Appendix — Phillips Petroleum Co. v. Adams

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APPENDIX

Texas Revised Civil Statutes Annotated, Articles 5069-1.01

and 5069-1.03 provides:

Article 5069-1.01. Definitions

(a) ‘‘Interest’? is the compensation allowed by

law for the use or forbearance or detention of money;

provided however, this term shall not include any time

price differential however denominated arising out of

a credit sale.

(b) ‘‘Legal Interest’? is that interest which is al-

lowed by law when the parties to a contract have not

agreed on any particular rate of interest.

is agreed upon and fixed by the parties to a written

contract,

(d) ‘‘Usury’’ is interest in excess of the amount

allowed by law. :

(e) ‘Person’? means an individual, partnership,

corporation, joint venture, trust, assuciation or any

legal entity, however organized.

Article 5069-1.03. Legal rate applicable

When no specified rate of interest is agreed upon by

the parties, interest at the rate of six percent per an-

num shall be allowed on all written contracts ascer-

taining the sum payable, from and after the time when

the sum is due and payable; and on all open accounts,

from the first day of January after the same are made.

Rules of Decision Act, 28 U.S.C. § 1652 provides:

The laws of the several states, except where the Con-

stitution or treaties of the United States or Acts of Con-

gress otherwise require or provide, shall be regarded as

rules of decision in civil actions in the courts of the United

States, in cases where they apply.

Natural Gas Act, 15 U.S.C. §§717-717w provides:

§ 717. Necessity for regulation of natural gas companies.

(a) As disclosed in reports of the Federal Trade

Commission made pursuant to S. Res. 83 (Seventieth

Congress, first session) and other reports made pur-

suant to the authority of Congress, it is declared

that the business of transporting and selling natural

gas for ultimate distribution to the public is affected

with a public interest, and that Federal regulation in

matters relating to the transportation of natural gas

and the sale thereof in interstate and foreign com-

merce is necessary in the publie interest.

(b) The provisions of this chapter shall apply to

the transportation of natural gas in interstate com-

merce, to the sale in interstate commerce of natural

gas for resale for ultimate public consumption for

domestic, commercial, industrial, or any other use,

and to natural-gas companies engaged in such trans-

portation or sale, but shall not apply to any other

transportation or sale of natural gas or to the local

distribution of natural gas or to the facilities used

for such distribution or to the production or gather-

ing of natural gas.

(ec) The provisions of this chapter shall not apply

to any person engaged in or legally authorized to en-

gage in the transportation in interstate commerce or

the sale in interstate commerce for resale, of natural

gas received by such person from another person

within or at the boundary of a State if all the natural

gas so received is ultimately consumed within such

State, or to any facilities used by such person for such

transportation or sale, provided that the rates and

service of such person and facilities be subject to

regulation by a State commission. The matters ex-

empted from the provisions of this chapter by this sub-

section are declared to be matters primarily of local

concern and subject to regulation by the several States.

A certification from such State commission to the

Federal Power Commission that such State commis-

sion has regulatory jurisdiction over rates and service

of such person and facilities and is exercising such

jurisdiction shall constitute conclusive evidence of

such regulatory power or jurisdiction.

PE RERET IN Te OOS AL TIA CREB aR reas Wer es ee mye _

LE TIES NEM LIES NE TLE S TOT NINES Uhr E Sg PRO NE ee rey

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§ 717a. Definitions.

When used in this chapter, unless the context other-

wise requires—

(1) ‘*Person’’ includes an individual or a corpor-

ation.

(2) ‘‘Corporation’’ includes any corporation, joint-

stock company, partnership, association, business

trust, organized group of persons, whether incorpor-

ated or not, receiver or receivers, trustee or trustees of

any of the foregoing, but shall not include munici-

palities as hereinafter defined.

(3) ‘‘Municipality’? means a city, county, or other

political subdivision or agency of a State.

(4) ‘‘State’? means a State admitted to the Union,

the District of Columbia, and any organized Territory

of the United States.

(5) ‘‘Natural gas’? means either natural gas un-

mixed, or any mixture of natural and artificial gas.

(6) ‘‘Natural-gas company’? means a person en-

gaged in the transportation of natural gas in interstate

commerce, or the sale in interstate commerce of such

gas for resale.

(7) ‘‘Interstate commerce’? means commerce _ be-

tween any point in a State and any Point outside there-

of, or between points within the same State but through

any place outside thereof, but only insofar as such

commerce takes place within the United States.

(8) ‘‘State commission’’ means the regulatory body

of the State or municipality having jurisdiction to

regulate rates and charges for the sale of natural gas

to consumers within the State or municipality.

(9) ‘‘Commission’? and ‘Commissioner’? means

the Federal Power Commission, and a member thereof,

respectively.

§ 717b. Exportation or importation of natural gas.

After six months from June 21, 1938, no person

shall export any natural gas from the United States

to a foreign country or import any natural gas from

a foreign country without first having secured an

order of the Commission authorizing it to do so. The

Commission shall issue such order upon application,

unless, after opportunity for hearing, it finds that the

proposed exportation or importation will not be con-

sistent with the public interest. The Commission may

by its order grant such application, in whole or in part,

with such modification and upon such terms and con-

ditions as the Commission may find necessary or ap-

propriate, and may from time to time, after oppor-

tunity for hearing, and for good cause shown, make

such supplemental order in the premises as it may find

necessary or appropriate.

§ 717c. Rates and charges; schedules; suspension of new

rates.

(a) All rates and charges made, demanded, or re-

eeived by any natural-gas company for or in con-

nection with the transportation or sale of natural gas

subject to the jurisdiction of the Commission, and all

rules and regulations affecting or pertaining to such

rates or charges, shall be just and reasonable, and any

such rate or charge that is not just and reasonable

is declared to be unlawful.

(b) No natural-gas company shall, with respect to

any transportation or sale of natural gas subject to

the jurisdiction of the Commission, (1) make or grant

any undue preference or advantage to any person

or subject any person to any undue prejudice or dis-

advantage, or (2) maintain any unreasonable differ-

ence in rates, charges, service, facilities, or in any other

respect, either as between localities or as between

classes of service.

(ce) Under such rules and regulations as the Com-

mission may prescribe, every natural-gas company

shall file with the Commission, within such time (not

less than sixty days from June 21, 1938) and in such

form as the Commission may designate, and shall

keep open in convenient form and place for public

inspection, schedules showing all rates and charges

for any transportation or sale subject to the jurisdic-

tion of the Commission, and the classifications, prac-

tices, and regulations affecting such rates and charges,

together with all contracts which in any manner affect

or relate to such rates, charges, classifications, and

services,

(d) Unless the Commission otherwise orders, no

change shall be made by any natural-gas company in

any such rate, charge, classification, or service, or in

any rule, regulation, or contract relating thereto, ex-

cept after thirty days’ notice to the Commission and

to the public. Such notice shall be given by filing with

the Commission and keeping open for public inspection

new schedules stating plainly the change or changes to

be made in the schedule or schedules then in force and

the time when the change or changes will go into effect.

The Commission, for good cause shown, may allow

changes to take effect without requiring the thirty

days’ notice herein provided for by an order specify-

ing the changes so to be made and the time when they

shall take effect and the manner in which they shall be

filed and published.

(e) Whenever any such new schedule is filed the

Commission shall have authority, either upon com-

plaint of any State, municipality, State commission,

or gas distributing company, or upon its own initiative

without complaint, at once, and if it so orders, with-

out answer or formal pleading by the natural-gas

company, but upon reasonable notice, to enter upon

a hearing concerning the lawfulness of such rate,

charge, classification, or service: and, pending such

hearing and the decision thereon, the Commission,

upon filing with such schedules and delivering to the

natural-gas company affected thereby a statement in

writing of its reasons for such suspension, may sus-

pend the operation of such schedule and defer the

use of such rate. charge, classification, or service,

but not for a longer period than five months beyond

the time when it would otherwise go into effect;

and after full hearings, cither completed before or

after the rate, charge, classification, or service goes

into effect. the Commission may make such orders

with reference thereto as would be proper in a pro-

ceeding initiated after it had become effective. If the

proceeding has not been concluded and an order made

at the expiration of the suspension period, on motion

of the natural-gas company making the filing, the

proposed change of rate, charge, classification, or serv-

we shall go into efYeet. Where increased rates or

charges are thus made effective, the Commission may,

by order, require the natural-gas company to furnish

a bond, to be approved by the Commission, to refund

any amounts ordered by the Commission, to keep ac-

curate accounts in detail of all amounts received by

reason of such inerease, specifying by whom and in

whose behalf such amounts were paid, and, upon com.

pletion of the hearing and decision, to order such na-

tural-gas company to refund, with interest, the portion

of such increased rates or charges by its decision found

not justified. At any hearing involving a rate or charge

sought to be increased, the burden of proof to show

that the inereased rate or charge is just and reason

able shall be upon the naturalgas company, and the

Commission shall give to the hearings and decision

of such questions preference over other questions

pending before it and decide the same as speedily as

possible.

§ 717d. Fixing rates and charges; determination of cost of

TSE OD FO TEA eke et

production or transportation.

(a) Whenever the Commission, after a hearing had

upon its ewn motion or upon complaint of any State,

municipality, State commission, or gas distributing

company, shall tind that any rate, charge, or classiti-

eation demanded, observed, charged, or collected by

any natural-gas company in connection with any trans.

portation or sale of natural gas, subject to the juris-

diction of the Commission, or that any rule, regulation,

practice, or contract affecting such rate, charge, or

classification is unjust, unreasonable, unduly diserim-.

inatory, or preferential, the Commission shall deter-

mine the just and reasonable rate, charge, chissitics

tion, rule, regulation, practice, or contract to be there-

after observed and in foree, and shall tix the same by

order: Provided, however, That the Commission shall

have no power to order any increase in any rate con.

tained in the currently effective schedule of such na-

tural gas company on file with the Commission, unless

such increase is in accordance with a new schedule tiled

by such natural gas company; but the Commission may

order a decrease where existing rates are unjust, un

duly discriminatory, preferential, otherwise unlawful,

or are not the lowest reasonable rates.

(b) The Commission upon its own motion, or upon

the request of any State commission, whenever it ean

do so without prejudice to the eficient and proper

conduet of its affairs, may investigate and determine

the cost of the production or transportation of nat

ural gas by a natural gas company in eases where the

Commission has no authority to establish a rate gov

erning the transportation or sale of such natural gas.

$717e. Ascertainment of cost of property.

(a) The Commission may investigate and ascer

ain the actual legitimate cost of the property of every

naturalgas company, the depreciation therein, and,

When found necessary for rate-making purposes, other

facts whieh bear on the determination of such cost or

depreciation and the fair value of such property,

(b) Every natural-gas company upon request shall

file with the Commission an inventory of all or any

part of its property and a statement of the original

cost thereof, and shall keep the Commission informed

regarding the cost of all additions, betterments, ex

tensions, and new construction,

$ 717f. Construction, extension, or abandonment of facili-

ties; certificate of convenience and necessity; condem-

nation proceedings.

(a) Whenever the Commission, after notice and op

portunity for hearing, finds such action necessary or

desirable in the public interest, it may by order direct

a uaturalgas company to extend er improve its trans.

portation facilities, to establish physical connection of

its transportation facilities with the facilities of, and

sell natural gas te, any person er municipality engaged

or legally authorized to engage in the local distribution

of natural or artificial gas to the publie, and for such

purpose to extend its transportation facilities toe com.

munities immediately adjacent to such facilities or to

territory served by such natural-gas company, if the

Commission finds that no undue burden will be placed

upon such natural-gas company thereby: Provided,

That the Commission shall have no authority to com-

pel the enlargement of transportation facilities for

such purposes, or to compel such natural-gas company

to establish physical connection or sell natural gas when

to do so would impair its ability to render adequate

service to its customers.

(b) No nautral-gas company shall abandon all or any

portion of its facilities subject to the jurisdiction of the

Commission, or any service rendered by means of such

facilities, without the permission and approval of the

Commission first had and obtained, after due hearing,

and a finding by the Commission that the available

supply of natural gas is depleted to the extent that the

continuance of service is unwarranted, or that the pres-

ent or future public convenience or necessity permit

such abandonment.

a nautral-gas company upon completion of any pro-

posed construction or extension shall engage in the

transportation or sale of natural gas, subject to the

jurisdiction of the Commission, or undertake the con-

struction or extension of any facilities therefor, or

acquire or operate any such facilities or extensions

thereof, unless there is in force with respect to such

natural-gas company a certificate of public convenience

and necessity issued by the Commission authorizing

such acts or operations: Provided, however, That if

any such natural-gas company or predecessor in inter-

est was bona fide engaged in transportation or sale of

natural gas, subject to the jurisdiction of the Commis-

sion, on February 7, 1942, over the route or routes or

within the area for which application is made and has

so operated since that time, the Commission shall issue

such certificate without requiring further proof that

public convenience and necessity will be served by such

operation, and without further proceedings, if appli-

cation for such certificate is made to the Commission

within ninety days after February 7, 1942. Pending

the determination of any such aplication, the continu-

ance of such operation shall be lawful.

In all other cases the Commission shall set the matter

for hearing and shall give such reasonable notice of

the hearing thereon to all interested persons as in its

judgment may be necessary under rules and regula-

tions to be prescribed by the Commission; and the ap-

plication shall be decided in accordance with the pro-

cedure provided in subsection (e) of this section and

such certificate shall be issued or denied accordingly:

Provided, however, That the Commission may issue a

temporary certificate in cases of emergency, to assure

maintenance of adequate service or to serve particular

customers, without notice or hearing, pending the de-

termination of an application for a certificate, and may

by regulation exempt from the requirements of this

section temporary acts or operations for which the

issuance of a certificate will not be required in the pub-

lic interest.

(d) Application for certificates shall be made in

writing to the Commission, be verified under oath, and

shall be in such form, contain such information, and

notice thereof shall be served upon such interested

parties and in such manner as the Commission shall,

by regulation, require.

(e) Except in the cases governed by the provisos

contained in subsection (c) of this section, a certificate

shall be issued to any qualified applicant therefor,

authorizing the whole or any part of the operation,

sale, service, construction, extension, or acquisition

covered by the application, if it is found that the appli-

cant is able and willing properly to do the acts and to

perform the service proposed and to conform to the

provisions of this chapter and the requirements,

rules, and regulations of the Commission thereunder,

and that the proposed service, sale, operation, construe-

tion, extension, or acquisition, to the extent authorized

by the certificate, is or will be required by the present

or future public convenience and necessity ; otherwise

such application shall be denied. The Comission shall

have the power to attach to the issuance of the certif.-

cate and to the exercise of the rights granted there-

10a

under such reasonable terms and conditions as the

public convenience and necessity may require.

(f) The Commission, after a hearing had upon its

own motion or upon application, may determine the

service area to which each authorization under this

section is to be limited. Within such service area as

determined by the Commission a natural-gas company

may enlarge or extend its facilities for the purpose of

supplying increased market demands in such service

area without further authorization.

(g) Nothing contained in this section shall be con-

strued as a limitation upon the power of the Commis-

sion to grant certificates of public convenience and

necessity for service of an area already being served

by another natural-gas company.

(h) When any holder of a certificate of public con-

venience and necessity cannot acquire by contract, or

is unable to agree with the owner of property to the

compensation to be paid for, the necessary right-of-way

to construct, operate, and maintain a pipe line or pipe

lines for the transportation of natural gas, and the

necessary land or other property, in addition to right-

of-way, for the location of compressor stations, pres-

sure apparatus, or other stations or equipment neces-

sary to the proper operation of such pipe line or pipe

lines, it may acquire the same by the exercise of the

right of eminent domain in the district court of the

United States for the district in which such property

may be located, or in the State courts. The practice

and procedure in any action or proceeding for that

purpose in the district court of the United States shall

conform as nearly as may be with the practice and pro-

cedure in similar action or proceeding in the courts of

the State where the property is situated: Provided,

That the United States district courts shall only have

jurisdiction of cases when the amount claimed by the

owner of the property to be condemned exceeds $3,000.

§ 717g. Accounts; records; memoranda.

(a) Every natural-gas company shall make, keep,

and preserve for such periods, such accounts, records

of cost-accounting procedures, correspondence, memo-

lla

randa, papers, books, and other records as the Com-

mission may by rules and regulations prescribe as

necessary or appropriate for purposes of the adminis-

tration of this chapter: Provided, however, That noth-

ing in this chapter shall relieve any such natural-gas

company from keeping any accounts, memoranda, or

records which such natural-gas company may be re-

quired to keep by or under authority of the laws of

any State. The Commission may prescribe a system of

accounts to be kept by such natural-gas companies, and

may classify such natural-gas companies and prescribe

a system of accounts for each class. The Commission,

after notice and opportunity for hearing, may deter-

mine by order the accounts in which particular outlays

or receipts shall be entered, charged, or credited. The

burden of proof to justify every accounting entry ques-

tioned by the Commission shall be on the person mak-

ing, authorizing, or requiring such entry, and the Com-

mission may suspend a charge or credit pending sub-

mission of satisfactory proof in support thereof.

(b) The Commission shall at all times have access

to and the right to inspect and examine all accounts,

records, and memoranda of natural-gas companies; and

it shall be the duty of such natural-gas companies to

furnish to the Commission, within such reasonable

time as the Commission may order, any information

with respect thereto which the Commission may by

order require, including copies of maps, contracts, re-

ports of engineers, and other data, records, and papers,

and to grant to all agents of the Commission free ac-

cess to its property and its accounts, records, and mem-

oranda when requested so to do. No member, officer,

or employee of the Commission shall divulge any fact

or information which may come to his knowledge dur-

ing the course of examination of books, records, data,

or accounts, except insofar as he may be directed by the

Commission or by a court,

of any person who controls directly or indirectly a

natural-gas company subject to the jurisdiction of the

Commission and of any other company controlled by

such person, insofar as they relate to transactions with

————— ee

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12a

or the business of such natural-gas company, shall be

subject to examination on the order of the Commission.

§ 717h. Rates of depreciation.

(a) The Commission may, after hearing, require

natural-gas companies to carry proper and adequate

depreciation and amortization accounts in accordance

with such rules, regulations, and forms of account as

the Commission may prescribe. The Commission may

from time to time ascertain and determine, and by

order fix, the proper and adequate rates of deprecia-

tion and amortization of the several classes of property

of each natural-gas company used or useful in the pro-

duction, transportation, or sale of nautral gas. Each

natural-gas company shall conform its depreciation and

amortization accounts to the rates so ascertained, de-

termined, and fixed. No natural-gas company subject

to the jurisdiction of the Commission shall charge to

operating expenses any depreciation or amortization

charges on classes of property other than those pre-

scribed by the Commission, or charge with respect to

any class of property a percentage of depreciation or

amortization other than that prescribed therefor by

the Commission. No such natural-gas company shall

in any case include in any form under its operating or

other expenses any depreciation, amortization, or other

charge or expenditure included elsewhere as a depreci-

ation or amortization charge or otherwise under its

operating or other expenses. Nothing in this section

shall limit the power of a State commission to deter-

mine in the exercise of its jurisdiction, with respect to

any natural-gas company, the percentage rates of de-

preciation or amortization to be allowed, as to any class

of property of such nautral-gas company, or the com-

posite depreciation or amortization rate, for the pur-

pose of determining rates or charges.

(b) The Commission, before prescribing any rules

or requirements as to accounts, records, or memo-

randa, or as to depreciation or amortization rates, shall

notify each State commission having jurisdiction with

respect to any natural-gas company involved and shall

give reasonable opportunity to each commission to pre-

13a

sent its views and shall receive and consider such views

and recommendations.

§ 717i. Periodic and special reports.

(a) Every natural-gas company shall file with the

Commission such annual and other periodic or spe-

cial reports as the Commission may by rules and regu-

lations or order prescribe as necessary or appropriate

to assist the Commission in the proper administration

of this chapter. The Commission may prescribe the

manner and form in which such reports shall be made,

and require from such natural-gas companies specific

answers to all questions upon which the Commission

may need information. The Commission may require

that such reports shall include, among other things,

full information as to assets and liabilities, capitaliza-

tion, investment and reduction thereof, gross receipts,

interest due and paid, depreciation, amortization, and

other reserves, cost of facilities, cost of maintenance

and operation of facilities for the production, trans-

portation, or sale of natural gas, cost of renewal and

replacement of such facilities, transportation, delivery,

use and sale of natural gas. The Commission may re-

quire any such natural-gas company to make adequate

provision for currently determining such costs and

other facts. Such reports shall be made under oath

unless the Commission otherwise specifies.

(b) It shall be unlawful for any natural-gas com-

pany willfully to hinder, delay, or obstruct the mak-

ing, filing, or keeping of any information, document,

report, memorandum, record, or account required to

be made, filed, or kept under this chapter or any rule,

regulation, or order thereunder.

§ 717j. State compacts; reports on.

(a) In case two or more States propose to the Con-

gress compacts dealing with the conservation, produc-

tion, transportation, or distribution of natural gas it

shall be the duty of the Commission to assemble per-

tinent information relative to the matters covered in

any such proposed compact, to make public and to

report to the Congress information so obtained, to-

l4a

gether with such recommendations for further legis-

lation as may appear to be appropriate or necessary

to carry out the purposes of such proposed compact

and to aid in the conservation of natural-gas resources

within the United States and in the orderly, equitable,

and economic production, transportation, and distri-

bution of natural gas.

(b) It shall be the duty of the Commission to

assemble and keep current pertinent information rela-

tive to the effect and operation of any compact be-

tween two or more States heretofore or hereafter ap-

proved by the Congress, to make such information

publie, and to report to the Congress, from time to

time, the information so obtained, together with such

recommendations as may appear to be appropriate or

necessary to promote the purposes of such compact.

the Commission shall, so far as practicable, avail itself

of the services, records, reports, and information of

the executive departments and other agencies of the

Government, and the President may, from time to

time, direct that such services and facilities be made

available to the Commission.

§ 717k. Officials dealing in securities.

It shall be unlawful for any officer or director of

any natural-gas company to receive for his own bene-

fit, directly or indirectly, any money or thing of value

in respect to the negotiation, hypotheeation, or sale by

such natural-gas company of any security issued, or

to be issued, by such natural-gas company, or to share

in any of the proceeds thereof, or to participate in

the making or paying of any dividends, other than

liquidating dividends, of such natural-gas company

from any funds properly included in capital account.

§ 7171. Complaints.

Any State, municipality, or State commission com-

plaining of anything done or omitted to be done by

any natural-gas company in contravention of the pro-

visions of this chapter may apply to the Commission

lda

by petition, which shall briefly state the facts, where-

upon a statement of the complaint thus made shall

be forwarded by the Commission to such natural-gas

company, which shall be called upon to satisfy the

complaint or to answer the same in writing within a

reasonable time to be specified by the Commission.

§ 717m. Investigations by Commission; attendance of wit-

nesses; depositions.

(a) The Commission may investigate any facts, con-

ditions, practices, or matters which it may find neces-

sary or proper in order to determine whether any

person has violated or is about to violate any provi-

sion of this chapter or any rule, regulation, or order

thereunder, or to aid in the enforcement of the provi-

sions of this chapter or in prescribing rules or regula-

tions thereunder, or in obtaining information to serve

as a basis for recommending further legislation to

the Congress. The Commission may permit any per-

son to file with it a statement in writing, under oath

or otherwise, as it shall determine, as to any or all

facts and circumstances concerning a matter which

may be the subject of investigation. The Commission,

in its diseretion, may publish in the manner authorized

by section 825k of Title 16, and make available to

State commissions and municipalities, information

concerning any such matter,

(b) The Commission may, after hearing, determine

the adequacy or inadequacy of the gas reserves held

or controlled by any natural-gas company, or by any-

one on its behalf, including its owned or leased prop-

erties or royalty contracts; and may also, after hear-

ing, determine the propriety and reasonableness of the

inclusion in operating expenses, capital, or surplus of

all delay rentals or other forms of rental or compensa-

tion for unoperated lands and leases. For the pur-

pose of such determinations, the Commission may re-

quire any natural-gas company to file with the Com-

mission true copies of all its lease and royalty agree-

ments with respect to such gas reserves.

other proceeding under this chapter, any member of

16a

the Commission, or any officer designated by it, is

empowered to administer oaths and affirmations, sub-

pena witnesses, compel their attendance, take evidence,

and require the production of any books, papers, cor-

respondence, memoranda, contracts, agreements, or

other records which the Commission finds relevant or

material to the inquiry. Such attendance of witnesses

and the production of any such records may be re-

quired from any place in the United States or at any

designated place of hearing. Witnesses summoned by

the Commission to appear before it shall be paid the

same fees and mileage that are paid witnesses in the

courts of the United States.

(d) In ease of contumacy by, or refusal to obey a

subpena issued to, any person, the Commission may

invoke the aid of any court of the United States within

the jurisdiction of which such investigation or pro-

ceeding is carried on, or where such person resides or

carries on business, in requiring the attendance and

testimony of witnesses and the production of books,

papers, correspondence, memoranda, contracts, agree-

ments and other records. Such court may issue an

order requiring such person to appear before the Com-

mission or member or officer designated by the Com-

mission, there to produce records, if so ordered, or to

give testimony touching the matter under investiga-

tion or in question; and any failure to obey such

order of the court may be punished by such court as

a contempt thereof. All process in any such case may

be served in the judicial district whereof such person

is an inhabitant or wherever he may be found or may

be doing business. Any person who willfully shall

fail or refuse to attend and testify or to answer any

lawful inquiry or to produce books, papers, corres-

pondence, memoranda, contracts, agreements or other

records if in his or its power so to do in obedience to

the subpena of the Commission, shall be guilty of a

misdemeanor and upon conviction shall be subject to

a fine of not more than $1,000 or to imprisonment for

a term of not more than one year, or both.

(e) The testimony of any witness may be taken at

the instance of a party, in any proceeding or investi-

17a

gation pending before the Commission, by deposition

at any time after the proceeding is at issue. The

Commission may also order testimony to be taken by

deposition in any proceeding or investigation pending

before it at any stage of such proceeding or investi-

gation. Such depositions may be taken before any

person authorized to administer oaths not being of

counsel or attorney to either of the parties, nor inter-

ested in the proceeding or investigation. Reasonable

notice must first be given in writing by the party or

his attorney proposing to take such deposition to the

opposite party or his attorney of record, as either may

be nearest, which notice shall state the name of the

witness and the time and place of the taking of his

deposition. Any person may be compelled to appear

and depose, and to produce documentary evidence, in

the same manner as witnesses may be compelled to

appear and testify and produce documentary evidence

before the Commission, as hereinbefore provided.

Such testimony shall be reduced to writing by the

person taking deposition, or under his direction, and

shall, after it has been reduced to writing be sub-

scribed by the deponent.

(f) If a witness whose testimony may be desired

to be taken by deposition be in a foreign country, the

deposition may be taken before an officer or person

designated by the Commission, or agreed upon by the

parties by stipulation in writing to be filed with the

Commission. All depositions must be promptly filed

with the Commission.

(g) Witnesses whose depositions are taken as au-

thorized in this chapter, and the person or officer

taking the same, shall be entitled to the same fees as

are paid for like services in the courts of the United

States.

§ 717n. Hearings; rules of procedure.

(a) Hearings under this chapter may be held be-

fore the Commission, any member or members thereof,

or any representative of the Commission designated

by it, and appropriate records thereof shall be kept.

In any proceeding before it, the Commission in ac-

18a

cordance with such rules and regulations as it may

prescribe, may admit as a party any interested State,

State commission, municipality or any representative

of interested consumers or security holders, or any

competitor of a party to such proceeding, or any other

person whose participation in the proceeding may be

in the public interest.

(b) All hearings, investigations, and proceedings

under this chapter shall be governed by rules of prac-

tice and procedure to be adopted by the Commission,

and in the conduct thereof the technical rules of evi-

dence need not be applied. No informality in any

hearing, investigation, or proceeding or in the manner

of taking testimony shall invalidate any order, deci-

sion, rule, or regulation issued under the authority of

this chapter.

§ 7170. Administrative powers of Commission; rules, regula-

tions, and orders.

The Commission shall have power to perform any

and all acts, and to prescribe, issue, make, amend, and

rescind such orders, rules, and regulations as it may

find necessary or appropriate to carry out the provi-

sions of this chapter. Among other things, such rules

and regulations may define accounting, technical, and

trade terms used in this chapter; and may prescribe

the form or forms of all statements, declarations,

applications, and reports to be filed with the Commis-

sion, the information which they shall contain, and

the time within which they shall be filed. Unless a

different date is specified therein, rules and regula-

tions of the Commission shall be effective thirty days

after publication in the manner which the Commission

shall preseribe. Orders of the Commission shall be

effective on the date and in the manner which the

Commission shall prescribe. For the purposes of its

rules and regulations, the Commission may classify

persons and matters within its jurisdiction and pre-

seribe different requirements for different classes of

persons or matters. All rules and regulations of the

Commission shall be filed with its secretary and shall

be kept open in convenient form for public inspection

and examination during reasonable business hours.

19a

§717p. Use of joint boards; cooperation with State com-

missions.

(a) The Commission may refer any matter arising

in the administration of this chapter to a board to be

composed of a member or members, as determined by

the Commission, from the State or each of the States

affected or to be affected by such matter. Any such

board shall be vested with the same power and be

subject to the same duties and liabilities as in the case

of a member of the Commission when designated by

the Commission to hold any hearings. The action of

such board shall have such foree and effeet and its

proceedings shall be conducted in such manner as

the Commission shall by regulations prescribe. The

Board shall be appointed by the Commission from

persons nominated by the State commission of each

State affected, or by the Governor of such State if

there is no State commission. Each State affected

shall be entitled to the same number of represenatives

on the board unless the nominating power of such

State waives such right. The Commission shall have

diseretion to reject the nominee from any State, but

shall thereupon invite a new nomination from that

State. The members of a board shall receive such

allowances for expenses as the Commission shall pro-

vide. The Commission may, when in its discretion

sufficient reason exists therefor, revoke any reference

to such a board.

(b) The Commission may confer with any State

commission regarding rate structures, costs, accounts,

charges, practices, classifications, and regulations of

natural-gas companies; and the Commission is au-

thorized, under such rules and regulations as it shall

prescribe, to hold joint hearings with any State com-

mission in connection with any matter with respect

to which the Commission is authorized to act. The

Commission is authorized in the administration of this

chapter to avail itself of such cooperation, services,

records, and facilities as may be afforded by any State

commission,

(ec) The Commission shall make available to the

several State commissions such information and re-

20a

ports as may be of assistance in State regulation of

nautral-gas companies. Whenever the Commission can

do so without prejudice to the efficient and proper con-

duct of its affairs, it may, upon request from a State

commission, make available to such State commission

as witnesses any of its trained rate, valuation, or other

experts, subject to reimbursement of the compensation

and traveling expenses of such witnesses. All sums

collected hereunder shall be credited to the appropria-

tion from which the amounts were expended in carry-

ing out the provisions of this subsection.

§ 717q. Appointment of officers and employees.

The Commission may, subject to civil-service laws,

appoint such officers and employees as are necessary

for carrying out its functions under this chapter and

fix their salaries in accordance with chapter 51 and

subchapter III of chapter 53 of Title 5.

§ 717r Rehearing; court review of orders.

(a) Any person, State, municipality, or State com-

mission aggrieved by an order issued by the Commis-

sion in a proceeding under this chapter to which such

person, State, municipality, or State commission is a

party may apply for a rehearing within thirty days

after the issuance of such order. The application for

rehearing shall set forth specifically the ground or

grounds upon which such application is based. Upon

such application the Commission shall have power to

grant or deny rehearing or to abrogate or modify its

order without further hearing. Unless the Commis-

sion acts upon the application for rehearing within

thirty days after it is filed, such application may be

deemed to have been denied. No proceeding to review

any order of the Commission shall be brought by any

person unless such person shall have made application

to the Commission for a rehearing thereon. Until the

record in a proceeding shall have been filed in a court

of appeals, as provided in subsection (b) of this see-

tion, the Commission may at any time, upon reasonable

notice and in such manner as it shall deem proper,

modify or set aside, in whole or in part, any finding or

21a

order made or issued by it under the provisions of this

chapter.

(b) Any party to a proceeding under this chapter

aggrieved by an order issued by the Commission in

such proceeding may obtain a review of such order in

the court of appeals of the United States for any cir-

cuit wherein the natural-gas company to which the

order relates is located or has its principal place of

business, or in the United States Court of Appeals for

the District of Columbia, by filing in such court, within

sixty days after the order of the Commission upon the

application for rehearing, a written petition praying

that the order of the Commission be modified or set

aside in whole or in part. A copy of such petition shall

forthwith be transmitted by the clerk of the court to

any member of the Commission and thereupon the

Commission shall file with the court the record upon

which the order complained of was entered, as pro-

vided in section 2112 of Title 28. Upon the filing of

such petition such court shall have jurisdiction, which

upon the filing of the record with it shall be exclusive,

to affirm, modify, or set aside such order in whole or in

part. No objection to the order of the Commission

shall be considered by the court unless such objection

shall have been urged before the Commission in the

application for rehearing unless there is reasonable

ground for failure so to do. The finding of the Com-

mission as to the facts, if supported by substantial

evidence, shall be conclusive. If any party shall apply

to the court for leave to adduce additional evidence,

and shall show to the satisfaction of the court that such

additional evidence is material and that there were

reasonable grounds for failure to adduce such evidence

in the proceedings before the Commission, the court

may order such additional evidence to be taken before

the Commission and to be adduced upon the hearing in

such manner and upon such terms and conditions as to

the court may seem proper. The Commission may

modify its findings as to the facts by reason of the

additional evidence so taken, and it shall file with the

court such modified or new findings. which if supported

by substantial evidence, shall be conclusive, and its

recommendation, if any, for the modification or setting

22a

aside of the original order. The judgment and decree

of the court, affirming, modifying, or setting aside, in

whole or in part, any such order of the Commission,

shall be final, subject to review by the Supreme Court

of the United States upon certiorari or certification as

provided in sections 346 and 347 of Title 28.

subsection (a) of this section shall not, unless specific-

ally ordered by the Commission, operate as a stay of

the Commission’s order. The commencement of pro-

ceedings under subsection (b) of this section shall not,

unless specifically ordered by the court, operate as a

stay of the Commission’s order.

§ 717s. Enforcement of chapter; regulations and orders.

(a) Whenever it shall appear to the Commission that

any person is engaged or about to engage in any acts

or practices which constitute or will constitute a vio-

lation of the provisions of this chapter, or of any rule,

regulation, or order thereunder, it may in its discretion

bring an action in the proper district court of the

United States, or the United States courts of any Ter-

ritory or other place subject to the jurisdiction of the

United States, to enjoin such acts or practices and to

enforce compliance with this chapter or any rule, regu-

lation, or order thereunder, and upon a proper showing

a permanent or temporary injunction or decree or re-

straining order shall be granted without bond. The

Commission may transmit such evidence as may be

available concerning such acts or practices or concern-

ing apparent violations of the Federal antitrust laws

to the Attorney General, who, in his discretion, may

institute the necessary criminal proceedings.

(b) Upon application of the Commission the district

courts of the United States and the United States

courts of any Territory or other place subject to the

jurisdiction of the United States shall have jurisdic-

tion to issue writs of mandamus commanding any per-

son to comply with the provisions of this chapter or

any rule, regulation, or order of the Commission

thereunder.

23a

it finds necessary for proper legal aid and service of

the Commission or its members in the conduct of their

work, or for proper representation of the public inter-

est in investigations made by it, or cases or proceed-

ings pending before it, whether at the Commission’s

own instance or upon complaint, or to appear for or

represent the Commission in any case in court; and

the expenses of such employment shall be paid out of

the appropriation for the Commission. pa

§ 717t. General penalties.

(a) Any person who willfully and knowingly does

or causes or suffers to be done any act, matter, or

thing in this chapter prohibited or declared to be un-

lawful, or who willfully and knowingly omits or fails

to do any act, matter, or thing in this chapter required

to be done, or willfully and knowingly causes or suffers

such omission or failure, shall, upon conviction thereof,

be punished by a fine of not more than $5,000 or by

imprisonment for not more than two years, or both.

(b) Any person who willfully and knowingly vio-

lates any rule, regulation, restriction, condition, or

order made or imposed by the Commission under

authority of this chapter, shall, in addition to any other

penalties provided by law, be punished upon convic-

tion thereof by a fine of not exceeding $500 for each

and every day during which such offense occurs.

§ 717u. Jurisdiction of offenses; enforcement of liabilities

and duties.

The District Court of the United States and the

United States courts of any Territory or other place

subject to the jurisdiction of the United States shall

have exclusive jurisdiction of violations of this chapter

or the rules, regulations, and orders thereunder, and

of all suits in equity and actions at law brought to

enforce any liability or duty created by, or to enjoin any

violation of, this chapter or any rule, regulation, or

order thereunder. Any criminal proceeding shall be

brought in the district wherein any act or transaction

24a

constituting the violation occurred. Any suit or action

to enforce any liability or duty created by, or to enjoin

any violation of, this chapter or any rule, regulation,

or order thereunder may be brought in any such dis-

trict or in the district wherein the defendant is an in-

habitant, and process in such cases may be served

wherever the defendant may be found. Judgments and

decrees so rendered shall be subject to review as pro-

vided in sections 225 and 347 of Title 28. No costs

shall be assessed against the Commission in any judi-

cial proceeding by or against the Commission under

this chapter.

§ 717v. Separability of provisions.

If any provision of this chapter, or the application

of such provision to any person or circumstance, shall

be held invalid, the remainder of the chapter, and the

application of such provision to persons or circum-

stances other than those as to which it is held invalid,

shall not be affected thereby.

§ 717w. Short title.

This chapter may be cited as the ‘‘ Natural Gas Act.’’

18 Code of Federal Regulations § 154.102 provides:

§ 154.102 Suspended changes in rate schedules; motions to

— effective at end of period of suspension; proce-

ure.

(a) If a rate suspension proceeding initiated under

section 4(e) of the Natural Gas Act has not been con-

cluded and an order made at the expiration of the

suspension period, the proposed change of rate, charge,

classification, or service shall go into effect upon mo-

tion of the independent producer proposing the change

as the legally effective rate and shall be charged,

effective as of a date not earlier than the date of

receipt of such motion by the Commission or the ex-

piration of the suspension period, whichever is later.

Three copies of the motion and any accompanying

papers shall be filed. The Secretary, upon receipt of

such a motion, shall, if the motion is legally adequate

25a

for the purpose, notify the movant that the proposed

change shall be effective as provided in this section:

Provided, That the Secretary shall refer to the Com-

mission any motion requesting that a change in rate,

charge, classification, or service be made effective, if

in his judgment the motion should receive the specific

attention of the Commission;

(b)(1) Unless otherwise ordered by the Commission,

increased rates or charges shall be charged and col-

lected pursuant to paragraph (a) of this section and

there shall be filed by the independent producer a

surety bond, or other undertaking, to be approved by

the Secretary, to comply with the provisions of para-

graph (c) of this section.

(2) In compliance with subparagraph (1) of this

paragraph, an independent producer may file a gen-

eral undertaking affording blanket refund coverage

of any present and future rate increases suspended

under section 4(e) of the Natural Gas Act and col-

lected subject to refund thereunder. Upon acceptance

of such general undertaking, the producer need not file

further refund assurance when filing a motion to make

increased rates effective unless specifically required

to do so by order of the Commission.

pursuant to the provisions of this section the inde-

pendent producer shall be obligated to keep accurate

accounts in detail of all amounts received by reason

of the increased rates or charges for each billing

period, and for each purchaser; the billing determi-

nants of natural gas sales to such purchasers and

the revenues resulting therefrom, as computed under

the rates in effect immediately prior to the effective

date of the change, and under the rates which become

effective pursuant to the motion, together with the

differences in the revenues so computed; and to refund

at such times and in such amounts to the persons en-

titled thereto, and in such manner as may be required

by final order of the Commission, the portion of any

increased rate found by the Commission in that pro-

ceeding not justified, together with interest thereon at

the rate of seven percent per annum for all rate filings

26a

tendered prior to October 10, 1974, and nine percent

per annum for ali rate filings tendered on or after

October 10, 1974, from the date of payment to the

producer until refunded, except as provided in para-

graph (f) of this section; and to bear all costs of any

such refunding.

(d) If the producer, acting in conformity with the

terms and conditions of the bond or undertaking,

makes the refunds as may be required by order of

the Commission, the bond or undertaking shall be

discharged ; otherwise it shall remain in full force and

effect ;

(e) The bond or undertaking required by paragraph

(b) of this section may be filed concurrently with the

motion to make the increased rates effective. If with

his motion the producer has not filed a satisfactory

bond or undertaking such bond or undertaking must

be filed within 30 days after the issuance of the Sec-

retary’s notice provided for in paragraph (a) of this

section. Unless notified to the contrary by the Secre-

tary of the Commission within 30 days from the date

of filing, such bond or undertaking shall be deemed to

be satisfactory and to have been accepted for filing.

(f) No interest is required to be paid on any portion

of a refund which represents payments of royalties or

taxes to Federal or State governmental authorities,

except to the extent that such authorities pay interest

to the producer when refunding overpayments of roy-

alties or taxes.

Hugoton—Anadarko Rate Cases, 44 F.P.C. 761 (1970), Opinion

586, Docket No. AR 64-1, et al. Ordering paragraphs (D),

(G) and (H) provide in pertinent part:

(D) The applicable area rate as defined in ordering

paragraph (A) above, shall be effective from and after

October 1, 1970, and any amounts collected in excess

thereof on or after that date shall be collected subject

to refund plus interest at 7 percent. * * *

(G) Refund Reports. On or before November 2,

1970, a refund report shall be filed with this Com-

27a

mission in triplicate, and one copy served on the buyer,

by each respondent invelved in one or more of the

Section 4(e) proceedings set out in Appendix A to

this decision and as to which refunds are required un-

der the terms of this decision. Within 20 days from

the filing of the refund report the buyer shall file its

written concurrence or disagreement with such report.

The report shall set forth the following information

(if more than one rate schedule is involved the re-

spondent shall supply the information for each sched-

ule separately) :

(i) The rate collected during the period subject

to refund and the periods during which each rate

was collected.

(ii) The volume of gas sold at each such rate.

(iii) The difference between the total amount col-

lected during the period subject to refund and the

amount that would have been collected at the appli-

cable area rate as defined herein subject to the pro-

visoes of ordering paragraph (D).

(iv) The computation of the applicable area rate

and the basis for any difference between it and the

base area rate.

(v) The interest, at rates as specified in each

Section 4(e) proceeding, on the above refundable

excess revenues, subject to the limitation by Section

154.102(f) of the Commission’s Regulations under

the Natural Gas Act. The interest shall be calculated

to September 1, 1970.

(If) Treatment of Refunds. Each respondent shall

retain the amounts shown in the report required under

ordering paragraph (G) subject to further order of the

Commission directing the disposition of those amounts.

If a respondent elects to commingle these retained

refunds with its general assets and use for its cor-

porate purposes, it is authorized so to do after notice

to the Commission; and it shall pay interest thereon

at the rate of 8 percent per annum on all funds

thus available from the effective date of this order to

the date on which they are paid over to the person

ultimately determined to be entitled thereto in a final

28a

order of the Commission. If a respondent elects to

deposit the retained refunds in a special escrow ac-

count, the respondent shall make such deposit and shall

tender fur filing on or before the date of the filing

of the refund report an executed Escrow Agreement,

or a certificate attesting to the fact that it has exe-

ected such an agreement, in the form provided by Sec-

tion 250.12 of Part 250 of the Regulations under the

Natural Gas Act (18 CFR Part 250).

IN THE UNITED STATES DISTRICT COURT FOR THE

NORTHERN DISTRICT OF TEXAS

Civil Action No. CA-2-1356

Purturrs PerroLeum Company, Plaintiff,

Vv.

J. H. Apvams, et Au., Defendants.

Judgment and Memorandum Opinion

(February 7, 1974)

On this the 7th day of February, 1974 came on to be

heard the above-entitled and numbered cause and there

appeared in court by and through their attorneys the

plaintiff, Phillips Petroleum Company, the defendants,

J. H. Adams, Waylon Adams and Arlwone H. Adams, and

the defendants, Robert O. Schnell, W. S. Etchieson, and

L. Jack Gross, and all other parties having settled and

compromised their claims, and the parties having an-

nounced ready for trial before the court without a jury,

and introduced their evidence, and the court having con-

sidered the evidence, the entire record in this case, and the

briefs and argument of counsel, has this day filed its Memo-

randum Opinion which constitutes the court’s Findings of

Fact and Conclusions of Law, here referred to and incor-

29a

porated herein for all purposes. It therefore appears that

judgment should be entered as follows:

That the said Robert O. Schnell, W. S. Etchieson and

L. Jack Gross have no right, title or interest in and to the

sum of $16,161.88 heretofore deposited by Phillips Petro-

leum Company with the Clerk of this court in this case,

and all relief prayed for by these parties is Dentep.

That the following parties are hereby Apsupcep to be

entitled to and own and the Clerk of this court shall pay

such sum of $16,161.88 to the parties of this suit as fol-

lows:

A. To Mary Ardath Thomson (formerly Mary Ardath

Dunning, widow of Earnest H. Dunning, deceased,) the

sum of $1,288.36.

B. To Patricia Nelson (formerly Patricia I. White,

widow of Oadus White, deceased,) the sum of $2,576.71.

C. To J. H. Adams, Waylon Adams, and Arlwone H.

Adams the sum of $12,296.81.

The counterclaim of J. H. Adams, Waylon Adams, and

Arlwone H. Adams against Phillips Petroleum Company

for interest is Dentep.

Rosemary J. Walker and Don Walker, although duly

served with summons, have failed to answer or appear

herein, and it is hereby Founp and Apsvupcep that the said

Rosemary J. Walker and Don Walker are in default and

it is further Apsupcep that they have no right, title or

interest in and to any of the funds in dispute in this case.

30a

All relief prayed for by any of the parties hereto not

granted specifically herein is Denrep.

Costs are assessed against J. H. Adams, Waylon Adams

and Arlwone H. Adams.

The Clerk will furnish a copy hereof to each attorney.

E\ntTereED this 7th day of February A.D. 1974.

/s/ Hausert O. Woopwarp

Halbert O. Woodward

United States District Judge

MemoranpvuM OPINION

On the 7th day of February, 1974 there appeared in open

court the plaintiff, Phillips Petroleum Company, its coun-

sel, and there also appeared, by and through their attorney,

the defendants, J. H. Adams, Waylon Adams and Arlwone

H. Adams, hereinafter referred to as ‘‘Adams Family,’’

and there also appeared in open court by and through their

attorney the parties to this suit, Robert O. Schnell, W. S.

Etchieson, and L. Jack Gross, hereinafter called the

‘‘Schnell Group.’’ It had been previously stipulated and

agreed that all of the other parties to the controversy in

question had agreed and compromised their respective

claims as will hereinafter be more detailed.

This Memorandum Opinion shall serve as the court’s

Findings of Fact and Conclusions of Law, the case being

tried before the court without a jury, and in addition to

this opinion the stipulations and admissions of the parties

set forth in the court’s Pre-Trial Order dated January 31,

1974 are here adopted as a part of these Findings of Fact.

The dispute in this case concerns the production of gas

from a lease containing 86.52 acres of land in Hutchinson

3la

County, Texas. The gas in question, as stipulated to by

the parties, was actually produced hetween the dates of

July 1, 1963 when the Adams Family purchased this lease,

Adams Ex. 4, and the date of June 1, 1967 when the Adams

Family sold the lease in question to Robert O. Schnell.

Adams Ex. 1.

On December 21, 1973 the plaintiff, Phillips Petroleum

Company, deposited in the registry of this court the sum

of $16,161.88 which sum of money represents additional

moneys for the purchase price of the gas produced and

sold between the above dates. At the time of the produc-

tion of the gas in question Phillips Petroleum Company

had paid the leasehold owners, pursuant tc certain casing-

head gas purchase contracts, Adams Exs. 2 and 3, the

amount then approved as the correct amount to be paid

by the Federal Power Commission. Subsequently, by a

decision of the Federal Power Commission, Pltf’s Ex. 3,

effective October 1, 1970, an increase in the price of the gas

produced was allowed for the periods involved in this case.

The sum on deposit with the registry of this court repre-

sents this allowed increase in price for the gas produced

and sold between July 1, 1963 and June 1, 1967, being the

dates respectively that the Adams Family purchased the

lease in question and sold the lease in question.

The decision of the Federal Power Commission was ap-

pealed to the courts, was affirmed, The People of State of

California, et al. v. Federal Power Commission, 466 F.2d

974 (9th Cir. 1972), and the last date for the application

for writ of certiorari by the parties to said case to the

Supreme Court of the United States expired on October 28,

1972.

On January 26, 1972 a suit was filed in this court, Spear-

man, et al. v. Phillips, et al., number CA-2-1159, to recover

the moneys in question in this suit as well as certain other

moneys not in dispute in this particular suit. Cause 2-1159

was compromised and settled among some of the parties

32a

thereto and the lawsuit now under consideration was placed

on the docket of this court to determine the dispute as to

the ownership of the $16,161.88.

The pleadings in this cause show that the plaintiff herein,

Phillips Petroleam Company, tendered the money into the

court and these pleadings do not reveal that any of the

parties ever demanded a deposit of the moneys with the

Clerk although the plaintiff did deposit same on December

21, 1973 and they now remain on deposit.

The Schnell Group claims that the assignment of the

lease to them, Adams Ex. 1, the division order signed by

Adams and Schnell, page 3 of Pitf’s Ex. 2, and certain

prior actions of the Adams Family do in effect assign not

only the oil and gas lease in question but operate to assign

the funds in question in this case even though these funds

represent part payment for gas produced and severed from

the land prior to the effective date of the assignment from

the Adams Family to the Schnell Group. The prior action

relied upon is that when the Adams Family purchased the

lease in 1963 from the Spearmans and subsequent to the

purchase thereof, Phillips Petroleum Company had sent

the Adams Family a check for four hundred plus dollars,

which funds were similar to the funds in this case, and

that the Adams Family’s acceptance of this $400 check

from their seller in 1963 constitutes evidence that when

the Adams Family sold to the &chnell Group in 1967 that

all similar funds would then be conveyed to the Schnell

Group.

Two other matters remain in dispute; first, that is the

claim of the Adams Family that Phillips Petroleum Com-

pany should be required to pay interest on the amount now

on deposit with the Clerk of this court from the effective

date of the Federal Power Commission decision on Octo-

ber 1, 1970 until the time that said sum was deposited with

the Clerk of this court on December 21, 1973. Secondly,

Phillips Petroleum Company, in its prayer for relief, asks

33a

for its costs, but did not specifically mention attorney’s

fees. The Pre-Triai Order entered in this cause and agreed

to by the attorneys for the parties hereto did not mention

any claim for attorney’s fees for the plaintiff and it was

not until the hearing on the 7th day of February, 1974 that

the plaintiff informed the court of its claim and presented

evidence that it was entitled to $1,450 attorney’s fees as a

stakeholder. Even though the court finds that the amount

of the fees is a reasonable amount, the court will deny re-

covery of any attorney’s fees because the plaintiff did not

specifically plead for same nor did it indicate a claim for

attorney’s fees in the proposed pre-trial order submitted

to the court. Further, the court does not feel that attor-

ney’s fees are properly allowable in this case because, as

admitted by counsel for plaintiff in argument, this partic-

ular case was in the nature of a ‘‘test’’ case that would

control this court’s rulings on similar issues in many other

cases now pending that involve sums of money held and

owed for the purposes as the funds in this case are. Ac-

cordingly when the judgment is entered this plea for at-

torney’s fees will be denied.

Other evidence introduced for consideration by the court

indicates and this court finds as a fact that at all material

times hereto there has been a bona fide dispute between

the Adams Family and the Schnell Group as to the true

ownership of the money now held by the Clerk.

Based on the record in this case, the evidence introduced,

the briefs and argument of counsel, the court is of the opin-

ion that the Adams Family is the righful owner of the

$16,161.88 subject to certain amounts to be paid out of said

fund as stipulated in the Pre-Trial Order and that the

Schnell Group has no interest in such sum. The money in

question is in part payment of gas severed from the lease-

hold estate and sold therefrom prior to any assignment of

the lease by the Adams Family. The documents assigning

such lease pass only the leasehold title and the personal

34a

property and equipment used or obtained in connection

therewith and located thereon, Adams Ex. 1, and none of

these documents can be construed to nor do they constitute

an assignment of the moneys in question.

Further, as there was a bona fide dispute among the

claimants to the money Phillips Petroleum Company was

not obligated in any respect for the payment of interest

on said money up until December 21, 1973, and when it paid

the money into the registry of the court on said date it

was relieved from any payment of interest subsequent

thereto. Had the claimants previously made a demand,

after the final effective date of the Federal Power Com-

mission’s decision, that the money be placed in the registry

of the court, and had Phillips Petroleum Company refused

to do so within a reasonable time, then the question of

interest might be determined differently, but such are not

the facts in this case.

Accordingly judgment will be entered distributing the

money and awarding the money as follows:

1) To Mary Ardath Thomson (formerly Mary Ardath

Dunning, widow of Earnest H. Dunning, deceased,)

$1,288.36.

2) To Patricia Nelson (formerly Patricia I. White,

widow of Oadus White, deceased,) the sum of $2,576.71.

3) To J. H. Adams, Waylon Adams, and Arlwone H.

Adams the sum of $12,296.81.

A judgment will be entered accordingly.

The Clerk will furnish a copy hereof to each attorney.

Enrterep this 7th day of February A.D. 1974.

/s/ Harsert O. Woopwarp

Halbert O. Woodward

United States District Judge

35a

SupPLEMENTAL Finpinc or Fact

Supplementing the findings of fact set forth in the

Court’s Memorandum Opinion, filed in the above entitled

action on February 7, 1974, the Court finds as a fact that

the Four Hundred Dollars plus check mailed by Phillips

Petroleum Company to the Adams Family was accom-

panied by a written statement reading as follows:

“NOTICE

‘*The enclosed check represents additional payment

for royalties or for prior purchases of gas from you.

This payment is based on rate increases for various

sales of gas by Phillips Petroleum Company which

have been finally approved by the Federal Power Com-

mission. These increases were originally suspended by

the Commission and later put into effect by Phillips

subject to refund. The Commission’s decision allow-

ing these increases was appealed to the U.S. Supreme

Court by other parties, and the decision of the court

affirming the Commission’s decision has just recently

become final.

‘*The increases on which the enclosed payment is based

were filed at various times prior to January 1, 1957.

Each of these increases has been superseded by a later

increase which was also suspended by the Commission.

The enclosed payment covers only that period from

the time each of these increases became effective until

the following increase became effective subject to re-

fund. None of the later increases has vet been con-

sidered by the Commission. Further additional pay-

ments will be made to you from time to time if and

when such later increases are approved in whole or

in part.

“This payment will not result in any change in the

price currently being paid you for royalties or for gas

purchased from you.

Phillips Petroleum Company

Bartlesville, Oklahoma’’

Enterep this 5th day of March, 1974.

/s/ Harsert O. Woopwarp

Halbert O. Woodward

United States District Judge

36a

SUPPLEMENTAL ConcLusions oF Law

Supplementing the Conclusions of Law set forth in the

Court’s Memorandum Opinion, filed in the above-entitled

action on February 7, 1974, the Court finds, as an initial

determination, that the counterclaims are proper under

Rule 13, Federal Rules of Civil Procedure, and that the

court has jurisdiction to hear and determine the counter-

claims. Phillips’ technical argument that they are not an

‘‘opposing party’”’ within the meaning of Rule 13 is not

persuasive. Phillips in its Complaint prays that it be dis-

charged from all liability in connection with the fund,

which would, of course, include discharge from any liabil-

ity for interest. Phillips is asking for affirmative relief

against the defendants and, therefore, this court feels com-

pelled to characterize them as opposing parties for the

purposes of Rule 13, supra. Further, the court finds that

defendants’ counterclaims are ‘‘compulsory’”’ within the

meaning of Rule 13(a). Clearly, the claims for interest

arose ‘‘out of the transaction or occurrence that is the

subject matter of the opposing party’s claim.’’ Accord-

ingly, there is no jurisdictional amount requirement as to

the counterclaims and the court has ancillary jurisdiction

over them. Childress v. Cook, 245 F.2d 798 (5th Cir. 1957).

Datep this 11th day of March, 1974.

/s/ Harzsert O. Woopwarp

Halbert O. Woodward

United States District Judge

37a

Text oF STIPULATIONS AND ADMISSIONS OF THE ParTIEs,

NumBers 1-32, IncorporaTED BY REFERENCE INTO THE D1s-

TRicT Court’s MemMoraNpUM OpINIon as FinpINGs oF Fact.

The parties admit the following:

1. That on January 22, 1951, Neil Johnson, et al., as

lessor, executed and delivered to Earl C. H. Walker, as

lessee, an Oil, Gas and Mineral Lease covering the follow-

ing described property, to wit:

The North and East 86.52 acres out of the East One-

Half (E/2) of Survey 4, Exciupine the South and

West 42.93 acres of said survey, Block ‘‘V’’, Dave

Blaker, Original Grantee, Astract Number 1167, S. F.

7941, described by metes and bounds as follows:

BEGINNING at a point, the same being the Southwest

corner of Section 71, H&TC Railway Company Survey,

Hutchinson County, Texas;

Tuence East 2640 feet along the South line of Section

71 to a point, the same being the Southeast corner of

Section 71;

TuHence North 338 feet along the East line of said

Section 71 to a point, the same being the Southwest

corner of Section 70;

Tuence East 1,072.2 feet along the South line of Sec-

tion 70 to a point;

TueENceE South 1,334.2 feet along the East line of Sur-

vey 4, Block ‘‘V’’, Dave Blaker, Original Grantee

Survey, to a point;

THence West 1,557.8 feet along the North line of the

Cody Oil Company lease to a point;

THence North 86° 14’ 13” West a distance of 2,148.3

feet to a point, the same being the Southeast corner

of Section 72;

Tuence North along the East line of Section 72 a dis-

tance of 800 feet to the point of beginning, and con-

sisting of 86.52 acres, more or less;

38a

which lease, hereinafter called the ‘‘Neil Johnson Lease’’,

is recorded in Volume 144, at page 3 of the Deed Records

of Hutchinson County, Texas. The above-described tract

is referred to hereinafter as ‘‘subject property.’’

2. That by assignment dated December 8, 1952, and re-

corded in Volume 151 at page 505 of the Deed Records of

Hutchinson County, Texas, the said Earl C. H. Walker

assigned to Blanard W. Spearman all of the gas rights

(except casinghead gas) and an undivided 1/32 to 8/8 over-

riding royalty interest on oil and other minerals produced

under the terms of the Neil Johnson lease.

3. That by assignment dated February 20, 1960, and re-

corded in Volume 242 at page 641 of the Deed Records of

Hutchinson County, Texas, the said Earl C. H. Walker

assigned to the said Blanard W. Spearman all of the right,

title and interest owned by the said Farl C. H. Walker in

the Neil Johnson lease.

4. That by assignment dated February 20, 1960, and re-

corded in Volume 244 at page 644 of the Deed Records of

Hutchinson County, Texas, Blanard W. Spearman assigned

to Rosemary J. Walker and her hushand, Earl C. H.

Walker, an undivided 17/144 of an 8/8 overriding royalty

interest on the casinghead gas produced and sold from the

Neil Johnson lease.

5. That on July 1, 1963, Blanard W. Spearman owned a

49/64 working interest in the Neil Johnson lease, subject

to the overriding royalty interest described in paragraph

IV, hereinabove.

6. That by assignment dated July 11, 1963, recorded in

Volume 288 at page 39 of the Deed Records of Hutchinson

County, Texas, to be effective July 1, 1963, the said Blanard

W. Spearman assigned all of his right, title and interest in

the Neil Johnson lease (being a 49/64 working interest

subject to an overriding royalty interest) to J. H. Adams.

39a

7. That the said J. H. Adams, in turn, assigned an un

divided 1/4 interest in the Neil Johnson lease to Waylon

Adams by assignment dated May 21, 1964, recorded in

Volume 300 at page 36 of the Deed Records of Hutchinson

County, Texas.

8. That additional undivided 1/4 interest in the Neil

Johnson lease was assigned by the said J. H. Adams to

Arlwone H. Adams by assignment dated May 21, 1964, and

recorded in Volume 300 at page 39 of the Deed Records of

Hutchinson County, Texas.

9. That J. H. Adams, Waylon Adams, and Arlwone H.

Adams, by instrument of assignment dated June 5, 1967,

recorded in Volume 336 at page 126 of the Deed Records

of Hutchinson County, Texas, a true copy of which is at-

tached hereto and marked Exhibit ‘‘A’’, assigned the sub-

ject property and certain rights, title and interests enu-

merated in said instrument to Robert O. Schnell.

10. That by assignment dated June 6, 1967, recorded in

Volume 336 at page 129 of the Deed Records of Hutchin-

son County, Texas, Robert O. Schnell assigned all of his

right, title and interest in the Neil Johnson lease to W. S.

Etchieson and L. Jack Gross.

11. That W. S. Etchieson and L. Jack Gross, by assign-

ment dated September 27, 1968, recorded in Volume 349 at

page 106 of the Deed Records of Hutchinson County, Texas,

reassigned their interest in the Neil Johnson lease to Rob-

ert O. Schnell.

12. That on January 2, 1964, by virtue of an execution

issued out of the District Court of Hutchinson County,

Texas, on November 30, 1964, in Cause No. 11,428, wherein

Oadus White and James Blair were plaintiffs and Earl

C. H. Walker was defendant, the Sheriff of Hutchinson

County did levy on the 17/144 of 8/8 overriding royalty

interest, described hereinabove in paragraph IV, and on

the Ist Tuesday in January 1964, sold the same at publie

40a

auction to Oadus White, as evidenced by the Sheriff’s Deed

dated January 5, 1965, recorded in Volume 308 at page 699

of the Deed Records of Hutchinson County, Texas.

13. That by assignment dated January 5, 1965, and re-

corded in Volume 310 at page 17 of the Deed Records of

Hutchinson County, Texas, Oadus White assigned to Ear-

nest H. Dunning an undivided one-third (1/3) interest in

and to that certain overriding royalty interest conveyed to

Oadus White by the Sheriff of Hutchinson County, Texas.

14. That on January 12, 1968, Earnest H. Dunning died

in Borger, Texas. Presently, Mary Ardath Thomson (for-

merly Mary Ardath Dunning, widow of Earnest H. Dun-

ning, deceased) owns an undivided one-third (1/38) inter-

est in and to that certain overriding royalty interest con-

veyed in and to that certain overriding royalty interest

conveyed to Oadus White by the Sheriff of Hutchinson

County, Texas.

15. That on October 26, 1972, Oadus White died in Bor-

ger, Texas. Presently, Patricia Nelson (formerly Patricia

I. White, widow of Oadus White, deceased) owns an un-

divided two-thirds (2/3) interest in and to that certain

overriding royalty interest conveyed to Oadus White by

the Sheriff of Hutchinson County, Texas.

16. That while the Adams Family owned and operated

subject property, the produced casinghead gas which was

sold to Phillips under certain casinghead gas purchase

agreements, more particularly described hereinafter.

17. That on or about March 29, 1957, Phillips, as buver,

entered into a Casinghead Gas Contract (recorded in Vol-

ume 200 at page 178 of the Deed Records of Hutchinson

County, Texas. a true copy of which is attached hereto and

marked Exhibit ‘*B’’) with B. W. Spearman and G. E.

Hatton, as seller, to purchase casinghead gas produced

from wells located on subject property. Said contract, in

paragraphs 7 and 8, provided that seller was to receive

4la

as a part of the payment due him, for the gas sold by him

to Phillips, a sum computed in relation to the price for

which Phillips sold any gas within the Panhandle Field of

Texas to third parties. Said contract was superseded and

terminated by a Casinghead Gas Contract dated Septem-

ber 1, 1966, described hereinbelow.

18. That on or about September 1, 1966, Phillips, as

buyer, entered into a Casinghead Gas Contract (recorded

in Volume 331 at page 59 of the Deed Records of Hutchin-

son County, Texas, a true copy of which ‘s attached hereto

and marked Exhibit ‘‘C’’) with the Adams Family, doing

business as J. H. Adams Oil Company, as seller, to pur-

chase casinghead gas produced from wells located on sub-

ject property. Said contract, in paragraphs 7 and 8, pro-

vided that seller was to receive as a part of the payment

due him, for the gas sold by him to Phillips, a sum com-

puted in relation to the price for which Phillips sold any

gas within the Panhandle Field of Texas to third parties.

19. That by various orders issued since the United States

Supreme Court, on June 7, 1954, decided Phillips Petro-

leum Company v. State of Wisconsin, et al., 346 U. .S. 672,

74S. Ct. 794, 98 L. Ed. 1036, and determined that Phillips,

as an independent natural gas producer selling gas to

interstate pipeline companies for interstate transporta-

tion and resale, was a ‘‘natural gas company”’ within the

Natural Gas Act, the Federal Power Commission (FPC)

suspended increases in prices for sales of residue gas filed

by Phillips and permitted such increases to be collected

beginning at some date subsequent to the original date

proposed by Phillips, only upor Phillips’ filing a corporate

undertaking with the FPC to refund all or any portion of

such increases which the FPC might not find to have been

justified.

20. That subsequent to June 7, 1954, Phillips sold gas

obtained under the above-referenced casinghead gas con-

tracts, and other contracts, subject to the jurisdiction of

gist eae it toe ARID

42a

the FPC, at prices, a portion of which had not been ap-

proved by the FPC; the increased sales prices of the gas

were collected by Phillips subject to a duty to refund the

same to the purckasers in the event the FPC failed to ap-

prove the sales prices pursuant to Section 4(e) of the

Natural Gas Act (15 U.S.C. - 717¢(e); and until such time

as the FPC approved such increased sales prices or a por-

tion of said prices, there was no right in the Adams Fam-

ily, the Schnell Group, the Walker Family, Thomson or

Nelson to recover from Phillips any such monies held sub-

ject to refund.

21. That Phillips chose to collect the higher rates sub-

ject to refund if the rates were not approved because in-

creases in gas sales prices not made effective subject to

FPC approval cannot be made retroactive. If Phillips

had not collected the higher rates subject to refund, the

owners of the casinghead gas contract rights could not

receive, as part payment due them under said contracts,

a sum computed in relation to the higher price for which

Phillips sold gas within the Panhandle Field of Texas to

third parties.

22. That Phillips had applications before the FPC re-

questing permission to increase the prices for sales of

residue gas and such applications, for this area, were con-

solidated in FPC Dockets AR 64-1, et al.

23. That on September 18, 1970, the FPC issued Opinion

586, Dockets No. AR 64-1, et al., Hugoton-Anadarko Rate

Cases, 44 FPC 761, which established sales prices appli-

cable to gas sales and established refund requirements;

on July 31, 1972, the Court of Appeals for the Ninth Cir-

cuit affirmed the above-said Opinion 586 in The People of

State of California, et al. v. Federal Power Commission,

No. 71-1036, reported at 466 F.2d 974, et seq., and, as of

October 28, 1972, no writ of certiorari was filed by any of

the parties to said Ninth Cireuit action.

43a

24. That after Opinion 586 became final, the monies col-

lected subject to refund could be divided into two classes

‘‘sustainable’’ money and ‘‘refundable’’ money. The

‘‘sustainable’’ monies are those which, according to Opin-

ion 586, represent lawful proceeds from the sales of gas.

It is from these lawful proceeds that the parties from

which Phillips purchased casinghead gas receive, as their

part payment, a sum computed in relation to the price for

which Phillips sold gas within the Panhandle Field of

Texas to third parties. The ‘‘refundable’’ monies are

those which, according to Opinion 586, represent sums in

excess of the just and reasonable rate; i.e., the sums in

excess of the lawful proceeds from the sales of gas,

25. That this action does not involve ‘‘firm proceeds’’;

that is, the proceeds derived from sales of gas within the

Panhandle Field of Texas to third parties at prices which

were at or below the rate which had already been approved

by the FPC. Such firm proceeds were all paid in a timely

manner in accordance with paragraph 9 of each of the

casinghead gas contracts referred to hereinabove.

26. That on and after October 28, 1972, and under the

sales prices approved by the FPC in Opinion 586, a sum of

money equal to the sustainable portion of the money col-

lected subject to refund, attributed to a 49/64 working in-

terest in the Neil Johnson lease covered by the casinghead

gas contract referenced hereinabove for the period from

July 1, 1963, through May 31, 1967, and to the gas con-

tracts covering the subject property, that is, $16,161.88

became due and payable to the lawful owner or owners of

said monies.

27. That of the $16,161.88, the sum of $1,006.85 is at-

tributable to the overriding royalty interest prior to Jan-

uary 1, 1965; the sum of $2,858.22 is attributable to the

overriding royalty interest on and after January 1, 1965.

The total sum attributable to the overriding royalty inter-

“Vata ee

44a

est is $3,865.07. The balance of the $16,161.88 which is

$12,296.81, is the sum of the money, the ownership of which

is in dispute between the Adams Family and the Schnell

Group.

28. That by an instrument entitled Assignment of Oil

and Gas Lease, dated June 5, 1967, recorded in Volume 336

at page 126 of the Deed Records of Hutchinson County,

Texas, said instrument to be effective as of June 1, 1967,

at 7:00 a.m., a true copy of which is attached hereto as

Exhibit ‘‘A’’, the Adams Family assigned the subject

property and certain rights, title and interests enumer-

ated in the said instrument to the Schnell Group.

29. That the Adams Family has not been paid any por-

tion of the above-said $12,296.81, and all parties admit and

agree that either the Adams Family or the Schnell Group

is entitled to this sum of money from Phillips.

30. That the Adams Family and the Schnell Group ad-

mit and agree that they do not claim to be entitled to any

part of the $$3,865.07 referenced hereinabove; and that

Thomson and Nelson admit and agree that they do not

claim to be entitled to any part of the $12,296.81 referenced

hereinabove.

31. The Walker Family were served with summons on

April 16, 1973, but have not filed an answer herein and are

in default. The controversy between the Walker Family

and Thomson and Nelson which existed as to the sum of

$1,006.85 attributable to the overriding royalty interest

prior to January 1, 1965, was resolved when the Walker

Family declined to file their answer in this action.

32. That neither Thomson nor Nelson has been paid any

portion of the above-said $3,865.07, and all parties admit

and agree that Nelson is entitled to receive two-thirds

(2/3) of the $3,865.07 or the sum of $2,576.71; and all

parties agree that Thomson is entitled to receive one-third

(1/3) of the $3,865.07 or the sum of $1,288.36.

45a

UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

No. 74-1777

Puituirps PetroLeum Company, Plaintiff-A ppellee,

J. H. Apams, et au., Defendants.

Rosert O. Scune.i, W. S. Ercutrson, and Jack Gross,

Defendants-Appellants,

Vv.

J. H. Apams, Wayton Apams, and Artwone H. Apams,

Defendants-A ppellees and Appellants.

Appeals from the United States District Court for the

Northern District of Texas

Judgment

(May 22, 1975)

Before Turtiz, Gewrn and Goxpsere, Circuit Judges.

This cause came on to be heard on the transcript of the

record from the United States District Court for the North-

ern District of Texas, and was argued by counsel;

On ConsweraTION WHEREOF, It is now here ordered and

adjudged by this Court that the judgment of the said Dis-

trict Court in this cause be, and the same is hereby, af-

firmed in part and reversed in part; and that this cause

be, and the same is hereby remanded to the said District

Court in accordance with the opinion of this Court;

It is further ordered that plaintiff-appellee and defend-

ants-appellants pay equally to defendants-appellees-appel-

lants, the costs on appeal to be taxed by the Clerk of this

Court.

46a

(Caption Omitted in Printing)

Opinion

May 22, 1975

Before TurrLe, Gewin and Gotpperc, Circuit Judges.

Go.psereG, Circuit Judge:

In this ease of first impression, and in two similar cases

also decided today, First National Bank vy. Phillips Petrole-

um Co., 5 Cir. 1975, 513 F.2d 371 [May 22, 1975, No. 74-

2230], and Phillips Petroleum Co. v. Riverview Gas Com-

pression Co., 5 Cir. 1975, 513 F.2d 374 [May 22, 1975, No.

74-2009], we must determine the rightful owners of funds

payable by a pipeline company under contracts for the

sale of casinghead gas,’ where the gas underlying the debts

was produced while the mineral leases were held by claim-

ants who assigned their leasehold interests to other claim-

ants before the debt owed by the pipeline company became

due and payable.* After certain preliminary skirmishing,

***Casinghead gas"’ is a term used in the oil and gas industry

to describe the gas which flows from the casinghead of an oil well.

The production of this type of gas is usually considered incident to

the production of oil from the same sourees. See generally Read

v. Britain, Tex-Civ.App. 1967, 414 S.W.2d 483, aff'd, Tex. 1967,

422 S.W. 2d 902: Hardwicke, Evolution of Casinghead Gas Law,

8 Tex.L.Rev. 1 (1929).

*The problem presented by these three cases has attained epi-

demie proportions in the Texas Panhandle. By the time these

cases were orally argued before this Court, in December, 1974,

there were seven similar actions on the civil docket in the United

States District Court for the Northern District of Texas, Amarillo

Division, and three other snch eases in the Texas courts. Phillips

says that it has 966 percentage-of-proceeds contracts of the type

involved here in the Texas Panhandle alone; $9,700,000 in pay-

ments is now due under these contracts.

47a

the pipeline company brought this diversity interpleader

action to obtain a judicial resolution of its contractual dif-

ficulties. The assignor-claimants (those who held the

leasehold interest at the time the gas was produced)

counterelaimed against the pipeline company for interest on

the funds held by the company. After a trial without

a jury, the district court decided that the assignor-claimants

ought to have the principal sum involved but that the pipe-

line company owed them no interest ; the pipeline company,

the assignor-claimants and the assignee-claimants all ap-

peal. We affirm the district court’s decision as to the owner-

ship of the principal sum; we believe, however, that equity

requires that the assignor-claimants should receive in-

terest as well, so we must reverse that portion of the judg-

ment below relating to interest.

On July 1, 1963, the assignor-claimants [the Adams

family] purchased an oil and gas lease on property situated

in Hutchinson County, in the Texas Panhandle. At the

time of this purchase, a casinghead gas contract was in

force between Phillips Petroleum Company [Phillips] and

the holders of the mineral rights to the property. This

contract provided that Phillips would purchase the casing-

head gas produced on the lease and would pay therefore a

price based on the price which Phillips itself obtained for

all gas sold by it which originated in the Panhandle Field

of Texas. In September 1, 1966, the Adams family con-

cluded another percentage-of-proceeds gas sales agreement

with Phillips which was substantially similar to the one in

force from 1963 until 1966.

In 1967, one Schnell, a friend of one of the Adamses,

expressed interest in purchasing the mineral leasehold

interest in the Hutchinson County property. A deal was

soon worked out, and on June 5, 1967, the Adams family

conveyed to Schnell ‘‘all right, title and interest of the

48a

Original Lessee and present owners in and to [the lease in

question], and rights thereunder ... together with all per-

sonal property and equipment used or obtained in connec-

tion therewith, and located thereon ...’’ The assignment

was to be effective as of June 1, 1967, at 7 a.m. The very

next day, Schnell conveyed his interest in the property to

two business associates, Etchieson, a recently-retired Phil-

lips executive, and Gross. On September 27, 1968, Etchie-

son and Gross reconveyed their interests to Schnell, who

held title to the mineral rights in question when this law-

suit commenced. We shall henceforth refer to Schnell,

Etchieson and Gross as ‘*the Schnell group.’’

The difficulty in this case arises from the pricing provi-

sion in the casinghead gas contracts, for just as the price

Phillips undertook to pay to the holder of the mineral

rights was pegged upon the average price of gas sold in

the Panhandle Field, that field price was in turn dependent

upon the rate that the Federal Power Commission allowed

Phillips to charge for its gas, which latter variable was

very variable indeed until long after the Adams family had

assigned its lease to Schnell. In 1954, in Phillips Petrole-

um Co. v. Wisconsin, 347 U.S. 672, 74 S.Ct. 794, 98 L.Ed.

1035, the United States Supreme Court determined that

the Natural Gas Act, 15 U.S.C. §717 et seq., [the Act]

requires the Federal Power Commission to regulate well-

head sales by producers of natural gas to interstate pipe-

line companies for interstate transportation and resale.

From that time, gas prices charged by pipeline companies

such as Phillips have been subject to FPC approval.

In the nature of things, pipeline companies desire to

-9ise their gas prices from time to time, and, also in the

nature of things, the wheels of the FPC’s rate-setting mech-

anism grind slowly, at best. To add to the obvious difficul-

ties attendant upon long waits for approval of price in-

creases, a pipeline company may not file retroactive price

increases, 15 U.S.C. §717c(d) and (e); Atlantic Refining

49a

Co. v. Public Service Commission, 1959, 360 U.S. 378, 389,

79 S.Ct. 1246, 1253, 3 L.Kd.2d 1312, 1319-20; Shell Oil Co.

v. FPC, 3 Cir, 1964, 334 F.2d 1002, 1009; see 18 C.F.R.

§ 154.102,* so that if a pipeline company were to wait for

IPC approval of a proposed price hike, it might very well

*Section 717e provides, in pertinent part:

(a) All rates and charges made, demanded, or received by

any natural-gas company for or in connection with the trans-

portation or sale of natural gas subject to the jurisdiction of

the Commission, and all rules and regulations affecting or

pertaining to such rates or charges, shall be just and reason-

able, and any such rate or charge that is not just and reason-

able is declared to be unlawful.

* hall * * *

(e) Under such rules and regulations as the Commission

may prescribe, every natural-gas company shall file with the

Commission, . . . and in such form as the Commission may

designate, and shall keep open in convenient form and place

for public inspection, schedules showing all rates and charges

for any transportation or sale subject to the jurisdiction of

the Commission, and the classifications, practices, and regula-

tions affecting such rates and charges, together with all con-

tracts which in any manner affect or relate to such rates,

charges, classifications, and services.

(d) Unless the Commission otherwise orders, no change

Shall be made by any natural-gas company in any such rate,

charge, classification, or serviee, or in any rule, regulation, or

contract relating thereto, except after thirty days’ notice to

the Commission and to the public.

* * ce * *

(e) Whenever any such new schedule is filed the Commis-

sion shall have authority, either upon complaint of any State,

municipality, State commission or gas distributing company,

or upon its own initiative without complaint, at once, .. . but

upon reasonable notice, to enter upon a hearing concerning

the lawfulness of such rate, charge, classification, or service ;

and, pending such hearing and the decision thereon. the

Commission, . . . may suspend the operation of such schedule

and defer the use of such rate, charge, classification, or service,

but not for a longer-period than five months beyond the time

when it would otherwise go into effect, and after full hear-

ings, . .. the Commission may make such orders with reference

thereto as would be proper in a proceeding initiated after

(Continued on next page)

ee es ote.

50a

lose ten years’ worth of increased prices. Congress has

resolved this difficulty by allowing a pipeline company to

increase its prices on its own initiative, subject to a five-

month suspension period which may be imposed by the

FPC, and subject to a duty to refund to its purchasers

any portion of the increase that the FPC ultimately fails

to approve. 15 U.S.C. §717e(e); 18 C.F.R. § 154.102.4

it had become effective. If the proceeding has not been con-

cluded and an order made at the expiration of the suspension

period, on motion of the natural-gas company making the

filing, the proposed change of rate, charge, classification, or

service shall go into effect. Where increased rates or charges

are thus made effective, the Commission may . . . require the

natural-gas company to furnish a bond... to refund any

amounts ordered by the Commission, to keep accurate ac-

counts in detail of all amounts received by reason of such

increase, specifying by whom and in whose behalf such

amounts were paid, and, upon completion of the hearing and

decision, to order such natural-gas company to refund, with

interest, the portion of such increased rates or charges by its

decision found not justified. At any hearing involving a

rate or charge sought to be inereased, the burden of proof to

show that the increased rate or charge is just and reasonable

shall be upon the natural-gas company, and the Commission

shall give to the hearing and decision of such questions pref-

erence over other questions pending before it and decide the

same as speedily as possible.

4 See generally Placid Oil Corp. vy. FPC, 5 Cir, 1973, 483 F.2d

80, aff'd sub nom, Mobil Oil Corp. v. FPC, 1974, 417 U.S. 283, 94

S.Ct. 2328, 41 L.Ed.2d 72; Phillips Petroleum Co. v. FPC, 10 Cir.

1965, 349 F.2d 535; Comment, Refund Beneficiaries and Refund

Benefits Under the Natural Gas Act, 41 U.Chi.L.Rev. 792 (1974).

18 C.F.R. § 154.102 provides, in part:

(a) If a rate suspension proceeding initiated under section

4(e) of the Natural Gas Act has not been coneluded and an

order made at the expiration of the suspension period, the

proposed change of rate, charge, classification, or service

shall go into effect upon motion of the independent producer

proposing the change as the legally effective rate and shall be

charged, effective as of a date not earlier than the date of

receipt of such motion by the Commission or the expiration

of the suspension period, whichever is later.

* . * * *

(b)(1) Unless otherwise ordered by the Commission, in-

creased rates or charges shall be charged and collected pur-

(Continued on next page)

5la

The FPC may also order the pipeline company to pay seven

per cent interest on refunded monies if equitable con-

siderations so dictate. 15 U.S.C. §717e(e); 18 C.F.R.

§ 154.102(c¢).5

The effect of this regulatory scheme is that the pipe-

line company collects the increased prices for years and

suant to paragraph (a) of this section and there shall be filed

by the independent producer a surety bond, or other under-

taking, to be approved by the Secretary, to comply with tne

provisions of paragraph (c) of this section,

(2) In compliance with subparagraph (1) of this para-

graph, an independent producer may file a general undertak-

ing affording blanket refund coverage of any present and

future rate increases suspended under section 4(e) of the

Natural Gas Act and collected subject to refund thereunder.

Upon acceptance of such general undertaking, the producer

need not file further refund assuranee when filing a motion

to make inereased rates effective unless specifically required

to do so by an order of the Commission.

the provision of this section the independent producer shall be

obligated to keep accurate accounts in detail of all amounts

reecived by reason of the increased rates or charges of each bill-

ing period, and for each purchaser, the billing determinants

of natural gas sales to such purchasers and the revenues re-

sulting therefrom, as computed under the rates in effect im-

mediately prior to the effective date of the change, and under

the rates which became effective pursuant to the motion, to-

gether with the differences in the revenues so computed; and

to refund at such times and in such amounts to the persons

entitled thereto, and in such manner as may be required by

final order of the Commission, the portion of any increased

rate found by the Commission in that proceeding not justified,

together with interest thereon at the rate of seven percent

per annum from the date of payment to the producer until

refunded.

* See Hunt Oil Co. v. FPC, 5 Cir. 1970, 424 F.2d 982; Texas

Eastern Transmission Corp. v. FPC, 5 Cir. 1962, 306 F.2d 345,

cert. denied sub nom. Manufacturers Light & Heat Co. v. Texas

Eastern Transmission Corp., 1963, 375 U.S. 941, 84 S.Ct. 347, 11

L.Ed.2d 273; Brooklyn Union Gas Co. v. Transcontinental Gas

Pipe Line Co., S.D.Tex. 1960, 201 F.Supp. 679, aff'd sub nom.

Socony Mobil Oil Co. v. Brooklyn Union Gas Co., 5 Cir. 1962, 299

F.2d 692, cert. denied, 371 U.S. 887, 83 S.Ct. 182, 9 L.Ed.2d 121.

ore ee

52a

years, using the funds thus collected as it pleases, although

it will ordinarily characterize this ‘‘suspense money’’ as

a liability for accounting purposes. See Ashland Oil &

Refining Co. v. Staats, Inc., D. Kan. 1967, 271 F.Supp. 571,

578. Then, one fine day, the FPC tells the pipeline com-

~ pany Which portion of the funds it ean keep and which

portion it must refund to its purchasers, with interest. At

this point, the pipeline company, such as Phillips in this

case, must recompute the price it must pay to its suppliers

under pereentage-of-proceeds production agreements such

as the ones involved here.° Where the ownership of the

mineral leasehold interest does not change during the ten

or fifteen years in which the FPC is pondering the pro-

posed price increase, all the pipeline company need do is

to send a check along to the current leaseholder. Where,

as here, the leasehold has changed hands in the interim,

the pipeline company’s task is more difficult.

In this ease, Phillips filed a proposed price increase

with the FPC subsequent to the Supreme Court’s decision

in Phillips Petroleum Co. v. Wisconsin, supra, and charged

its customers the higher price, subject to refund, during

the period in which the Adams family held the leasehold

interest in the property involved in this lawsuit. From

1963 until 1967, Phillips made monthly payments to the

Adams family, based only on the ‘‘firm proceeds”’ of its

own sales, that is, proceeds caleulated on the rate which

the FPC had already approved; the pipeline company de-

ferred any payments calculated on the basis of the higher,

unapproved prices which Phillips was actually charging its

® Phillips urges that it really has no obligation to reecompute the

price it must pay to its suppliers under percentage-of-proceeds

contracts, and that the Adams family consequently ought not to

question such beneficence as Phillips might demonstrate. We

believe that the law of contract obliges Phillips to pay in full for

the gas that it purchases, regardless of the time at which the full

measure of payment may be revealed.

53a

customers throughout the period. On September 18, 1970,

the FPC finally concluded its deliberations on Phillips’

proposed rate hikes, approving a portion of the price in-

creases but rejecting another portion.?_ Hugoton-Andarko

Rate Case, Op: 586, 44 F.P.C. 761, aff'd, 9 Cir. 1972, 466

F.2d 974. After the Ninth Cireuit affirmed the FPC’s or-

der, Phillips divided the principal sum of the suspense

money collected over the years into two categories: ‘re-

fundable monies,’’ which it returned to its purchasers with

interest, and ‘‘sustainable monies,’’ to which it now had

certain entitlement. But a portion of these sustainable

monies represented certain debts payable to all producers

who had supplied Phillips with gas under percentage-of-

proceeds contracts. With respect to the particular pro-

perty involved here, Phillips determined that the Schnell

group was the undisputed owner of all sustainable monies

due on gas produced after June 1, 1967, and Phillips set-

tled a dispute with the Adams family’s predecessors in

interest with respect to monies collected before 1963. It

was readily apparent, however, that the Adams family and

the Schnell group were irremediably antagonistic with

respect to the 1963-1967 funds so Phillips brought this

interpleader action to determine title to $12,296.81, which

sum was the amount that Phillips owed either to the Adams

family or to the Schnell group for gas purchased during

1963-1967.8

The district court ruled that the Adams family ought

to receive the disputed suspense money, on the ground

that the payments were ‘‘in part payment of gas severed

7 The effective date of the order was October 1, 1970.

* Phillips actually deposited $16,161.88 into court, but $3,865.07

of this sum is attributable to an undisputed overriding royalty

interest.

Oda

from the leasehold estate and sold therefrom prior te

any assignment of the lease by the Adams family’? and

that the document of assignment from the Adams family

to Sehnell could not be eonstrued te constitute an assign

mont of the suspense money. The Sehnell group and Phil

lips * argue that the money was not due and payable until

after the FPC order in Mugoton Andarko, and contend

that since the order was not made until well after the

: Adams family had conveyed its leasehold interest to

: Schnell, the contingent right to the money attached to the

' mineral estate, In these eireumstanees, Sehnell and Phil

F lips conclude that sinee the Adams family did not expressly

reserve this contingent right in the instrument of assign

; “ment, the right to any suspense money passed to Schnell.

Schnell urges that even though the gas for which the

disputed) funds are partial payment) was produced

while the Adams family held the leasehold interest,

the right to payment did not become certain and enforce

2 able until after the FP'C order, so that this ease is analog

ous to decisions involving dividends on stock, interest on

notes and unacerued rent on real estate, where the income

goes to the party who holds title to the principal property

on the date the dividend, interest or rent is declared or be-

comes due.

Fen ero ae

The Schnell group and Phillips are undoubtedly cor

rect in their contention that the Adams family had no

enforceable right to the suspense money during the time

when they held the leasehold interest, for neither Phillips

nor the Adams family had any reasonable expectation dur-

ing 1963-1967 that the FPC would approve the higher prices

upon which the suspense money was based. Neither party

eould claim full title to any part of the disputed funds

=pe”

® Although Phillips is the stakeholder in this interpleader action,

the pipeline company has from the beginning urged the validity

of the Schnell group’s claim as against that of the Adams family,

for the reason that the Schnell group, unlike the Adamses, does

not claim interest on the suspense money from Phillips.

es)

hoa

until the PPC had determined the validity of the price in

creases,

In Ashland Oi & Refining Co. v. Staats, Ine, D Kan.

1967, 2717 FP Supp. 571 individuals situated similarly to the

Adams family here demanded that a pipeline company pay

them suspense money before the EPC had taken any action

on the suspended price inerease which had produced the

funds. The district court reasoned that the right to pay

ment of the parties analogens to the Adame family :

ean he no greater than the leese’s right to the monies

from which thoee Povalties derive. Ashland [the pipe

line company | has no final enforceable right to these

funds for they have not been approved, and may be

rescinded, [The pipeline company] holds them snub

Ject to refund, and is responsible for any refand which

nay be ordered. We perceive no ground on which Ach

land should be compelled to pay out sums, for the re

fund of whieh it may be liable, and as to which its own

right is not finally determined, to royalty owners whose

own right to royalties from those funds will be finally

determined only when Ashland’s own right is deter

mined .... If Ashland were required to pay over

funds which it now holds, and a refund of all or any

part thereof were snbsequently ordered, it would have

to demand repayments from a large number of royalty

owners, and risk the necessity of a multiplicity of legal

actions. Ashland has taken a conrse designed and in

tended best to serve the interest of the royalty owners

and of itself. As a resnit, it hold« the sums songht

in what is roughly analogons to a fiduciary capacity.

In our view, [the royalty owners have] stated no right

to recover royalties on these funds, when it is not yet

finally determined that they represent lawful proceeds

from the sale of gas.

271 F.Supp. 571, 579.

We believe that the Staats court correctly stated the law

governing Phillips’ contractnal relations with the Adame

family during 1963-1967. See Boutte v. Chevron Oi] Co.,

E.D.La. 1970, 316 F.Supp. 524 aff'd, 5 Cir. 1971, 442 F.2d

56a

1337." The fact that the Adams family had no final and

enforceable right to the suspense money in 1963-1967, how-

ever, does not foreclose the possibility that they retained

the contingent right to the funds after their assignment to

Schnell and that the FPC’s 1970 order converted that con-

tingent right into a right presently enforceable against

Phillips. The resolution of this question requires us to

investigate the Texas law of contract and property.

It is the law in Texas, as elsewhere, that where a

contract is unambiguous, we must look solely to the terms

thereof to determine its meaning. Hennigan v. Chargers

Football Co., 5 Cir. 1970, 481 F.2d 308; Tenneco Oil Co. v.

Alvord, Tex. 1967, 416 S.W.2d 385; Wahlenmaier v. Ameri-

ean Quasar Petroleum Co., Tex.Civ.App. 1974, 517 S.W.2d

390, no writ. All of the parties here agree that the instru-

ment of assignment is unambiguous, and that document

alone can show which property interests passed to Schnell

and which were retained by the Adams family. The Adams

family conveyed to Schnell:

all right title and interest ... in and to [the lease],

and rights thereunder, ... together with all personal

property and equipment used or obtained in connec-

tion therewith, and located thereon ... [The Adams

family also warranted that they] are the lawful own-

ers of the interest in said oil and gas lease. ., and of

10 We note that Phillips does not always hold suspense money in

its own accounts until the FPC approves or disapproves the under-

lying rate increases. The record contains two form letters from

Phillips, one written to Etchieson of the Schnell group, dated

February 20, 1968, and the other written to the Adams family

with regard to another piece of property, dated August 13, 1971,

in which Phillips (apparently at the request of Etchieson and the

Adams family) agreed to pay suspense money to the addressees

as it was collected, on the condition that they would agree to reim-

burse Phillips, with interest, for any suspense money which the

FPC might require Phillips to refund to its customers. The ap-

proach adopted by Phillips in those instances would obviate the

difficulties presented by this case.

57a

all personal properties thereon, or used im connection

therewith; . . and that said rights, interest and prop-

erty are free and clear from all liens and encum-

brances, and that all rentals and royalties due and pay-

able under said oil and gas lease have been fully paid.

This oil and gas lease shall be effective as of June

1, 1967, at 7:00 A.M..

The assignment appears on its face to pass title

to all realty interests, effective as of 7:00 A.M. on a day

certain, and all personal property interests bound up with

the operation of the wells; there is no mention of the right

to the suspense money or of any other personally unrelated

to the extraction process. In a conveyance of real property,

all of the interests in land ordinarily pass to the grantee

unless specifically exempted, for deeds are strictly con-

strued against the grantor. Tenneco Oil Co. v. Alvord,

supra; Humble Oil & Refining Co. v. Harrison, 1947, 146

Tex. 216, 205 S.W.2d 355; Melton v. Davis, Tex.Civ.App.

1969, 443 S.W.2d 605, writ ref’d n.r.e. On the other hand,

it is usually the case that personal property does not pass

in the assignment of an oil and gas lease unless it is ex-

pressly passed. See e.g., Moore v. Carey Bros. Oil Co., Tex.

Comm’n. App. 1925, 269 S.W. 75; Cox v. Rhodes, Tex.Civ.

App. 1950, 233 S.W.2d 924; Continental Oil Co w. Gillespie,

Tex.Civ.App. 1944, 178 S.W.2d 728, no writ; East Texas

Refining Co. v. Helvir Oil Co., Tex.Civ.App., 1935, 82 S.W.2d

392, writ dism’d w.o.j.; 3 W. Summers Oil and Gas § 555.

Thus, the problem in this case is whether the contingent

right to the suspense money constituted a realty or a

personalty interest. If the right to the money is a realty

interest, the assignment passed that right to Schnell, but

if the right is in the nature of personalty, the Adams family

did not expressly convey the right and therefore retained it.

Texas law provides that oil and gas are realty

when in place and personalty when severed from the land

by production. Harrington v. Texaco, Ine., 5 Cir. 1964,

58a

339 F.2d 814, cert. denied, 1965, 381 U.S. 915, 85 S.Ct.

1538, 14 L.Ed.2d 485; Humble Oil & Refining Co. v. West,

Tex. 1974, 508 S.W.2d 812; Phillips Petroleum Co. v. Me-

com, Tex.Civ.App. 1964, 375 S.W.2d 335, no writ; Lone

Star Gas Co. v. Murchison, Tex.Civ.App. 1962, 353 S.W.2d

870, writ ref’d n.r.e. With respect to debt obligations in-

curred as oil and gas are produced, unaccrued royalty inter-

est, oil payments and bonus payments are deemed by Texas

courts to be interests in realty, for such rights represent

interests in the oil and gas still in place on the property.

See Clyde v. Hamilton, Tex. 1967, 414 S.W.2d 434; Ten-

nant v. Dunn, 1937, 130 Tex. 285, 110 S.W.2d 53; Sheffield

v. Hogg, 1935, 124 Tex. 290, 77 S.W.2d 1021, on rehearing

124 Tex. 311, 80 S.W.2d 741; see generally Walker, Oil

Payments, 20 Tex.L.Rev. 259 (1942). The rule is other-

wise when the minerals giving rise to the right to payment

have already been taken from the ground, for the right to

future payments on past production cannot be said to

burden the mineral estate in the same way as an interest

in future production. The right to payment for past

production obviously has no effect upon the value to the

leaseholder of the oil and gas still in the ground at the

time he mineral estate changes hands—which property is

the usual object of leaseholder interest. So it is that ac-

erued royalty interests are personal property, Miller v.

Hathaway, Tex.Civ.App. 1972, 477 S.W.2d 655, no writ, as

is the right to payment for severed minerals. Shell Oil

Co. v. State, Tex.Civ.App. 1969, 442 S.W.2d 457, writ ref’d

.T.¢.

The district court here reasoned that since the disputed

funds are partial payment for gas produced while the

Adams family held the leasehold interest, those individuals

also held a contingent personal right to payment during

1963-1967, and that the Texas rules of contractual construc-

tion compelled the conclusion that the Adams family did

not convey these personal property rights to Schnell. The

Schnell group and Phillips argue that the disputed money

59a

cannot represent a personalty interest founded on a debt

because this purported debt did not become due and pay-

able until after the FPC order, that is, long after the

Adams family had conveyed its interest in the leasehold

estate to Schnell.

Although there are no Texas cases (nor cases from

any other jurisdiction) which have dealt with the problem

of suspense money not currently due and payable, com-

mon sense and elemental fairness can lead only to the

conclusion that the Adams family had a right to pay-

ment in full for the gas they sold to Phillips, and that

they have at no time reliquished their right to complete

compensation. The Texas law, as set out above, dictates a

like result. In East Texas Refining Co. v. Helvir Oil Co.,

supra, for example an assignor of an oil and gas lease quar-

reled with the assignee over the right to payments for oil

which had already been produced and sold to a third party

at the time the assignment was made. The language of

the instrument there was similar to that of the assign-

ment here, and the Texas court held that the assignor had

not conveyed its right to payment:

If we give to the lease contract the construction most

favorable to [the assignee’s] contention, it transfers

to [the assignee] [the assignor’s] interest in the lease

and all property incident to such lease. These prior

oil runs had been taken from the lease and sold and

delivered to [a2 third party] and were not, on [the date

of the assignment] connected with or incident to the

lease, and could not be transferred to [the assignee]

by a mere transfer of such lease.

82 S.W.2d 392, 395."

11 We note that the Texas state tax on the production of oil, a

tax payable by the producer of the oil, acerues when the oil is pro-

duced—and not when it is paid for. Tex. Tax.-Gen. art. 4.01 et

seq., V.A.T.S.; State v. Humphrey, Tex.Civ.App. 1942, 159 S.W.2d

162; see also Alexander v. Texaco, Inc., 5 Cir. 1973, 482 F.2d 1248;

Fain-MeGaha Oil Corp. v. Murko Oil & Royalty Co., 1937, 128

Tex. 646, 101 S.W.2d 547.

60a

We do not believe that our case should be decided

differently from East Texas Refining simply because the

assignor there had a right to payment in full by the time of

the assignment, while the Adams family could not know the

extent of its earnings until several years after the assign-

ment to Schnell. The Adamses owned the gas in place at

the time of extraction, at which point they exchanged their

right to the gas for the right to be paid therefor. The

fact that the debt was not liquidated on the date of assign-

ment, and could not be ascertained for some time there-

after, does not make it any less a personal property right.

The Adams family did not convey this right to Schnell,

and they are entitled to the suspense money now in the

registry of the district court.’”

12 The Schnell group argues, in face of the rule of construction

of unambiguous contracts, that the Adams family intended to

convey their right to the suspense money. Ye believe that the

evidence offers no support for this contention, and that the best

evidence of the Adams family’s intentions is the assignment it-

self, which makes no mention of the suspense money; that doen-

ment compels the legal conclusion that the Adams family retained

their right to the disputed funds.

Finally, Phillips argues that ‘‘ public policy imperatives’’ require

that the disputed funds go to the Schnell group, for the reason

that *‘the practical effect of the decision of the trial court . . . will

be to create more problems than it solves. Courts exist to resolve,

not create, problems; consequently this portion of the decision is

contrary to public policy.’’ This interesting argument is founded

on the consideration that if we were to decide that the Schnell

group should have the suspense money, all Phillips would have to

do in order to fulfill its obligations with respect to its 900-odd

percentage-of-proceeds contracts would be to determine who held

the mineral leasehold interests on October 28, 1972 (the last date

for appeal from the Ninth Circuit’s affirmance of the FPC’s

Hugoton-Andarko order—the date on which Phillips believes its

various debts became due and payable), and then to pay those

parties. A decision that the Adams family holds title to the

funds as personal property, however, would expose Phillips to

(Continued on next page)

6la

Ill

With respect to interest, the district court found that

Phillips could not safely disburse the suspense money un-

til October 28, 1972, the date on which the FPC’s H ugoton-

Andarko order became immune from further legal attack,

and that from that time until December 21, 1973, the date

on which Phillips paid the disputed funds into court, Phil-

lips was a stakeholder faced with conflicting claims to a

single fund. These circumstances, coupled with the failure

of the Adams family to demand that Phillips pay the

money into court, convinced the district court that neither

equity nor Texas law supported an award of interest from

Phillips to the Adams family based on the principal sum

of the suspense money."* We believe that the district court

erred in its construction of the law of Texas with regard

to the award of interest, and we conclude that Texas law

permits—and equity requires—the award of interest to the

Adams family at Phillips’ expense.

The Adams family predicates its prayer for interest

upon the fact that Phillips had the use of the suspense

money from 1963 until it paid the money into court in late

1973. They reason that if they have title to the -principal

the travails of determining the owners of property which can be

transferred without entry upon the publie records. Phillips also

offers the observation that since federal regulation of the natural

gas industry is to blame for this mess in the first place, the federal

courts ought not compound the confusion by forcing Phillips to

pay debts where there may be conflicting claims to the suspense

money. This case indicates that Phillips is well aware of the

availability of interpleader actions in the federal and state courts,

and neither of the arguments advanced above seems to us to war-

rant the alteration of the Texas law of contract and property.

**A full elucidation of the district court’s resolution of the

interest question may be found in its subsequent opinion in Phil-

lips Petroleum Co.-v. Riverview Gas Compression Co., D.C. Tex.,

372 F.Supp. 282, 285-86.

a tie islets: tie DAN ae die oe be

wth GA AS J

af Oren

—— ee

62a

sum of the suspense money, then they ought also to have

the income which those funds generated while sitting in

Phillips’ general account. Phillips rejoins that the Texas

statute governing the award of interest forbids such an

award on a principal sum before that sum becomes due

and payable, which in this case did not oceur until Octo-

ber 28, 1972, and that the principal sum here has been the

object of litigation since that date, so that no interest may

be taxed against Phillips for any part of the ten-year

period in which it used the funds for general corporate

purposes,

Since the award of interest is in derogation of the

common law, it is ordinarily the case that interest should

be refused except in such cases as come within the terms

of enabling legislation. Watkins v. Junker, 1897, 90 Tex.

584, 40 S.W. 11; Kirkpatrick v. Great American Ins. Co.,

Tex.Civ.App. 1927, 299 S.W. 943, no writ. The Texas in-

terest statute defines ‘‘interest’’ as ‘‘the compensation

allowed by law for the use or forbearance or detention of

money,’’ and defines ‘‘legal interest’’ as ‘‘that interest

which is allowed by law when [as here] the parties to a

contract have not agreed on any particular rate of inter-

est.”’ Vernon’s Ann.Tex.Rev.Civ.Stat. art. 5069-1.01. The

legal] rate of interest in Texas is six percent per annum,

‘fon all written contracts ascertaining the sum payable,

from and after the time when the sum is due and payable

..”’ Tex.Rev.Civ.Stat. art. 5069-1.03.

Phillips has done the Adams family no wrong, so that

the Adamses cannot claim interest as an item of damages,

nor does this case fall within the statutory rubric of ‘‘fore-

bearanee or detention’? of money. Consequently, the

Adams family can claim interest from Phillips only as

‘‘compensation allowed by law for the use ... of money.’’

See Kishi v. Humble Oil & Refining Co., 5 Cir. 1926, 10

F.2d 356; Walter FE. Heller & Co. v. Barnes, Tex.Civ.App.

63a

1967, 412 S.W.2d 747, writ ref’d n.r.e.; Sherrill y. Phillips,

Tex.Civ.App. 1966, 405 S.W.2d 627, writ ref’d n.r.e. The

apparent difficulty with such a theory of recovery is that

the statute seems to allow interest only on ‘‘written con-

tracts ascertaining the sum payable, from and after the

time when the sum is due and payable,’’ while the principal

sum here was neither ascertainable nor due and payable

until after the FPC order became final, long after the sus-

pense money began to accumulate. The Texas courts, how-

ever, have interpreted the interest statute in a liberal man-

ner, so as to do substantial justice. For example, although

the statute seems on its face to require a liquidated amount

due on a definite date, if interest is to be awarded, the

statute has been construed to allow interest if the amount

of recovery depends on conditions existing at the due date,

even though the amount may be unascertained and dis-

puted until the conclusion of the trial. Evans Production

Co. v. Shaw, 5 Cir. 1960, 276 F.2d 313, reh. den., 5 Cir.,

277 F.2d 927, cert. denied, 364 U.S. 819, 81 S.Ct. 54, 5 L.Ed.

2d 50; Texas Co. v. State, 1955, 154 Tex. 494, 281 S.W.2d

83; Johnson v. Downing & Wooten Const. Co., Tex. Civ.

App. 1972, 480 S.W.2d 254, no writ. Moreover, although

Texas courts have been more strict in refusing interest for

periods prior to the time when an obligation becomes due

and payable, see, e.g., Hayek v. Western Stee] Co., Tex.

1972, 478 S.W.2d 786: G& W Marine, Ine. y. Morris, Tex.

Civ.App. 1971, 471 S.W.2d 644, at least one Texas court

has awarded interest in a contract case for a period prior

to the due date of the debt, apparently for equitable rea-

sons. Treon v. Richter, Tex.Civ.App. 1954, 265 S.W.2a4

125, writ ref’d n.r.e.

A reading of all the relevant Texas cases convinces

us that interest is awarded or refused in that jurisdiction

only after a careful consideration of all the circumstances

in the particular case, and that the Texas interest statute

<5 on eee

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1 Te ee ae ee ee ee ee:

ve nor

Pines eatin rites ewenh etsy ae vento sve BMAP eng RTS NSA eu

64a

is sufficiently flexible to permit the courts to do equity.”

Our belief is strengthened by the knowledge that this Court

has consistently awarded or approved the award of inter-

est in cases applying Texas law.” See, e.g., Sid Richard-

son Carbon & Gasoline Co. v. Phillips Petroleum Co., 5 Cir.

1972, 456 F.2d 203; Gorsalitz v. Olin Mathieson Chemical

Corp., 5 Cir. 1970, 429 F.2d 1033; Colonial Refrigerated

Transportation, Inc. v. Mitchell, 5 Cir. 1968, 403 F.2d 541;

Evans Production Co. v. Shaw, supra; Natural Gas Pipe-

line Co, v. Harrington, 5 Cir. 1957, 246 F.2d 915, cert. de-

nied, 356 U.S. 957, 78 S.Ct. 992, 2 L.Ed.2d 1065; H. B.

Zachry Co. v. Terry, 5 Cir. 1952, 195 F.2d 185, cert. de-

nied, 544 U.S. 819, 73 S.Ct. 14, 97 L.Ed. 637; Phillips Pe-

troleum Co, v. Williams, 5 Cir. 1947, 158 F.2d 723; Kishi

™ Cases in which Texas courts have awarded interest in ap-

parent contravention of the literal meaning of the statute’s ‘‘as-

certainability’’ and ‘‘due and payable’’ requirements include:

Davidson vy. Clearman, Tex. 1965, 391 S.W.2d 48; Watgins v.

Junker, supra; Hayek v. Western Steel Co., supra; Beck v. Lawler,

Tex.Civ.App. 1968, 422 S.W.2d 816, writ ref’d n.r.e.; Haggar Co.

v. Rutkiewicz, Tex.Civ.App. 1966, 405 S.W.2d 462, writ ref’d

n.r.e.; DeLeon v. Aldrete, Tex.Civ.App. 1965, 398 S.W.2d 160,

writ ref’d n.r.e.; City of Corpus Christi v. Drought, Tex.Civ.App.

1964, 380 S.W.2d 645, writ ref’d n.r.e.; City of El Paso v. Nichol-

son, Tex.Civ.App. 1962, 361 S.W.2d 415, writ ref’d n.r.e.; Arcadia

Refining Co. vy. Cook, Tex.Civ.App. 1940, 146 S.W.2d 767, writ

dism’d jdgmt. cor.

Cases in which Texas courts have strictly construed the interest

statute so as to deny interest include: Cox v. Davidson, Tex. 1965,

397 S.W.2d 200; Zummo Cattle Co. v. Millard, Tex.Civ.App. 1972,

482 S.W.2d 17, writ ref’d n.r.e.; Ryan v. Thurmond, Tex.Civ.App.

1972, 451 S.W.2d 199, writ ref’d n.r.e.; Winandy Greenhouse Con-

struction, Ine. v. Graham Wholesale Floral, Ine., Tex.Civ.App.

1970, 456 S.W.2d 470, no writ; Hull v. Freedman, Tex.Civ.App.

1964, 383 S.W.2d 236, writ ref’d n.r.e.

1° Two exceptions to this general trend, Gulf Oil Corp. v. Oli-

vier, 5 Cir. 1969, 412 F.2d 938; and Atwood v. Humble Oil & Re-

fining Co., 5 Cir. 1964, 338 F.2d 502, cert. denied, 1965, 381 U.S.

926, 85 S.Ct. 1562, 14 L.Ed.2d 684, are discussed infra.

6da

v. Humble Oil & Refining Co., supra; Brooklyn Union Gas

Co. v. Transcontinental Gas Pipe Line Co., supra.

Since we have concluded that the Texas statute

does not preclude the award of interest to the Adams fam-

ily, we now turn to the more difficult problem of whether

interest ought to be awarded in the context of the facts in

the case at bar. In this case, Phillips collected money over

a period of several years which would ultimately be re-

funded to its customers or paid to its suppliers; in no

event did Phillips ever have the slightest prospect of en-

titlement to the entire principal sum of suspense money

here in question. This money was not placed in an escrow

account, nor was it paid to the suppliers as it accumulated,

subject to refund, with interest—a course of action fol-

lowed by Phillips in other instances, See n.10, supra. In-

stead, burdened with the knowledge that it might have to

refund some or all of the funds to its customers at seven

percent interest, Phillips placed the suspense money in its

general account and used it, presumably, in the manner

most advantageous to the corporate fise. Such a course

was certainly sound business practice, and in no way re-

pugnant either to the federal regulatory scheme or to Phil-

lips’ contractual relations with its suppliers. But that is

not to say that Phillips may enrich itself with the income

from the Adams family’s suspense money in the absence

of any contractual sanction."

Texas jurisprudence is relatively unencumbered by de-

cisions expressly invoking the equitable doctrine of unjust

* Phillips suggests that the income from the suspense money is

really a sort of compensation incorporated sub silentio into each

percentage-of-proceeds production contract, for its efforts in making

blanket contract rate filings with the PC pursuant to 18 C.F.R.

§ 154.91(e), thus enabling the small producers to obtain a ‘‘coat-

tailing’’ benefit and avoid FPC filing expenses, The problem with

this theory is that section 154.91 (e) requires Phillips to make these

blanket filings, and it would be somewhat strange for a producer

to pay Phillips for performing the pipeline company’s own reg-

gulatory obligations.

“sy 66a

enrichment,’ but many of the interest decisions already

mentioned indicate some concern that the party against

whom interest is awarded should not profit from its posses-

sion of the principal sum in question. One such ease is that

of City of Kl Paso v. Nicholson, Tex.Civ.App. 1962, 361

S.W.2d 415, writ ref’d n.r.e., where money belonging to the

plaintiff was wrongfully seized by El Paso police, placed in

the municipal treasury, and used for general City purposes.

The Nicholson court awarded interest to the plaintiff for

the time his money had been ensconced in the City treas-

ury, ‘‘not as a punitive measure, but merely because the

City had the use of this sum of money .. .’’ 361 S.W.2d 415,

418.

We find a similar, and more venerable, precedent in Kishi

v. Humble Oil & Refining Co., 5 Cir. 1926, 10 F.2d 356. In

Kishi, rival oil companies were producing oil from the same

southeast Texas property under conflicting leases. In a

commendable spirit of cooperation, each group of claim-

ants agreed that the other group could continue production

on the property, pending judicial resolution of the title

dispute, at which time the losing oil company would refund

its profits to the winning group. This court settled the title

difficulty, and the losers paid the agreed principal sum to

the winners; the latter then asked for interest on the princi-

pal for the period of four years in which the rival oil com-

pany held money which was eventually determined not to

belong to them. We awarded interest to the successful

claimants, at the Texas statutory rate, even assuming that

the losing oil company was a stakeholder, on the ground

that the oil company:

had the use of the money, because [it] kept it, and

therefore ought to pay interest as an incident to the

17 The case of Le Cuno Oil Co. v. Smith, Tex.Civ.App. 1957, 306

S.W.2d 190, writ ref’d n.r.e., cert. denied, 1958, 356 U.S. 974, 78

$.Ct. 1137, 2 L.Ed.2d 1147, is a elassie unjust enrichment ease,

although the court preferred to use the terminology of ‘‘ windfall

or excessive allowaice.”’

67a

principal debt. If [the oil company] had not wished to

use the money, and thus be liable for interest, [it]

could have deposited [the money] in the registry of the

court. A stakeholder who retains money is liable for

interest.

10 F.2d 356, 357.

Finally, in Brooklyn Union Gas Co. v. Transcontinental

Gas Pipe Line Co., 8.D. Tex. 1960, 201 F.Supp. 679, aff’d

sub nom. Socony Mobil Oil Co., v. Brooklyn Union Gas Co.,

9 Cir. 1962, 299 F.2d 692, cert. denied, 371 U.S, 887, 83

S.Ct. 182, 9 L.d.2d 121, distributors of natural gas had

overpaid a pipeline company, which overpayments were the

result of excessive rates demanded of the pipeline company

by certain major producers of gas. The distributors de-

manded that the producers refund the excess charges, with

interest. After careful consideration, the district court

awarded, and we approved, an award both of principal and

interest to the distributors. With regard to interest, the

district court reasoned that the producers:

have had the use of this money from the date of its re-

ceipt. Similarly, [the distributors] have been deprived

of the use of such funds from the time these inerease

rates were reflected in [the pipeline company’s]

charges to them. Equitable considerations compel the

conclusion that interest should commence from the re-

spective dates of [the pipeline company’s] overpay-

ments to [the producers].

201 F.Supp. 679, 682-83.

One night object that these three cases are inapposite

here, as the prevailing parties in Nicholson, Kishi, and

Brooklyn Union Gas all were eventually found to have the

sole title to and right to possession of the disputed princi-

pal sums during the entire time for which interest was to

be awarded. In this case, on the other hand, we have al-

ready recognized that the Adams family had no right, con-

68a

tractual or otherwise, to possession of the corpus of the sus-

pense money in the years before the FPC order, so that

they could in no circumstances have enjoyed any income

from the money in the absence of Phillips’ collection and

utilization thereof. This is precisely the basis for the gen-

eral rule that interest is not allowable on a principal sum

until that sum is due and payable, that is, until another

party has a present right to the money, the deprivation of

which denies that person the opportunity to invest the prin-

cipal and earn money therewith.

However, this case presents a factual situation to which

there are no close parallels in the Texas case law. We

must decide whether it is better that one party (Phillips)

should have the right to the possession of the principal

sum, but not to the income, and that another party (the

Adams family) should have the right to the income even

though it had no right to posession of the principal during

the accumulation of the income, or that a party (Phillips)

which at no time had any claim to ownership of the princi-

pal sum should enjoy the income therefrom. We believe

that the former rule is the more equitable one, not because

Phillips has done anything wrong, but because Phillips

ought not to be able to use someone else’s money as it

pleased for ten years, thereby enjoying a very considerable

benefit, and then pay nothing for the use of the money.

The Nicholson, Kishi and Brooklyn Union Gas cases illu-

strate the elemental equitable principle upon which we base

our award of interest to the Adams family.

The district court’s opinion in the companion case of

Phillips Petroleum Co. v. Riverview Gas Compression Co.,

supra, held that this Court’s decisions in Atwood v. Humble

Oil & Refining Co., 5 Cir. 1964, 338 F.2d 502, and Gulf Oil

Corp. v. Olivier, 5 Cir. 1969, 412 F.2d 938, forbade the award

of interest to the Adams family at Phillips’ expense. We

believe that the able district judge misapprehended those

two cases, and that neither case sets out a rule in conflict

mPCnD AEH TA] year sya

7 PORTO S SEI PETE SURES ome DAP ILRERPOR > PARR RINE RIND HORSEMAN a

69a

with the one we adopt here. Atwood was the culmination

of a 20-year legal battle between Humble Oil and the own-

ers of the vast King Ranch in south Texas over the inter-

pretation of a mineral lease, Of particular importance to

the determination of the interest question was the fact that

Humble had repeatedly attempted to pay the owners the

principal amount on which they were now demanding in-

terest, but the owners had refused to accept the proffered

payments. By making these spurned tenders, Humble had

effectively deprived itself of the dominion over the money

which is basic tc any award of interest against a holder of

funds. This court’s refusal to award interest in Atwood

was based on equitable considerations not unlike the ones

which motivate our decision today, and that decision is

certainly not a bar to the result here. Olivier was another

case which concluded a long wrangle over mineral rights,

this time in Louisiana. Humble Oil had withheld certain

overriding royalty payments from 1959 until our resolu-

tion of the dispute in 1969, and the individuals whom we

adjudged to be entitled to the royalties demanded that

Humble pay them interest for this period. We refused

their request, since ‘‘Humble could not safely make the

payments until the title question had been adjudicated.”’

412 F.2d 928, 946. Although Olivier would seem to be analo-

gous to this case, the fact of the matter is that Humble had

been paying the disputed royalties into the registry of the

district court since 1962, see Olivier v. Humble Oil & Re-

fining Co., E.D.La. 1963, 225 F.Supp. 536, 539; Cutrer v.

Humble Oil & Refining Co., E.D.La. 1962, 202 F.Supp. 568,

574, so that interest obviously could not be taxed against

the oil company for that period. Furthermore, the genesis

of the litigation, as in Kishi v. Humble Oil & Refining Co.,

supra, was a dispute between rival claimants to mineral

rights in property from which Humble and Gulf Oil were

removing oil. Since Kishi, many oil companies had solved

the financial problems posed for them by that decision by

inserting clauses into oil and gas leases providing that in

SS ee PI OR, AICI LANE RSI HORE TNA ENE ERE LILIA NRRL PUR NRT aL BE

70a

the event of any dispute over title to the mineral interest

in the subject property, the oil company concerned could

withhold all payments, with no liability for interest there-

on, until the dispute was resolved. The Olivier lease con.

tained such a clause. See Cutrer v. Humble Oil & Refining

Co., K.D.La. 1961, 192 F.Supp. 757, 758, so that whatever

the equitable considerations may have been in that case,

we could not have awarded interest in the face of the con-

tractual prohibition thereof, Olivier in no way coutlicts

with our decision here.

The district court was also convinced that Phillips

should not have to pay interest in view of its position as a

stakeholder. We have already demonstrated that Atwood

and Olivier offer no support for such a proposition, The

general rule, moreover, is that the mere fact that an indi-

vidual may be a stakeholder in no way immunizes him

from the obligation to pay interest if he makes use of the

money while it is in his possession, for the reason that a

contrary rule would permit a person with no claim to a

sum of money to enjoy a greater benefit from its posses-

sion than a person who makes such a claim, when that claim

is later adjudged inferior to that of another person. See

New York Life Ins. Co. v. Lee, 9 Cir, 1956, 282 F.2d 811;

Great Lakes Transit Co. v. Marceau, 2 Cir, 146, 154 F.2d

623; Massachusetts Mut. Life Ins. Co. v. Central Penn

National Bank, E.D.Pa. 1978, 872 F.Supp. 1027; John Han-

cock Mut. Life Ins, Co. v. Doran, S.D.N.Y. 1956, 188 F.

Supp. 47. The distriet court was of the opinion that

Bergendahl v. Blanco Oil Co., Tex.Civ. App. 1969, 440 S.W.

2d 81, writ ref'd n.re., indicated that the Texas rule is to

the contrary, but the Texas court’s ruling that ‘‘the [stake-

holders] were not obligated to invest [the] funds,*? 440

S.W.2d 81, 85, infers that the Bergendahl stakeholders did

not use the money they held, so that an award of interest

would certainly have been improper. We do not believe

that the Texas law in this area is different from that in

other jurisdictions, but see ADied Building Credits, Ine. v.

PRN TEES EN NE ELI Oe NL UE AE NN ICT YPN Cer EPR CTO acs ah

a CTIA RIL Cur igiagS

ila

Grogan Builder Supply Co., Tex.Civ.App, 19638, 3865 S.W,

2d 692, writ ref'd ne, and we conclude that Phillips is

liable for interest for the period in which it enjoyed a rea-

sonably free use of the money, that is, from the time Phil-

lips collected the suspense money until the day it tendered

or paid the funds into the registry of the district court.

Phillips raises a contractual defense — te linbility

for interest, on the basis of warranty clauses contained in

its casinghead gas contracts with the Adams family, in

which the latter group warranted title to the gas, and

agreed that if their ‘*title is questioned, or involved in liti-

gation, [Phillips] shall have the right to withhold payment

Without interest during the pendency of sueh litigation,

or until said title is freed from such question..." Phil:

lips argues that whatever the equities of the situation may

be, the Adams family waived any possible right to interest

in its contracts with Phillips. The problem with this argu.

ment is that the warranty clauses, which are similar to that

involved in Olivier, apply only to the title to the gas which

Phillips purchased from the Adams family during 1963.

1967. There has never been any question, however, that

the Adams family had full title to the gas at the time of

the sales to Phillips, and it is clear that they in no way

breached their warranty agreement; the instant litigation

stems instead from a disagreement as to which party

should receive a partial payment for that gas. While

Phillips may protest that this is too nice a distinction, it is

precisely the one which the contract itself requires; Phil-

lips has no contractual defense to the payment of interest,

Phillips also urges that if it is to be charged with

interest, we should not extend its liability beyond April 6,

19738, the date on which Phillips filed its complaint in inter-

pleader and offered to pay the suspense money into court,

Phillips did make an unconditional offer to relinquish

possession of the money when it filed the complaint, but

the Adams family failed to respond to the tender, so that

Phillips finally paid the money into court on its own mo-

SALE EEA Bore NP PSS Re the ercraen¢ DARPA Bem

72a

tion, on December 21, 1973. Once a stakeholder makes an

unconditional offer to give up possession of a disputed

fund, it ceases to exert that dominion over the money suff-

cient to justify an obligation to pay interest thereon, and

the rule is that once such an unconditional tender is made,

any liability for interest ceases as of the date of tender.

Smith v. Transit Casualty Co., E.D.Tex. 1968, 281 F.Supp.

661, aff’d, 5 Cir. 410 F.2d 210; Carer v. Barclay, Tex.Civ.

App. 1972, 476 S.W.2d 909, no writ; cf. Wm. A. Smith Con-

tracting Co. v. West Central Texas Municipal Water Dist.,

5 Cir. 1965, 344 F.2d 470. It follows that Phillips is not

liable for interest beyond April 5, 1973.

Since there was no evidence presented below on the ques-

tion of the proper amount of interest to be awarded to the

Adams family, we remand this case to the district court

for further proceedings not inconsistent with this opinion.

The reasoning of our decision would ordinarily require

that the Adams family receive interest at the statutory rate

on the suspense money as it was collected during 1963-1967,

and on the entire principal sum from June 30, 1967, until

April 6, 1973. At trial, however, the Adams family asked

for interest only from October 1, 1970, the date of the

FPC’s Hugoton-Andarko order, so their recovery must be

limited tu that amount.

In summary, we affirm the judgment of the district court

with respect to the entitlement to the principal sum of the

suspense money. Texas law requires specificity in convey-

ances of personal property in order to place an opaque

curtain between the interests passed and those retained;

after the curtain falls, only those things not explicitly

transferred remain on the assignor’s side of the stage.

Texas jurisprudence clearly provides that the Adams

family’s right to payment for gas already produced is a

personal right, and that right was not specifically men-

tioned in the instrument of assignment, so it follows that

siaeeies - i le il a aa a. a

73a

the Adams family did not convey their right to payment

to Schnell, and they are now entitled to receive the disputed

suspense money. We also conclude that Phillips must pay

interest on the principal sum of the suspense money, and

we accordingly reverse the judgment of district court on

this point. Texas courts do not insist on statutory rigidity

in the allowance of interest, for they realize that the right

to interest is a marketplace concept, and that the use of

money is a mercantile privilege which should not go un-

compensated, absent countervailing considerations. To

exonerate Phillips from its interest obligation here would

be to give the pipeline company an extracontractual

lagniappe, for it is incontrovertible that Phillips has de-

rived a very considerable benefit from the unrestricted

use of the Adams family’s money. Phillips may say that

its possession and utilization of funds to which it had no

pretense of claim was reasonable, or even that its actions

were necessary, but Phillips cannot be heard to say that

it is fair and equitable that it should enjoy such a financial

advantage for so long, and pay not a cent for it.

Affirmed in part; reversed in part and remanded.

(Caption Omitted in Printing)

Petition for Rehearing of Phillips Petroleum Company and

Request for Rehearing En Banc

Comes Now the plaintiff-appellee, Phillips Petroleum

Company [Pxiurrs], and respectfully prays this Court

to grant a rehearing and that said rehearing be en banc.

This Court, by its opinion entered on May 22, 1975,

has affirmed in part and reversed in part the decision of

The Honorable Halbert O. Woodward that the assignor-

claimants [THe Apams Fammy], who held the leasehold

interest from 1963-1967 at the time the debt owed by

Pures under the percentage-of-proceeds contract for

— RRR eRe REA | ITE TTR NANT RL TNR AIRET NT RAR ED IR RE ARGS Sete

T4a

sale of casinghead gas became due and payable, were

entitled under Texas law, to receive the supplier’s share

of ‘‘suspense money,’’ collected by Putuuires during the

pendency of rate-increase applications which became pay-

able when the Federal Power Commission [F PC] ap-

proved said increases as prrt of the Hugoton-Anadarko

Rate Case [FPC Opinion 586]; and held further that

Puiirs was for interest prior to October 28, 1972.

Puiurs’ Request for Rehearing should be granted for

the following reasons:

1. This Court erred in its application of the Texas

law of property and contract interpretation in con-

firming title to the suspense money so-called;

2. This Court has failed to follow the clear lan-

guage of Tex. Rev. Crv. Star. Ann. arts. 5069-1.01

and 5069-1.03, and the Texas case law in ruling that

interest should be awarded for that period prior to

the time the principal sum became due and payable;

3. In deciding that under the factual situation pres-

ent here, equity compels that interest be awarded, this

Court disregarded undisputed factual evidence and

contract provisions and deprives Putuures of its prop-

erty without due process;

4. The Trial Court was, and this Court is, without

jurisdiction to entertain the counterclaim for interest,

or to award interest, in this interpleader action, where

Puuurrs did not, and does not, claim title to the inter-

pleaded fund; and

5. Finally, this Court errs when it repeatedly calls

Puriuurrs a ‘‘pipeline company’’, and this prejudicial

characterization should be corrected.

The rehearing requested by Puitures should be heard

en banc for the following reasons:

1. This proceeding involves questions of first im-

pression and of exceptional importance, both with re-

gard to the law of title and to the law on interest,

PP RSP TRE TS i a pat ane eee AR Sane SY

75a

and a consideration en bane is necessary to rectify

the erroneous decision of this Court on both these

issues ;

2. Consideration en bane also is necessary to secure

uniformity of this Court's decisions with regard to

the law in Texas, both statutory and decisional, in

that notwithstanding the Rules of Decision Act, 28

U.S.C, § 1652 (1966) and Erie R. R, vy. Tompkins, 304

U.S. 64, 58 S. Ct. 817, 82 L. Ed. 1188 (1988), this

Court has failed, refused and neglected to follow the

mandate of the Texas Legislature and the courts of

the State of Texas in ruling that interest may be

awarded prior to a time when an obligation becomes

due and payable;

3. Consideration en bane is necessary to maintain

a uniformity of this Court’s decisions, in that this

decision is in direct conflict with all of this Court’s

prior decisions that hold that interest is calculated

only from the date the principal sum is due and pay-

able, and not before; and for the further reason that

the award of interest in this case is in direct conflict

with the constitutional law pronouncement in Boutte,

et al. v. Chevron Oil Company, 316 F. Supp. 524 (E. D.

La. 1970), affirmed per curiam, 442 F. 2d 1237 (1971),

in that the decision here obliging Pumps to pay

interest on money held by it subject to possible refund

to pipeline companies for the period prior to the

time the FPC has established a just and reasonable

rate deprives Puiups of its property without due

process, contrary to what was said in the Boutte case;

and

4. Finally, consideration en bane is necessary to

secure a uniformity of decisions among the Circuits

with regard to whether or not the Court has juris-

diction to entertain a counterclaim for interest in an

interpleader action, where the interpleader party does

not assert a claim against the fund, the United States

Court of Appeals for the Fourth and Tenth Cireuits

having ruled heretofore that no such jurisdiction

exists.

MIND EA ee ee Aa a a Mn a

76a

The Title Issue

Puurrs adopts the argument appearing in the Petition

For Rehearing filed by the Scone. Grovp.

Texas Statutory Law Precludes Interest Here

Here, it is stipulated that the suspense money so-called

did not become due and payable until October 28, 1972

(PTO, Adms. 23, 24, 26, at App. 13-14). This Court

erred when it held that ‘‘the Texas statute does not pre-

clude the award of interest to the Adams family’’ for the

period prior to that date.

As this Court correctly notes, ‘‘[s]ince the award of

interest is in derogation of the common law, it is ordinarily

the case that interest should be refused except in those

cases as come without the terms of the enabling legisla-

tion.’’ (Slip. Opn. 5643, emphasis added.) Here, the only

relevant enabling legislation is found in Trex. Rev. Crv.

Stat. Ann. art. 5069-1.01 and 1.03 (1967), which says in

pertinent part that ‘‘ ‘[i]nterest’ is the compensation al-

lowed by law for the use or forbearance or detention of

money; ... .’’ (art. 5069-1.01(a)), and further that

‘‘[w]hen no specified rate of interest is agreed upon by the

parties, interest at the rate of six percent per annum shall

be allowed on all written contracts ascertaining the sum

payable from and after the time when the sum is due and

payable; ... .’’ (art. 5069-1.03, emphasis added). This

Court errs when it says that the courts of Texas have

construed this statute in a fashion which would allow in-

terest ‘‘for the use of money’’ for a period of time prior

to the time when the principal sum becomes due and pay-

able.

Counsel for Pumps have diligently reviewed all of the

Texas decisions cited by this Court (including this Court’s

own decisions), and nowhere in these cases can counsel

find a single instance where interest on the principal sum

SEPA SE RT ROR SNE i a le a te i De A ko

77a

is awarded for a period of time prior to said sum becoming

due and payable. Thus, we are unable to understand this

Court’s statement, in footnote 14, that one or more of the

cases cited there support the proposition that there are

**[eJases in which Texas courts have awarded interest in

apparent contravention of the statute’s [art. 5069-1.03]

... due and payable requirement... .’’ This simply is not

correct.!

The case of Treon vy. Richter, 265 S.W.2d 125, 126 (Tex.

Civ. App.—San Antonio 1954, writ ref’d n.r.e.) does not

support the proposition that interest under art. 5069-1.03

can be awarded for a period prior to the time the principal

sum becomes due and payable. ‘n the first place, the Treon

case dealt with an interpretation of ‘‘due and payable”

under the provisions of the Agricultural Protective Act,

Tex. Rev. Civ. Star. Ann. art. 1287-1, et seq., and held by

implication that the 30-day payment delay provision in art.

1287-3, see. 11, provided only that, while a payment may be

delayed, the due date for interest was the date at which

the crop is delivered. Secondly, the four cases cited in the

Treon case all deal with interest awarded as damages.

Here, we are not concened with interest as damages. Last-

ly, and most importantly, in Hayek v. Western Steel Co.,

Inc., 478 S.W.2d 786, 795-796 (Tex. 1972), the Texas Su-

preme Court ruled on a 30-day payment delay provision

found in Tex. Rev. Civ. Star. Ann. art. 5469 and held that

interest runs only from and after the 30-day statutory de-

lay period. Hence, if Treon still be the law with regard

to the 30-day provision of the Agricultural Protective Act,

1 There are some cases in Texas with which some might quar-

rel about whether the sum payable was actually ascertainable on

the due date. However, a close reading of the cases cited by this

Court in footnote 14 reveals that what the Texas courts have

held was that the sums were in fact ascertainable. Thus, the

courts do not contravene (apparently or otherwise) the literate

meaning of the statute with regard to restricting interest only to

such sums as are ascertainable.

3 . 2 Po PROS LYLE OA LE? AYRES SPARE ON OEE TILER

iw SEERA ESO RS RTS OTIS NTE DE PELE PPE CELI RE LILY SAT ERNE > siiiinaiiiad al

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its viability is strictly limited to art. 1287-3, see. 11, of

that Act.

The ease of G. € W. Marine, Inc. v. Morris, 471 S.W.2d

644, 649 (Tex. Civ. App.—Beaumont 1971, writ ref’d n.r.e.),

cited by this Court (Slip Opn. 5643) ® dealt specifically with

the question of interest under the provisions of Tex. Rev.

Civ, Star. Any, art. 5069-1.03. In Morris, the Court made

it unequivocally plain that there can be no interest awarded

for the period prior to the time the principal sum is pay-

able, saying:

oe * * TP)laintiff should have reeovered interest

... from the date the sum became due and payable

.... Article 5069-1.08, V.A.C.S., Federal Life Ins.

Co. of Chicago v. Kriton, 112 Tex. 582, 249 S.W. 193,

195 (1928).’?) 471 S.W.2d, at 649, emphasis added.

In Federal Life Ins. Co. of Chicago v. Kriton, 249 S.W.

193, 195 (Tex. Comm’n App. 1923, opinion adopted), the

Court, construing a * #977,° held that interest eo nomine

(i.e., not interest as daicages) runs from the time the liabil-

ity attaches. In this ease, liability attached on October 28,

1972, and not before.

No Texas cases are found which hold that liability for

interest can exist under art. 5069-1.03 (or its predecessor

statute) prior to the date the principal sum is due and

payable; rather, the Texas cases clearly require that a

sum be due and payable before interest can run. Thus,

in ruling otherwise, this Court has refused to follow the

rule of Erie R. R. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817,

82 L.Ed. 1188 (1933), which requires the federal courts in

diversity cases to apply state law as pronounced by the

2? This Court notes, then ignores, the correct statement that Texas

courts have been strict in refusing interest for periods prior to

the time when an obligation became due and payable.

3 TEX. REV. CIV. STAT. ANN, art. 5069-1.03 is derived from Rev.

Civ. St. 1911, Art. 4977. Their language is virtually identical.

EP LER LAER LIS PME RANGE CPL BELLO M LEE TIE TENE PN LE a MY I OES NURI TIM ERE PARSE AY

79a

state courts. Worse still, this Court has refused to follow

the Rules of Decision Act, 28 U.S.C. § 1652 (1966) and

give heed to the will of the Texas Legislature as declared

in Trex. Rev. Crv. Star. Ann. art 5069-1.03 (1967). This

error should be corrected forthwith.

The Equities Do Not Require the Award of Interest

Even if the Texas law did not preclude an award of inter-

est in this case, the equities do not require the award of

interest.

This Court ignores and overlooks the fact that the ApaMs

Faminy (assuming arguendo they are entitled to the sus-

pense money so-called) received an additional $12,296.81 in

compensation under the two casinghead gas contracts, and

that they were not required to take any risks, assume any

liability, expend any additional money for production, or

produce any additional gas to get this money, This signi-

ficant benefit resulted solely from risks taken and liabilities

assumed by Puiuurrs. Here,

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