Title: Goodall v. Monson

State: north-dakota

Issuer: North Dakota Supreme Court

Document:

IN THE SUPREME COURT STATE OF NORTH
DAKOTA 2017 ND 92Steve P. Goodall,
Robert L. Goodall, Anne  M. Stout, Joanne M. Quale, and Darrel Quale, Plaintiffs and
Appelleesv.Charles W.H. Monson, LeeAnn Tarter, KayCee Williams, Defendants and
Appellants and Enerplus Resources (USA) Corporation, and Northern Oil and Gas, Inc.
DefendantsNo. 20160235Appeal from the District Court of McKenzie
County, Northwest Judicial District, the Honorable Robin A.
Schmidt, Judge.AFFIRMED.Opinion of the Court by McEvers, Justice.Jon Bogner, P.O. Box 1173, Dickinson, ND 58602-1173,
for plaintiffs and appellees. Megan J. Lindquist, P.O.
Box 2056, Bismarck, ND 58502-2056, for defendants and appellants.Goodall v. MonsonNo.
20160235McEvers, Justice.[¶1] Charles
W.H. Monson, LeeAnn Tarter, and KayCee Williams ("the Monsons") appeal a district court
judgment reforming a deed executed in 1980 and quieting title in favor of Steve P. Goodall,
Robert L. Goodall, Anne M. Stout, Joanne M. Quale, and Darrel Quale ("the Goodalls"). We
conclude the district court did not err in admitting extrinsic evidence to support the Goodalls'
argument that a mutual mistake had been made, and the district court's findings supporting
reformation of the deed are not clearly erroneous. We affirm. I[¶2] This case involves the sale of mineral rights to four tracts of land ("the
subject property") executed in one deed. In 1980, George and Dorothy Hoffman executed a deed
transferring an undivided 508.26/876.26 mineral interest to Francis and Alice Goodall. The deed
was recorded in McKenzie County. Approximately two weeks prior to the date of the deed the
parties signed a document titled "Contract and Receipt," but it was not recorded with the deed.
The Goodalls are successors in interest to Francis and Alice Goodall. The Monsons are the
successors in interest to the Hoffmans. All individuals who were a party to or present when the
deed was signed were deceased prior to commencement of this action.[¶3] It is not disputed that prior to the 1980 deed George and Dorothy Hoffman
owned the following mineral interests in four separate tracts of
land:154.06 mineral acres in Tract 1: Township 152 North - Range
93 West[,] Section 19: E1/2SW1/4, Lots 3, 4, SE1/4 (containing 308.06 acres)150
mineral acres in Tract 2: Township 152 North - Range 93 West[,] Section 20: SW1/4,
W1/2NW1/4SE1/4 (containing 180 acres).124.20 mineral acres in Tract 3: Township
152 North - Range 93 West[,] Section 30: Lots 1, 2, E1/2NW1/4, NE1/4 (containing 308.20
acres).80 mineral acres in Tract 4: Township 152 North - Range 93 West[,] Section
30: N1/2SE1/4 (containing 80 acres). Neither party disputes the accuracy of
this description of the subject property. Both parties agree at one time the Hoffmans owned 100
percent of the mineral interests beneath the subject property. The Hoffmans executed eight
separate deeds conveying mineral acres beneath the subject property to various parties between
1955 and 1965. Subsequent to the execution of these deeds, the Hoffmans retained a total of
508.26 mineral acres out of 876.26 total acres in the subject property. On June 2, 1980, the
Hoffmans executed a mineral deed transferring an undivided 508.26/876.26 mineral interest
below the subject property to the Goodalls. This fractional interest language in the 1980 deed is
at the center of this dispute.[¶4] Dorothy Hoffman died in 1985.
George Hoffman died intestate in 1998. The Monsons acquired by intestate succession any
mineral interests the Hoffmans retained beneath the subject property. Sometime after George
Hoffman's death, members of the Monson family entered into oil and gas lease agreements with
Enerplus Resources and Northern Oil and Gas, Inc.[¶5] On July 1,
2013, the Goodall's filed a complaint requesting the district court quiet title in their favor. While
the Goodalls named the oil companies as defendants in their complaint, neither oil company is a
party to this appeal. On December 30, 2013, the Monsons moved for summary judgment. They
argued the 1980 deed was unambiguous, the Hoffmans only transferred a fractional interest to the
Goodalls, and the Monsons inherited their interests from what the Hoffmans retained in the
transaction. The Goodalls claimed the deed did not reflect the parties' intentions, which was to
transfer all of the Hoffmans' 508.26 mineral acres to Francis and Alice Goodall. After a hearing
on April 14, 2014, the district court denied the Monsons' motion for summary
judgment.[¶6] On November 9, 2015, a bench trial was held in
McKenzie County. At trial, the Goodalls offered the eight previous mineral deeds and the
contract and receipt as evidence of ambiguity and to show the parties' intent at the time the deed
was executed. The district court admitted the contract and receipt over the Monsons' objection.
After both parties submitted post-trial briefs, the district court issued its findings of fact,
conclusions of law, and order for judgment in April 2016. The district court found "[t]he Goodall
Deed while being unambiguous on its face is latently ambiguous when it is read with the entire
title chain, and extrinsic evidence is allowed to explain the parties' intent." The district court used
the contract and receipt to determine the parties intended for the Hoffmans to transfer their entire
interest to the Goodalls through the 1980 deed. The district court found the deed did not reflect
the true intentions of the parties, the Monsons were not good-faith purchasers and concluded that,
as a result of mutual mistake, the deed did not express the true intent of the parties. The district
court reformed the deed, quieted title in favor of the Goodalls, and entered judgment on April 19,
2016. The Monsons appealed. II[¶7] The
Monsons argue the language of the deed unambiguously transferred an undivided 508.26/876.26
mineral interest to the Goodalls, the Hoffmans retained any remaining mineral interests in the
subject property, and the Monsons inherited this retained interest. The rule for interpreting the
language of a deed is well established:The primary purpose in construing
a deed is to ascertain and effectuate the grantor's intent. However, deeds that convey mineral
interests are subject to general rules governing contract interpretation, and we construe contracts
to give effect to the parties' mutual intentions. When the language of a deed is plain and
unambiguous and the parties' intentions can be ascertained from the writing alone, extrinsic
evidence is inadmissible to alter, vary, explain, or change the deed. If a contract is ambiguous,
extrinsic evidence may be considered to clarify the parties' intentions. A contract is ambiguous
when rational arguments can be made for different interpretations. Whether a contract is
ambiguous is a question of law for the court to decide. On appeal, we independently review a
contract to determine if it is ambiguous. Nichols v. Goughnour, 2012 ND 178, ¶ 12, 820 N.W.2d 740 (citations omitted)
(quotation marks omitted).[¶8] The Goodalls argue the Hoffmans
intended to convey their entire mineral interest in the subject property, which was 508.26 out of
876.26 total mineral acres. However, the 1980 deed transferred "an undivided 508.26/876.26
interest in and to all of the oil, gas, casinghead gas, casinghead gasoline, all liquid hydrocarbons,
clay, gravel, coal, uranium, and other minerals" under the subject property. The Goodalls argue if
an undivided 508.26/876.26 fractional interest is applied to the four tracts of land at issue, it
would create underconveyances in tracts one and three, and overconveyances in tracts two and
four. They argue looking at the past deeds along with these underconveyances and
overconveyances creates a latent ambiguity.[¶9] While extrinsic
evidence is generally not allowed when the language of a deed is unambiguous, this Court noted
a latent ambiguity "may, in limited circumstances, be explained by extrinsic evidence." Gawryluk v. Poynter, 2002 ND 205, ¶ 10, 654 N.W.2d 400 (citing Harney
v. Wirtz, 152 N.W. 803, 807-08 (N.D. 1915)). "A latent ambiguity is an uncertainty which
does not appear on the face of the deed, but which is shown to exist for the first time by matter
outside the writing when an attempt is made to apply the language to the ground." 26A C.J.S.
Deeds § 264 (2011). A latent ambiguity is one "arising when a writing appears
unambiguous on its face, but some collateral matter makes the meaning uncertain." Gawryluk, 2002 ND 205, ¶ 10, 654 N.W.2d 400 (citing
Harney, 152 N.W. at 807-08). This Court first explained the purpose of allowing
extrinsic evidence to explain a latent ambiguity in
Harney:[W]hile parol evidence may be admitted in explanation
where there is a latent ambiguity, it can do no more than explain the doubtful expressions of the
instrument consistently with the relations of the parties and the other incidents of the contract.
The rule that where an ambiguity is created by parol it may be removed by parol was never
intended to violate the rule that a writing shall not be contradicted or explained by inferior
testimony. Id. at 807-08 (citations omitted) (emphasis in
original). "[P]arol evidence may be used to explain a latent ambiguity, but may not be used to
create a new or a different contract." Gawryluk, at ¶ 10. "When the language of a deed is
plain and unambiguous and the parties' intentions can be ascertained from the writing alone,
extrinsic evidence is inadmissible to alter, vary, explain, or change the deed." Nichols, 2012 ND 178, ¶ 12, 820 N.W.2d 740 (citations omitted)
(quotation marks omitted). The most common example of a latent ambiguity is "'where there are
more than one person or thing of the same name or description employed in the instrument.'"
Kopf v. Lacey, 540 S.E.2d 170, 176 (W.Va. 2000) (quoting Collins v. Treat,
152 S.E. 205, 206 (W.Va. 1930)). For example, if a shipping contract containing shipping terms
stating goods would arrive on the Peerless, but two ships have that name, the contract contains a
latent ambiguity. Black's Law Dictionary 93 (9th ed. 2009).[¶10] In Gawryluk, we
rejected the argument that an overconveyance created a latent ambiguity in a deed. 2002 ND 205,
¶ 11, 654 N.W.2d 400; see
also Nichols, 2012 ND 178, ¶ 14, 820 N.W.2d 74. An overconveyance
occurs when a grantor conveys a greater mineral interest than they actually own. Gawryluk, at ¶ 11. "In cases involving a grantor's
overconveyance of minerals to a third-party grantee, this Court has applied the Duhig
rule to construe the deed." Nichols, at ¶ 15 (citing Duhig v. Peavy-Moore
Lumber Co., 144 S.W.2d 878 (Tex. 1940)). We explained the rule under
Duhig:[W]here a grantor conveys land in such a manner as to
include 100% of the minerals, and then reserves to himself 50% of the minerals, the reservation
is not operative where the grantor owns only 50% of the minerals. The deed is construed as
undertaking the transfer of 50% of the minerals to the grantee. Both this grant and the reservation
cannot be given effect, so the grantor loses because the risk of title loss is on
him. Nichols, at ¶ 15 (citations omitted). "This Court's
application of Duhig has been based on estoppel by warranty, a subset of estoppel by
deed, which precludes a warrantor of title from questioning the title warranted." Gawryluk, at ¶ 14 (citing Miller v. Kloeckner, 1999 ND 190, ¶ 13, 600 N.W.2d 881). "[T]he rationale
from Duhig may apply to a deed with no warranty provisions, and the key question is
not what the grantor purported to retain for himself, but what the grantor purported to give the
grantee." Gawryluk, at ¶ 14.[¶11] In its findings of fact, conclusions of law, and order for judgment, the
district court stated "[t]he Goodall Deed while being unambiguous on its face is latently
ambiguous when it is read with the entire title chain, and extrinsic evidence is allowed to explain
the parties' intent."[¶12] The district court was correct in finding
the deed was unambiguous on its face. The face of the deed reflects the Hoffmans did not transfer
their entire mineral interest in the 1980 deed. However, the district court erred in finding a latent
ambiguity existed using the chain of title as basis for allowing the extrinsic evidence to look for
ambiguity. There is no ambiguity created by applying the undivided 508.26/876.26 fractional
mineral interest to the ground, regardless of whether it creates an overconveyance. See
26A C.J.S. Deeds § 264 (2011). The contract and receipt are extrinsic evidence
that is generally inadmissible without an ambiguity in the deed. This is not an instance involving
more than one person or thing of the same name on the instrument. This deed is unambiguous as
applied to the ground. The district court erred in finding a latent ambiguity in the deed. However,
a district court's decision will not be set aside merely because the court applied an incorrect
reason if, under the correct law and reasoning, the result is the same. Syversen v. Hess, 2003 ND 118, ¶ 8, 665 N.W.2d 23. Although the district
court erred in finding a latent ambiguity, the district court also considered the extrinsic evidence
to show a mutual mistake was made by the parties. III[¶13] The Goodalls argue the district court properly reformed the deed under
N.D.C.C. § 32-04-17 because the deed does not truly express the intentions of the parties
due to mutual mistake. The Monsons argue the Goodalls have not met their burden of proof to
support a claim for reformation. The Monsons also argue the district court erred in finding a
mutual mistake based on the evidence presented.[¶14] While the
Goodalls did not specifically plead reformation in their complaint, the Monsons have not argued
sufficiency of the pleadings. We have held district courts have equitable jurisdiction to provide a
remedy where none exists at law, even if the parties have not requested an equitable remedy,
whenever the pleadings sufficiently give notice of the party's right to relief and demand for
judgment. Harrington v. Harrington, 365 N.W.2d 552, 557 (N.D. 1985) (citations omitted).[¶15] The
statutory basis for reformation is provided in section 32-04-17,
N.D.C.C.:When, through fraud or mutual mistake of the parties, or a
mistake of one party which the other at the time knew or suspected, a written contract does not
truly express the intention of the parties, it may be revised on the application of a party aggrieved
so as to express that intention so far as it can be done without prejudice to rights acquired by
third persons in good faith and for value. The procedure for conducting
reformation is well established:"Reformation is an equitable remedy used
to rewrite a contract to accurately reflect the parties' intended agreement." Spitzer v. Bartelson, 2009 ND 179, ¶ 22, 773 N.W.2d 798. This Court has
recognized that "equity will grant remedial relief in the nature of reformation of a written
instrument, resulting from a mutual mistake, when justice and conscience so dictate." Ell v. Ell, 295 N.W.2d 143, 150 (N.D. 1980). Whether a contract contains a
mistake sufficient to support a reformation claim is a question of fact. See Spitzer, at ¶ 23; Heart River Partners v. Goetzfried, 2005 ND
149, ¶ 15, 703 N.W.2d 330.The
party seeking reformation of a written instrument must establish by clear and convincing
evidence that the document does not state the parties' intended agreement. Spitzer, 2009 ND 179, ¶ 24, 773 N.W.2d 798; Heart River Partners, 2005 ND 149, ¶ 14, 703 N.W.2d 330. Courts grant the
"high remedy of reformation" only upon the "certainty of error." Ell, 295 N.W.2d   at 150. We have discussed the type of evidence
admissible in deciding whether reformation is appropriate:"It is well-established that parol
evidence is admissible in a suit to reform a written instrument on the grounds of fraud or mutual
mistake of the parties." Ell v. Ell, 295 N.W.2d 143, 149 (N.D. 1980). Accord Heart River Partners v. Goetzfried, 2005 ND
149, ¶ 12, 703 N.W.2d 330; City of Fargo v. D.T.L. Properties, Inc., 1997 ND
109, ¶ 12, 564 N.W.2d 274; Mau v. Schwan, 460 N.W.2d 131, 134 (N.D. 1990); Ives v. Hanson, 66 N.W.2d 802, 805 (N.D. 1954). "The nature of [a reformation] action is such that it is outside the
field of operation of the parol evidence rule, since the court does not receive parol testimony to
vary the contract of the parties but to show what their contract really was." 66 Am.Jur.2d
Reformation of Instruments § 114 (2001) (footnotes omitted). If courts refused to
admit parol evidence in reformation cases, the rule would become "an instrument of the very
fraud or mistake it was designed to prevent." Ell, at 150.In reformation actions, courts "can properly
look into the surrounding circumstances and take into consideration all facts which disclose the
intention of the parties." Id. (emphasis in
original). "Any evidence that tends to show the true intention of the parties, whether it be
evidence of conduct or declarations of the parties extrinsic to the contract or documentary
evidence, is admissible." Heart River
Partners, 2005 ND 149, ¶ 14,
703 N.W.2d 330. See also 66 Am.Jur.2d supra § 114 (footnotes omitted)
("Any competent testimony which tends to prove . . . the intention of the parties is admissible. A
witness in a position to know may testify concerning the intention of the parties to an agreement,
to the same effect as to any other fact."). Johnson v. Hovland, 2011 ND 64, ¶¶ 11-12, 795 N.W.2d 194
(quoting Spitzer, at ¶ 14-15).[¶16] The district court did not err in considering extrinsic evidence to
determine whether there was a mutual mistake. The question remains whether the district court
had adequate evidence before it to support reformation of the deed.[¶17] Findings of fact are reviewed under the clearly erroneous standard of
review. N.D.R.Civ.P. 52(a). A finding of fact is
clearly erroneous if it is induced by an erroneous view of the law, there is not evidence to support
the finding, or, if there is some evidence to support the finding, based on the entire record, the
reviewing court is left with a definite and firm conviction a mistake has been made. Syversen, 2003 ND 118, ¶ 9, 665 N.W.2d 23. Generally, for mutual
mistake to justify reformation of a contract, it must be shown at the time the agreement was
executed both parties intended to say something different from what was said in the instrument.
Melchior v. Lystad, 2010 ND 140, ¶ 10, 786 N.W.2d 8. The district court's
findings to support reformation include:On May 13, 1980, George W.
Hoffman and Dorothy Hoffman, as Sellers, and Francis K. Goodall and Alice Goodall, as
Purchasers, executed a Contract and Receipt (the "Contract and Receipt") stating that the
Goodalls were purchasing all of the Hoffmans' 508.26 mineral acres in and
under:McKenzie County, North DakotaTownship 152 North - Range 93
WestSection 19: E1/2SW1/4, Lots 3, 4, SE1/4Section 20: SW1/4,
W1/2NW1/4SE1/4Section 30: E1/2NW1/4, Lots 1, 2, NE1/4, N1/2SE1/4and further that
a mineral deed would be issued by the Hoffmans to the Goodalls. The Contract and Receipt was
never placed of record in McKenzie County.. . .At the time the Goodall Deed was
executed, George W. Hoffman and Dorothy Hoffman owned a total of 508.26 mineral acres in
and under the premises described in the Goodall Deed, which amount is the same amount as the
numerator in the fractional interest that was used in the Goodall Deed.. . .At trial,
Plaintiffs called Beverly Kadrmas, a petroleum landman and the Vice President of B.J. Kadrmas,
Inc., to testify, and offered her as an expert in the field of mineral title examination. After
reviewing eight conveyances of interests in the mineral estates underlying Tracts 1 through 4,
including the Goodall Deed, as well as the Contract and Receipt, Kadrmas concluded that the
intent of the Hoffmans in the Goodall Deed was most likely to convey an undivided 508.26
mineral acres out of the 876.26 total mineral acres in Tracts 1-4, rather than to convey a
508.26/876.26 fractional mineral interest in each of the Tracts. Kadrmas affirmed that to reach
such a conclusion one would "need to look at the whole title chain" of Tracts
1-4. The district court concluded that the deed was executed in fulfillment of
the contract and receipt, but as a result of a mutual mistake the deed did not express the true
intent of the parties.[¶18] The contract and receipt received as
evidence contained language to show that the intent of parties to the contract was to transfer "an
undivided 508.26 mineral acres" in the real estate later described in the deed. There is no dispute
that an undivided 508.26 mineral acres is the amount the sellers owned at the time the deed was
executed approximately two weeks later. The Monsons do not argue they are good faith
purchasers for value. Because there is clear evidence the Hoffmans intended to transfer 508.26
mineral acres rather than the fractional interest as shown on the deed, the district court's findings
are supported by the record and are not clearly erroneous. IV[¶19] We conclude the district court did not err in admitting extrinsic evidence
to support the Goodalls' argument that a mutual mistake had been made, and the district court's
findings supporting reformation of the deed are not clearly erroneous. The district court's
judgment granting reformation is affirmed.[¶20] Lisa Fair McEversCarol Ronning KapsnerDale V.
Sandstrom, S.J.Gerald W. VandeWalle, C.J.I concur in the result. Daniel J.
Crothers[¶21] The Honorable Jerod E. Tufte was not a member of the Court when this case was heard and did not participate in this
decision. Surrogate Judge Dale V. Sandstrom, sitting.