McGinnis v. Cayton , 173 W. Va. 102 ( 1984 )

NEELY, Justice.

The appellants, Carroll and Emma McGinnis, are the owners of a 47 acre tract of land in Ritchie County. In April of 1893 their predecessors in interest granted an oil and gas lease on that property to George H. Ahrens. The lease gave the lessee a five-year primary term and a potentially perpetual renewal predicated on the continued production of oil or gas. In consideration for the right to produce the oil on the property, the lessee agreed to pay the lessor a one-eighth royalty. The lease further provided that if sufficient gas were produced to justify marketing, the lessor would be paid $100 per year for so long as the well produced gas.

Appellants claim that for more than twenty-five years prior to 1978 no gas was produced on the leasehold and the lease was maintained through the production of oil from a single well. In 1978 an old gas well was deepened. In 1979 the appellants wrote the lessees and demanded a one-eighth royalty in all gas production. Instead they were sent a check for $100 pursuant to the original lease.

Appellants went to the Circuit Court in Ritchie County and asked that the original lease be reformed or voided. More specifically, they argued that the clause providing that the payment of $100 for the right to produce all of the gas on the property was no longer commercially reasonable. The appellees moved to dismiss the action on the grounds that it failed to state a claim upon which relief could be granted. By an order entered on 8 December 1981, the court sustained that motion. We granted an appeal and now reverse.

I

This case arises from a trial court's decision to uphold a motion for summary judgment. It is the long-standing policy of the courts of West Virginia to favor resolution of disputes on the merits. In Syl. Pt. 2 of Sticklen v. Kittle, 168 W.Va. 147, 287 S.E.2d 148 (1981), we held:

The trial court, in appraising the sufficiency of a complaint on a Rule 12(b)(6) motion, should not dismiss the complaint unless it appears beyond doubt the plaintiff can prove no set of facts in support of his claims which would entitle him to relief.¹

When a court is considering a motion to dismiss, the complaint must be construed in the light most favorable to the plaintiff, and its allegations should be considered as true. John W. Lodge Distributing Co. v. Texaco, 161 W.Va. 603, 245 S.E.2d 157 (1978). The plaintiff's burden in resisting a motion to dismiss, then, is a light one. Williams v. Wheeling Steel Corp., 266 F.Supp. 651 (N.D.W.Va.1967).

A trial court’s denial of a motion for summary judgment, or an appellate court’s decision to overturn the granting of such a motion, does not reflect an opinion on the ultimate merits of the case. A court should not dismiss a case simply because it believes it is unlikely that the plaintiff will prevail. Mandolidis v. Elkins Industries, Inc., 161 W.Va. 695, 246 S.E.2d 907, 920 (1978). The final verdict in a case should be the result of the proof offered by the parties and not simply a reflection of their skill in drafting pleadings. See Wright & Miller, Federal Practice and Procedure: Civil § 1216 (1969).

Therefore, our task in the case at hand is not to decide whether the appellants have a strong case, but rather whether they have any case. If there is a plausible reading of the facts that gives rise to a colorable legal argument, the appellants have met their burden in resisting a motion to dismiss for failure to state a claim upon which relief can be granted. An argument that seems tenuous when first advanced may gain credibility as testimony and documentation are offered. Although courts cannot afford to entertain frivolous claims, they must give litigants an opportunity to flesh out plausible arguments. It is with such a disposition that we turn to the facts and possible legal theories available to appellants in this case.

II

The lease that is currently in force regarding the real property in Ritchie County was drafted in 1893. Since that time, there have been substantial changes in the technology of gas production, the economics of marketing it and the care with which legal documents relating to such production are drafted. At the time this lease was drafted, most drilling operations were primarily for oil. Gas wells were left uncontrolled to discharge into the air because profitable uses for natural gas were only then being discovered. See Donley, The Law of Coal, Oil and Gas in West Virginia and Virginia, 436 (1951). It is therefore not surprising that the standard legal form for a mineral lease at that time provided for a small lump-sum payment when natural gas was extracted. It is equally unsurprising to learn: “In modern leases it is frequently provided that gas shall be on a royalty basis, which, of course, is usually more profitable to the lessor.” Donley, supra at 219.

The rights and duties of the parties to a contract are controlled by the law in effect at the time the contract was executed. Gazale v. Gazale, 219 Va. 775, 250 S.E.2d 365 (1979). Because all of the general legal principles affecting contracts at the time a particular agreement is entered into form a part of that contract as fully as if they were specifically expressed within it, Huntington Water Corporation v. City of Huntington, 115 W.Va. 531, 177 S.E. 290 (1935), it is useful to look at analogous cases which were decided at the time the appellant’s predecessors in interest entered into the lease.

The case of Bluestone Coal Co. v. Bell, 38 W.Va. 297, 18 S.E. 493 (1893), is particularly instructive. In that case, which was decided in the year in which the lease we consider was drafted, this court rescinded a 99-year lease which gave the lessee the right to mine coal and cut timber. The court determined that the primary purpose of the agreement was to give the lessee the right to mine coal. The price for the timber was artifically low because the lessor anticipated considerable profits from his royalties on the coal. In fact, there was not sufficient coal to make mining profitable; but the timber on the property had considerable value and could be marketed profitably. The court stated: “In the absence of the coal, the evidence shows there would have been no contract for the timber. This was the foundation on which the timber contract rested, and the foundation having no real existence, the superstructure must fall.” Id., 38 W.Va. at 307, 18 S.E. at 496.

The legal hook on which the court hung its result in Bluestone Coal was the doctrine of mutual mistake. See Syl. Pt. 3. This principle provides that a contract is reformable or voidable if it can be shown that the parties mutually erred about a basic fact that is material to their agreement. Bluestone Coal can be distinguished from the case sub judice. In Bluestone, the mistake concerned the existence of an objective fact — presence of coal on the property leased. In the case at hand, the parties agreed to provisions concerning both oil and natural gas and both resources were present. Nevertheless, the limited awareness of the economic value of natural gas at the time when the contract was drafted raises at least the possibility that both parties were operating under the assumption that the value of gas would remain de minimis. Their agreement, then, could be seen as one primarily concerned with oil production just as the Blue-stone court found that the focus of the agreement in that case was coal.

A mutual mistake as to a material assumption which underlies a contractual agreement is sufficient grounds to find that agreement void. The Restatement (Second) of Contracts specifically provides in § 152(1):

Where a mistake of both parties at the time a contract was made as to a basic assumption on which the contract was made has the material effect on the agreed exchange of performances, the contract is voidable by the adversely affected party unless he bears the risk of the mistake....

Once again, we do not state that a mutual mistake was present in this case. Although it may be true that the production of oil was the primary purpose of the lease in question, it is also plausible that the lessee was aware of the burgeoning market for natural gas and struck a very advantageous bargain.² It is also arguable that the original lessor bore the risk of a rise in the value of natural gas by accepting a fixed price for the production of it on his land.

Although appellants are entitled to a hearing, to prevail they must establish mutual mistake as a legally sufficient ground for recision or reformation of the contract. It is true that in Bluestone Coal, supra we stated that, “Nothing is more clear than the doctrine that a contract founded in a mutual mistake of the facts constituting the very basis or essence of it will avoid it.” Id., 38 W.Va. at 308, 18 S.E. at 496-97. Nevertheless, this Court has not had occasion to address the mutual mistake question in some time, and we note that the doctrine has been applied in disparate ways in other jurisdictions.

Many modem courts have continued to hold that a mutual mistake as to a material fact renders a contract void, see e.g., Hoffa v. Fitzsimmons, 499 F.Supp. 357 (D.D.C.1980); Tarrant v. Monson, 96 Nev. 844, 619 P.2d 1210 (1980); Brauer v. Central Trust Co., 433 N.Y.S.2d 304, 77 A.D.2d 239 (1980); Harper v. McCoy, 276 S.C. 170, 276 S.E.2d 782 (1981), but also note that some courts have limited the contexts in which they will allow parties to argue that mutual mistake existed. For example, some courts have held that the doctrine of mutual mistake is available only when the parties were mistaken as to facts existing at the time the contract was entered into. See e.g., Aluminum Co. of America v. Essex Group Inc., 499 F.Supp. 53 (D.Pa.1980); Raphael v. Booth Memorial Hospital, 412 N.Y.S.2d 409, 67 A.D.2d 702 (1979). Another court has held that the test in cases of mutual mistake is whether the parties would have entered into the contract if they had not been mutually mistaken. Vermette v. Andersen, 16 Wash.App. 466, 558 P.2d 258 (1976).

These limitations are highly relevant to the case sub judice because the parties in this case are not the original parties in interest but subsequent purchasers for value who had notice of the original contract. The appellants must prove both that the mistake was mutual and that it was material in order to make the contract void as a matter of law. They are estopped from relying on equitable principles because they are not the original parties to the contract, but entered into a deal when the value of natural gas was known. We have recently held:

A party cannot avoid the legal consequences of his actions on the ground of mistake, even a mistake of fact, where such mistake is the result of negligence on the part of the complaining party.

Syl. Pt. 4, Webb v. Webb, 171 W.Va. 614, 301 S.E.2d 570 (1983). Furthermore, the petitioners have allowed the contract to stand unchallenged for some time. “A court of equity has always refused its aid to stale demands where the party slept upon his rights and acquiesced for a great length of time.... Hoffman v. Wheeling Savings and Loan Association, 133 W.Va. 694, 57 S.E.2d 725, 732 (1950) (quoting Lord Camden).

Given the procedural posture of this case, it would be premature for us to attempt a definitive statement on the doctrine of mutual mistake. We content ourselves with ruling that appellant’s allegations raise a potentially meritorious argument, and, therefore, overcome a motion for summary judgment. There is simply not a sufficient factual record to make a definitive interpretation about the purpose and nature of the original lease agreement. It is the function of trials to establish such a record, and to provide an adequate basis for making a fair legal determination of the nature of the parties’ agreement. In this regard, of course, it must be remembered that the lease enjoys a presumption of validity and the plaintiffs must prove by a preponderance of the evidence that there was, indeed, a mutual mistake of fact and that the contract did not allocate the risk of changed conditions.

We also note that appellants allege that lessees abandoned the leasehold because they did not pay gas royalties for more than twenty-five years and did not pay oil royalties for three years. Because we must accept these allegations as true for purposes of a motion for summary judgment, appellant is certainly entitled to a trial on this issue. Once again, we do not opine that there was abandonment here. Appellants must prove their factual allegations and demonstrate that they constitute abandonment under the terms of the contract and the laws of West Virginia. We rule only that they have a right to raise the issue at trial.

Accordingly, the judgment of the Circuit Court is reversed and the case is remanded for further proceedings consistent with this opinion.

Reversed.

1 . Rule 12(b) states in pertinent part:

Every defense, in law or fact, to a claim for relief in any pleading, whether a claim, counterclaim, cross-claim, or third-party claim, shall be asserted in the responsive pleading thereto if one is required, except that the following defenses may at the option of the pleader be made by motion: ... (6) to dismiss for failure of the pleading to state a claim upon which relief can be granted, ....

2 . It was, after all, during the 1890’s that natural gas began to be used in the manufacture of glass. Donley, supra at 436.