“[T]he stipulation for a share of the ‘net proceeds derived’ ought to be enforced, effect being given to the words ‘net at the mouth of the well’ by allowing as expense the cost of transporting, separating, and marketing.”
How later courts described this case
- “[T]he stipulation for a share of the ‘net proceeds derived’ ought to be enforced, effect being given to the words ‘net at the mouth of the well’ by allowing as expense the cost of transporting, separating, and marketing.”
Written by the judges who cited it.
The opinion
On Second Motions for Rehearing.
SIBLEY, Circuit Judge.
Each party has asked for leave to file a second motion for rehearing. Our rules do not provide for this, but as a new trial has been ordered and the parties have each thought we misunderstood the situation, we have considered these motions and will again state our views on the point now put forward.
That point is, that the gas mixture into which the gas from Johnson’s well was put by Phillips, was taken to several gasolene extraction plants which did not extract a uniform grade of gasolene, even at the same plant, and that the residue gas, which was sold to more than one buyer, was in consequence of varying richness and price. Both parties agree that it is impossible to tell how much gasolene was taken at any plant from the Johnson gas, and how much Johnson gas was included in any day’s sales of residue. Johnson thereupon insists that he is entitled to an account of the most gasolene that could reasonably have been extracted from gas from his well if it had been handled separately, and of the proceeds of the residue gas thus made if it had been separately sold for its true carbon value. Phillips on the contrary insists the result is that the words of the lease cannot under these circumstances be applied, and that market price or value of the raw gas at the mouth of the well must be substituted.
We agree with neither position. The title to the gas was in Phillips. He had a right to mingle it with his other gas for convenient and profitable handling, but he cannot set aside his contract to account for net proceeds, and by his own act make another measure of his accounting which he likes better. Johnson on the other hand has known that the gas in which he was interested was thus mingled, and in the monthly accounting was treated as average gas in the mixture, and he has acquiesced therein. In his briefs he expressly says he makes no point as to that. Probably the gas could not as a practical matter have been handled otherwise than as a part of a mixture. After the commingling it is of course impossible to follow the Johnson gas separately, or to say how much gasolene was taken from it, or what its residue sold for, separately. When the mixture of average gases is lawfully brought about, the Johnson gas no longer exists separately; but those interested in it acquire a corresponding interest in a proportion of the mixture. If for example the Johnson well during a month’s accounting period furnished one percent of the mixture handled, Johnson would be entitled to an account of one-eighth of one percent of the net proceeds of the mixture. Phillips each month figured in his statements the proportional fraction of the mixed raw gas handled which was attributable to the Johnson gas. Johnson does not question that fraction. We are holding that Johnson is entitled to an account of one-eighth of that fractional part of all the gasolene made that month from the gas mixture, no matter what the grade or grades of the gasolene nor in how many extraction plants it was produced. This gasolene was not sold, so we hold as to it there are no proceeds; and its value must be substituted. Johnson is also entitled to an account of one-eighth of the fractional part of the net proceeds of residue gas sold that month from the mixture, no matter what its grade or how many its purchasers. We repeat that the basis of accounting followed by Phillips in his monthly statements is correct. The questions to be litigated are whether the debits and credits shown are correct in amount.
It seems to all the court that Phillips as the accounting party ought to produce his records and explain how the questioned figures were arrived at. It is asserted that in another case with another royalty owner it has appeared that there are no adequate records. We cannot go into another case to decide this one. In the former trial Phillips made no showing or explanation whatever. Serious presumptions sometimes arise against a person who is bound to make an account if he keeps no books or vouchers and produces no other satisfactory evidence of the account. And the scope of admissible evidence may be *196 thereby widened. A majority of the Court think it best not to anticipate such a situation or enlarge on it now.
These second motions for rehearing are denied.
McCORD, Circuit Judge, dissents.