Case Title: ROGERS v RELYEA

Citation: 

Docket Number: 

State: montana

Court: Montana Supreme Court

Date: 1979-10-02T00:00:00Z

Document:
No. 14492 IN THE SUPREME COURT OF THE STATE OF MONTANA 1979 M . E. ROGERS I Plaintiff and Respondent, -vs- GEORGE A. RELYEA and DOROTHY RELYEA, Defendants and Appellants. Appeal from: District Court of the First Judicial District, Honorable Peter G . Meloy, Judge presiding. Counsel of Record: For Appellants: Daniels and Mizner, Deer Lodge, Montana For Respondent: Gough, Shanahan, Johnson & Waterman, Helena, Montana - , - - , - :' , 6 !- . _ . .- Filed: Submitted on briefs: August 1, 1979 Mr. Justice John Conway Harrison delivered the Opinion of the Court. This is an appeal from Broadwater County concerning the specific performance of an agreement and option to purchase mining claims. Defendants Relyea are the owners of patented and un- patented mining claims in Broadwater County. In 1965 defen- dants entered into an agreement permitting the Finley Com- pany to mine the property on which the claims were located and keep all proceeds from the mining operations. The agreement included an option to purchase the mining claims and provided for the establishment of escrow and a deposit of a deed in escrow by the defendants. In 1967 Finley and the defendants modified the schedule of payments in the agreement. The original agreement with its modification was as- signed by Finley to plaintiff M . E. Rogers also in 1967. The assignment specifically recited that the escrow men- tioned in the original agreement had never been established. Between 1967 and 1974, the parties modified the assigned contract four or more times because of plaintiff's failure to make timely payments. One of these modifications was a document entitled "Option Agreement" where plaintiff was granted the exclusive right to purchase the mining claims and payments were made annually beginning on January 2, 1974. The first January 2nd payment was further extended until June 15, 1974, by a modification executed by the parties on March 15, 1974. Plaintiff failed to make the June 15th payment. In May 1974 plaintiff contacted Richard Voit to secure financing for the development of the mine. Voit and plain- t i f f observed the mining property and went t o the bank where t h e escrow w a s t o have been established. They discovered, however, t h a t the escrow had not been established. Voit t o l d p l a i n t i f f t h a t he would withdraw h i s f i n a n c i a l commit- ment t o t h e mine i f t h e escrow was n o t established. Plain- t i f f then went t o defendants' residence and requested t h a t t h e deed be placed i n escrow. Defendants refused, however, claiming t h a t p l a i n t i f f had n o t complied with the terms of t h e agreement. Defendants t h e r e a f t e r assumed t h e r e l a t i o n - s h i p w a s terminated with p l a i n t i f f and arrangements were made with o t h e r p a r t i e s f o r t h e development of the property. P r i o r t o the termination of t h e agreement, p l a i n t i f f , defendants and a t h i r d p a r t y entered i n t o a c o n t r a c t i n 1974 f o r t h e c u t t i n g of stumpage on the mining property. Under t h e stumpage contract, payments by t h e t h i r d p a r t y w e r e made t o defendants and applied t o p l a i n t i f f ' s annual payment under the c o n t r a c t between defendants and p l a i n t i f f . P l a i n t i f f f i l e d a complaint on December 8, 1975, seek- i n g t o r e s t r a i n defendants from terminating t h e agreement, requiring defendants t o s p e c i f i c a l l y perform portions of the agreement, and requesting damages f o r t h e breach of t h e agreement. Upon a motion f o r p a r t i a l summary judgment, t h e D i s t r i c t Court found t h a t a v a l i d agreement e x i s t e d between t h e p a r t i e s which agreement was breached by defendants' f a i l u r e t o e s t a b l i s h an escrow agreement and c r e d i t c e r t a i n payments t o p l a i n t i f f . The c o u r t excused p l a i n t i f f from h i s performance under t h e agreement. Upon t h e t r i a l of t h e remaining issues, t h e c o u r t reformed the c o n t r a c t and ordered s p e c i f i c performance. Damages r e s u l t i n g from t h e breach were denied. From t h i s judgment, both p l a i n t i f f and defen- dants appeal. Several i s s u e s are r a i s e d on appeal: 1. id t h e D i s t r i c t Court err i n granting p l a i n t i f f s p e c i f i c performance because t h e agreement contained an option t o purchase and t h e r e f o r e lacked mutuality required f o r t h e granting of s p e c i f i c performance? 2. Was defendants' f a i l u r e t o e s t a b l i s h an escrow agreement a m a t e r i a l breach of t h e c o n t r a c t which excused p l a i n t i f f ' s f a i l u r e t o make required payments under t h e c o n t r a c t ? 3. Did t h e D i s t r i c t Court err i n f i n d i n g t h a t defen- d a n t s f a i l e d t o c r e d i t payments under t h e stumpage c o n t r a c t t o p l a i n t i f f ? 4. Was t h e stumpage c o n t r a c t n o t binding on t h e par- ties because it w a s n o t supported by consideration? 5. I n reforming t h e c o n t r a c t , d i d t h e D i s t r i c t Court err i n r e q u i r i n g p l a i n t i f f t o execute a promissory note and r e a l mortgage upon payment of o n e - f i f t h of t h e balance of t h e purchase p r i c e ? 6. Did t h e District Court err i n f a i l i n g to g r a n t p l a i n t i f f damages f o r t h e breach of t h e agreement? With regard t o t h e f i r s t i s s u e , defendants argue t h a t e q u i t y w i l l n o t decree t h e s p e c i f i c performance of an option t o purchase contained within a mining agreement because options a r e u n i l a t e r a l i n nature and lack mutual o b l i g a t i o n s . W e disagree. The r u l e i s w e l l s e t t l e d t h a t options t o purchase may be s p e c i f i c a l l y enforced i n circumstances l i k e t h e p r e s e n t case. Steen v. Rustad (1957), 132 Mont. 96, 313 P.2d 1014; McLaren Gold Mining Co. v. Morton (1950), 1 2 4 Mont. 382, 224 P.2d 975. The McLaren case i s p a r t i c u l a r l y analogous t o t h i s case. McLaren involved an a c t i o n f o r s p e c i f i c performance of an option t o purchase contained within a mining lease. The p l a i n t i f f , a s l e s s e e , assigned h i s i n t e r e s t i n t h e c o n t r a c t t o a t h i r d p a r t y who expended considerable sums i n developing and mining t h e property. I n d i r e c t i n g t h e defendant l e s s o r t o s p e c i f i c a l l y perform t h e t e r m s of t h e c o n t r a c t and option t o purchase, the Court stated: "'There i s no class of c o n t r a c t s connected with t h e mining industry more f a m i l i a r t o t h e profes- sion than t h a t of options t o purchase, working bonds, o r executory c o n t r a c t s of s a l e . Unlike o t h e r c l a s s e s of r e a l e s t a t e , t h e value of a mine cannot be determined by m e r e s u p e r f i c i a l observa- t i o n . Expensive investigations, involving mea- surements, examination of underground geological conditions, and sampling invariably precede t h e consummation of a purchase o r sale of mining property. I n order t o j u s t i f y an intending pur- chaser i n making t h e r e q u i s i t e i n v e s t i g a t i o n s and incurring t h e attendant expense, he invari- ably exacts some c o n t r a c t from t h e owner by which he secures t h e f i r s t p r i v i l e g e of purchasing t h e property i n t h e event the examination proves s a t i s f a c t o r y . I n addition t o t h i s , a l a r g e army of "promoters," r e c r u i t e d from t h e ranks of a l l professions, t r a d e s , and occupations, swarm through the mining regions, seeking exclusive p r i v i l e g e s and "options" on mining p r o p e r t i e s of a l l c l a s s e s f o r t h e purpose of marketing them i n t h e moneyed c e n t e r s of t h e world. These condi- t i o n s have given rise t o a c l a s s of c o n t r a c t s i n f i n i t e i n v a r i e t y , from a mere letter signed by t h e owner, agreeing t o accept a c e r t a i n p r i c e f o r h i s mine i f paid within a c e r t a i n t i m e , t o a formidable working bond, which contemplates e n t r y i n t o possession and extensive e x p l o i t a t i o n t o prove t h e value of t h e mine before t h e p r i v i l e g e of purchase must be exercised. The ultimate ob- j e c t of a l l of them, however, i s t o secure t h e exclusive p r i v i l e g e of purchasing a t a given p r i c e , within a s p e c i f i e d t i m e . * * * " I * * * t h e r u l e t h a t c o n t r a c t s which do not involve mutuality cannot be s p e c i f i c a l l y enforced i s modified i n favor of the holder of t h i s c l a s s o r contracts. H e i s afforded t h i s equitable remedy, where he f u l l y and f a i r l y performs, o r o f f e r s t o perform, t h e t e r m s of h i s c o n t r a c t within the time s t i p u l a t e d . "'The very purpose of an optional c o n t r a c t of t h i s nature i s t o extinguish t h i s mutuality of r i g h t and v e s t i n one of t h e p a r t i e s t h e p r i v i l e g e of determining whether t h e c o n t r a c t s h a l l be v i t a - l i z e d and enforced. An option t o buy o r s e l l land, more than any o t h e r form of c o n t r a c t , contemplates a specific performance of its terms; and it is the right to have them specifically enforced that im- parts to them their usefulness and value.'" 124 Mont. at 392-93, quoting 3 Lindley on Mines (3rd Ed.), section 859, pp. 2123-2127. We hold, therefore, that the option to purchase con- tained within the contract in the instant case may be enforced by specific performance. With respect to the second issue, defendants argue that the covenant to establish escrow was not a material part of the contract and was independent of plaintiff's covenant to make timely payments. On this basis defendants argue that their failure to establish the escrow did not excuse plain- tiff's failure to make the June 15 payment. In the alter- native, defendants contend that plaintiff waived the estab- lishment of escrow as a material part of the contract. It is argued that plaintiff knew from the modifications and the assignment that the escrow had never been established and that this became an immaterial part of the agreement. We disagree. The covenant to establish escrow was a material part of the contract and a condition precedent to plaintiff's obligation to make payments. The object of the contract entered into between the parties was the purchase, development and financing of the mining claims. The estab- lishment of the deed in escrow was an integral part in the attainment of this object. Without the escrow, it is highly probable that the parties would not have even contemplated such an agreement. As to defendants' argument that plaintiff waived the establishment of escrow as a material part of the contract, the record is clear that plaintiff did not waive this require- ment. Though the assignment acknowledged the escrow had never been established, plaintiff went to defendants' resi- dence i n May 1974 t o r e q u e s t t h e establishment of t h e es- crow. A t t h a t t i m e , p l a i n t i f f w a s c u r r e n t i n h i s payments. P l a i n t i f f d i d n o t d e f a u l t u n t i l he f a i l e d t o make t h e June 15 payment; defendants, however, d e f a u l t e d e a r l i e r when they refused t o e s t a b l i s h t h e escrow. The general r u l e i s t h a t a p a r t y committing a substan- t i a l breach of a c o n t r a c t cannot maintain an a c t i o n a g a i n s t t h e o t h e r c o n t r a c t i n g p a r t y o r h i s predecessor i n i n t e r e s t f o r a subsequent f a i l u r e t o perform i f t h e promises are dependent. 17 Am.Jur.2d Contracts, S366, p. 807. A sub- s t a n t i a l o r m a t e r i a l breach is one which touches t h e funda- mental purposes of t h e c o n t r a c t and d e f e a t s t h e o b j e c t of t h e p a r t i e s i n making t h e c o n t r a c t . Here, t h e D i s t r i c t Court found t h a t defendants committed a s u b s t a n t i a l breach of t h e agreement and ordered defendants t o s p e c i f i c a l l y perform t h e t e r m s of t h e c o n t r a c t . I m p l i c i t i n t h e c o u r t ' s o r d e r w a s t h e f a c t t h a t t h e covenants were dependent. I t i s t h e general r u l e t h a t t h e c o u r t ' s f i n d i n g s w i l l n o t be disturbed on appeal unless unsupported by s u b s t a n t i a l evi- dence. Arrowhead, Inc. v. Safeway S t o r e s , Inc. (1978), Mont. , 587 P.2d 4 1 1 , 413, 35 St.Rep. 1830, 1832. Here, we f i n d t h a t t h e r e i s s u f f i c i e n t c r e d i b l e evidence t o sup- p o r t t h e f i n d i n g s of t h e court. Defendants next argue t h a t t h e D i s t r i c t Court e r r e d i n f i n d i n g t h a t defendants f a i l e d t o c r e d i t c e r t a i n amounts received t o p l a i n t i f f ' s annual payment under t h e agreement. These amounts stemmed from a s e p a r a t e c o n t r a c t f o r t h e s a l e of stumpage on t h e mining property. Under t h i s c o n t r a c t p l a i n t i f f , defendants and a t h i r d p a r t y agreed t h a t payments under t h e stumpage c o n t r a c t would be made t o defendants and applied a g a i n s t t h e p l a i n t i f f ' s annual payment under t h e agreement between p l a i n t i f f and defendants. Defendants contend t h a t the finding i s n o t supported by s u b s t a n t i a l evidence, since t h e record does n o t r e f l e c t t h e r e c e i p t of any such money. P l a i n t i f f argues, however, t h a t defendants admitted t h e finding because they f a i l e d t o answer a request f o r admission regarding t h e matter within 30 days. The request asked defendants t o admit t h a t they f a i l e d t o c r e d i t payments from the stumpage c o n t r a c t t o p l a i n t i f f ' s annual payment. Under Rule 36, M.R.Civ.P., " t h e matter i s admitted unless, within 30 days a f t e r service of t h e request, o r within such s h o r t e r o r longer time a s t h e c o u r t may allow, t h e p a r t y t o whom t h e request i s d i r e c t e d serves upon t h e p a r t y requesting t h e admission a w r i t t e n answer o r objection . . ." H e r e , the record d i s c l o s e s t h a t defendants f a i l e d t o answer t h e request and w e r e not granted an extension by t h e court. Therefore, a s p l a i n t i f f properly contends, t h e matter w a s deemed admitted. I n so holding, however, w e f e e l it i s noteworthy t o mention t h a t t h e D i s t r i c t Court a l s o ordered an accounting t o a s c e r t a i n t h e exact amount of p l a i n t i f f ' s c r e d i t i n t h e i n s t a n t case and t h a t , i f defen- dants' a s s e r t i o n i s i n f a c t t r u e , it w i l l bear i t s e l f o u t when t h a t accounting occurs. Defendants a l s o argue t h a t t h e stumpage c o n t r a c t was n o t a binding agreement on t h e p a r t i e s because it w a s n o t supported by any consideration. This i s simply n o t true. Defendants had an injunction and a s u i t pending a g a i n s t p l a i n t i f f and t h e t h i r d p a r t y regarding t h e c u t t i n g of stumpage on the mining property. They l a t e r relinquished t h e i r claim when t h e p a r t i e s resolved t h e i r disagreement by executing t h e stumpage c o n t r a c t . This w a s s u f f i c i e n t con- s i d e r a t i o n t o c r e a t e a binding c o n t r a c t . Murray v. White (1911), 42 Mont. 423, 113 P. 754; Mustang Equipment, Inc. v. Welch (1977), 564 P.2d 895, 115 Ariz. 206. The f i f t h i s s u e r a i s e d concerns t h e e x t e n t t o which a c o u r t may reform a c o n t r a c t . P l a i n t i f f contends t h a t it was e r r o r f o r t h e D i s t r i c t Court, i n reforming t h e c o n t r a c t , t o r e q u i r e p l a i n t i f f t o execute a promissory note and a r e a l e s t a t e mortgage upon payment of o n e - f i f t h of t h e balance of t h e purchase p r i c e . I t i s argued t h a t t h i s requirement imposed g r e a t e r burdens on p l a i n t i f f than o r i g i n a l l y contem- p l a t e d by t h e p a r t i e s : it obligated p l a i n t i f f t o making a l l f u r t h e r payments a f t e r making t h e f i r s t payment; it c r e a t e d personal l i a b i l i t y on t h e p a r t of p l a i n t i f f f o r t h e unpaid balance of t h e purchase p r i c e ; and it gave defendants t h e r i g h t t o f o r e c l o s e i n t h e event of a f u t u r e d e f a u l t . Defendants a l s o contend it was e r r o r f o r t h e D i s t r i c t Court i n reforming t h e c o n t r a c t t o order an accounting, schedule a new option t o purchase d a t e , and s e t up a new payment schedule. The power of a c o u r t t o reform a c o n t r a c t was discussed i n S u l l i v a n v. Marsh (1950), 1 2 4 Mont. 415, 421-22, 225 P.2d 868, 872, where t h i s Court s t a t e d : "One may n o t employ a s u i t f o r reformation of a c o n t r a c t f o r t h e purpose of making an e n t i r e l y new agreement. Such s u i t s a r e only t o e s t a b l i s h and perpetuate an already e x i s t i n g agreement, and t o make it express t h e r e a l i n t e n t of t h e p a r t i e s as such i n t e n t e x i s t e d a t t h e t i m e of t h e making of t h e agreement. A c o u r t of equity i s n o t empowered t o supply by decree an agree- ment which w a s never made . . . I t i s t h e duty of t h e c o u r t t o enforce c o n t r a c t s which t h e par- ties themselves have made and n o t t o make new and d i f f e r e n t c o n t r a c t s f o r t h e p a r t i e s o r t o make s i g n i f i c a n t a d d i t i o n s t h e r e t o and thus give t o one o r more of t h e p a r t i e s , b e n e f i t s and ad- vantages on which t h e minds of t h e c o n t r a c t i n g p a r t i e s have never met." W e hold t h a t it was n o t e r r o r f o r t h e D i s t r i c t Court t o o r d e r an accounting, schedule a new option t o purchase d a t e and set up a new payment schedule. These adjustments w e r e necessary t o determine t h e s t a t e of a f f a i r s between t h e p a r t i e s and c a r r y o u t t h e i r agreement once t h e c o n t r a c t had been breached and t h e d a t e s f o r p l a i n t i f f ' s performance had passed. Without t h e s e adjustments, it w a s impossible f o r t h e c o u r t t o give e f f e c t t o t h e order f o r s p e c i f i c performance. The adjustment of t h e s e t e r m s was consonant with t h e powers of a c o u r t i n e q u i t y and t h e purposes of e q u i t a b l e r e l i e f . Amos v. Bennion (1969), 23 Utah2d 40, 456 P.2d 172. However, it w a s e r r o r f o r t h e D i s t r i c t Court t o r e q u i r e p l a i n t i f f t o execute a promissory note and r e a l e s t a t e mortgage upon t h e payment of o n e - f i f t h of t h e balance of t h e purchase p r i c e . Although t h e requirement was, understandably, a s i n c e r e e f f o r t by t h e c o u r t t o remedy t h e p a t t e r n of untimely payments by p l a i n t i f f , it nevertheless exceeded t h e scope of t h e agreement a s o r i g i n a l l y contemplated by t h e p a r t i e s . It a l t e r e d t h e o r i g i n a l agreement by c r e a t i n g new r i g h t s and o b l i g a t i o n s , and it was n o t necessary t o r e i n - s t a t e t h e c o n t r a c t u a l r e l a t i o n s h i p between t h e p a r t i e s . For t h e s e reasons, w e order t h a t t h e requirement be d e l e t e d . F i n a l l y p l a i n t i f f argues t h a t t h e D i s t r i c t Court e r r e d i n n o t granting damages f o r t h e breach of t h e c o n t r a c t . The t h r u s t of p l a i n t i f f ' s contention i s t h a t defendants' breach "drove o f f a p o t e n t i a l i n v e s t o r [Voit] a t t r a c t e d t o t h e mine" and prevented p l a i n t i f f from f i n a n c i a l l y developing t h e mine. Montana s t a t u t e s set f o r t h t h e measure of damages i n t h e case of breach of c o n t r a c t . Section 27-1-311, MCA, provides : "For t h e breach of an obligation a r i s i n g from c o n t r a c t , t h e measure of damages, except where otherwise expressly provided by t h i s code, is t h e amount which w i l l compensate t h e p a r t y ag- grieved f o r a l l t h e detriment proximately caused thereby o r which i n t h e ordinary course of things would be l i k e l y t o r e s u l t therefrom. N o - damages The D i s t r i c t Court held t h a t p l a i n t i f f ' s claims w e r e too speculative o r n o t supported by t h e evidence t o permit an award of damages. W e agree. W e cannot say with absolute c e r t a i n t y t h a t t h e mine would not have been developed i f Voit had not decided t o i n v e s t i n t h e venture. Another investor could have possibly expressed i n t e r e s t , o r it might have been t h a t Voit would have decided f o r some o t h e r reason n o t t o i n v e s t i n t h e mine regardless of t h e establishment of escrow. Affirmed i n p a r t and reversed i n p a r t . W e concur: - C>ief J u s t i c e * & , 1, ,Jd&d*L-,,/ J u s t i c e s 9