Phillips Petroleum Co. v. Johnson

McCORD, Circuit Judge

(dissenting).

When gas was brought in on the property of the plaintiff the defendant laid pipes to the well and commingled the gas in the pipes with the gas from many other wells in the Panhandle Gas Field, and conveyed it through the pipes to distant points where it was partly used and partly sold, after certain treatment of the raw gas. That is, the defendant used a part of the raw gas by certain treatment and thereafter it sold the residue for different and other purposes. The evidence leads to the conclusion that it was the refuse which was sold.

That part of the lease contract which is important here provides; “ * * * If any well on said premises shall produce natural gas in paying quantities, and such natural gas is used off the premises or marketed by lessee, then lessor shall be paid at the rate of one-eighth of the net proceeds derived from the sale of gas at the mouth of the well.”

It becomes evident that since there was no market price to be found at the mouth of the well, plaintiff was entitled to receive the fair market value of one-eighth of the net proceeds, which means the receipts less expenses of removing the gas to where it was used. My brothers seem to lose sight of that part of the contract, “and such natural gas is iised off the premises or marketed by lessee, * * *.” The evidence is without dispute that the defendant used the gas off the premises and what I earnestly contend is- that when' this gas was removed from the well and commingled with the gas from other gas wells, at that time the defendant used the gas and immediately owed the plaintiff the fair market value therefor.

My contention can best be shown by this illustration: A dairyman purchased one ton of raw milk to be used by the dairyman or to be resold by him. The dairyman takes over the milk and immediately uses a part of it for cream, then he manufactures butter, and then sells the residue for the purpose of making cheese. Can one conclude that the seller of this milk should be compelled to stand by and wait until the dairyman used and sold the different products which he had manufactured from the milk? Certainly not. When he took possession of the milk and commenced to use it he owed for it then and not after he had sold portions of it.

The majority opinion requires the plaintiff here to wait until the defendant removes the gas from the well, commingles it with other gas, and then uses it at distant points where defendant’s plants are located, and after it is used in many ways by defendant, plaintiff must further wait until a sale is made of the by-products or refuse. Suppose defendant consumed one entire year in using the gas, must plaintiff wait until the year has passed and until the residue gas is sold? The contract speaks the answer when it provides that when the gas is removed and “used off the premises” (not sold) the plaintiff is entitled and is to be paid after deducting expense for removal the fair market value therefor.

Here it becomes patent, and in fact stands above dispute, that all the gas was taken from this well by defendant and piped .away to other and distant points. Thereupon, the burden rested squarely on the plaintiff to go out into the field and ascertain and find out and bring in the fair market value, that is, what sellers and purchasers would likely agree on as a price. That is exactly what the plaintiff did. He not only made out .a prima facie case, but much more. The burden thereupon shifted to the defendant to go forward with the evidence. It was the duty of the defendant to show good faith, and to make a full and complete disclosure of all and every transaction with reference to the gas in question; that is, to make a full, complete and honest accounting. Selma, Rome & Dalton R. Co. v. United States, 139 U.S. 560 , 561-568, *193 11 S.Ct. 638 , 35 L.Ed. 266 ; Miller v. Lykes Bros.-Ripley S. S. Co., 5 Cir., 98 F.2d 185 ; Manufacturers’ Finance Co. v. Marks, 6 Cir., 142 F.2d 521, 527 .

It is not enough for the majority opinion to remain silent and decline to point out the duty of the defendant for the reason that no objections were made by plaintiff when the defendant declined to offer evidence. Many times the courts have held where no objection or assignment of error has been made that nevertheless in the interest of justice courts will pass upon and point out patent errors. White v. United States, 5 Cir., 202 F. 501 ; United States v. Tennessee & C. R. Co., 176 U.S. 242 , 20 S.Ct. 370 , 44 L.Ed. 452 ; Hickman County v. Nashville Bridge Company, 6 Cir., 66 F.2d 174 . Furthermore, since the case must go back for another trial, the trial court should be advised of the legal evidence which should be submitted and which has just been adverted to. It is just as essential to point out as a guide to the trial court the legal evidence and the burden of proof as it is to inform the court on how to arrive at the fair market value of the gas.

The court in charging the jury charged on the law as to a trust, but if this was error it was certainly error without injury, for he thereafter charged very clearly and concisely just what the issue was which they were to pass upon. Moreover, the charge of the court on the question of the statute of limitations was certainly sufficient. The statements presented each month are admittedly misleading and were relied upon up to the time of the bringing of this suit. I quote an excerpt from the evidence of the plaintiff:

“Q. When did you first learn the value of your gas was less than they show under this statement and what amount of the difference? A. You mean what I first learned definitely, you might say?

“Q. As being reported less than actual value, when did you first learn that they were reporting it less than what it is now contended by you to be the actual value? (Here counsel for defendant interposed this objection: ‘We object for the reason that every man is presumed to know that the value here, that the market value of gas — a man who lives in California is presumed to know what the value is.’)

“Q. When did you first learn that the gasolene content of your gas was in excess of what these reports show? A. I think after I employed you as my attorney, probably.

“Q. Which was a few months back? A. Yes, sir.”

These statements show conclusively that only casinghead gas was being produced by the well on plaintiff’s land, and since the lease contract provided that plaintiff was to receive 4$i per thousand cubic feet for such gas, he relied upon these statements almost up to the time of the bringing of this suit. Qearly the statute of limitations was tolled. Furthermore, if error was made as to calculation of interest, it should be corrected here.

The answer of defendant in paragraph 12 substantially admits that the duty rested upon it to make a full and true accounting of the proceeds of the gas sold. This it refused to do, although it knew accurately just how much gas had been taken from the well, the kind of gas taken, when taken, where taken, and exactly the removal cost and its fair market value. Now, when the issue has been cast against it, the defendant comes to us and in effect says, “I know it was my duty to come forward and account faithfully, fully and honestly for the amount of gas I received from my well on plaintiff’s land, but I was not willing to do this.”

Defendant stands like unto the boy who killed his father and mother, and when he stood for sentence before the court, begged for mercy on the ground that he was an orphan.

However, the majority opinion grants a new trial and rewards defendant notwithstanding its dereliction.

The judgment should be affirmed.