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U.S. Supreme Court

Texas Gas Transmission Corp. v. Shell Oil Co., 363 U.S. 263 (1960)

Texas Gas Transmission Corp. v. Shell Oil Co.

No. 167

Argued April 20-21, 1960

Decided June 13, 1960*

363 U.S. 263


The "favored-nation" clause of a contract for the sale of natural gas by respondent to a pipeline company provided that respondent would be entitled to a price increase should the pipeline company thereafter "enter into a contract providing for the purchase by it of gas" at a higher price. Thereafter, the pipeline company agreed to a higher price under a preexisting, long-term contract with another producer, which required that the price be redetermined every five years, either by agreement of the parties or by arbitration. In proceedings under the Natural Gas Act to determine its effective rate as of June 7, 1954, respondent filed its contract with the Federal Power Commission as a rate schedule. The Commission held that the price redetermination under the pipeline company's preexisting contract with the other producer was not a contract for the purchase of gas within the meaning of the "favored nation" clause in respondent's contract, and that, therefore, the price payable by the pipeline company to respondent had not been increased. The Court of Appeals vacated the Commission's order.


1. Since the Commission disposed of the case solely upon its view of the result called for by the application of ordinary rules of contract construction employed by the courts, and did not rely on matters within its own special competence, the Court of Appeals was justified in making its own independent determination of the correct application of the governing principles. Pp. 363 U. S. 268-270.

2. In the circumstances, consideration of the scope of judicial review of administrative determinations need not deter this Court from reviewing the decision of the Court of Appeals and deciding the proper construction of the "favored-nation" clause. P. 363 U. S. 270.

3. The Commission correctly construed the "favored-nation" clause as not effecting an increase in respondent's price by reason of

Page 363 U. S. 264

the increased price agreed upon between the pipeline company and the other producer under their preexisting agreement. Pp. 363 U. S. 270-276.

4. The judgment is reversed, and the cause is remanded to the Court of Appeals for further proceedings, including consideration of the question whether the enforceability of the contract between the pipeline company and the other producer is material to the decision of this case, and, if so, whether that contract was enforceable. Pp. 363 U. S. 276-277.

263 F.2d 223 reversed.

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