Cotiga Development Co. v. United Fuel Gas Co.

• Decision Date: 18 February 1963
• Docket Number: No. 12141,12141
• Citation: 128 S.E.2d 626,147 W.Va. 484
• Court: West Virginia Supreme Court
• Parties: COTIGA DEVELOPMENT COMPANY, v. UNITED FUEL GAS COMPANY.

Page 626

128 S.E.2d 626

147 W.Va. 484

COTIGA DEVELOPMENT COMPANY, v. UNITED FUEL GAS COMPANY.

No. 12141.

Supreme Court of Appeals of West Virginia.

Submitted Oct. 9, 1962.

Decided Dec. 11, 1962.

Rehearing Denied Feb. 18, 1963.

Syllabus by the Court.

1. A valid written instrument which expresses the intent of the parties in plain and unambiguous language is not subject to judicial construction or interpretion but will be applied and enforced according to such intent.

2. An assignee of an oil and gas lease who has assumed the obligations of the lessee thereunder succeeds to only such rights as the lessee had against the lessor, and the covenants of the lease for the benefit of the lessor become binding upon the assignee in the same manner and degree as originally upon the lessee.

3. It is not the right or province of a court to alter, pervert or destroy the clear meaning and intent of the parties as expressed in unambiguous language in their written contract or to make a new or different contract for them.

4. The rule relating to practical construction of provisions of a written instrument by the conduct of the parties thereto, like other rules of construction, may be resorted to by a court only when the parties have failed to express their intent in clear and unambiguous language; and such rule of construction can never be used to change the legal effect of clear and unambiguous language.

5. Evidence of usage or custom may be considered in the construction of language of a written instrument which is uncertain or ambiguous but may not be considered to alter the legal effect of or to engraft stipulations upon language which is clear and unambiguous.

6. 'The finding of a trial court upon facts submitted to it in lieu of a jury will be given the same weight as the verdict of a jury and will not be disturbed by an appellate court unless the evidence plainly and decidedly preponderates against such finding.' Daugherty v. Ellis, Point 6 Syllabus, 142 W.Va. 340, 97 S.E.2d 33.

7. Where an oil and gas lease contains an express covenant requiring the lessee 'to proceed with due diligence to develop the same, and market the production therefrom to the end that the Lessor and the Lessee may derive the speediest return practicable for the oil and gas recoverable thereunder, due consideration being always given to the condition of the industry as a whole', an action for damages may be maintained by the lessor against an assignee of the lease for a failure to market the production of gas from wells on the leased premises in conformity with the requirement of such covenant. In the event of a recovery for breach of the covenant in that respect, the proper measure of damages is the aggregate sum of money which, under the terms of the lease, the lessor would have been entitled to receive for the total volume of gas which would have been marketed during the period in question but for the dereliction of the assignee. Payment of such damages by the assignee shall be deemed in effect, a payment pro tanto by the assignee for gas not yet extracted and marketed pursuant to the terms of the lease; and the assignee shall be entitled to credit for such sum, dollar for dollar without interest, in the settlement and payment for gas next thereafter extracted and marketed from the leased premises in compliance with such covenant.

Dechert, Price & Rhoads, Theodore Vorhees, Philadelphia, Pa., Dayton, Campbell & Love, Harry V. Campbell, Charles M. Love, Charleston, for plaintiff in error.

C. E. Goodwin, Herbert W. Bryan, H. L. Snyder, Jr., Charleston, for defendant in error.

CALHOUN, President.

This case involves an action of assumpsit instituted in the Circuit Court of Kanawha County prior to the effective date of the Rules of Civil Procedure for the recovery of damages in the sum of $450,000 for an alleged breach of three provisions in an oil and gas lease.

After a trial of the case without a jury, the circuit court rendered judgment for the plaintiff, Cotiga Development Company, a corporation (referred to herein as Cotiga), against the defendant, United Fuel Gas Company, a corporation (referred to herein as United Fuel), for the sum of $2,479.78, plus interest and costs. From that judgment Cotiga prosecutes this writ of error. United Fuel has made a cross assignment of error in this Court. That is to say, Cotiga asserts that the trial court should have rendered judgment in its favor for a greater sum; and United Fuel insists that there should have been no recovery of damages whatsoever against it.

Cotiga, a Delaware corporation with its principal offices in Philadelphia, is the owner of various tracts of land in Mingo County, West Virginia, and is also the owner of gas and oil and other mineral rights underlying other tracts of land in that county.

United Fuel, a West Virginia corporation, with its principal offices at Charleston is a public service corporation engaged in leasing gas and oil producing lands in this state, developing mineral resources therefrom, transporting natural gas through pipe lines to markets for distribution and sale thereof at both wholesale and retail; and other business activities customarily engaged in by similar public utility corporations.

On December 5, 1929, Cotiga, as lessor, entered into an oil and gas lease with Woods Oil and Gas Company (referred to herein as Woods Oil), as lessee, covering 34,519 acres of land in Mingo County. By a writing made and executed one day later, December 6, 1929, Woods Oil assigned the lease, together with four other leases, to United Fuel, 'subject to the terms, limitations, rents, royalties, and payments conditioned in the original leases.' At the time of the marking of the lease and at the time of the assignment thereof, United Fuel was a public utility but Woods Oil was not. The term of the lease was ten years and so long thereafter as gas and oil should be produced from the premises in paying quantities and so long as royalties should be paid. By a written instrument dated January 20, 1933, United Fuel surrendered its rights under the lease as to 23,367.69 acres as of March 3, 1933, leaving 11,151.31 acres which constitute the area since covered by the assignment of the lease to United Fuel. By the terms of the lease and the assignment thereof, United Fuel became obligated to pay to Cotiga annual delay rentals of $11,151.31 or the sum of one dollar for each acre, which sum represents a guaranteed annual minimum. If royalties exceed that sum, Cotiga is entitled to receive the excess, the intent and effect being that Cotiga shall receive at least that sum, 'either in the way of royalties or delay rentals' as provided in the lease.

The provisions of the lease which form the basis of the case are paragraph (1), which is referred to in the case as the 'royalty covenant'; paragraph (7), which is referred to as the 'marketing covenant'; and paragraph (12), which is referred to as the 'tax covenant'. These several provisions are quoted below.

ROYALTY COVENANT: '(1) Lessee agrees to deliver to the credit of the Lessor, its successors or assigns, free of cost in the pipe line to which said Lessee may connect its wells, a royalty of the equal one-eighth ( 1/8) part of all oil produced and saved from the leased premises, and to pay for one-eighth ( 1/8) of the gas produced from each gas well drilled thereon, from which the gas is marketed, while the same is so marketed, at the rate received by Lessee for such gas, which one-eighth ( 1/8) shall never be based, however, upon a value of less than twelve (12) cents per thousand cubic feet for said gas; that is to say, the said one-eighth ( 1/8) royalty shall never be less than one and one-half (1 1/2) cents per thousand cubic feet, such payment to be made on or before the 20th day of the month following that in which the gas is marketed.' The trial court held, in accordance with United Fuel's contention, that the wellhead or field price in the area of the leased premises constitutes the proper basis for computation of gas royalties, whereas Coticga contends that the computation of royalties should be based on the price received by United Fuel for gas when and wherever sold by it.

MARKETING COVENANT: '(7) If oil or gas is found on the leased premises in paying quantities, the Lessee agrees to proceed with due diligence to develop the same, and market the production therefrom to the end that the Lessor and the Lessee may derive the speediest return practicable for the oil and gas recoverable thereunder, due consideration being always given to the condition of the industry as a whole.' The trial court held that United Fuel did not satisfy its obligation to market the gas 'to the end that the Lessor and the Lessee may derive the speediest return practicable'; but that the proper measure of damages for such failure is merely interest on the royalties for gas which should have been marketed but which was not actually marketed. The interest was determined to be $2,479.78 which sum represents the amount of the judgment.

Cotiga contends that the proper measure of damages under the marketing clause is royalties based on the sale price which would have been received by United Fuel had it actually marketed gas according to the requirements of the lease.

United Fuel, on the other hand, contends that it is permitted by the lease to exercise a sound discretion in determining the speed with which the gas produced on the premises shall be marketed, 'due consideration being always given to the condition of the industry as a whole'; that it has satisfied the requirements of the lease in this respect; and that therefore it is not liable to Cotiga for any damages for failure to market gas. Alternatively, United Fuel contends that, if this Court should determine, as did the trial court, that United Fuel has failed in a duty imposed on it by the lease to market gas from wells on the premises, the proper measure of damages for...