Magnolia Petroleum Co. v. Ouart , 200 Okla. 258 ( 1947 )

BAYLESS, J.

The Magnolia Petroleum Company has appealed from a judgment decreeing C. J. Ouart and Leila Ouart a 7/48ths interest and Eva F. Hunter a 5/95ths interest in the %th royalty in the lease in controversy and a money judgment for their prorata part of the royalty funds impounded by Magnolia at the date of trial. The interests of other persons were determined by the judgment, but we are concerned only with the controversy between Magnolia and the parties named above.

This controversy involves the interpretation of an oil and gas lease, Producer’s Form 88, executed by the Ouarts in 1938. The lease described an entire 40-acre tract of land, although the Ouarts only owned an undivided interest in the west half of this tract, which fact was known to Magnolia. Magnolia took five separate leases covering all or part of the land involved at various times during the year 1937 and the first half of 1938. Three of these leases, including the Ouarts’ lease, described the entire 40-acre tract. One of the leases described “all interest in entire 40-acres”, and the remaining lease covered a part of the west half of the 40-acre tract. Three of these leases, including the Ouarts’ lease, were to “remain in force for a term expiring April 23, 1942, and as long thereafter as oil or gas or either of them is produced from said land by lessee.” The leases provided for a delay rental of $1 per acre. The last delay rental, in the sum of $5.84, was paid to the Ouarts in April, 1941. The receipt on the bottom of the rental check provided:

“In full payment of: Rental for twelve months, payable 9 day of May, 1941, on forty acres covered by oil and gas lease recorded in . . .”

In August, 1941, Magnolia drilled a producing oil well in the southeast ten acres of the 40-acre tract. Shortly thereafter .they drilled a well in the northeast quarter of the 40-acre tract which was not a commercial producer. Magnolia accepted division orders signed only by those owning royalty in the southeast ten acres and we assume it paid the %th royalty to such owners for a period of time at least, until payment was suspended, although there is no proof of such payment in the record. On July 8, 1942, C. J. Ouart filed an action in the district court of Pottawatomie county, No. 19062, against Magnolia, alleging the execution of the lease covering the described 40-acre tract, the interest owned by him in the west 20 acres of the tract, that there had been no development on the west 20 since the execution of the lease, that Magnolia had obtained a large producing well in the southeast ten acres, and that same had drained oil from under his property. He asked to have the lease canceled and to recover damages for drainage. Magnolia’s answer admitted the execution of the lease and plaintiff’s ownership in the west 20 acres; but alleged it had kept plaintiff’s lease in full force and effect by making developments thereon, pleading in detail the drilling of the two wells mentioned above, denying the allegation of drainage and that it would be prudent or profitable

“to further drill any other oil or gas well on any portion of said premises at this time, or was so at any time prior thereto; . . . that by reason of the facts ... stated it has fulfilled all of its duties toward plaintiff under the terms of said contract, which is still in full force and effect.”

Ouart’s reply was in the nature of a general denial of all affirmative allegations contained in Magnolia’s answer.

At the commencement of the trial Ouart’s attorney stated to the court that he adopted Magnolia’s theory that the lease covered the entire 40-acre tract. He orally amended his petition and prayer to show that he was entitled to a portion of the royalty from production from the southeast ten acres. The following discussion then took place:

“The Court: Do you have any stipulation now to make as to what ownership of land the plaintiff has in that 40? Mr. Crump: We haven’t stipulated, and they are estopped from showing it, because under their answer they state the lease covers the whole of said 40 acres. I will read the answer. If that is not true, they are out on a limb and they are now estopped. They say the lease covers the entire 40, and we adopt their theory.”

Magnolia did not at that time or any subsequent time offer to surrender or terminate Ouart’s lease, but has steadfastly maintained that the lease covering the entire 40-acre tract remained in full force and effect by reason of development and production in the southeast ten acres. On March 29, 1943, the court rendered judgment in favor of Ouart, decreeing him to be the owner of an undivided 7/48ths interest in the oil, gas, and mineral rights under said lease, and decreeing a money judgment for production prior to the date of trial. A motion for new trial was filed but not acted upon. A few weeks later Magnolia filed a separate action, cause No. 19337, in the nature of a stakeholder’s suit, alleging the aforesaid production, that payment of the royalty had been suspended because of conflicting claims, and praying the court to determine who should be legally entitled to share in the royalty payments. The answer of the Ouarts alleged they were entitled to %th royalty as provided in the various leases in the proportion that their individual ownership bore to the entire 40 acres covered by the leases. They pleaded the judgment in cause No. 19062 rendered March 29, 1943, and prayed that their interests be determined in accordance with said judgment. Magnolia’s reply denied that Ouarts were entitled to receive any royalty since production was not had from their land, stating that the contemporaneous leases, including the Ouarts’ lease, were not communitization or unitization leases but were separate, individual leases of individual owners of portions of the 40-acre tract; that both parties had so construed the contract; and that the Ouarts, by their acquiescence with full knowledge of the facts as to production and distribution, were now estopped from claiming any interests in the royalty.

The Ouarts’ lease contained the following provisions:

“To deliver to the credit of the lessor, free of cost in the pipe line to which he may connect his wells, the equal % part of all oil produced and saved from the leased premises.

“If said lessor owns a less interest in the above described land than the entire and undivided fee simple estate therein, then the royalties and rentals herein provided for shall be paid the said lessor only in the proportion which lessor’s interest bears to the whole and undivided fee”.

The parties stipulated as to most of the facts involved. The following is quoted from the stipulation:

“It is further stipulated and agreed that the Magnolia Petroleum Company paid the rental on said oil and gas lease on or before the 9th day of May, 1939, 1940, and 1941, in the amount of $5.84 per annum, a photostatic copy of said Magnolia Company vouchers showing payment of said rentals being attached hereto marked ‘Exhibit E-l’ and made a part hereof.”

After hearing all the evidence the court, on its own motion, consolidated the two cases. It then rendered judgment, which for practical purposes was the same as the judgment rendered in cause No. 19062, and Magnolia has appealed from the latter judgment.

Magnolia urges that the Ouarts’ lease cannot be construed to be a communi-tized or unitized lease and that Ouarts are not entitled to proceeds from production from land which they do not own or in which they have no interest. The Ouarts contend that it should be so construed. It is not necessary to pass upon this question other than to hold that the Ouarts’ lease, considering all of the facts and circumstances involved, was ambiguous and therefore subject to construction by the court. We hold that if the Ouarts’ lease is kept in force and effect after the expiration of its term, by reason of production on a portion of the described lease in which Ouarts admittedly own no title, then it. follows as a matter of law that the lessee is obligated to pay royalty to the Ouarts on a prorata basis. We do not hold, or even intimate, that this is the proper construction of the lease, but considering the ambiguity, Magnolia could so interpret the lease. The Ouarts were' entitled to some form of relief. They were entitled either to have the lease' canceled or to share in the production from the southeast ten acres. Magnolia elected to defend on the theory that the lease had not terminated because of this development and production. Relying upon Magnolia’s interpretation of the contract, the Ouarts abandoned their claim of right to terminate the lease and to recover damages for drainage. Thus, in effect, Magnolia was successful in the first action to the same extent as if the case had gone to trial on the theory of Ouarts’ first'petition, and the court had denied their right to cancel the lease. By their election or interpretation of the contract Magnolia received a definite benefit and the Ouarts surrendered a valuable right. Magnolia is now estopped by its pleadings and theory of the case to assert that it is not obligated to pay royalty to the Ouarts under the terms of the lease. The two positions are entirely inconsistent. Magnolia is bound by the theory of the case on which it went to trial.

19 Am. Jur. 704, §72, reads as follows:

“The rule that a party will not be allowed to maintain inconsistent positions is applied in respect of positions in judicial proceedings. As thus applied it may be regarded not strictly as a question of estoppel, but as a matter in the nature of a positive rule of procedure based on manifest justice . . . Certainly the elements of reliance and injury, while often considered, do not enter into such so-called estoppel to the same extent that they do in equitable estoppel proper. The principle requiring consistency in judicial proceedings is, however, customarily considered a form of equitable estoppel, . . .

“The rule against inconsistent positions applies generally to positions assumed not only in the course of the same action or proceeding, but also in proceedings supplemental thereto, including proceedings for review or retrial and even in separate actions or proceedings involving the same parties and questions.”

It is not necessary to rest this decision on the doctrine of election of rights or remedies. However, the following principles of law, discussed under this subject by analogy, appear to be applicable: In Hare Mining & Milling Co. v. Keys, 120 Okla. 217, 251 P. 77, at page 80, we held:

“ ‘Where the law gives several means of redress or kinds of relief, predicated oñ conflicting theories, an election of one, with knowledge, operates as a bar to the subsequent change to, or adoption of, any other.

“ ‘When a party has two remedies proceeding upon opposite and irreconcilable claims of right, the one adopted excludes the other.’ James K. McMahan v. Mora M. McMahan, 122 S.C. 336, 115 S.E. 293, 26 A.L.R. 1295.”

See, also, 18 Am. Jur. 130, §4; Intertype Corporation et al. v. Pulver, 65 F. 2d 419, certiorari denied, 54 S. Ct. 75, 78 L. Ed. 571; Bancroft’s Code Practice & Remedies, §192.

The Ouarts gave up their right to cancel the lease by reason of Magnolia’s election to treat the lease as being in force and effect. They surrendered the valuable right to have their property developed for oil and gas. Summer’s Oil and Gas, Permanent Edition, §395 states:

“When a landowner grants a lease of his land . . . for a nominal initial consideration, and the lessee agrees to pay as a return therefor a share of the oil or gas produced from the land, or a rental for each producing well, it is apparent that the principal consideration for the grant is the promise of the lessee to pay the royalties or well rentals. The payment of rents or royalties to the lessee is, however, contingent upon production. . . .”

Magnolia urges that Ouarts have taken inconsistent positions in view of their seeking to cancel the lease and later seeking to recover royalty under the terms of the lease. There is no question but that such claims are inconsistent, but there is no element of estoppel because the Ouarts abandoned their original causes of action and adopted Magnolia’s pleadings as a basis for relief. They derived no benefit under the theory of their first petition and Magnolia suffered no detriment thereby. See 18 Am. Jur. 141, §18; Lester v. Fields, 171 Okla. 442, 43 P. 2d 87.

George K. Hunter, husband of Eva F. Hunter, has filed a motion to dismiss the appeal of Magnolia insofar as she is concerned stating therein that Eva F. Hunter died on November 7, 1944, which was subsequent to the perfecting of this appeal, and that more than one year has elapsed since her death without the action having been revived against her personal representatives or successors. Magnolia does not seek to revive the action and agrees with Hunter that the appeal should be dismissed, but requests this court to hold that the Ouarts and Eva F. Hunter obtained a joint judgment against it and that the cause of action of both parties and the judgment are not abated. We hold that the judgments of said parties are several and not joint, and that the appeal shall be dismissed as to Eva F. Hunter only. Tucker v. Miller, 55 Okla. 631, 155 P. 591; Bowdish v. Williams, 89 Okla. 99, 214 P. 118. We express no opinion as to the abatement of the Eva F. Hunter judgment, as that question is not properly before the court at this time.

The judgment in favor of the Ouarts is affirmed and the appeal as to Eva F. Hunter is dismissed.

DAVISON, V.C.J., and RILEY, OSBORN, CORN, and GIBSON, JJ., concur. HURST, C.J., concurs specially in result. WELCH, J., concurs in result. ARNOLD, J., dissents.