White v. Smyth , 147 Tex. 272 ( 1948 )

It is respectfully submitted that the measure of recovery allowed the respondents by the majority ruling is wrong, and is contrary to the applicable precedents under the established facts. It results in what is earnestly urged to be an unjust exaction of the petitioner White, who should have been required to account for $99,334.53, the value in place of the rock asphalt taken, and not $222,382.72, its net manufactured value.

Petitioner White had spent practically a lifetime in the rock asphalt business. He worked the asphalt deposits on the Smyth ranch from 1923 until 1941 under a contract with the landowners, which he then terminated, as he had the right to do. He had acquired one-ninth interest in the 200-acre tract he was working, as well as one-ninth of the rock asphalt under some 30,000 acres of the Smyth ranch, and continued working the deposits after the contract with his cotenants ended. He notified them what he was doing. He had a complete legal and moral, right to be on the land and to mine the rock.

This rock, after mining, has to be manufactured into paving material before it is of any practicable use. It is blasted from its beds in large pieces, which are broken up by further blasting. It is then scooped onto trucks by steam shovels and hauled to and further pulverized by a crushing machine. It is then taken to a storage bin where the rock with high asphaltic content is placed at one end, that with a low content at the other. This bin is equipped with vibrating feeders which drop the rock in proper portions on a conveyor belt which takes it to other grinders for further processing. After the final crushing, the rock, by means of a screen, is separated into three bins according to the size of the particles into which it has been crushed. Then the rock, sizes kept separate, is weighed, dropped into a mixer known as a "pug mill' and oil is introduced into the product under pressures running from 75 to 100 pounds. Powerful paddles churn the material so the oil is thoroughly fused into it. (During the period he is held to account, petitioner mixed oil valued at $120,616.13 with the $99,334.53 worth of crude rock asphalt he removed from the land.) Suitable quantities of water are added and milled into the product. The resulting mixture is a manufactured paving material which petitioner has been selling under the registered trade name of "Valdemix."

The plant and equipment investment of the petitioner exceeded $500,000.00.

The asphalt business is highly competitive. So competitive in fact that petitioner's Uvalde Mines and Uvalde Asphalt Company are the only survivors among all who have tried. One adequately capitalized concern, for instance, abandoned the business after losing at least $1,000,000.00.

In addition to the manufacturing of crude rock asphalt into a finished paving product, petitioner employed his skill and experience in selling it. He would agree in advance with contractors bidding on road work that if the contractor should be the successful bidder he would deliver "Valdemix" in given quantities and at certain prices and times. His lifetime of experience in the business enabled him to succeed where others had failed. He knew how to mine, how to manufacture, and how to sell.

What the complaining cotenants are entitled to get is the value of that which was taken, that is, crude rock asphalt. Any higher figure would no longer be compensatory but punitive. And this is the measure of recovery fixed by the authorities. The cases cited by the majority do not decide differently. Neither Kahn v. Central Smelting Co., 102 U.S. 641, 26 L. Ed. 266, nor Silver King Coalition Mining Co. v. Silver King Consol. Mining Co. (8th Cir.) 204 Fed. 166, Am. Cas. 1918B, 571, nor Grant v. Pilgrim (9th Cir.) 95 F.2d 562, nor Campbell v. Homer Ore Co., 309 Mich. 693, 16 N.W.2d 125, nor Barnum v. Landon, 25 Conn. 137, cited by the majority in support of its ruling, involves any manufacturing and processing such as it presented here. Those cases either directly or impliedly hold that a joint owner of a mining lode may recover of his cotenant who works the lode the value of the ore taken at the mouth of the pit less the reasonable cost of getting it there. And that is the same thing, under the authorities which will be later noticed, as the value of the ore in place, the basis of accounting to which White should justly be held. The majority opinion cites only two cases cases relied upon heavily in the briefs of respondents, involving manufactured value as a basis of accounting. One is Cosgriff v. Dewey, 21 A.D. 129, 47 N.Y.S. 255 (affirmed164 N.Y. 1, 58 N.E. 1, 79 Am. St. Rep. 620), a New York case which does not discuss, cite, nor undertake to apply principles of mining law. In this case, a cotenant who took and crushed rock from the common property was held to account for the net value of the crushed stone. The case turns principally on the point that the defendant was making an unusual and wasteful use of the freehold. The other case is a mining case from Virginia, Newman v. Newman, 27 Gratt. (Va.) 714, where the complainant owned not only one-half of the lands upon which the ore beds were located,but also one-half of the forge used to smelt the ore. Certainly a recovery on the basis of net manufactured value was just, since the complainant was joint owner not only of the ore beds but also of the machinery used in smelting. Not so here, where the respondents do not own nor claim to own any interest in the expensive and complicated machinery White employed to manufacture the crude rock asphalt into a finished product suitable for the markets.

The rule in Texas as elsewhere in oil and gas cases is that a cotenant producing oil must account to his co-owners for the value of the crude oil produced less the reasonable cost of producing and marketing. Burnham v. Hardy Oil Co. (Tex. Civ. App.) 147 S.W. 330, affirmed 108 Tex. 555, 195 S.W. 1139; 1 Summers, Oil and Gas (2d ed.) sec. 37, p. 97, sec. 38, p. 108. None would say that if a joint owner produced crude oil and then refined it, his cotenants would be entitled to an accounting on the basis of the value of the refined products. Yet that is the very result the majority has reached here. The raw rock asphalt when first mined is no doubt as little suited for paving as crude oil when first produced is suitable for automobile fuel. Just as it takes refining to prepare crude oil for motor fuel, so does it take manufacturing and processing, including the addition and blending of other products more valuable than the crude rock asphalt itself, coupled with an experienced skill and knowledge of the business, to ready the raw rock asphalt for paving. The nonmining cotenant is entitled only to the net value of the crude oil in the one case, and certainly to no more than the net value of the crude rock asphalt in the other.

Cases directly in point have arisen in Pennsylvania and Missouri, the latter a federal case. Appeal of Fulmer, 128 Pa. 24,18 A. 493, 15 Am. St. Rep. 622; McGowan v. Bailey, 179 Pa. 470,36 A. 325; Clowser v. Joplin Mining Co., 4 Dill. 469 note, 5 Fed. Cas. No. 2908a. The majority opinion frankly declines to follow them, and cites, as supporting the erroneous conclusion that these cases do not represent the prevailing view, a passage from American Jurisprudence (vol. 14, p. 106). This passage, so quoted with approval in the majority opinion, sums up the proper basis of accounting thus: "In other words, the usual basis of an accounting by a cotenant who works the common mine or develops the common oil and gas property is the value of the product, less the necessary expenses of production." The Pennsylvania rule asannounced in Fulmer's Case (which the majority will not follow)is cited by American Jurisprudence in support of, not as anexception to, this rule. It is clear that this measure of accounting means that the respondents are entitled to the value of their raw rock asphalt in place, or, what is the same thing, its value after severance less the cost of mining and moving.

Writers have stated the rule as follows:

"He is accountable to his cotenants for their share of all that he mines. He must compensate them for the value in place of their share of the minerals which he mines and takes. This value is to be measured by the value of ore leave or royalty, that is, of the privilege of removing the mineral, which in turn is to be arrived at by expert opinion. This obligation is enforced in the same manner in the case of mines as in the case of the profits of any other real estate owned jointly." Barringer and Adams, Law of Mines and Mining in the United States, p. 19.

And,

"So in an accounting between tenants in common, the value of ore taken from the land by one tenant is to be estimated according to its value in place." 3 Sedgwick, Damages (9th ed.) p. 1936.

A reason for allowing, as in oil and gas cases, an accounting for the value of the solid minerals at the pit mouth less the expense of mining is the difficulty of estimating their value in the ground. The following reasoning is typical:

"Here both parties had an interest in the land, the defendants being one of the tenants in common; and, as is said by Sharswood, J., in Coleman's Appeal, 62 Pa. St. 252: `A tenant in common exercises his undoubted right to take the common property, and he has no other means of obtaining his own just share than by taking at the same time the shares of his companions. The value of the ore in place is, therefore, the only just basis of account.' But as, in the case before him, no evidence had been given as to the value of the ore in place, the finding of the master was that the value of the ore at the mine's mouth, after deducting the expenses of putting it there, was an equitable basis on which to state the account.

"The master in this case determined that plaintiff was entitled to one-third the value of the coal in place, and in this conclusion we concur." McGowan v. Bailey, 179 Pa. 470, 479,36 A. 325, 326. (Emphasis supplied.)

Again the same rule is stated:

"And if evidence is not obtainable of the value of the minerals in situ, or if the circumstances of the case make it impractical to fix their value in this manner, the same result is generally arrived at by proving their value at the mouth of the pit, and deducting therefrom the expense of mining and transporting them to that place." Note, 7 A.L.R. 908.

So, the virtually uncontradicted rule of decision as well as the better reasoning requires an accounting here on the basis of the value of the crude rock asphalt in place or, what is the same thing, its value before being processed at White's mill less the reasonable cost of getting it there.

In Texas this is the rule of accounting as to innocent trespassers in conversion cases. Shall White, who was certainly no trespasser, be held under a more onerous duty to account than a trespasser who is guilty, though innocently, of conversion? The rule in this State was stated as far back as 1910 in Bender v. Brooks, 103 Tex. 329, 335, 127 S.W. 168, 170, Am. Cas. 1913A, 559: "The rule applicable to such facts is stated thus: `It is the prevailing rule that in an action for unlawfully working a mine and extracting coal or ore therefrom, if the taking was not a willful trespass, but was the result of an honest mistake as to the true ownership of the mine, the measure of damages isthe value of the coal or ore as it was in the mine before it wasdisturbed. The recovery in such case is limited first by the value of what is taken, and second by the cost of mining, extraction, and hoisting to the surface or delivering at the pit's mouth.'" (Emphasis supplied.)

The duty of a cotenant to account on the basis of the value of the mineral in place is the clear and necessary effect of the holding in Kirby Lumber Co. v. Temple Lumber Co., 125 Tex. 284,83 S.W.2d 638. There, after a full consideration of the authorities, it was concluded that a cotenant must account for timber innocently cut in excess of his share upon the basis of its value in place, called in that case "stumpage value." The majority seeks to distinguish the case upon the ground that the plaintiff there had sued, not for profits, but for gross manufactured value. This attempted distinction is, I submit, obviously irrelevant. What happened was that this court in that case gave clear sanction to the principle that the cotenant should account for the value of what he took, that is, the value of the timber in place. That was the very judgment rendered by this court. The cause was not remanded for a determination of what profits the cotenant had made. This for the obvious reason that the net manufactured value of the timber was not the measure of recovery. The majority here states that in the Kirby-Temple case the timber was "of uniform value and could readily be partitioned in kind." That situation resulted in the court's crediting Temple Lumber Company with the two-thirds of the timber which it owned, but requiring it to account to its co-owner on the basis of the value in place of the timber it cut over its own two-thirds. Here the majority holds that since the asphalt in place was not partible in kind, White must account even if he did take less than his one-ninth portion. This is right. But the opinion then proceeds to apply an improper measure of accounting, a measure necessarily in conflict with the Kirby-Temple case and contrary to the value when produced less the cost of producing measure laid down in the oil and gas cases. I earnestly insist that this is wrong.

The following quotation from the Kirby-Temple opinion clearly demonstrates how much the majority is at variance with the holding in that case:

"We are inclined to the view that where one cotenant merely cuts and appropriates more than his share of the standing timber on land owned jointly by himself and others, he cannot be charged by the other joint owners with the manufactured value of such excess timber, for in cutting the timber he makes no unusual use of the real estate of which he is a tenant in fee, and he cannot be classed as a trespasser. (Citing cases.) In such a case the remedy of the cotenant not cutting the timber against the cotenant cutting more than his share is for the value of the excess of such timber in its original form." 125 Tex. 284, 297,83 S.W.2d 638, 645.

The result in the Kirby-Temple case is fair and just. It awards full compensation to co-owners whose property is taken, but refuses to allow a punitive recovery. In the case at bar just such a recovery is adjudged against petitioner, who has violated no law, has (the jury so found) taken even less than his fair share of the minerals, and has openly and in the exercise of a clear legal and moral right worked asphalt pits on his own land.

The respondents ought not to be allowed to share in the capital investment, the experience, enterprise and personal business acumen of the petitioner. To allow this sharing puts a grim penalty upon freedom of enterprise and the risk of one's own capital in a highly hazardous and competitive business. The respondents can be made whole by awarding them the value of their share in place of the crude rock asphalt which was mined. This is fair and just. It allows full compensation for what was taken. Respondents are entitled to this, but certainly not to more.

Opinion delivered October 13, 1948.