Lehigh Valley Coal Co. v. Heirs

94 A. 74, 248 Pa. 385, 1915 Pa. LEXIS 583

Opinion

Opinion by

Mr. Justice Mestrezat,

We do not agree with the learned chancellor’s interpretation of the coal lease out of which this litigation arises. We think it was the intention of the parties that the minimum quantity of coal to be mined annually was coal above the pea size and to be paid for at a royalty of twenty-five cents per ton. The lease provides that the lessee shall pay “for all coal mined above the size of pea coal at the rate and price of 25 cents per ton of 2,240 lbs., and for pea coal 12% cents per ton royalty until it is worth within 25 cents per ton of chestnut coal and then to be 25 cents per ton.” The lessee further agreed “to pay quarterly for the first two years from the first day of April next, for not less than 4,500 tons each year, for the third year 9,000 tons, for the fourth year 13,500, and for each and every year thereafter during the continuance of this lease for 18,000 tons, the first payment to be made on the first day of July, 1876.” If in any one year the lessee paid for more coal than he had mined he had the right at any time thereafter to mine the coal paid for without further charge. There is nothing in the lease which specifies what proportion of the several sizes shall compose the minimum quantity to he mined annually by the lessee. The question must be determined from the provisions of the lease just quoted. The contract was entered into on March, 1876, and must be interpreted as of that date, and in the light of conditions existing at that time. We must assume that it was then mutually beneficial to both parties, whatever may be the real fact at present. The owner desired to have his coal developed with a view to securing a certain minimum quarterly revenue, and the purpose of the minimum clause of production was to require diligence in the operation so as to effect that purpose. The lessee was fully protected; if he failed to mine the minimum quantity in any one year he had the opportunity to make up the deficiency in subsequent years. At the time this lease was made pea coal was regarded as rather an unknown quantity as to the amount produced, and the mining operations were conducted with a view to producing and marketing the larger sizes of coal. The pea coal usually went to the culm or dirt pile. This is quite manifest from the fact that from 1879 to 1882 out of 400,000 tons of coal produced there were only 1,200 tons, 3-10 of 1 per cent., of pea coal. Of course, as appears in the lease, it was thought that at some future time the amount of pea coal might be increased, and so it was provided that when it was within 25 cents of chestnut, full royalty should.be paid for it. That provision, however, is a recognition of the fact that the quantity of pea coal mined at that time was inconsiderable, and that the parties were dealing with ordinary sizes in fixing the annual minimum of the product of the mines. Again, if the learned court’s construction of the minimum clause is correct the minimum income of the owners is made uncertain and will depend upon the proportion of the prepared sizes and pea size mined quarterly. The rate of royalty for pea coal was 12% cents, and for all coal mined above that size, the rate was 25 cents per ton. It is true, as the learned court suggests, that' the parties could have agreed specifically that the minimum product should depend solely upon the ordinary sizes, but it may be suggested that it is equally correct that the parties, if they so intended, could have declared specifically that the minimum output should be composed of both the pea and ordinary sizes. They made no specific provision in either case, and hence the doubt arising over the interpretation of this provision of their contract. We cannot infer, however, that they intended that the amount of coal produced quarterly or the value thereof should be left to uncertain and shifting standards. On the contrary, we must assume that they intended certainty both as to the quantity of coal and the revenue to be received by the owners therefrom. The uncertainty produced by the court’s interpretation of the contract would be not only the relative proportion of the sizes produced but the royalty to be paid .thereon. The relative proportion of the sizes would necessarily vary from time to time in the course of mining, and the price of pea coal would be constantly changing and could change from 12% cents to 25 cents as provided in the lease. There is no provision in the lease for determining the proportions of the two sizes of coal, and it was certainly not the intention of the parties to make the income of the lessors so uncertain and to depend upon these contingencies. The lessee was entitled to reimbursement for any deficit or amount paid in excess of production, and such a shifting standard, as suggested by the court below, would certainly result in confusion in ascertaining and readjusting the subsequent reimbursement.

There was nothing before the court below to warrant it in fixing the relative proportion of the prepared sizes and pea coal for the quarter for which the rental was claimed in this case. It is true, that the ratio is based on the relative production of the Maltby Mine for the year preceding the controversy. There was no evidence showing the ratio in previous years. The ratio might have been greater or less than the year taken by the court as the standard to determine the product of pea coal and prepared sizes for the quarter in question. Nor was the standard by which the learned court fixed the relative proportion of the sizes of coal determined by the coal taken from the property in question. The standard was determined by the mine run from the several properties that were being operated from the Malt-by Colliery. This clearly would not be fair either to the lessor or lessee. If the learned judge was right in making his estimate for the quarter on the relative proportions of the coal mined during the preceding year, he should have confined it to the proportion of coal produced from this property alone.

We think the contract was ambiguous, and that the settled rule of contemporaneous construction by the parties should be applied. The learned judge says: “Any one of these three alternatives (suggested by him) would plainly conform with the literal language of the minimum provision in this lease, thus creating ambiguity and presenting a proper case for construction by conduct unless the doubt is removed by considering the purpose of a minimum provision.” It is conceded that the lease does not specifically provide whether the minimum product is to be of the ordinary sizes or of such sizes and of the pea size. This raises a doubt as to the proper interpretation of the contract, and if, it is left open for construction then clearly the conduct of the parties may be invoked to aid in ascertaining their intention. When the contract is equivocal and the doubt must be removed by construction, the settled rules of intepretation may be invoked, whether it be the conduct of the parties or any other established rule. The purpose of the parties may be definitely fixed by the language they have employed in their agreement, but if it is doubtful and must be ascertained by interpreting the instrument, then clearly the parties have a right to invoke the aid of contemporaneous construction. Applying this rule, it is clear, that the minimum product was to be determined by the quantity of coal of ordinary sizes produced at the mine. Payment was begun under the lease on July 1, 1876, and a uniform royalty of 25 cents on prepared sizes was paid until December 31, 1909. For over thirty years, therefore, the lessee paid and the lessors received and receipted for the royalty on the minimum product on this basis. This was the interpretation that the parties themselves put on the contract for almost a third of a century. The lease did not speak specifically on the subject, but the conduct of the parties leaves no doubt whatever as to what it would have said had it spoken. What was in the minds of the parties more than thirty years ago -when they wrote and signed the lease was determined by them within a few years thereafter, and that construction of their contract has been iterated and reiterated by their unmistakable conduct through the many years which followed. So far as this record discloses there is no explanation of this conduct which would weaken its force in the construction of the lease. The plaintiff company could have ascertained the relative quantities of pea coal and the prepared sizes at any time after it began its mining operations. It was not required to wait for more than a quarter of a century, and after more than one hundred quarterly payments of royalty had been paid, before it had the minimum product adjusted in accordance with its present contention. It is inconceivable that the officials of the plaintiff company were ignorant of any fact, during the many intervening years, which .would have prevented the company from asserting that the minimum output of the coal on which royalty was to be paid was to be determined by the relative proportion of the pea and larger sizes. We cannot attribute to the officials of the company a failure to perform their duty for more than a quarter of a century by paying to the lessors a minimum royalty to which they were not entitled under the lease. There is nothing in the lease which prevents the application of the rule of contemporaneous construction, and there is no case in the books in which the conduct of the parties more clearly determines the meaning of their contract. By their mutual conduct for more than a quarter of a century the parties have clearly defined what they meant by the language employed in their agreement, and the court is not at liberty now to declare that such was not their meaning. When we are asked to say what the parties meant or intended by their contract, said this court in Peoples Natural Gas Co. v. Braddock Wire Co., 155 Pa. 22, 25, it is entirely safe to point to their own construction of it, as evidenced by their course of dealing under it. In Sherman v. Consolidated Dental Co., 202 Pa. 446, 451, we said: “The parties themselves thus gave a practical demonstration of their mutual understanding of the agreement, which neither one can now be allowed successfully to dispute.”

We are of the opinion that the parties intended, as disclosed by a proper interpretation of the lease, that the minimum amount of royalty should be computed on coal of prepared sizes, and not on those sizes and pea coal.

This was not a case for forfeiture, and the learned court below for a reason different from that suggested by it was, 'therefore, right in granting the relief prayed for in the bill. The plaintiffs were willing at all times to pay the amount of royalty due under the lease, and there was no default in making such payment which would justify the lessors in declaring and the court in sustaining a forfeiture. It goes without saying, we think, that the contract between the parties was open to doubt as to the proper basis on which the royalty due from the lessee to the lessors should be computed. The difference between the parties as to the amount due on the quarter of rent was $56.25, and for the nonpayment of this small sum the lessors attempted to declare a forfeiture. This difference arose from the interpretation put upon the contract by the parties. If the forfeiture is enforced it means a possible loss, under our interpretation of the agreement, of $50,000 a year to the plaintiff company. Under these circumstances the cause for forfeiture of the contract should be clearly within the provision authorizing it. This clause provides that on failure to pay any installment of royalty for ninety days, the lease and all rights under it shall at the option of the lessors become forfeited. The right to forfeit is based upon the nonpayment of a very small amount of the quarterly royalty which the lessors claim to be due, and the lessee denies. The court below sustained the lessee’s interpretation of the contract and held that it was justified in declining to' pay the amount of the lessors’ demand. The forfeiture clause in the lease manifestly, we think, never was intended to enforce a forfeiture under such circumstances. It would be against reason and good conscience to permit the lessee to annul the lease under the circumstances present in this case. The clause was intended to enforce the royalty due by the terms of the contract, and until that was legally ascertained, if reasonably in doubt, there could be no just or conscionable ground on which it could be permitted to operate. The effect of such a forfeiture would be wholly incommensurate with the harm done the lessee company by withholding the comparatively nominal sum claimed by it as a basis for declaring the lease void. Equity will not permit a party to a contract to enforce it by means manifestly never intended and such as are clearly harsh and oppressive. In Story’s Equity (5th Ed.) Sec. 1316, it is said: “The whole system of equity jurisprudence proceeds upon the ground that a party having the legal right shall not be permitted to avail himself of it for the purpose of injustice, fraud, oppression or harsh and vindictive injury.” Again in the same section it is said: “Where a penalty or forfeiture is designed merely as a security to enforce the principal obligation, it is as much against conscience to allow any party to pervert it to a different and oppressive purpose, as it would be to allow him to substitute another for the principal obligation.”

We are all of opinion that, for the reasons stated, the decree of the court below should be affirmed and it is so ordered. Costs to be paid by the parties in equal proportions.