Court Opinion

ID: 9559808
Source: CourtListenerOpinion
Date Created: 2023-08-21 17:35:54.443962+00
Date Added: 2024-06-11T09:11:44.960034
License: Public Domain

WILLIAMS, Justice
(dissenting).
I am of the opinion that the majority opinion incorrectly states both the facts and the law applicable thereto and I am therefore unable to concur therein.
Plaintiffs are the owners of certain mineral interests in 480 acres of land in the West Edmond Hunton Lime Field. Plaintiffs’ interests in these lands were leased to Sohio Petroleum Company, Stanolind Oil & Gas Company and Peppers Refining Company, respectively, in separate tracts. The whole field, consisting of several thousand acres, was unitized under the provisions of House Bill No. 339, enacted by the Twentieth Session of the Oklahoma Legislature, title 52, Chap. 3b, Sess.Laws 1945, 1949 Suppl. to 52 O.S.1941 § 286.1 et seq., hereinafter referred to as the Unitization Act. This act was repealed by the legislature in 1951, but it was in full force and effect through the period with which this lawsuit is concerned. As a result of the unitization of this field in accordance with the provisions of the Unitization Act, the defendant, West Edmond Hunton Lime Unit, a body politic and corporate, was created as the unit organization. The general powers of the defendant unit, as prescribed by the Unitization Act and the plan of unitization adopted and approved by the Corporation Commission, consist of the authority on behalf and for the account of all the lessees within the unit area, without profit to the unit, to supervise, manage and conduct the further development and operation of the unit area for the production of oil and gas. The powers of the defendant unit are actually carried out by its operating committee, composed of one representative designated by each lessee within the unit area. ' The defendant unit’s operations are supervisory and administrative only, however, and the actual physical'operation of the field is carried on by the unit operator. Under, the approved plan-of unitization, Sohio Petroleum Company was designated as unit operator and acted as such operator throughout the period in question here. The importance of this point will be brought out later, and it should be borne in mind in connection therewith that Sohio Petroleum Company is not a party to the action. This operation by Sohio was in accordance with the provisions of the Uniti-zation Act which provides that as to the unitization plan “the actual operations within the unit area may be carried on in whole or in part by the several lessees of leases within the unit area, subject to the supervision and direction of the unit, or may be conducted in whole or in part by the unit or some particular operator or operators of a lease or leases in the approved unit area depending upon what is most beneficial or expedient.”
The facts in this case are not in controversy and are for the most part stipulated. It is necessary -to set them out, however, for a complete understanding of the issues involved.
On January 14, 1942, plaintiffs executed an oil and gas lease to A. Gutowsky covering 80 acres of land involved here. This lease contains the following provision for royalty payments:
“To deliver to the credit of lessor, free of cost, in the pipe line to which lessee may connect wells on said land, the-equal one-eighth part of all oil produced and saved from the leased premises.”
After production of oil was obtained under this lease and on August 10, 1943, a contract was entered into by the plaintiffs *312and other parties owning the oil produced wherein they agreed to sell such oil to Champlin Refining Company. The contract, or division order, set out all the terms and conditions of the sale. Champlin Refining Company is specifically designated as the purchaser; the term of the sale is from the date of the first oil run until further notice, and the price to be paid is designated as the price posted by the Champlin Refining Company on the day when such oil is received by Champlin Refining Company. It was specifically stipulated by the parties hereto that this lease and division order have been in full force and effect since the date of first production from pláintiffs’ land.- After unitization of this field was completed on November 18, 1.947 Champlin continued to purchase the oil allocated to plaintiffs’ land and plaintiffs have been paid for their share of the allocated oil in accordance with the division order to Champlin Refining Company, by Champlin checks accompanied by run statements for the period covered by each check. The situation with respect to the rest of plaintiffs’ land was the same as that of the 80 acres hereinabove set forth except for minor differences in dates and parties.
Throughout the period of time in question, Sohio Petroleum Company, Champlin Refining Company, Continental Oil Company and Phillips Petroleum Company were all purchasers of crude oil, in the West Edmond' Field under contracts with various royalty and Working-interest owners. At all times material herein the market price posted by all such purchasers was $2.65 per barrel, except that from September 28, 1948, to December 17, 1948, Phillips Petroleum Company posted and paid a price of $3 per barrel for the oil purchased by' it. Thereafter Phillips returned to the $2.65 per barrel price.
Defendant has never entered into any lease, contract, or division order with plaintiffs nor solicited the execution of such lease, contract or division order. Plaintiffs have at no time sought to rescind, terminate or modify the lease and division order executed by them and at no time sought to have their share of the oil produced sold to anyone other than the purchaser they had designated in the division order. During the period in which Phillips Petroleum Company posted a higher price than the other purchasers, some royalty owners in the field terminated their contracts with other purchasers by giving notice thereof and entered into new contracts with Phillips Petroleum Company whereby they agreed to sell their share of the oil produced to Phillips and Phillips agreed to purchase the same, but plaintiffs were not among such royalty owners.
The majority opinion holds that defendant was a trustee for plaintiffs, was specifically authorized to purchase oil produced, did purchase oil and that its duty to plaintiffs required it to act with the highest fidelity. It further holds that the statutes require the unit operator (which the opinion says is the defendant in this case) to-account to all the owners of oil rights within the unit area for their respective portions or percentages of the unit production at the highest market price available at the time of such production. I find there is simply no basis either in fact or law for such a holding. So far as the record in this case reveals, the defendant has' never at any time either bought or sold a single drop of oil, either the plaintiffs’ or anyone else’s. The defendant is not even authorized to buy or sell oil except under certain ■ very restricted circumstances, which circumstances do not exist and have never existed in the case at bar. It is true that the unit operator, Sohio Petroleum Company, is one of the purchasers of crude oil from the field, but Sohio is not the defendant in this case and is not even a party. Furthermore, the record does not reveal that Sohio ever bought one drop of plaintiffs’ oil at any price. All Sohio did was to-deliver plaintiffs’ share of the oil produced to the purchaser designated by plaintiffs, to-wit: Champlin Refining Company, and Champlin Refining Company paid plaintiffs direct the agreed purchase price for said oil.
In order to better understand the situation existing here, it is necessary to set out certain portions of the unitization act and the unitization plan approved for this field which are particularly pertinent.
*313Section 10 of the Unitization Act is as follows:
“Property rights, leases and other contracts, and all rights and obligations shall meet the provisions and requirements of this Act and to any valid and applicable plan of unitization or order of the Commission made and adopted pursuant hereto, but otherwise to remain in full force and effect.
“Nothing contained in this Act shall be construed to require a transfer to or vesting in the unit of title to the separately-owned tracts or leases thereon within the unit area, other than the right to use and operate the same to the extent set out in the plan of unitization; nor shall the unit be regarded as owning the unit production. The unit production and the proceeds from the sale thereof shall be owned by the several persons to whom the same is allocated under the plan of unitization. All property, whether real or personal, which the unit may in any way acquire, hold or possess shall not be acquired, held or possessed by the unit for its own account but shall be so acquired, held and possessed by the unit for the account and as agent of the several lessees and shall be the property of such lessees as their interests may appear under the plan of unitization, subject, however, to the right of the unit to the possession, management, use or disposal of the same in the proper conduct of its affairs, and subject to any lien the unit may have thereon to secure the payment of unit expense.
“The amount of the unit production' allocated to each separately-owned tract within the unit, and only that amount, regardless of the well or wells in the unit area from which it may be produced, and regardless of whether it be more or less than the amount of the production from the well or wells, if any, on any such separately-owned tract, shall for all intents, uses, and purposes be regarded and considered as production from such separately-owned tract, and, except as may be otherwise authorized in this Act, or in the plan
of unitization approved by the Commission, shall be distributed among or the proceeds thereof paid to. the several persons entitled to share in the production for such separately-owned tract in the same manner, in the same proportions, and upon the same conditions that they would have participated and shared in the production or proceeds thereof from such separately-owned tract had not said unit been organized, and with the same legal force and effect. If adequate provisions are made for the receipt thereof, the share of the unit production allocated to each separately-owned tract shall be delivered in kind to the persons entitled thereto by virtue of ownership of oil and gas rights therein or by purchase from such owners subject to the right of the unit to withhold and sell the same in payment of unit expense pursuant to the plan of unitization, and subject further to the call of the unit on such portions of the gas for operating purposes as may be provided in the plan of unitization.
“Operations carried on under and in accordance with the plan of unitization shall be regarded and considered as a fulfillment of and compliance with all of the provisions, covenants, and conditions, express or implied, of the sev- ■ eral oil and gas mining leases upon lands included within the unit area, or other contracts pertaining to the development thereof, insofar as said leases or other contracts may relate to the common source of supply or portion thereof, included in the unit area. Wells drilled or operated on any part of the unit ai;ea no matter where located shall for all purposes be regarded as wells drilled on each separately-owned tract within such, unit area.”
The approved, plan of unitization, which in effect constitutes the character under which defendant operates, contains provisions identical with the statutory provisions above set forth, and in addition contains the following pertinent provisions:
“Except as may be otherwise authorized or provided in this plan of unitiza*314tion, and provided adequate provisions are made for the receipt thereof, the share of the unit production allocated to each separately owned tract shall be delivered in kind to the persons entitled thereto by virtue of ownership of oil and gas rights therein or by purchase from such owners, subject, however, to the right of the unit operator to withhold and sell the same in payment of unit expense pursuant to this plan of unitization, * * *.
“To the extent that any person entitled to take and receive in kind any portion of the unit production shall fail to take and receive the same currently as and when produced, the unit operator, as agent and for the account and at the expense of such person, is authorized to market and sell or itself purchase at not less than the market price prevailing at the time of such sale or purchase, the portion of unit production not so taken in kind by the person entitled to take and receive the same. Proceeds of the unit production so sold or purchased by the unit operator, shall be paid by the unit operator to the person or persons for whose account the same is -so marketed.”
Thus it may be seen that the defendant unit is only authorized to sell oil produced from the unit when necessary to do so in order to effect collection of the unit operating expense. By the terms of the plan of unitization, however, only the %ths working-interest of the lessees is subject to such sale and plaintiffs’ ⅛⅛ royalty is not subject to any expense of operation or to be sold for such expense. The defendant unit therefore has no authority to effect any sale of plaintiffs’ share of the unit production whatsoever. And, of course, the record reveals that defendant never made1 or attempted to make any such sale. Of course, the plan of unitization does authorize the unit operator (who is not a party to this suit) to market and sell or itself purchase that portion of the unit production which the person entitled to take and receive fails to take and receive-when produced. However the record reveals that the unit operator made no such sales and the contingency under which it was authorized to make such sales never arose. Furthermore, if such contingency had arisen and such sale had actually been made, all the unit operator would have had to account to the royalty owners for would have been the market price prevailing at the time of such sale. The majority opinion erroneously places the onerous duty on the operator of obtaining the highest market price available, but it is unable to point out any statute, agreement, lease, division order or anything in the unitization plan or order which would entitle plaintiffs to more than the prevailing market price if their share of the production had in fact been sold by or purchased by the unit operator. It should be obvious that the prevailing market price is by no means necessarily the highest price available. A discussion of this point is really immaterial, however, since the unit operator is not a party to this action and since the record reveals that neither the unit operator nor the defendant unit ever sold or marketed any of plaintiffs’’ share of the unit production nor were they ever authorized to do so under the conditions shown to exist during the period in question under the applicable statutes and plan of unitization. Obviously, then, the majority opinion is in error in stating that the defendant was authorized to purchase oil produced, in stating that the defendant did purchase such oil, in stating that gain resulted to the defendánt and loss to plaintiffs, and in stating that the defendant must account for all production at the highest market price available.
Although the record reveals that plaintiffs entered into a contract in the form of a division order with Champlin Oil Refining’ Company for the sale of plaintiffs’ share of the oil, which contract was at all times carried out, the majority opinion holds that the unitization of the field nullified this division order solely on the ground that a division order which applied to oil produced from a particular tract of land could not apply to a percentage of the oil produced from the entire unit area. In this connection the majority opinion states:
“Obviously, an authorization to rer ceive individually owned oil for pur*315chase from wells located on a particular tract of land by the owners of the oil produced therefrom is not an authorization to receive other oil elsewhere produced.”
This holding is made in the face of a written stipulation entered into by the parties hereto and shown in the record in pertinent part as follows:
“6. The division order attached hereto and marked exhibit ‘O’ is a form of division order executed by plaintiffs ■covering their proportionate part of the production from said unit * * *
“7. The oil and gas lease and division order, respectively marked exhibit ‘C and ‘D’, or like instruments containing similar provisions provided for and ■directed the manner of payment for plaintiffs’ proportionate part of the production from said leases and said orders have been in full force and effect since date of first production from plaintiffs’ tracts.” (Emphasis added.)
Not only does the majority opinion disregard and nullify the stipulation of the parties hereto, but it completely ignores the applicable provisions of the unitization statute and the approved plan of unitization. These division orders were maintained in force by the express provisions of the statute, as witness the following pertinent parts -of section 10 of the unitization act:
"Property rights, leases and other ■contracts, and all rights and obligations shall meet the provisions and requirements of this Act and to any valid and applicable plan of unitization or order of the Commission made and adopted pursuant hereto, but otherwise to re■main in full force and effect. * * *
“The amount of the unit production allocated to each separately-owned tract within the unit, and only that amount, regardless of the well or wells in the unit area from which it may be produced, and regardless of whether it be more or less than the amount of the production from the well or wells, if any, on any such separately-owned tract, shall for all intents, uses, and purposes be regarded and considered as production from such ‘separately-owned tract, and * * *■ shall be distributed among or the proceeds thereof paid to the several persons entitled to share in the production 'for such separately-owned tract in the same manner, in the same proportions, and upon the same conditions that they would have participated and shared in the production or proceeds thereof from such separately-owned tract had not said unit been organised, and with the same legal force and effect.. * * *
“Operations carried on under and in accordance with the plan of unitization shall be regarded and considered as a fulfillment of and compliance with all of the provisions, covenants, and conditions, express or implied, of the several oil and gas mining leases upon lands included within the unit area, or other contracts pertaining to the development thereof, * * *. Wells drilled or operated on any part of the unit area no matter where located shall for all purposes be regarded as wells drilled on each separately-owned tract within such unit area.” (Emphasis added.)
It is well settled that a division order is a contract. Texas Co. v. Pettit, 107 Okl. 243, 247, 220 P. 956, 231 P. 463. It should therefore be obvious that the division order executed by plaintiffs falls squarely within the above quoted provisions of the statute and was at all times in full force and effect. Furthermore, in every case heretofore considered by this court involving the effect of unitization it has been uniformly held that in interpreting contracts the allocated oil shall be “for all purposes” substituted for and considered as oil produced from the leased premises and that a well drilled anywhere on the unitized premises is for all purposes a well drilled on the leased premises. Blevins v. Harris, 172 Okl. 90, 44 P. 2d 112; Godfrey v. McArthur, 186 Okl. 144, 96 P.2d 322; McClain v. Harper, 206 Okl. 437, 244 P.2d 301.
The majority opinion is further erroneous in that it declares defendant to be a trustee owing the highest fidelity to plaintiffs. Such a holding is squarely contrary to our previous holdings. It is readily ap*316parent from the foregoing quotations that the effect of the unitization of this field was to merely substitute the unit operator for the various lessees of the separate tracts in the unit in the physical operation of the leases. In Bunger v. Rogers, 188 Okl. 620, 112 P.2d 361, 363, we held that there was no fiduciary relationship between lessor and lessee, saying:
“The defendants were merely lessees under an oil and gas mining lease and were under no obligation to the plaintiff, other than to pay the rent and royalty provided in said lease, and if they breached this duty then their liability was purely a contractual one and in no sense fiduciary.” (Emphasis added.)
The limitations of time and space do not permit a more detailed analysis of the erroneous nature of the majority holding, but at least one more point should be mentioned, at least briefly, before closing.
The majority opinion holds that plaintiffs, who are merely two out of several thousand royalty owners in the field, are entitled to maintain this action for the use and benefit of all other owners of oil royalty rights within the unit and similarly situated as plaintiffs, and proceeds to enter a judgment “directing the defendant to account to and pay all persons owning royalty interests on oil produced from the unit tracts involved herein during the time period involved herein, from September 28th to December 17th, such sums, respectively, that each of said royalty owners shall have received in proceeds for their percentage of the oil produced in said period a sum equal to $3 per barrel for said oil.”
To my mind such a judgment is erroneous. It grants a money judgment to a large group of unidentified persons who are not before the court without regard to whether they desire such a judgment or not and without any individual pleading of the separate cause of action of the real parties in interest and without proof or authority or any evidence on which to base such a judgment being presented. It is elementary that the rights of the various royalty owners in the field are dependent upon the individual contracts that they have entered into. The majority opinion states that there appears to be a complete similarity of the situation of the plaintiffs and numerous other owners of royalty interest within the unit. I am unable, however, to ascertain the source of this appearance of similarity from the record before us. The only similarity that I can discover from the record is that there appear to have been a number of other royalty owners who sold their share of the production to purchasers other than Phillips. We are not advised-under what conditions any of such sales were made, however, with the exceptions of plaintiffs’ sale to Champlin. It does appear from the record that some royalty owners had sold exclusive options to purchase their share of the production to certain pipe-line companies. Obviously such persons would not be in the same situation as plaintiffs. It further appears that some royalty owners have entered into division order contracts which require 30 days notice of termination before either party may withdraw therefrom. Obviously these persons are not in the same situation as plaintiffs. It also appears that some royalty owners requested a transfer of the sale of their share of the production to Phillips and that others did not. Numerous other distinctions could be noted, but the point to be made is simply that the claim of each individual royalty owner, if any he may have and care to assert, is dependent upon the factual situation prevailing in his particular case and in no wise dependent in any manner upon plaintiffs’ recovery or lack of recovery. Defenses of estoppel, ratification, laches, or the statute of limitations might be successfully asserted against some royalty owners and not against others.
I am unable to concur in the majority opinion in any respect, and therefore respectfully dissent.
I am authorized to state that HALLEY, C. J., concurs with the views herein expressed.