PICKETT, Circuit Judge.
These are petitions to review separate orders of the Federal Power Commission rejecting and returning without notice or hearing, changes in natural gas rates filed by petitioners. The petitions present common questions and are considered together.
The petitioners, with Oklahoma Natural Gas Company, own and operate three gasoline plants in Garvin County, Oklahoma, in which natural gas gathered from wells in the area is processed for liquefiable hydrocarbons and residue gas. They entered into contracts for sale of their respective shares of the residue gas to Oklahoma Natural Gas Company. The preambles to each of the contracts were substantially the same, of which the following is typical:
“THIS AGREEMENT, made and entered into this 24th day of December, 1952, between OKLAHOMA NATURAL GAS COMPANY, hereinafter referred to as ‘BUYER’, and WARREN PETROLEUM CORPORATION, hereinafter referred to as ‘SELLER’; * * *”
The price provision, after fixing a specific amount in cents per thousand cubic feet of gas, contained what is known in the industry as a “favored-nation” clause, providing:
“C. Notwithstanding the foregoing, the price to be paid for gas delivered hereunder shall never be less than any price legally fixed by the Corporation Commission of the State of Oklahoma or any similar body having jurisdiction for gas produced from any wells located in the counties hereinafter listed in this paragraph. Further, the price to be paid for gas delivered hereunder shall never be less than that paid by Buyer to other sellers of gas from leases, lands, or gas processing plants located in Garvin, McClain, Stephens, Cleveland, Grady, Caddo, Canadian Counties in the State of Oklahoma.”
The contracts also provided: “The terms, covenants, and agreements hereof shall extend to and be binding upon the parties hereto, their assigns and successors in interest. This contract is assignable by either party.”
[314]*314Oklahoma Natural made a partial assignment of the contracts in question1 to Cities Service Gas Company, which Company was engaged in interstate transportation of natural gas and was a natural gas company within the meaning of the Natural Gas Act. 15 U.S.C.A. § 717a. Thereafter the petitioners obtained certificates of convenience and necessity and delivered the assigned gas to Cities Service Gas Company and received the purchase price from it. A similar partial assignment was made to Lone Star Gas Company and Oklahoma Natural continues to receive into its own pipe line system the balance of the gas purchased.
On the date of the assignments the contract price for gas was 11$ per Mef. Thereafter Oklahoma Natural made other purchases within the area specified in the various contracts at a price of 16.8{5 per Mcf. Cities Service Gas Company made no purchases within the area other than those under the contracts. The basis for the new rates sought to be filed by the petitioners was the contract provision that they should not receive less for their gas than that paid by Oklahoma Natural to other sellers in the designated counties. In rejecting the notice of change of rates and returning them to the petitioners, the Commission stated that it refused the filing because the applicability of the “favored-nation” clause in the contracts was to be determined by purchases made by Cities Service Gas Company, which was then the buyer under the contract, and not Oklahoma Natural. The question, therefore, turns upon whether the operation of the “favored-nation” clause continues to be determined by purchases of gas by Oklahoma Natural, or by those made by the assignee, Cities Service Gas Company. The position of the Commission is that after the contract was assigned, Oklahoma Natural was no longer the purchaser of the gas and Cities Service Gas Company became the buyer under the terms of the contract. The Commission says, in effect, that Cities Service Gas Company [315]*315was substituted for Oklahoma Natural and that the “favored-nation” clause could be activated only by its purchases.2
At the outset, the Commission urges that its interpretation of the “favored-nation” clause as to the rate provision is a matter peculiarly within its competence, and that judicial review is limited to considering only whether the Commission’s determination is reasonable. Its brief states: “ * * * The Commission is far better equipped than reviewing courts to interpret and evaluate the natural gas purchase contracts which are not only essential to the business but which, in the case of independent producers, themselves usually constitute the rate schedules required to be filed with the Commission.” This rule has no application in the instant case. It is quite apparent that the Commission’s refusal to accept the rate filing was based upon its construction of the contract provisions and the application of ordinary principles of contract law, and not upon its experiences in the administration of the Natural Gas Act.3 The identical question was recently answered contrary to the contention of the Commission in Texas Gas Transmission Corp. et al. v. Shell Oil Co., 363 U.S. 263, 268, 80 S.Ct. 1122, 1126, 4 L.Ed.2d 1208, where it was said:
“The petitioners’ argument that the Court of Appeals exceeded the allowable limits of judicial review is based upon the premise that the Commission’s interpretation of the ‘favored nation’ clause reflects ‘the application of its expert knowledge and judgment to a highly technical field,’ so that the Court of Appeals was required to accept the Commission’s interpretation if it had ‘ “warrant in the record” and a “reasonable basis in law,” ’ citing Unemployment Compensation Commission of Territory of Alaska v. Aragon, 329 U.S. 143, 153-154 [67 S.Ct. 245, 250, 91 L.Ed. 136]. But the record nowhere discloses that the Commission arrived at its interpretation of the ‘favored nation’ clause on the basis of specialized knowledge gained from experience in the regulation of the natural gas business, or upon the basis of any trade practice concerning ‘favored nation’ clauses. On the contrary the opinions of the examiner and the Commission show that both treated the question as one [316]*316to be determined simply by the application of ordinary rules of contract construction.”
We are unable to find any ambiguity in the meaning of the term “Buyer” as used in the different contracts. The petitioners are named and the instruments provided that each shall be referred to in the contract as the “Seller” and Oklahoma Natural as the “Buyer.” The terms, for convenience, were substituted for the full names of the parties as is the custom in many contracts. Each term was used throughout the contracts as a proper noun and had the same effect as though the actual names of the parties had been used in full. The “favored-nation” clause fixed the price as that which Oklahoma Natural would pay in the area if different than the contract price. It is not disputed that without assignment the provisions would have been activated when Oklahoma Natural made other purchases of gas at 16.8{S per Mcf.
Free access — add to your briefcase to read the full text and ask questions with AI
PICKETT, Circuit Judge.
These are petitions to review separate orders of the Federal Power Commission rejecting and returning without notice or hearing, changes in natural gas rates filed by petitioners. The petitions present common questions and are considered together.
The petitioners, with Oklahoma Natural Gas Company, own and operate three gasoline plants in Garvin County, Oklahoma, in which natural gas gathered from wells in the area is processed for liquefiable hydrocarbons and residue gas. They entered into contracts for sale of their respective shares of the residue gas to Oklahoma Natural Gas Company. The preambles to each of the contracts were substantially the same, of which the following is typical:
“THIS AGREEMENT, made and entered into this 24th day of December, 1952, between OKLAHOMA NATURAL GAS COMPANY, hereinafter referred to as ‘BUYER’, and WARREN PETROLEUM CORPORATION, hereinafter referred to as ‘SELLER’; * * *”
The price provision, after fixing a specific amount in cents per thousand cubic feet of gas, contained what is known in the industry as a “favored-nation” clause, providing:
“C. Notwithstanding the foregoing, the price to be paid for gas delivered hereunder shall never be less than any price legally fixed by the Corporation Commission of the State of Oklahoma or any similar body having jurisdiction for gas produced from any wells located in the counties hereinafter listed in this paragraph. Further, the price to be paid for gas delivered hereunder shall never be less than that paid by Buyer to other sellers of gas from leases, lands, or gas processing plants located in Garvin, McClain, Stephens, Cleveland, Grady, Caddo, Canadian Counties in the State of Oklahoma.”
The contracts also provided: “The terms, covenants, and agreements hereof shall extend to and be binding upon the parties hereto, their assigns and successors in interest. This contract is assignable by either party.”
[314]*314Oklahoma Natural made a partial assignment of the contracts in question1 to Cities Service Gas Company, which Company was engaged in interstate transportation of natural gas and was a natural gas company within the meaning of the Natural Gas Act. 15 U.S.C.A. § 717a. Thereafter the petitioners obtained certificates of convenience and necessity and delivered the assigned gas to Cities Service Gas Company and received the purchase price from it. A similar partial assignment was made to Lone Star Gas Company and Oklahoma Natural continues to receive into its own pipe line system the balance of the gas purchased.
On the date of the assignments the contract price for gas was 11$ per Mef. Thereafter Oklahoma Natural made other purchases within the area specified in the various contracts at a price of 16.8{5 per Mcf. Cities Service Gas Company made no purchases within the area other than those under the contracts. The basis for the new rates sought to be filed by the petitioners was the contract provision that they should not receive less for their gas than that paid by Oklahoma Natural to other sellers in the designated counties. In rejecting the notice of change of rates and returning them to the petitioners, the Commission stated that it refused the filing because the applicability of the “favored-nation” clause in the contracts was to be determined by purchases made by Cities Service Gas Company, which was then the buyer under the contract, and not Oklahoma Natural. The question, therefore, turns upon whether the operation of the “favored-nation” clause continues to be determined by purchases of gas by Oklahoma Natural, or by those made by the assignee, Cities Service Gas Company. The position of the Commission is that after the contract was assigned, Oklahoma Natural was no longer the purchaser of the gas and Cities Service Gas Company became the buyer under the terms of the contract. The Commission says, in effect, that Cities Service Gas Company [315]*315was substituted for Oklahoma Natural and that the “favored-nation” clause could be activated only by its purchases.2
At the outset, the Commission urges that its interpretation of the “favored-nation” clause as to the rate provision is a matter peculiarly within its competence, and that judicial review is limited to considering only whether the Commission’s determination is reasonable. Its brief states: “ * * * The Commission is far better equipped than reviewing courts to interpret and evaluate the natural gas purchase contracts which are not only essential to the business but which, in the case of independent producers, themselves usually constitute the rate schedules required to be filed with the Commission.” This rule has no application in the instant case. It is quite apparent that the Commission’s refusal to accept the rate filing was based upon its construction of the contract provisions and the application of ordinary principles of contract law, and not upon its experiences in the administration of the Natural Gas Act.3 The identical question was recently answered contrary to the contention of the Commission in Texas Gas Transmission Corp. et al. v. Shell Oil Co., 363 U.S. 263, 268, 80 S.Ct. 1122, 1126, 4 L.Ed.2d 1208, where it was said:
“The petitioners’ argument that the Court of Appeals exceeded the allowable limits of judicial review is based upon the premise that the Commission’s interpretation of the ‘favored nation’ clause reflects ‘the application of its expert knowledge and judgment to a highly technical field,’ so that the Court of Appeals was required to accept the Commission’s interpretation if it had ‘ “warrant in the record” and a “reasonable basis in law,” ’ citing Unemployment Compensation Commission of Territory of Alaska v. Aragon, 329 U.S. 143, 153-154 [67 S.Ct. 245, 250, 91 L.Ed. 136]. But the record nowhere discloses that the Commission arrived at its interpretation of the ‘favored nation’ clause on the basis of specialized knowledge gained from experience in the regulation of the natural gas business, or upon the basis of any trade practice concerning ‘favored nation’ clauses. On the contrary the opinions of the examiner and the Commission show that both treated the question as one [316]*316to be determined simply by the application of ordinary rules of contract construction.”
We are unable to find any ambiguity in the meaning of the term “Buyer” as used in the different contracts. The petitioners are named and the instruments provided that each shall be referred to in the contract as the “Seller” and Oklahoma Natural as the “Buyer.” The terms, for convenience, were substituted for the full names of the parties as is the custom in many contracts. Each term was used throughout the contracts as a proper noun and had the same effect as though the actual names of the parties had been used in full. The “favored-nation” clause fixed the price as that which Oklahoma Natural would pay in the area if different than the contract price. It is not disputed that without assignment the provisions would have been activated when Oklahoma Natural made other purchases of gas at 16.8{S per Mcf. There may have been a valid reason why the parties desired that the price should be tied to that which Oklahoma Natural was paying within the territory, regardless of an assignment, and it was a legitimate subject of contract. Cities Service Gas Company acquired only “the right to receive and the obligation to pay for certain volumes of residue gas purchase contracts.” This included the obligation of the “favored-nation” clause of the purchase contracts. The rights of petitioners cannot be diminished by an assignment. See 4 Am. Jur., Contracts, §§ 103, 104.
Finally, the Commission contends that the assignments were new contracts between petitioners and the assignee which had the effect of substituting the assignee for Oklahoma Natural as the buyer. The requisites of a novation are: (1) a previous valid obligation, and (2) an agreement of all the parties that the old contract shall be extinguished and a valid one substituted for the old. A novation may be effected by the substitution of a new debtor in the place of the old one, with the intent to release the latter, or by the substitution of a new creditor in the place of the old one, with intent to transfer the rights of the latter to the former. See f. n. 1. All three parties must agree to the substitution. State ex rel. Com’rs of Land Office v. Pitts, 197 Okl. 644, 173 P.2d 923; Oil Field Gas Co. v. International Supply Co., 187 Okl. 262, 103 P.2d 91; Bickley v. Parks, 185 Okl. 74, 89 P.2d 936; James v. Johnson, 180 Okl. 106, 69 P.2d 51; Lincoln Nat. Life Ins. Co. v. Rider, 171 Okl. 262, 42 P.2d 842; Martin v. Leeper Bros. Lumber Co., 48 Okl. 219, 149 P. 1140; Standard Acc. Ins. Co. v. Federal Nat. Bank, 10 Cir., 112 F.2d 692.
The assignments, to which the petitioners were not parties, do not disclose any intent on the part of Oklahoma Natural to completely dispose of the contracts or to release itself from the burdens thereof, nor does the record disclose that the petitioners agreed to look to the assignee exclusively for performance. It is true that the assignments required the assignee to fulfill and comply with designated terms and conditions of the contracts insofar as the purchase of gas was concerned, but also the future liability of Oklahoma Natural was recognized as provision was made that if the purchases by the assignee were interrupted for an extended period of time, or if it failed to fulfill the obligations of the assignments, the right to resume the purchase and demand a termination of the assignment was reserved. The necessary requirements for a novation were not present.
The action of the Commission in each case is reversed and the matters are remanded with instructions to accept the filings.