Title: Humble Oil & Refining Co. v. Texas & Pacific Ry. Co.
Citation: 289 S.W.2d 547
Docket Number: A-5218
State: Texas
Issuer: Texas Supreme Court
Date: December 14, 1955

289 S.W.2d 547 (1955) HUMBLE OIL &amp; REFINING COMPANY, Petitioner, v. The TEXAS &amp; PACIFIC RAILWAY COMPANY, Respondent. No. A-5218. Supreme Court of Texas. December 14, 1955. Rehearing Denied May 9, 1956. Andrews, Kurth, Campbell &amp; Bradley, C. F. Morse, Harry R. Jones and Frank L. Heard, Jr., Houston, Leachman, Gardere, Akin &amp; Porter and Neth Leachman, Dallas, for petitioner. Baker, Botts, Andrews &amp; Shepherd and LeRoy Denman Moody, Houston, Robertson, Jackson, Payne, Lancaster &amp; Walker, John L. Lancaster, Jr., J. T. Suggs and W. R. McDowell, Dallas, for respondent. WILSON, Justice. This is a freight rate refund case involving 31,852 tank carloads of crude oil shipped by rail from Midland, Texas to certain Texas coastal points. Freight was *548 declared and paid on the interstate rate. Humble seeks a refund claiming the intrastate rate was applicable and the interstate rate was paid by mistake. Both sides sought a summary judgment. The trial court entered judgment in favor of the railway company that Humble take nothing, and this has been affirmed. 275 S.W.2d 824. The crude oil was produced in New Mexico and West Texas. It was moved by the Atlantic Pipe Line Company, a common carrier by pipeline to its McCook Tank Farm at Midland, Texas under purchasing agreements, the details of which are immaterial here,[1] but which are a convenient method of handling shipments. For a rather extended statement of the operation of the Atlantic Pipe Line Company see the case of Clark v. Atlantic Pipe Line Co., Tex.Civ.App.1939, 134 S.W.2d 322. We agree with the railway company that these buy-and-sell agreements were a method of protecting both shipper and carrier against gain or loss due to mingling with other shippers' oil and do not change the movement to the McCook Tank Farm from a shipper-carrier relationship. Clark v. Atlantic Pipe Line Co., supra. At the other end of the journey the oil left Texas by private carriage, so the point of origin of travel determines its character as intrastate or interstate. One of the inconsistencies arising from our dual state-federal form of government with consequent dual regulation of the transportation industry is this: Although the movement of oil by rail is exactly the same in both instances, there is a substantial difference in the freight rates on oil shipped by rail from Midland to the Gulf Coast depending on whether the journey of the oil commences inside or outside of Texas. Clearly that oil starting its journey in New Mexico should have taken an interstate rate, 49 U.S.C.A. § 1(1)(b); and clearly that oil produced in Texas, if shipped separately, should have taken an intrastate rate. The difficulty arises from the fact that by reason of the method of handling the flow of crude oil at the McCook Tank Farm, the oil was commingled and the oil in the specific carloads cannot be tagged as interstate or intrastate or as a fixed percentage of one or the other if we are required to trace the specific molecules of oil contained in on original shipment. This dispute arises from the fact that Humble had two streams of oil arriving at the McCook Tank Farmone from New Mexico fields and one from Texas fields. Had Humble been producing in just one or the other, there probably would have been no dispute although its oil would have been commingled at the tank farm with oil belonging to other companies in precisely the same fashion. Although in court the parties approach this as a problem in burden of proof, we question this analysis of the case. In its *549 motion for summary judgment, the railway company stated: In its brief, the railway company states: In reply Humble states: We think this not to be in actuality a problem in burden of proof, and we have concluded that Humble is not limited to either of the two methods listed just above. The factual method of operating the McCook Tank Farm is established in great detail.[2] Neither the railway company nor Humble had any control over the method *550 of operating the McCook Tank Farm. As a practical matter, it is but one link in the transportation system and a middle link in the oil's journey at that. The method of loading cars was described by the Superintendent of the McCook Tank Farm as follows: There seems to be nothing illegal in this method of operating a terminal tank farm or contrary to regulations of either the Interstate Commerce Commission or the Texas Railroad Commission. Included in an affidavit of Mr. C. R. McNamee, Director Rate Division, Railroad Commission of Texas, is the following statement: The railroad agrees that there are no tariffs published especially for mixed cars,[3] and we have been cited to no tariffs especially designed for oil commingled by a common carrier. Although the paper work on cars was handled by groups of ten cars per bill of lading, this is not controlling. The railroad's contention that the interstate or intrastate character of each carload must be determined separately for each car according to the point of origin of the very molecules of oil in that car is stated in an affidavit of Mr. C. H. Pistor, General Freight Traffic Manager for the defendant railway company, as follows: We prefer to hold that where governmental regulation does not prohibit, the parties are free to contract. The real question at issue is not so much one of burden of proof as it is a question of the legal effect upon railroad freight rates of the method used by a third party in operating a terminal tank farm. Here the shipper starts separate shipments of oil by common carrier from separate points of originone shipment going upon an interstate journey and another going upon an intrastate journey. At one point in the journey the shipments are brought together by a carrier and commingled not only with that shipper's oil but with the oil of many other shippers. After being mixed in transit with other shipments it became impossible to trace a given barrel of oil, and no one attempts to do this. Every shipper contracted to and was satisfied to receive the equivalent of the oil delivered to the pipeline. If the shipper is *552 willing to take at the termination of the entire journey an equivalent volume to that delivered to the first carrier, even though it may not be any of the same oil, it seems to us that it can work no hardship on the respective carriers to charge by volume according to the point of origin. It is unrealistic to require the shipper to trace each barrel of oil. But suppose there were a method of tracing individual barrels or molecules of oil. Consider the situation of an intrastate shipper who received an equivalent volume containing molecules of oil which originated in New Mexico. Should he be charged an interstate rate? Obviously not. We view this case as a transaction involving the continuous shipment of a great quantity of crude oil. From our review of the pleadings and affidavits, this seems to us to be the legal effect of the words and acts of the parties. In rebutting Humble's contention that the tank farm was a "distribution point", the railroad makes a very fair statement of the true nature of these shipments as follows: We agree with this and think the same principles are also applicable to intrastate shipments. We hold that the rates must be determined by the entire journey. Baltimore &amp; Ohio Southwestern Railroad Company v. Settle, 260 U.S. 166, 43 S. Ct. 28, 67 L. Ed. 189. Upon delivery to the first pipeline the oil then took its character as an intrastate or interstate shipment according to the point of origin of the shipment and its destination and not according to the origin of the particular molecules of oil received at the end of the journey. The 31,852 tank carloads involved here were shipped between October 31, 1947 and May 31, 1948. Our conclusion is strengthened by the fact that subsequent to June 1, 1948 the parties seem to have operated on a basis which disregards the specific content of each car. In an affidavit, Mr. E. W. Gerloff, Traffic Manager of the Humble Oil &amp; Refining Company, made the following statement: The fact that Humble was also shipping from New Mexico should not change the character of its shipments originating in Texas. Accordingly we hold that the oil produced in and shipped from New Mexico to East Texas takes an interstate rate and the oil produced in West Texas and shipped to East Texas takes an intrastate rate, and this irrespective of its being commingled with other oil enroute. If Humble is to secure a refund it must meet the burden of proving the quantity of oil produced in and shipped from West Texas to a point in East Texas under the interstate (and therefore wrong) rate during the period October 31, 1947 to May 31, 1948. The determination of the number of carloads of intrastate and the number of carloads of interstate oil should not be difficult. From our study of the motions for summary judgment and the supporting evidentiary *553 material, we are of opinion that the quantity of oil wrongly shipped under an interstate rate is in dispute and therefore there exists a fact issue. Accordingly the judgments of the trial court and of the Court of Civil Appeals are reversed and the cause is remanded to the trial court. CULVER, Justice (dissenting). I agree with the disposition of this case made by the Court of Civil Appeals and the reasons given therefor in its opinion. 275 S.W.2d 824. [1] "All of the crude oil involved was purchased by Petitioner at Midland, Texas from Atlantic Refining Company under a written contract of sale dated September 3, 1947, which, with minor immaterial amendments, was in effect continuously throughout the period during which the shipments moved. In this contract, Petitioner obligated itself to sell and deliver to Atlantic Refining Company certain quantities of crude oil at various points in West Texas and in Hobbs, New Mexico; and Atlantic Refining Company in turn obligated itself to sell and deliver to Petitioner equivalent quantities of crude oil, the delivery of which was to be made into tank cars supplied by Petitioner at Atlantic Pipe Line Company's loading rack on the Texas and Pacific Railway at Midland, Texas. This buy and sell agreement was executed for the purpose of protecting Petitioner and Atlantic Refining Company against differences in physical characteristics of crude oil sold and delivered by Petitioner to Atlantic at other points on the one hand, and that sold and delivered by Atlantic to Humble into tank cars at Midland, on the other. From time to time Petitioner billed Atlantic Refining Company for the crude oil delivered by it to Atlantic, and Atlantic paid Petitioner therefor. In like manner, from time to time, Atlantic Refining Company billed Petitioner for the crude oil sold by Atlantic and delivered into tank cars at Midland, and Petitioner paid Atlantic's invoices covering such crude oil." [2] "* * * Briefly it consisted of tanks having a storage capacity of more than 2,500,000 barrels, with connections with three of Atlantic's feeder lines from the west having a combined daily capacity of 83,000 barrels, of which 63,000 barrels was from Texas and 20,000 barrels from New Mexico; connections with feeder lines from West Texas of Texas-New Mexico Pipeline Company, Gulf Pipe Line Company, and Magnolia Pipe Line Company; a connection with its own Texas trunk pipe line leading eastward, and with lines to The Texas Company and Gulf Pipe Line Company through which deliveries could be made; and finally a tank car loading rack on the north side of the tank farm capable of loading 75 tank cars simultaneously. "Loading of Tank Cars "The tank car loading rack was fed by three separate lines. As a matter of convenience and to save pumping expense, the pipe line from Hobbs, New Mexico, was tied directly to the loading rack while tank cars were being loaded. When tank cars were not being loaded this oil went directly into the tank farm. In addition, the loading rack was fed by two lines from the tank farm. During this period Atlantic Pipe Line Company was loading tank cars indiscriminately at the loading rack for the account of six different companies, namely, Humble Oil &amp; Refining Company, Cities Service Oil Company, Magnolia Petroleum Company, Sun Oil Company, and The Texas Company. When the tank cars were being loaded they were spotted in a string on the tracks serving the loading rack. * * *" [3] In an affidavit Mr. C. H. Pistor, General Freight Traffic Manager for the defendant railway company, stated: "During the period in question, the Railroad Commission of Texas had not prescribed any tariff rule governing the entire contents of tank cars containing a mixture of both interstate and intrastate oil. During the period in question The Texas and Pacific Railway Company had no tariff on file with the Interstate Commerce Commission governing the entire contents of tank cars containing a mixture of both interstate and intrastate oil. In instances where there are tariff provisions governing a mixture of intrastate and interstate tonnage in the same car they regularly and without exception provide for application of the interstate rate on the entire contents of the car. This is so regardliss of whether the interstate rate if higher of lower than the intrastate rate." * * * * * * "I agree with Mr. C. R. McNamee where he states in his affidavit that there is no intrastate or interstate tariff or rule whoch prohibits the loading in a single tank car of oil moving in both interstate and intrastate commerce. It is permissable to so load a tank car. Where a tank car is so loaded, however, the interstate part of the oil must be calculated under the interstate tariff and the rate for the intrastate oil must be calculated under the intrastate tariff. Since there was no tariff rule authorizing either the intrastate or interstate rate on the entire contents, the applicable rate would be the intrastate rate based upon the carload minimum weight for the intrastate oil contained in the car and the interstate rate based upon the carload minimum weight for the interstate oil contained in the car. On that basis the charges for transporting the oil involved in this suit would be substantially higher than were collected."