Haughey v. Belmont Quadrangle Drilling Corporation

• Decision Date: 08 October 1940
• Citation: Haughey v. Belmont Quadrangle Dailling Corp., 284 N.Y. 136, 29 N.E.2d 649 (N.Y. 1940)
• Court: New York Court of Appeals Court of Appeals
• Parties: Haughey v. Belmont Quadrangle Drilling Corporation

284 N.Y. 136

29 N.E.2d 649

HAUGHEY et al.

v.BELMONT QUADRANGLE DAILLING CORPORATION.

Court of Appeals of New York.

Oct. 8, 1940.

Appeal from Supreme Court, Appellate Division, Third Department.

Action by F. Ambrose Haughey and another against the Belmont Quadrangle Drilling Corporation for breach of contract for the sale of natural gas by plaintiffs to defendant. Judgment of the Supreme Court for the plaintiffs was unanimously affirmed by the Appellate Division, 256 App.Div. 1008, 10 N.Y.S.2d 245, a reargument was denied, 257 App.Div. 884, 12 N.Y.S.2d 769, and the defendant appeals.

Reversed, and new trial granted.

A. H. Harpending, of Elmira, for appellant.

Fitch H. Stephens, of Ithaca, for respondents.

LEHMAN, Chief Judge.

In February, 1931, the plaintiffs and the defendant entered into a contract whereby the plaintiffs agreed to sell and the defendant agreed to buy the gas ‘that may be produced from the well or wells drilled and from any other wells which may be drilled’ on certain tracts of land in Reading and Tyrone townships, described in the contract, upon which the plaintiffs owned gas leases, and also on ‘any other oil and gas leases that they may acquire in Reading and/or Tyrone township, Schuyler County, New York.’ The amount of gas which the defendant was obligated to take under the terms of the contract in any one month was limited to ‘10% of the gas marketed by the buyer from said field during the preceding month.’ The plaintiffs did not after the making of the contract acquire ‘any other leases' in Reading or Tyrone townships, nor did they drive wells upon any tract, described in the contract, on which they already owned leases, except one tract of fifty acres known as the Allen tract. The defendant has paid the stipulated price for all the gas which it took from the plaintiffs' wells on the Allen tract. The gas from those wells is drawn from a pool of ‘sour gas' known as the ‘Altay Field,’ and the defendant owns leases and pipe lines within the limited area of that pool or field. At the time the contract was made, no other gas pool or field below the surface of any part of Reading or Tyrone townships had been discovered, but thereafter a pool of ‘sweet gas' known as the ‘Wayne Field,’ was discovered below the surface of a small part of Tyrone township, remote from the Allen tract. The defendant has pipe lines and draws gas from the Wayne field as well as from the Altay field. The plaintiffs have no wells in the Wayne field.

The controversy between the parties concerns the extent of ‘said field’ referred to in the contract between the parties. The defendant contends that the ‘said field’ includes only gas wells drawing gas from the pool or field known as ‘Altay’ and refuses to take from the plaintiffs' wells, or to pay for, more than ten per cent of the gas marketed by the buyer from the Altay field. The plaintiffs claim that the words ‘said field’ refer to the entire territory within Reading and Tyrone townships and to any pools or store of gas below the surface of that territory, and that the amount of gas which the defendant must take from the plaintiffs' wells and pay for is measured by a percentage of the gas marketed by the defendant from both the Altay field and the Wayne field, since the plaintiffs under the terms of the contract have the right to acquire leases in all parts of that territory. In this action the plaintiffs seek damages for the defendant's failure to take and pay for ten per cent of the gas which the defendant marketed during the previous month from the wells in both of such fields.

The courts below have sustained the plaintiffs' claim that the defendant has failed to take and pay for the stipulated amount of gas. The plaintiffs have recovered a judgment which awards to them, as damages for such breach, the amount of the purchase price of all the gas which the defendant has failed to take. An analysis of the evidence introduced and the arguments of the parties upon the questions of the extent of the defendant's obligation and of the plaintiffs' right to recover damages caused by the defendant's refusal to take and pay for the stipulated amount of gas in accordance with that obligation would serve little purpose. We find no reversible error, there, in the rulings of the trial court or in its decision. The court, in our opinion, erred, however, in fixing the resultant damages.

The defendant's obligation was to take the stipulated amount of gas from the plaintiffs' wells and the contract provides ‘for the gas so furnished, supplied and delivered into the pipe line of Buyer * * * by Seller, the Buyer agrees and binds itself to pay unto Seller at the rate of Fifteen (15) cents per thousand cubic feet for natural gas delivered into lines of Buyer.’ The plaintiffs were required to lay properly equipped branch lines from their producing wells to the defendant's pipe lines. When the defendant drew the gas from the branch lines into its pipe lines, then delivery of the gas by the plaintiffs was complete; until then no title to the gas ‘produced’ by the plaintiffs' wells passed to the defendant. Indeed, the gas which the defendant took from the plaintiffs' wells into its own pipe lines was the only gas actually drawn from the underground pool and ‘produced’ by the plaintiffs' wells.

The defendant is liable to the plaintiffs for any loss caused by its refusal to accept and pay for the gas which the plaintiffs were able to supply within the stipulated limits of its obligation. Personal Property Law, Consol.Laws, ch. 41, s 132. Where title to goods passes from the seller to the buyer, the loss caused by failure to pay for the goods is, it is plain, the amount of the purchase price. Here, however, the gas which the defendant should have taken was never identified or set apart from the mass or pool tapped by the plaintiffs' wells, and no property in such gas passed to the defendant and none can pass to it now upon belated payment of the purchase price. Nor has the defendant agreed to pay the price ‘irrespective of delivery or transfer of title.’ In such case the plaintiff cannot maintain an action for the price. Personal Property Law, s 144. His remedy is an action against the defendant ‘for damages for nonacceptance’ and in such action ‘the measure of damages is the estimated loss directly and naturally resulting, in the ordinary course of events, from the buyer's breach of contract.’ s 145.

Since the buyer's wrong left intact the seller's power and right to take from the well...