Case Name: LUDEY v. PURE OIL CO. et al.
Court: Oklahoma Supreme Court
Jurisdiction: Oklahoma
Decision Date: 1931-09-15
Citations: 157 Okla. 1
Docket Number: No. 20497
Parties: LUDEY v. PURE OIL CO. et al.
Judges: LESTER, C. J., CLARK, Y. C. J., and HEFNER, CULLISON, SWINDALL, AN. DREWS, and McNEILL, JJ., concur. KORNEGAY, J., dissents.
Reporter: Oklahoma Reports
Volume: 157
Pages: 1–8

Head Matter:
LUDEY v. PURE OIL CO. et al.
No. 20497.
Opinion Filed Sept. 15, 1931.
Rehearing Denied April 19, 1932.
Davidson & Williams, for plaintiff in error.
Alvin Richards and F. A. Calvert, for defendants in error.

Opinion:
RILEY, J.
This action was instituted by Charles A. Ludey against the Pure Oil Company, the Ohio Cities Gas Company, the Quaker Oil & Gas Company, the Eagle Gasoline Company, corporations, and Charles G. Tibbens, to recover the value of one-third of casinghead gas taken from the southwest %, of section 21, township 18 N., range 12 E., Creek county, Okla., and for accounting and for cancellation of a lease upon said lands.
Judgment was for plaintiff in the sum of $4,494.35. Plaintiff and defendants who constituted the lessees appeal.
Plaintiff alleged, in substance, that:
On June 1, 1911, Kemp and Hayden, the owners of the described land, executed an oil and gas mining lease thereto in favor of Quaker Oil & Gas Company. The said lease provided for a one-eighth oil royalty and $200 per year per well gas royalty where gas was marketed and used off the premises.
On June 19, 1911, Kemp and Hayden conveyed an undivided one-third interest in said land, subject to said lease, to the plaintiff.
The Quaker Oil & Gas Company proceeded to develop said land. There are now 26 wells producing oil and gas. None of the wells produce gas only. All of said wells are oil wells. Cashinghead gas for many years has been produced from said oil wells. The Pure Oil Company, formerly the Ohio Cities Gas Company, has succeeded to all rights and liabilities of the Quaker Oil & Gas Company and the Ohio Cities Gas Company.
The lessee defendants have sold and de livered to the Eagle Gasoline Company and Charles G. Tibbens casinghead gas from said wells.
Plaintiff amended his petition so as to seek recovery for dry or residue gas used by defendant lessees in the operation of said lease.
The Pure Oil Company admitted the execution of the lease as pleaded; that it was now the lessee in possession and producing <sil and casinghead gas; admitted that Ludey owned a one-third interest in the lands; that there are 19 oil wells on said lease; that all of said wells except one were drilled prior to 1912; that there were no gas wells; that about the year 1915, a market existed for casinghead gas, and on July 22, 1915, the lessee contracted with Tibbens for the sale of casinghead gas at 5c per M. cu. ft.; that a vacuum plant was installed by the defendant lessees to collect said casinghead gas and a large sum of money so expended for installation and maintenance to date; that D. A. Bartlett and E. A. Bartlett, owners of the other two-thirds interest in the land involved, contracted with lessee defendants whereby they agreed to receive two-thirds of one-eighth of the value of the casinghead gas as their royalty, but Ludey refused to join in said contract; that, in June, 1920, the value of the casinghead gas was increased slightly in proportion to quality ; that lessee defendants tendered to Ludey checks for his royalty interest in the casinghead gas at the rate of one-third of one-eighth, but Ludey declined; that lessee defendants have sold approximately $40,000 worth of casinghead gas from said lease; that in event it should be held that plaintiff is entitled to recover more than one-third of one-eighth, the statute of limitation, section 185, O. O. S. 1921, be declared a bar to plaintiff's recovery; that plaintiff be estopped by laches from claiming the amount set forth in his petition; that the court determine and allow defendants the production cost.
The lessee defendants denied the sale of dry or residue gas, but admitted the use of same as fuel in operation of said lease. They pleaded custom and knowledge of plaintiff as to this fact at the time he acquired his interest in the land. The defendant lessees plead that: " Casinghead gas for which plaintiff seeks to recover herein was, and is, in fact and in truth, oil," and that plaintiff is entitled to the same rate of royalty upon casinghead gas as provided in his lease for royalty upon oil and no more.
An estoppel was pleaded in that on September 21, 1915, the defendant lessee paid to a bank of Ohio $71.73, the same being one-eighth of the proceeds derived from the sale of casinghead gas from said lease, and one-third of said sum ($71.73) was credited to Ludey, but it was subsequently admitted that Ludey was not bound by said acceptance.
The trial court sustained plaintiff's demurrer to defendants' answer that Ludey was entitled to only one-third of one-eighth of the casinghead gas. The cause proceeded to trial and judgment.
The judgment found that Ludey was entitled to one-third the value of the casing-head gas sold from the Ludey (Big Pond) farm, together with interest at 6 per cent, calculated monthly. That Ludey should pay one-third of the cost of production and marketing of this casinghead gas plus 6 per cent, interest thereon, calculated monthly; that Ludey was entitled to judgment against lessee defendants in the sum of $4,494.35, with interest from July 1, 1928; that Ludey was not entitled to anything for dry gas used in development; that defendants were not entitled to expenses prior to the year 1915; that casinghead gas was not a part of the oil produced from the lease, and tnerefore not contemplated by the one-eighth royalty clause of the lease. The defendants' plea of limitation and laches was denied. The trial court found that the Pure Oil Company owned a valid and subsisting oil and gas mining lease upon the lands involved, and denied plaintiff's prayer for cancellation of the same. The court found .that D. A. Bartlett and E. L. Bartlett, owners of an undivided two-thirds interest in the land, had authorized the sale of their interest in casinghead gas produced from the premises, and that defendants had the right to produce and sell all casinghead gas produced, for it was impossible for defendants to separate the one-third interest owned by plaintiff and no market had been provided by Ludey, nor had he attempted to use it.
The first issue on appeal is:
Does the term oil, as used in the lease here presented, include casinghead gas? Hammett Oil Co. v. Gypsy Oil Co., 95 Okla. 235, 218 Pac. 501 (June 21, 1921) ; Mussellem v. Magnolia Pet. Co., 107 Okla. 183, 231 Pac. 526 (March 11, 1924) ; George v. Curtin, 108 Okla. 281, 236 Pac. 876 (April 7, 1925) ; Mullendore v. Minnehoma Oil Co. (Okla.) 233 Pac. 1051 (Nov. 12, 1924, rehearing granted Feb. 9, 1926) ; Mullendore v. Minnehoma Oil Co., 114 Okla. 251, 246 Pac. 837 (April 13, 1926) ; Withington v. Gypsy Oil Co., 68 Okla. 138, 172 Pac. 634 (April 23, 1918) ; Wolf v. Blackwell Oil & Gas Co., 77 Okla. 81, 186 Pac. 484 (Jan. 6, 1920).
In the Hammett Case this court said, referring to the last two cited cases:
"These cases are the only eases that have been called to our attention where the rights of the parties regarding casinghead gas were in dispute and where no mention was made in the lease concerning the same. We think these eases support the position that gasoline manufactured from casinghead gas is neither oil nor gas within the contemplation of an oil and gas lease which makes no reference to casinghead gas and nothing appears to indicate that the parties have contracted concerning the same."
We answer the query in the negative.
It follows that the casinghead gas produced from the land in controversy belonged to the landowners, because in the lease no mention is made of casinghead.
The Bartletts, eotenants with plaintiff Ludey, agreed that the lessee defendants might sell their interest in such casinghead gas to Tibbens and the Eagle Gasoline Company, and that they would accept the royalty mentioned in the oil royalty clause of the lease as their consideration. Ludey made no demand for delivery to him of his interest in the casinghead gas, and the lessee defendants properly acted when they sold it. The parties lessee and Ludey became as tenants in common:
"A tenancy in common is where two or more hold the same land, with interests accruing under different title, but at different periods, or conferred by words of limitation importing that the grantees are to take in distinct shares." Black's Law Diet. (2nd Ed.) p. 1142.
Before the statute of limitations will start in favor of a tenant in common, there must have been an actual ouster by the one asserting the statute. Beaver v. Wilson, 117 Okla. 68, 245 Pac. 34; Arthur v. Coyne, 32 Okla. 527, 122 Pac. 688; Burt v. Steigleder, 132 Okla. 217, 270 P. 54; Connor v. Thornburgh, 140 Okla. 16, 282 P. 1221; Int. Land Co. v. Smith, 103 Okla. 101, 229 Pac. 601; Prairie Oil & Gas Co. v. Allen, 2 Fed. 566, 40 A. L. R. 1389.
There was no total denial by defendants of plaintiff's interest in the casinghead gas. Clark v. Beard, 59 W. Va. 669, 53 S. E. 597; Booten v. Robertson, 199 Ky. 302, 250 S. W. 1000; Summers v. Vinson, 211 Ky. 571, 277 S. W. 849. In the latter case it is held:
"It is not presumed that a joint tenant in possession is wrongfully claiming title against his co-owners, but the converse is true. "
So holds Longfellow v. Byrne, 68 Okla. 314, 174 Pac. 745; Hurie v. Quigg, 121 Okla. 80, 247 Pac. 677.
There never was an ouster of Ludey by the defendants or any of them. To the contrary, his right as an owner of the land was recognized; the only contention being that defendants contended Ludey was entitled to one-third of a one-eighth interest in the casinghead gas, whereas he contended he was entitled to a one-third interest. In the absence of a complete denial or ouster, the statute of limitations has no place in an action between eotenants or tenants in common for an accounting of rents and profits. Peets v. Wright, 117 S. C. 409, 109 S. E. 649; Vaughn v. Lankford, 81 S. C. 282, 62 S. E. 316, 128 Am. St. Rep. 912.
There was a trust of fiduciary relation between the parties. The statute of limitations does not begin to run until the termination of that relationship. It has not been terminated. See Rice v. Peters, 113 N. Y. S. 40, wherein it is held:
"A tenant in common receiving the common property, either wrongfully or by consent, holds it as trustee for his eotenant to the extent of the interest of the cotenant, who may compel an accounting." Hatch v. Hatch, 46 Utah, 116, 148 Pac. 1096; Pomeroy's Eq. Jurisprudence, vol. 3, see. 1044; sec. 1051, R. C. L. vol. 26, 1232-1235; Rollow v. Taylor, 104 Okla. 275, 231 Pac. 224; Baldridge v. Caulk, 110 Okla. 185, 237 Pac. 453; Reed v. Bachman, 123 Am. St. Rep. 996.
A perron who has, without lawful right, under one cotenant, taken oil, may be held accountable therefor in equity. Williamson v. Jones, 43 W. Va. 562, 64 Am. St. Rep. 891, 27 S. E. 411, 38 L. R. A. 694.
See Edwards v. Edwards, 108 Okla. 93, 233 Pac. 477.
"Limitations do not affect the right of the cestui que trust so long as the trust relation continues." Carroll v. Carroll, 92 Ark. 625, 121 S. W. 947; Thomas v. Hurst, 73 Fed. 372; Finn v. Wetmore, 212 Ill. App. 560.
We conclude that the statutes of limitations and laches are not applicable to bar plaintiff's claim in the cause at bar. We conclude that plaintiff is entitled to recover one-third of the value of the casinghead gas taken from the land in controversy. The resulting question is, What expense, if any, are the lessee defendants entitled to charge for the production and sale of the plaintiff's interest in the casinghead gas? The plaintiff contends that no expense should he allowed, but admits that the general rule is that:
"A cotenant in the exclusive possession of mining property, who extracts ore, may charge against its proceeds, the reasonable and necessary .expenses of its extraction and marketing. "
Plaintiff says that after the Hammett decision, supra (June 2\ 1921), the defendants were bound to know of his one-third interest in the casinghead gas, and that their withholding of his interest was malignant and a monstrous injustice. We are not so wrought up about it. The answer is 'that the courts were open for Ludey to enforce his. right. Moreover, we find that defendants' conservation and sale of the casinghead gas was in good faith and most beneficial to plaintiff, otherwise it would have e caped in the air.
This coyirt has held that the measure of damages for taking oil from land through mistake, where the lessee entered into peaceable possession of the premises believing- in good faith that the lessor owned the entire title in the premises, is the value of the oil at the surface, less the reasonable cost of production. Barnes v. Winona Oil Co., 83 Okla. 253, 200 P. 985; Zelma Oil Co. v. Nemo Oil Co., 84 Okla. 217, 203 Pac. 203; Menshall v. Berryhill, 83 Okla. 100, 205 Pac. 932.
The trial court in calculation of the allowable expense took what it found to be the entire expenses of operation of the lease, or $199,044.04, as a basis. Then it took the amount derived from oil produced, or $221,-347.64, and added the total of casinghead gas sales, or $43,945.63, to arrive at the sum of $265,293.27, or the total amount received from sale of oil and casinghead gas from October 1, 1915, to July 1, 1928. It then ascertained the ratio the casinghead gas bore to- the oil value, and found it to be approximately .1656 per cent., but varying from month to month, a monthly ratio being taken (Ex. "X", C.-M., pp. 747-749), and found that percentage of the total expense, or $199,044.04, to be $36,130.87, which represents the ratio of casinghead gas expense to that of oil based on value of production. That sum was divided by three so as to find the chargaeble expense for plaintiff's one-third interest. The result was $12,043.86. Interest was allowed upon the chargeable casinghead gas expense. The court found Ludey's interest of the casinghead gas amounted to $20,897.56, and gave Ludey judgment for the difference with interest at 6 per cent, from July 1, 1928.
We are not prepared to say that the system of allowing expense was. erroneous. Wemple v. Producers Oil Co., 145 La. 1031, 83 So. 232.
Plaintiff, Ludey, is not charged with drilling or capital investment under the trial court's judgment.
Judgment affirmed.
LESTER, C. J., CLARK, Y. C. J., and HEFNER, CULLISON, SWINDALL, AN. DREWS, and McNEILL, JJ., concur. KORNEGAY, J., dissents.