United Mercury Mines Co. v. Bradley Mining Co.

• Decision Date: 05 May 1958
• Docket Number: No. 15652.,15652.
• Citation: 259 F.2d 845
• Parties: UNITED MERCURY MINES COMPANY, a corporation, Appellant, v. BRADLEY MINING COMPANY, a corporation, Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

259 F.2d 845 (1958)

UNITED MERCURY MINES COMPANY, a corporation, Appellant, v. BRADLEY MINING COMPANY, a corporation, Appellee.

No. 15652.

United States Court of Appeals Ninth Circuit.

May 5, 1958.

Dale Clemons, Paul S. Boyd, Boise, Idaho, E. H. Casterlin, Pocatello, Idaho, for appellant.

Ralph R. Breshears, Boise, Idaho, John Parks Davis, Severson, Davis & Larson, San Francisco, Cal., Paul H. Ray, Salt Lake City, Utah, Robert E. Brown, Kellogg, Idaho, for appellee.

Before STEPHENS, Chief Judge, and POPE and FEE, Circuit Judges.

JAMES ALGER FEE, Circuit Judge.

The interpretation of a written contract entered into by United Mercury Mines Company, which is plaintiff and appellant, and Bradley Mining Company, defendant and appellee, is here involved. This agreement covers certain mining claims in Idaho. The crux of the dispute concerns the method of computing royalties on minerals and ores extracted from mining claims.¹ The cause has had an extended judicial history. Circuit Judge William Healy, sitting in the District Court, granted summary judgment in favor of Bradley, on the ground that the clause in controversy² was clear and unambiguous and that the clause should be interpreted to allow Bradley to deduct normal smelting charges upon materials treated at its own plant. On the first appeal, the original opinion held that the clause was unambiguous but should be interpreted to mean that United should receive its percentage on the materials sold after smelting by Bradley without any deduction of normal smelting charges. Upon petition for rehearing by Bradley, this opinion last mentioned was withdrawn. Appellant contends that the following portion of the substituted opinion constitutes the law of the case:

"The `net smelter returns\' clause referred to by the District Court provides: `Bradley shall pay United * * * a royalty of five per cent (5%) on all net smelter returns. * * * By net smelter returns, as used herein, is meant the amount received from the smelter from any and all ores, concentrates, metals or values shipped to a smelter, it being understood that the smelter will deduct its normal smelting charges * * *.\' By its terms this clause is limited to situations where `amounts are received by Bradley from outside smelters.\'

"We see no reason why, as a matter of law, the `net revenue\' clause could not be controlling." 233 F.2d 205, 207.

However, although this opinion reiterates the same construction of the text as did the withdrawn opinion, nevertheless, the cause was remanded to take competent evidence as to the interpretation given by the parties and the circumstances surrounding its making.

The pertinent portion of the opinion reads:

"The District Court erred in granting summary judgment for Bradley. In its petition for a rehearing, following an earlier opinion for which this one has been substituted, Bradley urges that notwithstanding the views here expressed, as to the `net revenue\' clause, there remains untried an issue of fact in that there are relevant extrinsic circumstances of which it is prepared to offer evidence, as bearing on the meaning of the contract.

"Whether such extrinsic evidence is or would be admissible, or whether the writing, as drawn, so precisely fits the very circumstances here, involving amounts paid by purchasers from the sale of metals, that it must be said that all negotiations were `integrated\' in the written instrument, must await decision following further hearing in the court below." 233 F.2d 205, 207.

Upon remand, Judge William Mathes held a pretrial conference, at which important admissions were made by both parties.

In a pretrial order signed by the trial judge and agreed to in respect to form and content by attorneys for both parties, the issues to be tried were clarified. The basic concept of the pretrial order is set out in accordance with the substituted opinion.

It is recited that, if "net smelter returns" are found ultimately to be applied for the operations of Bradley at Yellow Pine Smelter, the returns heretofore made by Bradley are correct. There is an express stipulation that there is no dispute as to the meaning of the "net mint return" clause. There is an elaborate stipulation that there is a custom in the smelting industry "for companies who own and operate smelters" "that the smelting charges and the cost of transportation of concentrates to the smelter were deducted to arrive at a net amount commonly referred to in the mining and smelting industries as `net smelter returns'." United reserved objection to the materiality and relevance of "the recognized practice and custom of the smelting industry" as thus stipulated.

It was also stipulated:

"That it is a matter of common knowledge and historically recognized in the mining industry that the milling of ores to reduce such ores to a concentrate form is a part of the mining process and that the smelting of ores is not a part of the mining process."

United reserved objection to the materiality to any and all issues raised in the action on the ground that the "net revenue" clause was applicable and perfectly clear.

After the issues were clarified by the entry of the pretrial order, a trial was held. The trial court made extensive findings in favor of the Bradley contentions on facts and entered judgment against United, which brought the present appeal.

The trial court found the custom and practice of the smelting industry and of the mining industry were relevant and material. Since these customs and practices tended to explain the clauses "net smelter returns" and "the smelter will deduct its normal smelting charges" and "conducting mining operations and development work upon or in the above-described mining claims," which are used in the contract, this view was correct. The interpretation of words of art by reference to the practices of the particular industry is a common sense operation and one long familiar in the judicial process.³

The whole contention of United is that the clause, by clear and unambiguous language, permitted it to share the proceeds of sale of material treated at the Yellow Pine Smelter Mill of Bradley without deduction of normal smelting charges. It would seem that the clauses in question must be held ambiguous after the pretrial order was entered.

The most vital definitions of words of the contract are found in the admissions of United in the pretrial order. The reserved objection of United above noted had no validity. When the meanings of these words were thus explained, grave doubt was cast upon the interpretation of the net returns clause suggested in our previous opinion.

The validity of the interpretation of the contract derived from the unexplained text was thus questionable. It was quite clear, after these admissions were of record, that the agreement was, to say the least, ambiguous. Moreover, the previous proceedings seem to forecast this result. The first trial judge had held that the interpretation sought by Bradley was clearly correct. Our Court, in its first opinion, held that the interpretation sought by United was clearly correct on the face of the agreement. Thereafter, on the petition of Bradley, which outlined some of the evidence, this Court remanded the cause for the hearing, although strongly intimating that the textual interpretation of the agreement by the discarded opinion was correct. However, the remand envisaged the situation where some of the evidence might be relevant and that the contract might be held ambiguous. The interpretation in the last authoritative opinion of this Court did not by any means become the law of the case, as United contends.⁴ If so, the remand would have been an act of futility. The different positions taken by the first trial judge and our Court in two different opinions would seem to indicate that an ambiguity was present upon this feature.⁵ As soon as the customs of the smelting and mining industries were stipulated, these became material and relevant to interpret the language of the agreement. The existence of an ambiguity was probable because of the expansion of the technical meaning of the language, so that the trial court was compelled to hear evidence to establish the meaning of the contract.⁶

Bradley introduced a great amount of evidence to prove that the parties themselves had construed the clauses in dispute to permit it to deduct normal smelting charges and also evidence tending to show that custom in the industry and the circumstances under which the contract entered compelled a like construction. None of this evidence was contradicted or rebutted by United.

The trial court made findings that the parties intended that Bradley should pay the percentage...