Court Opinion

ID: 9470122
Source: CourtListenerOpinion
Date Created: 2023-08-05 02:57:39.661227+00
Date Added: 2024-06-11T17:41:44.694799
License: Public Domain

GODBOLD, Chief Judge,
dissenting:
This is a classic case of an ambiguous contract, the obligations under which could not be decided by summary judgment.
Paragraph 5(b) of the contract provides for production royalties on coal mined of $2.00 per ton or ten percent of gross sales price per ton at the mine, whichever is higher. Production royalties must be accounted for and paid each month for the preceding month.
Paragraph 5(a), quoted in the majority opinion, provides for minimum advance royalties as follows:
*1360—A minimum “advance royalty” of $25,-000.00, payable each year in advance “while this Lease is in effect.”
—“Minimum total royalties, production and/or minimum annual royalties shall be $200,000.00.”
—Minimum advance royalty payments may be credited against future production royalties payable under 5(b).
—“If Warrior River should terminate and surrender this Lease as provided in paragraph 15 of this Lease Agreement, at any time before the total royalty of $200,000.00 has accrued, it will pay to Lessor the unaccrued balance of said $200,000.00 in minimum annual payments of $25,000.00 or the balance, whichever is less.”
Paragraph 19 obligates Warrior to mine and remove “all minable and marketable coal” that can be recovered by surface mining, and it defines “minable and marketable”:
19. Warrior River agrees to mine and remove from the Leased Premises all minable and marketable coal recoverable by the surface mining method during the term of this Lease. Coal that is minable and marketable within the meaning of this Lease means coal that can be mined from the Leased Premises and sold by Warrior River at prevailing market prices at a profit comparable to profit made by Warrior River on sale of other coal mined and sold under this Lease.
Paragraph 15 covers the right of Warrior to surrender and terminate the lease when it “has mined and removed all minable and marketable coal.”
15. Surrender by Warrior River. Notwithstanding any provision herein to the contrary, and after Warrior River has mined and removed all minable and marketable coal from the Leased Premises and has performed all its other obligations under this Lease, Warrior River may upon Ninety (90) days’ written notice to Lessor surrender and terminate this Lease as to all of the Leased Premises. Upon a surrender and termination of this Lease as to all of the Leased Premises, Warrior River shall be under no further obligation of any kind or nature to the Lessor except for the making of payments that have accrued at the date of such surrender and termination, the payment of taxes accrued while the Lease was in effect, and the satisfaction of all federal and state environmental and mining laws and regulations applicable to the Leased Premises which have occurred pri- or to the date of such surrender or termination.
Under these provisions “notwithstanding any provision herein to the contrary," after Warrior has mined and removed the minable and marketable coal, it can surrender and terminate the lease. When it does so it “shall be under no further obligation of any kind or nature to the Lessor except for the making of payments that have accrued at the date of such surrender and termination.”
Warrior contends that there was no more “minable and marketable coal” as defined under paragraph 19, because the cost of making changes and improvements in the property necessary to secure state and federal surface mining permits made it impossible to mine and sell the coal at a profit. Therefore, Warrior attempted to terminate and surrender under paragraph 15. Whether Warrior is correct in its contention that there is no “minable and marketable coal,” and whether it gave the proper notice to surrender and terminate, are issues to be determined by a factfinder at a trial. Assuming these issues were decided in Warri- or’s favor, what then would happen?
—Paragraph 15 says Warrior will pay nothing except to make payments that already have “accrued.”
—Yet, arguably, the termination and surrender portion of paragraph 5(a) says that Warrior will pay whatever part of the $200,000 minimum that remains unpaid.
There is a head-on conflict in terms between paragraphs 5 and 15 — as applied here, zero dollars versus $125,000.00 — unless the conflict is dissipated by construing the word “accrued” in paragraph 15 to include the unpaid portion of $200,000.00 that is *1361described in paragraph 5(a). That is what the district court appeared to do (although it is not entirely clear) — i.e., it considered that the part of $200,000.00 yet unpaid was nevertheless “accrued” at the date of the surrender and termination and was, therefore, included within the statement of items in paragraph 15 that Warrior would owe upon termination and surrender. But paragraph 5 refers to any part of $200,000.00 unpaid at the time of surrender and termination as “the unaccrued balance.” How does the unpaid balance that is described in paragraph 5 as “unaccrued” (and in the everyday language of lawyers and commerce is “unaccrued”) become “accrued”? Paragraph 5(a) contains no language that brings about this conversion.
Warrior and the lessors could have made either of two different trades, and either was reasonable and commercially familiar. Warrior could be obligated to pay $2.00 per ton production royalty, and in any and all events $200,000.00, regardless of the quantity of minable coal on the land. This is what paragraph 5(a) seems to say.1 Or Warrior could be obligated to pay production royalties of $2.00 per ton and minimum annual advance royalties of $25,000.00, so long as there was minable coal, and when the minable coal ran out Warrior could terminate and surrender and its obligations to pay production royalty and minimum royalty would then cease. The document before us does not tell us what the trade actually was. The district court recognized that the lease was “apparently incongruent” and “inconsistent,” yet it cryptically found that there was no conflict between paragraphs 5(a) and 15 (and in doing so, made no mention of paragraph 20). It is implied in the district court’s conclusion that it considered that the act of termination and surrender by Warrior under paragraph 15 caused the theretofore unaeerued minimum royalties under paragraph 5(a) to accrue instanter. This is not an unreasonable Olympian view of what parties to a coal mining lease might intend. But it is no less reasonable that parties might intend precisely the opposite, that is, the lessee’s obligation to pay royalties (production and minimum) ran out when the minable coal ran out. The lease itself does not give us the answer to the puzzle of what the trade was. The district court found an answer not from the lease but from assuming that the trade was the first of the two possibilities I have described.
The district court’s approach runs afoul of another provision. Paragraph 15 begins with the language “notwithstanding any provision herein to the contrary....” Thus, arguably “accrued” as used in paragraph 15 is to be taken in its common everyday usage, which would hardly include future annual royalty payments for the next five years. Despite the “notwithstanding” language, the district court turned to paragraph 5(a) to find a contrary meaning.
The district court attempted to bolster its conclusion by referring to paragraph 13, which imposes an obligation to pay minimum advance and production royalties even if Warrior were unable to perform by reason of labor disturbance, Acts of God, etcetera. These contingencies simply have no relation to what the parties intended the obligations between them would be if minable coal ran out and Warrior elected to terminate the lease.
Warrior was entitled to a trial and to application of the usual standards governing ambiguous contracts.

. Actually paragraph 5(a) is internally inconsistent. Initially paragraph 5(a) says that minimum advance royalty payments are to be due “while this Lease is in effect.” Later 5(a) says that the annual payment of $25,000.00 shall continue after termination and surrender of the lease.