three theories: First. That the casing-head gas was not oil, and not oil’chemically or physically speaking, but an entirely different thing. Second. That the casing-head gas is gas, and no gasoline was extracted from the oil, but was extracted from the gas. Third. Regardless of the chemical and physical properties, the gasoline was not oil to be delivered in the pipe line within plaintiff’s contract, and if it was different from either oil .or gas so that it did not pass to the lessee, then it belonged to the fee owner, and the Gypsy Oil Company contracted with the owner regarding the same. Upon trial of the case, the evidence consisted of the different contracts and assignments. over wliich iliere was no controversy, and testimony describing the method of manufacturing gasoline from casing-head gas, and expert testimony regarding the component parts, or compounds, of oil. gas, casing-head gas, and gasoline, and how and from where they were produced, and the effect of a vacuum pump upon an oil well. The court found the issues in favor of the defendant, and against the plaintiff. From said judgment, the plaintiff has appealed- For reversal there are numerous assignments of error, and the case is very ably and extensively briefed upon all questions involved hv both parties, and especially *237 on the question of whether gasoline manufactured from casing-head gas is a product of the oil. It is upon this theory that plaintiff‘in error first'assails .the'judgment of the lower court.' IVe think the position taken by plaintiff in error, however, failed to take into consideration all the material questions. In our judgment the question is not whether gasoline manufactured from casing-head gas is oil in a technical sense, but whether it is oil in its ordinary and popular sense and was so understood by the parties to the oil and gas lease, which granted this lessee the right to produce oil o,r gas. and provided for a royalty of one-eightli of the oil delivered in the pipe line. In considering this question, there are certain well-known principles of law that must ho looked to as a guide. First. Words in a contract are to be understood in their ordinary and popular sense, unless used by the parties in a technical sense. Wolf v. Blackwell Oil & Gas Co., 77 Okla. 81. 186 Pac. 484. Second- However broad may lie the terms of a contract, it extends only to those things ccncerning which it appears that the parties intended to contract. Wolf v. Blackwell Oil & Gas Co., supra. Third. That oil and gas leases are to be interpreted as have others of great importance, and all rights and claims of the grantee which are not conferred in direct' terms or by fair implication from those which are granted, are to lie considered withheld. See Wemple v. Producers' Oil Co. (La.) 83 South. 232. Fourth. This being an equity case, the finding of the trial court, being a general finding for the defendant, must, he considered a finding- that gasoline manufactured from casing-head gas produced from the oil wells was not oil within the meaning of the terms as used in its ordinary and popular sense and as referred to by the original lessor and lessee in the lease contract dated October, 1906. There was no evidence as to what the word “oil” includes, when used in an oil and gas lease, or how the parties to the lease understood it. but a large amount of litigation has arisen over such contracts, and the word “oil,” as used in an oil and gas lease, lias always been referred to by the courts and understood to designate the oil produced from a well, or crude petroleum in its natural state. There is nothing either in, the contract or in the evidence to disclose that the parties in this lease contract used it in any other sense, but the contract does support the contention that it was used in its ordinary and popular sense and refers to crude oil as it was produced from the mouth of the well. If we apply the second and third principles of law announced above'to the contract, to-wit; “No matter' hbw broad may be the terms of the contract, it extends to only those things concerning which the parties contracted”; and “Oil and gas lease confers- upon the lessee those rights which are granted in direct terms or by fair implication from those which are g’ranted, and all other rights arc "considered withheld” — what rights were acquired by the lessee of the original lease? These question® are very ably discusses in the case of Wemple v. Producers Oil Co. (La.) 83 South. 232. In .hat case the landowner, brought suit against rlie lessee, bepause tbe lessee was manufacturing gasoline from casinghead gas and. was paying no royalty thereon; the lessor contending that if gasoline was not oil within the contemplation of the lease, it was a mineral not embraced in the contract and he was the owner thereof. It was contended that if tho court should hold it was oil within the terms of the lease, he was entitled to % of the same; or if the court should hold that the gasoline was a product of tho gas, and the wells should be held to, be gas wells, plaintiff was entitled to the amount due and payable under the terms of the lease for gas wells. The lessee denied that plaintiff was entitled to any portion of the gasoline, or any royally thereon, for the reason that' casinghead gas, at tho time of entering into tlie lease contract, had no value; and admitted that under the terms of the lease it had installed the plant for manufacturing casinghead gas into gasoline, and that ho had installed vacuum pumps, which was necessary to carry on the operations under tbe lease and to save and utilize casinghead gas, oil, or gas from wells on said premises; that the construction of said plants was a great benefit, advantage, and profit to the plaintiff, inasmuch as the casinghead gas, “being gas saturated with volatile oil in vaporous condition,” was a complete and total loss and waste; that should it be decreed that lessee had no right to place said condensing plant on the premises to carry on operations for development of oil and gas and the saving of casinghead gas, and that such right did not come within the purview and meaning of the lease, it would be compelled to remove the plant and discontinue the operations of the plant, which would cause the oil wells to cease producing oil and would cause the oil and gas under plaintiff’s 1-and to -be drained by wells on adjoining lands. In discussing the case the court, in the opinion, stated as follows: *238 “That the instrument, as we take it, is to he interpreted as have been others of greater Importance, and all rights claimed by the grantee which are not conferred in direct terms or by fair implication from those which are so granted are to be considered as withheld.” The court then said: “It seems reasonably certain that neither of the different contractants considered or knew of the possibility of profitably extracting gasoline from casinghead gas, and it is quite certain that they included no specific provision relating to such gasoline in their contract” In discussing the lease contract the court used the following language: “The purpose of the contract was, however, confined to the production of oil and gas, and in conveying to defendant * * * all of those minerals that might be produced and saved on or off the premises, plaintiff, as owner of the -land, conveyed nothing else that defendant, in the exercise of its right to drill and to make use of the surface of the land, for oil and gas purposes, might produce therefrom or find therein or thereon. So that, if casinghead gas be neither oil nor gas, within the meaning of the contract, defendant is not entitled to it, or any ’part of it, whether by virtue of the contract or otherwise. If regarded only as gas, plaintiff is entitled to nothing by reason of its production unless it be sold off the premises; but, if it be regarded as oil, one-eighth of it is reserved to him by virtue of the contract; and, if it be regarded as a combination of oil and gas, he is entitled to one-eighth of the oil, plus the gas rental stipula-teu in the contract, should it be shown that the gas is being used off the premises.” Again, in the body of the opinion, the court uses this language: “Both litigants assert that the liquid into which they are converted, or convert themselves, merely by reason of their subjection to a lower temperature, is produced and saved on the premises, from the latter con-' stituents of the same oil which it is the purpose of the contract to produce and save, and the heavier and remaining elements which are brought up in a liquid form from the same well at the same time and through a tube enclosed in the identical pipes which bring up the vaporous lighter element. So far as we can see there is nothing to prevent the owner from selling to one person the right to take such oil as he can bring to the surface in liquid form, and to another that portion of the same oil that can oe brought up only in a state of vapor.” Again, in the body of the opinion, the court uses this language: “And the argument that the lessee is under no obligation to deal in any way with the casinghead gas, and that, unless he extracted the gasoline it would be a waste practically, the answer is that if the casing-head gas is not included among the products to which the lessee is entitled by virtue of the lease, the question whether it is wasted or saved is one which concerns the lessor only, but that if in such case the lessee chooses so to treat the gas as to save both the gas and its gasoline contents, the owner is entitled to be benefited thereby, whether upon the basis of the contract as to oil, or upon some other basis.” It will be noticed in the above ease that the court did not hold that gasoline manufactured from casinghead gas was oil within the terms of the contract. But we think it is conclusive that the • court held that the same was not oil for the court, used the following language: “If the treatment' of the casing-head gas was shown in this case to involve an expense greater in proportion to the value of the product than that incurred in the production and handling of the oil. it would perhaps be proper to increase the allowance to the operator in a like proportion.” If this was oil and within the contemplation of the part’es at the time of entering into the contract, the landowner was entitled to one-eighth of the oil, and the court would have no right under any circumstances to increase the allowance to the operators or change the written contract of the parties. The court then used this language: “We conclude then plaintiffs were entitled to recover upon a basis of an allowance of % interest in the casing-head gasoline produced.” This discloses that the court did not base the recovery of % upon the theory that it was oil and covered by the contract, hut that it was a reasonable royalty. Of course, if this was the usual and customary royalty, and it no doubt was, the court reached the right conclusion under the issues which were framed and under the admission of the parties. We think the case supports the theory that gasoline manufactured from! caf/Sng-head gas was neither oil nor gas within the meaning of the term of the lease, and the lessee, not having contracted regarding the same, acquired no rights therein unless it would be upon the theory that he was not a trespasser and in producing the same his liability would be limited to the usual and customary royalties of the landowner. In the case of Locke v. Russell (W. Va.) 84 S. E. 948, the trial court submitted to the jury the question of whether the manufacture of gasoline from casinghead gate which came from an oil well that did not produce *239 gas in paying quantities to justify the marketing of same off the premises—whether the manufacturing the casinghead gasoline from the casinghead gas made the well a gas well within the meaning of the lease, and the lessee liable to lessor for gas rentals due under the terms of the lease contract. The court in that case defines gasoline as follows: “ ‘Gasoline’ is a colorless inflammable fluid, the first and highest distillant of crude petroleum.' It represents the lightest portions of crude oil, and is extracted from it by distillation very much as whisky is distilled and in the same sort of apparatus. Being the most volatile compound of petroleum, it readily separates from it, and in the process of distillation, is the oil drawn off at the lowest temperature.” While the court stated that gasoline is a product of the oil, it did not say that it was oil in its ordinary and popular sense, as used in the lease. This court, in the case of Wolf v. Blackwell Oil Co., supra, stated as follows: , “In our opinion the well cannot be held to be an oil well, within the meaning of the lease, merely because gasoline is produced as a by-product of the gas.” The court then stated: “Nothing appears in the record to even indicate that the parties contemplated the production of gasoline. * * * However broad may be the terms of the contract, it extends only to those things concerning which it appears the parties intended to contract.” This court, in the case of Withington v. Gypsy Oil Co., 68 Okla. 138, 172 Pac. 631, stated as follows: “In this case it is unnecessary for us to decide whether casinghead gas is oil or gas, since in their briefs counsel for the respective litigants have assumed that it is gas.” The lessor was suing for oue-fcurth of the gasoline, and the lower e< urt sustained a demurrer to the petition. This court stated: “The petition may not ask for an accounting on the right basis, but it is unnecessary for us to express an opinion at this time on that phase of the case.” These cases are (lie on’y cases that have been called to our attention where the rights of the parties regarding casinghead gas were in dispute and where no mention was made in the lease concerning the same. We think these cases support the position that gasoline manufactured from casinghead gas is neither oil nor gas within the contemplation of an oil and gas lease which makes no reference to casinghead gas, and nothing appears to indicate that the pariios have contracted concerning the same. There i,s another principle of law that is applicable to the case at bar, if we consider the language ambiguous, or indefinite, to wit: “Where a contract, or any clause thereof, is uncertain and indefinite, and the parties thereto, by their subsequent conduct ot acts, have construed it, and such construction is within the purview of the language used, the courts will ordinarily adopt as controlling the construction placed on the contract by the parties themselves.” Prowant v. Sealy, 77 Okla. 244, 187 Pac. 236. Some six or seven years after this contract was entered into, and when it was apparent that the manufacturing of gasoline from casinghead gas was profitable, the Gypsy Oil Company entered into a contract with the owners of the land whereby it was authorized to manufacture gasoline from the casinghead gas, to build a plant, and place a vacuum upon the wells. In doing this it apparently construed the lease contract not to extend or confer ux>on it the right to manufacture gasoline from the casinghead gas inoduced from this land. It likewise wrote to the Hammett Oil Company and attempted to make a contract with it regarding the manufacturing of gasoline from casinghead gas, and for permission to i>lace vacuum pumps on the wells, offering to make payments according to the amount of casinghead gas conveyed from the premises; again construing the lease to not extend to or confer this right. The Hammett Oil Conrpany, the plaintiff in error herein, answering the correspondence of the Gypsy Company, did not contend that the right to manufacture gasoline from cas-inghead gas was granted by the origina' lease contact, nor did it contend that said gasoline so manufactured was oil within the terms of the lease, nor that it would expedí, the same portion of the gasoline as it did of the oil. but took the position that this method of procuring gas or gasoline was not contemplated by the lease nt r within the contemplation of the parties to the leaser and objected to the company idaeing- & vacuum upon the wells, contending this would no doubt injure the wells, lessen the amount of production of oil, and shorten the time said wells would produce oil in paying quantities, and notified the Gyx>sy Oil Company it would hold the company res])onsible for any damages that might occur to the wells by virtue of installing the vacuum pumps. From this correspondence, it is apparent that both the Gypsy Oil Company and the plaintiff in error placed the construction on the original lease and sublease as net granting the right to manufacture gasoline from casinghead gas. I£ we. accept thi.s construction of the contract, (hen plaintiff in error cannot maintain aa action to recover upon the lease contract for *240 a portion of the gasoline manufactured from the casinghead gas when said right was not conferred by the contract, and the parties •did not contract concerning this subject. We do not intend to say that if the placing of the vacuum pumps upon the wells to increase the flow of casinghead gas decreased the production of oil, or reduced the gravity of the oil produced, plaintiff would not have a cause of action, whether by injunction or an action for damages, it is unnecessary for us to decide; but the action cannot be founded upon the contract for a portion of a product not embraced in the contract. It is contended, however, by the plaintiff in error that the relation of lessor and lessee exists, as the original lease gave to the lessee the right to subdivide and release the premises or any part thereof, and the Gypsy Oil Company went into possession under a sublease; therefore the plaintiff would be in the same position as the owner of the land. The sublease contains the following provision: “Hereby conveying to the party of the second part, his heirs, and assigns, all the right, privilege, and benefits, that may inure to the grantee in said lease, subject to the performance' of the following conditions. * * * ” It will be noticed that the lease, while termed a sublease, assigned all the lessee’s interest in and to the original lease, subject to certain conditions, to wit: To pay the royalty to the original lessor; second, to pay to. the party of the second pairt, being plaintiff herein, 40 per cent, of the total production of oil in the pipe lines. This sublease, or assignment, made no , provision for the sublessor' to receive anything from the gas, nor any right, title, and interest in and to the gas. We cannot presume that 40 per cent, of the oil as used in the contract, was intended to mean 40 per cent, of gasoline from casinghead gas, when it was not mentioned in their contract, and neither of the parties knew at that time that gasoline could be manufactured from casinghead gas. If Hammett had been (ho owner of the land and all of the mineral, then it might 'be successfully contended that the lessee •would have no right to manufacture gasoline •from said casinghead gas without his permission, or without paying a royalty therefor. If no right was granted to the original lessee to manufacture gasoline from casing-head gas, then he had none to sublease to Mr. Crosbie, and when he assigned all of his rights and privileges in and to the original lease, ¡subject to the conditions that he was to receive 40 per cent, of the oil produced from the premises, if he has received 40 per cent, in accordance with the terms of the lease, as contemplated by the parties at the time of executing the same, then he has received exactly what it was contemplated he was to receive under the contract. Plaintiff in error suggests that it would be inequitable to hold that a lessor was the owner of the gasoline produced .from the casinghead gas, for the reason he would be deprived of going upon the lease to save this product, or would have no right to attach pipe lines to the wells, or build pipe lines for the purpose of producing and saving the product on the laind, no right to attach vacuum pumps thereto, and no right to build plants thereon for the purpose of manufacturing gasoline. We are not <so sure but what the lessor would have such right, so long as, he did not interfere with templated by the lease, and so long as he did not interfere with the lessee in producing those minerals which the lessee had a right to produce . But it is unnecessary for us to determine the rights of the parties under such circumstances. Plaintiff in error further says that this woifld place the lessor at the mercy of the lessee, and if we were to hold that the lessor was the owner of these minerals, it would be inequitable to say that the lessee had no interest therein. If we accept this as true, what right has the court to make contracts for people when they have failed to 'contract themselves regarding the matter involved? The court might make an equitable contract, but when the court attempts to make such contract, it exceeds the power and authority conferred upon it. Eor illustration, if the court should hold that the right to manufacture gasoline from casing-head gas was producing oil within the meaning of an oil lease, and A. had a lease granting him the right to produce oil, and B. had a lease granting him the right to produce gas, the question would arise, What right would A. have to take B.’s gas from the premises and transport it to a gasoline plant and extract the gasoline therefrom? To hold this would simply mean that it would be necessary for the court in each and every case to make contracts for the parties where-ever any dispute arose. This is not a power conferred upon the court. It is further contended by plaintiff in error that the sublease contained the provision, "forty per cent, of the total production of oil in pipe lines,” and the words “total production” include dil and all by-products therefrom, and would include gasoline manu- *241 factored from casinghead gas. . In construing contracts one of the cardinal rules is: “The intention of the parties must be deduced from the entire agreement, not from any. part.or parts of it. and, where a contract has several stipulations, the intention of the contracting parties is not expressed by any single clause or stipulation, but by every part and provision in it, which must all be consideréd together, and so construed as to be consistent with every other part.” See Wolfe v. Blackwell Oil Co., supra. Let us consider the entire sublease, and determine what the term “total production” of oil refers to. Did it refer to oil and its by-products, or did it refer to the amount of oil Mr. Hammett was to receive? Under the original lease Hammett was entitled to only % of the oil produced, % belonging to the landowner. In determining the amount of oil that Mr. Hammett was to receive, the parties agreed this amount should be 40 per cent, of the total amount produced, instead of 40 per cent, of the %. It is apparent this is what the term “total production” referred to, and it was so construed by the parties when making their division orders and dividing the oil in this prop or-' tion. We therefore conclude that the word “oil” and the right to produce oil did not include the right to manufacture gasoline from cas-inghead gas, within the contemplation of the parties to the original lease, and the lease did not extend to the use of the premises-for this purpose. Nor was there a meeting ■of the minds of the 'parties to the original lease regarding this subject. The finding of the trial court in this respect is not clearly against the weight of the evidence. The plaintiff having based his action upon a contract which did not extend to the subject which was in controversy, his action must fail, The judgment is therefore affirmed. PITCHEORD, KANE, ELTING, and NICHOLSON, J.T., concur.