Opinion ID: 1154750
Heading Depth: 3
Heading Rank: 2

Heading: The Arrangement for Payment of Royalties.

Text: Freeport had agreed to pay KCTL and Continental a royalty of eight percent of the divisible profits from the production and marketing of the mined potash. Sometime after the McGreevy group purchased Continental, a dispute arose between Continental and KCTL concerning their respective royalty rights. The dispute was resolved in 1956 in an agreement between the plaintiffs and National to pool all royalty interests, thus merging fractional holdings into a unified whole. The 1956 agreement expressly superseded previous royalty provisions and granted the plaintiffs a cumulative net profit royalty. Payment of royalties, however, was conditioned upon realizing a net profit during each fiscal year. Under this arrangement, whenever National was in a net profit posture, all royalty holders would receive payment without regard to whose potash was being mined, milled, and sold. The net profit royalty provisions also included what the parties called a net loss carry-forward, which meant that if National began production on the mining lands, it was required to pay a net profit royalty in any given fiscal year only if the net loss that had accumulated prior to that year had been overcome. By reserving a net profit royalty instead of a smaller gross receipts royalty, the plaintiffs were tied to the profitability of the mine rather than to its gross output, a fact that became pivotal when the mining operation later proved to be unprofitable.