Clearfield Development Corp. v. Devonian Gas & Oil Co.

• Decision Date: 21 May 1956
• Citation: 122 A.2d 718,385 Pa. 248
• Parties: CLEARFIELD DEVELOPMENT CORPORATION v. DEVONIAN GAS & OIL COMPANY, Appellant.
• Court: Pennsylvania Supreme Court

Page 718

122 A.2d 718

385 Pa. 248

CLEARFIELD DEVELOPMENT CORPORATION v. DEVONIAN GAS & OIL COMPANY, Appellant.

Supreme Court of Pennsylvania.

May 21, 1956.

William F. Beatty, Pittsburgh, Henry M. Hipple, Saylor J. McGhee, Jr., Lock Haven, James F. Smith, Pittsburgh, for appellant.

Morris Klewans, Lock Haven, for appellee.

Before STERN, C. J., and BELL, CHIDSEY, MUSMANNO and ARNOLD, JJ. ARNOLD, Justice.

In this action of assumpsit founded upon written contracts, defendant appeals from judgment entered for plaintiff upon the pleadings.

Prior to entering into these contracts, defendant had leased from the Commonwealth certain lands for production of oil and gas. In compliance with a requirement of the lease, defendant had filed bond for performance and also had deposited with the bonding company as collateral the sum of $25,000.

Defendant had commenced drilling operations when it entered into the contracts with plaintiff. They recited that defendant was the 'owner' ¹ of the oil and gas, and provided, inter alia, that for a consideration plaintiff purchased from defendant 'an undivided one-eighth (1/8) interest in the net proceeds from the sale of any oil or gas'; and that the 'net proceeds shall consist of the sums received from sales of oil or gas * * *, less * * * royalties * * * and the cost of managing, operating and marketing the same.' They also provided that defendant would 'undertake to drill this well at its own cost and expense.'

The wells having produced, defendant proceeded to make payments, but deducted from gross receipts the sum which it had deposited as collateral to the performance bond. The share thus withheld from plaintiff was $3,125, for which this suit was brought.

With some exceptions, we must construe the written contract to give it the meaning that would be attached to it by a reasonably intelligent person acquainted with all operative usages, and knowing all the circumstances prior to and contemporaneous with the making of the contract: Markides v. Soffer, 172 Pa.Super. 215, 218, 93 A.2d 99; Restatement, Contracts, § 230. Where the words bear more than one reasonable meaning they shall be interpreted most strongly against the one from whom they proceed, ² unless their use by him is prescribed by law: Markides v. Soffer, supra; see also Kormuth v. United States Steel Company, 379 Pa. 365, 369, 108 A.2d 907, certiorari denied 349 U.S. 911, 75 S.Ct. 600, 99 L.Ed 1246.

It is to be noted that the deposit was made as a part of the lease before the contracts in question were entered into by these parties; and the deductions provided in the contracts applied to the 'sums received from sales * * * less * * * cost of * * * operating the same * * *' These deductions specifically were not to include costs of drilling; nor were any costs or outlays required by the leasehold referred to in any way. In fact, it was declared that defendant then owned the oil and gas.

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