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and simultaneously therewith, hereby agrees to execute and deliver to the said Cleveland-Cliffs Company, its successors or assigns, good and sufficient assignments of the said mining leases numbered two (2) and three (3), granting thereby to the said Cleveland-Cliffs Company all the right, interest, estate, and privileges therein granted by the lessor to the said Itasca Company; that the said Cleveland-Cliffs Company shall, from time to time, and as near as may be on or about the 1st or 15th days of each month during the progress of such work of exploration and development, furnish to the said Itasca Company a true report thereof, showing the location of the various test-pits and drill holes,. and the substance encountered therein, together with average samples of ore of each five (5) feet of ore, and shall also furnish a copy of the assays for the determination of iron and phosphorous on average samples of each five (5) feet of ore.
Unusual conditions apparently confronted the parties at the time this contract was made: (1) Plaintiff wanted the leaseholds for the ultimate purpose of mining iron ore. (2) The amount of iron ore was necessarily uncertain and doubtful, and would so remain until the whole territory should be thoroughly and exhaustively mined. (3) Plaintiff could not carry on mining operations proper until it secured the leaseholds. (4) It could not secure the leaseholds, until it made payment therefor in the manner prescribed by the contract. (5) The explorations were to be thorough, "so as fairly to determine the character and extent of the deposit of iron ore."
The evidence shows that the usual and customary manner of exploring by drill holes was to bore through the earth with a drill enclosed in surrounding casements, force water down the drill hole so as to return through the surrounding aperture made by the outer casement, bringing with it the substances produced by the operation of the drill, and depositing the same in a vessel of water, where by the process of settling the solid substances go to the bottom of the vessel, and, after the water is drawn off, become subject to examination and analysis. The evidence further shows that a uniform custom pervades the iron regions of the Mesaba Range to assume, for the purpose of exploring for iron ore, that what is actually found in any 5 feet of each drill hole pervades the ground laterally for a radius of 100 feet; that 13 cubic feet of ore make a ton; that the product brought up from the drill hole discloses the true quantity and quality of ore encountered by the drill; that these, and other assumptions not necessary to mention, are customarily indulged in estimating the value of ore-bearing lands; and that traders act upon them, and buy and sell according to their showing. Notwithstanding these customs and assumptions, either one of the latter may, in individual instances, obviously be erroneous. No mere exploration of the kind referred to can, in the nature of things, disclose with absolute certainty how much or what quality of ore exists in the bowels of the earth. Accordingly, contracts for buying and selling ore lands always deal with a doubtful and uncertain subject of sale, and if parties wish to purchase outright, and secure title in anticipation of exhaustive mining, they must proceed largely by approximation. Contracts are frequently made in the light of customary dealing and common usage, and when so made such custom and usage enter into and form part of the contract as fully as if they were incorporated in it. 1 Story on
Contracts, § 794; Robinson v. United States, 80 U. S. 363, 20 L. Ed. 653; Hostetter v. Park, 137 U. S. 30, 40, 11 Sup. Ct. 1, 34 L. Ed. 568; Albion Phosphate Min. Co. v. Wyllie, 23 C. C. A. 276, 77 Fed. 541.
An agreement must be interpreted so as to give effect to the intention of the parties. This is the great cardinal rule of construction of contracts. To that end the four corners of the instrument must be examined to ascertain the meaning of any of its stipulations, and each of them must be construed so as to give effect to all, if possible. The language employed must be construed in the light of the subjectmatter and the circumstances surrounding the parties at the time the contract was made. 1 Story on Contracts, § 774 et seq.; Nash v. Towne, 5 Wall, 689, 18 L. Ed. 527; Barreda v. Silsbee, 21 How. 146, 16 L. Ed. 86; McKeefrey v. Connellsville Coke & Iron Co., 5 C. C. A. 482, 56 Fed. 212.
Considering the provisions of the contract in question in the light of the foregoing rules of construction and in the light of established and uniform usage and custom, we are brought to the following conclusions: (1) That its true construction required the plaintiff to pay the defendant, within six months from its date, the price of 7 cents for each ton of ore averaging 56 per cent. or better of iron found as a result of exploration work of the usual and customary kind, conducted with reasonable diligence during that period of time. (2) That upon such payment being made defendant bound itself to make due and proper assignments of the two leaseholds to plaintiff. (3) That the clause of the contract relied on by plaintiff's counsel to show that the parties contemplated the ascertainment of the actual ore in the premises, namely, "and shall thoroughly explore the lands, * * * so as fairly to determine the character and extent of the deposit of iron ore therein," cannot be read alone, but must be read in connection with all the other clauses and implications of the contract; and when so read the clause requires the exploration to be so reasonably and fairly conducted, in the usual way, as to determine with as much certainty as that kind of an exploration will permit the character and extent of the deposit of iron ore. (4) That the other clause relied on by plaintiff's counsel, namely, that which requires plaintiff to furnish the defendant a true report, showing the "substance encountered," cannot mean an absolutely true showing concerning the substance encountered, but does mean a showing as disclosed by the kind of exploration and development adopted by the parties to test it.
The other clause relied on by plaintiff's counsel to show that the parties contemplated the ascertainment of the actual quantity and quality of iron ore in the premises is found in that part of the contract relating to payment where plaintiff agrees to pay defendant "the sum of 7 cents per gross ton of 2,240 pounds for all iron ore discovered and shown to exist," etc. This clause must also be read in connection with the others, and, when so read, must necessarily be qualified by those provisions for making the exploration, so as to read, substantially, that plaintiff agrees to pay defendant 7 cents per gross ton "for all iron ore discovered and shown to exist by the completed explorations reasonably and fairly made," as already explained. Obviously, they
could not intend at the end of six months to require payment for all iron ore existing in the lands, for it could not be determined.
The contract in question, when construed in the light of all its terms and implications, furnished data for and erected a criterion from which to determine the value of a doubtful and uncertain subject. Neither party could accomplish the purposes of the contract, taken as a whole, without resort to some criterion; and, having so resorted to it, and having incurred corresponding obligations, neither will be allowed to disown or repudiate the criterion so voluntarily adopted.
In Barreda v. Silsbee, 21 How. 146, 16 L. Ed. 86, the Supreme Court, in dealing with a kindred subject, says:
"Parties have the right to select what criterion they please, and where their contracts are fairly made they must receive a reasonable construction, so as to carry their intention into effect; and, in general, that intention must be gathered from the language employed, the surrounding circumstances, and the subject-matter."
The clause of the contract requiring exploration to be conducted to the "mutual satisfaction of the parties," and creating Longyear a referee to determine in case of a difference between them as to whether the land had been fully and fairly explored, does not militate against the construction we have adopted. The parties contemplated good faith and reasonably diligent exploration, to the end that the land should be fully and fairly explored within the time fixed; but in order to secure that result and prevent any miscarriage of a well-understood purpose, they made provision for an umpire to determine the matter. The construction put upon this provision by the parties, which will be referred to later, is a reasonable one, and discloses a practical execution of the contract, in harmony with its main purpose, and consistently with all its provisions.
Was any mistake made by the parties in carrying out the method or applying the criterion adopted? If both parties made an actual mistake in computation of the results shown by the exploration as made, or in calculating the areas of the land surrounding the drill holes, whose mineral substances, it is conceded, were to be fixed by the showing made in the drill holes, and by such mistake had over or under paid the price agreed upon, a remedy under well-recognized equitable principles would be afforded to correct the mistake. It would involve no rescinding or denial of the agreement, but would be in affirmance or execution of it. But if, notwithstanding accurate computations and calculations, it turned out that the assumption that 100 feet area surrounding each hole contained the kind and quality of ore disclosed in the drill hole, or any other assumption connected with the exploration, was false, such falsity would confer no right of action. The parties by arranging for exploration of the land without critically defining how it was to be done adopted the usual and customary explorations of the region. See cases, supra.
The contract, as a whole, is obviously pregnant with assumptions adopted by the parties in order to accomplish the main purpose of making provision for assigning the leases and payment of the con
sideration there for before practical mining operations should begin. But it is contended that by reason of what is called unexpected and unusual decomposed taconite in strata, which some of the drills penetrated (which was not discovered or known to exist until the explorations were completed, the property paid for, and the leases assigned), the force pump which brought up from the drill holes specimens of the substances through which the drills passed brought up much of this taconite, which, instead of settling in the bottom of the vessel, remained, by reason of its fineness, in suspension, and ultimately flowed off with the water, leaving the iron ore which settled in the bottom of the vessel apparently of higher grade than it really was or would have been determined to be if the taconite had been deposited with it, and thereby made subject to calculation; that, as a result of this unexpected presence of taconite, the deposit which settled at the bottom of the vessel did not disclose the real substances brought out by the operation of drills. The mistake relied on arises from the fact that this unusual substance was encountered when the parties did not expect it to be encountered. Is such a discovery, made after the explorations provided for by the contract were completed, a mistake, for which recovery can be had in this action? We think not. The presence of the unusual taconite was a contingency, like the possibility of variation of the quality of ore within the radius of 100 feet, or like other possible departures from the usual and ordinary conditions relating to the deposit of iron ore of which, for want of any possible data of absolute certainty, the parties assumed the risk. The contract discloses on its face that the parties at the time of its execution had knowledge of the possibility of the existence of taconite in the leasehold premises in question, and that taconite might be encountered by the drills. Clause 6 of the contract reads as follows:
"It is agreed between these parties that whenever the term 'thoroughly explore for iron ore' is used in this agreement, and in all cases where it is herein provided that the said Cleveland-Cliffs Company shall thoroughly explore the premises hereinbefore described for iron ore, that it shall not be deemed that such premises have been so explored in cases where taconite shall be encountered, unless such taconite is either penetrated through the entire body thereof, or at least to a depth of 100 feet in three holes in each forty (40) acres, unless the said referee, E. J. Longyear, hereinbefore mentioned, shall notify the parties upon an examination thereof that he deems such work unnecessary or useless."
No claim is made by either party of any right or privilege arising under this clause of the contract, and reference is made to it only for the purpose of showing that the parties had in mind at the time the contract was made the possibility of encountering taconite, and for that reason its presence in the earth cannot properly be said to be unexpected. With knowledge of the possibility of this substance being encountered, the parties nevertheless adopted the customary method of exploring the premises by drill holes and test-pits as the criterion for determining the consideration which should be paid for the leaseholds. They probably knew from that large and general experience which alone could make any method of exploration customary that it afforded the most available and satisfactory criterion for measuring
the value of the unknown and uncertain substances in the earth, and when they fairly adopted such a criterion for determining such values they cannot complain because of the very uncertainties which induced them to adopt it.
Pomeroy on Contracts, § 239, lays down the doctrine as follows: "Where parties have knowingly entered into a speculative contract-that is, one in which they intentionally speculate as to the result-and the facts upon which such agreement was founded, or the event of the agreement itself, turn out very different from what was expected or anticipated, this error, miscalculation, or disappointment, although relating to matters of fact and not of law, is not such a mistake, within the meaning of the equitable doctrine, as entitles the disappointed party to any relief either by way of defeating or rescinding the contract. In such classes of agreements the parties are supposed to calculate the chances, and they certainly assume the risks."
Beach, in his work (Mod. Eq. Jur. Vol. 1, § 56), states the rule thus: "Relief will not be given on the ground of mistake where the subject-matter of the contract is of a doubtful or uncertain character or kind." cases there cited.
In United States v. Barlow, 132 U. S. 271, 281, 10 Sup. Ct. 77, 33 L. Ed. 346, Mr. Justice Field, speaking for the court, says:
"It is also true that where the subjects in relation to which the contract of parties is made are necessarily of an uncertain and speculative character or value, and that is known to the parties, a mere mistake by them in their estimate of the value is not deemed sufficient to authorize a recovery of the moneys paid upon the erroneous estimate."
This court, in Chicago & N. W. Ry. Co. v. Wilcox, 54 C. C. A. 147, 116 Fed. 913, 915, considering a kindred subject, observes:
"Where parties have knowingly and purposely made an agreement to compromise and settle a doubtful claim, whose character and extent are necessarily conditioned by future contingent events, it is no ground for the avoidance of the contract that the events happen very differently from the expectation, opinion, or belief of one or both of the parties."
In Eastman v. Water Power Co., 24 Minn. 437, 443, the court says: "When the fact is doubtful from its own nature, in every such case, if the parties have acted with entire good faith, a court of equity will not interpose, for in such cases the equity is deemed equal between the parties."
See, to the same effect, Buffalo v. O'Malley, 61 Wis. 255, 20 N. W. 913, 50 Am. Rep. 137, and 1 Story Eq. Jur. § 150.
The exploration provided for by the contract, and upon the results of which plaintiff agreed to pay for the leaseholds, lacked in many respects that degree of certainty which is usually desired and attained. It involved many elements equally as uncertain and doubtful as the false assumption relied on by plaintiff that the pump would bring up and disclose in the bottom of the settling vessel true information concerning the substances through which the drill passed. But the parties contracted in view of all these uncertainties, and by reason of them agreed upon a criterion which they could practically apply and thereby accomplish their purposes.
In the light of the foregoing facts and authorities, we are irresistably brought to the conclusion that plaintiff cannot be released