Northern Pac. Ry. Co. v. Gas Development Co.

• Decision Date: 05 November 1936
• Docket Number: 7559.
• Citation: 62 P.2d 204,103 Mont. 214
• Parties: NORTHERN PAC. RY. CO. v. GAS DEVELOPMENT CO.
• Court: Montana Supreme Court

62 P.2d 204

103 Mont. 214

NORTHERN PAC. RY. CO. v. GAS DEVELOPMENT CO.

No. 7559.

Supreme Court of Montana

November 5, 1936

Appeal from District Court, Lewis and Clark County; George W Padberry, Jr., Judge.

Action by the Northern Pacific Railway Company against the Gas Development Company. Judgment for plaintiff, and defendant appeals.

Affirmed.

Cooper Stephenson & Hoover, of Great Falls, for appellant.

Gunn Rasch, Hall & Gunn, of Helena, for respondent.

ANDERSON Justice.

Plaintiff brought this action to recover the amounts paid by it to the county treasurer of Fallon county for taxes levied and assessed on royalty paid to plaintiff by defendant for natural gas produced from property in Fallon county, Montana.

The complaint is in two counts, the first, for such taxes paid in the year 1931, and the second, for taxes paid in the year 1932. It is alleged therein that plaintiff was the owner of certain land in the above county containing natural gas, in the year 1926; that it entered into a written contract with Minnesota Northern Power Company, a corporation, whereby plaintiff granted the right to this corporation to extract natural gas from plaintiff's land in consideration of the payment of a royalty measured by the quantity of natural gas produced; and that prior to October 24, 1928, this contract was assigned by the Minnesota Northern Power Company to defendant company, which agreed to perform the same. It is further alleged that defendant pursuant to the contract paid to plaintiff as royalty certain sums on account of the gas produced each year; that defendant furnished to the State Board of Equalization a statement showing the amount of royalty paid pursuant to the provisions of chapter 139 of the Laws of 1927; and that upon receipt of such statement that board proceeded to assess the amount of royalty, after allowing depletion, and certified the same to the clerk of Fallon county, who entered this assessment on the assessment roll and computed the tax. It is alleged that under the terms of the contract defendant was obligated to pay this tax; that it refused to pay it; that plaintiff thereupon paid it; and that plaintiff has made demand upon the defendant to pay the tax which was by the defendant refused. The two counts of the complaint are identical except as to dates and amount.

To this complaint defendant demurred upon the ground that each of the counts failed to state a cause of action for want of sufficient facts; the demurrer was overruled. Thereupon the defendant answered, admitting in effect all of the allegations of the complaint, except those asserting that the defendant was obligated to pay this royalty tax. The answer was the same as to both counts. A copy of the contract was attached to the answer as an exhibit and made a part thereof by appropriate reference. Thereupon plaintiff moved for judgment on the pleadings, which motion was granted by the trial court. Judgment was entered in favor of plaintiff and against defendant in accordance with the prayer for relief. Defendant has appealed from this judgment.

The defendant has assigned error upon the ruling of the court on the demurrer, motion for judgment on the pleadings, and in the giving and entering judgment on the pleadings in favor of plaintiff and against defendant.

The contract provides that the "lessee [defendant] will pay all taxes and assessments levied or assessed *** against the gas or oil produced by the lessee from the premises." The question presented on this appeal is, Was the defendant obligated under this contractual provision to pay this royalty tax?

The defendant was obligated under the provisions of section 1 of chapter 140, Laws of 1927, now section 2096.1, Revised Codes, to report to the State Board of Equalization the amount of royalty paid by it to the plaintiff, and the board was bound to make the assessment and certify the same to the county clerk by section 2 of this chapter, which further provides that the operator and royalty holder shall be jointly and severally liable for the payment of the tax assessed against the royalty, and the tax may be collected from the operator, who may recover or withhold from any proceeds of such royalty or royalty interest, either in kind or money coming into his hands, the amount of any tax paid by him on the royalty or royalty interest.

The tax in question is a part of the net proceeds tax arising out of the operation of mines. Northern Pacific Ry. Co. v Musselshell County, 74 Mont. 81, 238 P. 872; Homestake Exploration Corporation v. Schoregge, 81 Mont. 604, 264 P. 388; Byrne v. Fulton Oil Co., 85 Mont. 329, 278 P....