Title: CHEYENNE MINING AND URANIUM COMPANY, A Wyoming Corporation v. FEDERAL RESOURCES CORPORATION, A Nevada Corporation, and AMERICAN NUCLEAR CORPORATION, A Colorado Corporation, a partnership doing business under the name FEDERAL-AMERICAN PARTNERS

State: wyoming

Issuer: Wyoming Supreme Court

Document:

CHEYENNE MINING AND URANIUM COMPANY, A Wyoming Corporation v. FEDERAL RESOURCES CORPORATION, A Nevada Corporation, and AMERICAN NUCLEAR CORPORATION, A Colorado Corporation, a partnership doing business under the name FEDERAL-AMERICAN PARTNERS1985 WY 7694 P.2d 65Case Number: 83-69Decided: 01/21/1985Supreme Court of Wyoming
CHEYENNE MINING AND 
URANIUM COMPANY, A WYOMING CORPORATION, APPELLANT (PLAINTIFF), 

v. 

FEDERAL RESOURCES 
CORPORATION, A NEVADA CORPORATION, AND AMERICAN NUCLEAR CORPORATION, A COLORADO 
CORPORATION, A PARTNERSHIP DOING BUSINESS UNDER THE NAME FEDERAL-AMERICAN 
PARTNERS, APPELLEES (DEFENDANTS).

Rehearing Denied February 
27, 1985.

 
 
Appeal from the District 
Court, NatronaCounty, Dan Spangler, 
J.

 
 

B.J. Baker and 
G.M. Apostolos of Brown, Drew, Apostolos, Massey & Sullivan, Casper, for appellant.

Houston G. 
Williams and Barry G. Williams of Williams, Porter, Day & Neville, P.C., 
Casper, for appellees.

Before THOMAS*, C.J., and ROSE, ROONEY**, BROWN and CARDINE, JJ.

* Became Chief Justice 
January 1, 1985.

** Chief Justice at time of 
oral argument.

ROSE, Justice.

[¶1.]     This 
contract-interpretation case requires an examination of the impact of 
unanticipated agreements concerning the subject matter of the contract, which 
agreements were entered into by the party whose performance is deemed to be due. 
Appellant Cheyenne Mining and Uranium Company (CMU) brought this action against 
appellees Federal-American Partners (FAP) and its member corporations, seeking 
to rescind a contract for the purchase and sale of certain unpatented mining 
claims, or in the alternative to enforce the contract's terms. During the trial 
to the district court, the judge ruled that appellant's exhibits, offered to 
show bad faith on the part of FAP, were inadmissible. Following three and 
one-half days of testimony, the trial court took the matter under advisement and 
subsequently entered a judgment awarding CMU $3,306 under the contract 
provisions, plus accrued interest and costs. On appeal, CMU contends that the 
trial court's interpretation of the contract improperly limited its award and 
further asserts that the trial court erred in refusing to admit pertinent 
evidence and to grant rescission.

[¶2.]     We will 
reverse.

[¶3.]     On November 1, 1957, 
CMU as "Owner," together with named individuals designated "Locators," entered 
into a "Contract of Purchase and Sale" with Vitro 
Minerals Corporation as "Purchaser" for the conveyance of unpatented uranium 
mining claims located in NatronaCounty. The contract was subsequently 
assigned to FAP, which concedes to being bound by its terms.

[¶4.]     In executing the 
contract, the owner and locators agreed to "convey, quitclaim and assign" all 
interest in and to the mining claims to the purchaser, "under and upon, 
nevertheless, the terms and conditions hereinafter set forth." The terms and 
conditions set forth in paragraph 4, relating to owner's participation, are 
pertinent to this appeal:

"4. OWNER'S 
PARTICIPATION: For and in consideration of the Assignment and Conveyance to 
Purchaser of Owner[']s interest, the 
Purchaser covenants and agrees to pay to the Owner, its successors, assigns or 
legal representatives, a sum constituting forty per cent (40%) of the annual net 
profits from all uranium, vanadium and other associated minerals and ores 
mined, produced and sold from the property, computed in accordance with and under the 
terms and conditions hereinafter set forth. In addition, it promises and 
agrees to perform a minimum of 20,000 feet of drilling upon the property at such 
locations and in such manner as may be deemed advisable by it within twelve 
months after the 15th of July, 1957.

"a. COMPUTATION: Net profits shall be arrived at by deducting 
from gross proceeds those items listed upon the schedule of deductions hereto 
attached as Exhibit A.[1]

"b. BASIS FOR GROSS 
PROCEEDS: Gross proceeds shall include 
the proceeds from ore sold based upon prices established in Circular 5 Revised, 
or, in event that such schedule should be supplemented by another, the schedule 
then in effect or the market price then current for such ore; it shall not 
include the proceeds from the operation of any concentration or milling 
operation or benefication process which might be erected upon the property 
or erected, owned or operated by the 
Purchaser.

"c. TIME FOR PAYMENT. 
Distribution of net profit shall be made quarterly and within thirty days after 
the close of such quarter. For the purpose of such distributions, such quarterly 
periods shall end on the last day of March, June, September and December of each 
year. The Purchaser at its option, may make such distributions at the end of 
each month. If the quarterly distributions exceed the Owner[']s share of the 
annual net profits as determined at the end of each calendar year, Owner shall 
repay Purchaser such excess or Purchaser may deduct such excess from future 
payments due Owner.

"d. ACCOUNTING: Each 
distribution of net profit shall be accompanied by a true, correct and complete 
accounting statement, showing the factors entering into the distribution made, 
all in accordance with standard accounting practices employed under the schedule 
hereto attached and with the terms of this instrument.

"GENERAL: The provisions 
hereinabove made with respect to the Locators for availability and examination 
of records, statement, or Declaration of Interest, and time and responsibility 
for payment, shall be applicable to the distribution of net profit to the 
Owner.

"f. MINIMUM PAYMENT: 
During this agreement, Purchaser will work the property diligently and in 
minerlike fashion with the object of discovering, producing and marketing 
commercial ores. Within sixty (60) days after Purchaser develops a commercial 
deposit of ore ready for extraction, it shall pay Owner a minimum of Five 
Hundred Dollars ($500.00) per month as net profits therefrom, which payments 
shall be a credit upon any and all of Owner[']s share of net profits as herein 
defined. Such minimum payments shall cease when such ore body has been exhausted 
unless another ore body has been developed and made ready for extraction. * * *" 
(Emphasis added.)

[¶5.]     On April 27, 1973, FAP 
entered into two agreements with Tennessee Valley Authority (TVA), which 
agreements provided for the development of numerous mining properties owned or 
controlled by FAP in the Gas Hills Mining District, including the claims subject 
to the 40% annual-net-profits interest held by CMU. The principal agreement, 
designated "Mining Lease Agreement," contains the following grant:

"A. For and in 
consideration of good and valuable consideration and of the covenants and 
agreements herein contained, Lessor [FAP] hereby grants to the Lessee [TVA] and 
the Lessee's successors and assigns for the term hereinafter provided the 
exclusive right to explore, develop, mine, extract and remove from the Mining 
Properties all uranium and other fissionable source materials, including 
associated minerals, in, on, under, or upon the said properties and thereafter 
to retain all right title and interest in and to all such severed minerals. 
Lessee shall also have the right to use so much of the surface of the Mining 
Properties as may be reasonably required to conduct exploration, development, 
mining and milling activities."

As consideration 
to FAP, the agreement specifies in Article III the following royalty 
payments:

"Lessee agrees 
to pay Lessor the following royalties:

"A. As concerns 6,000,000 
pounds of U[3]O[8] contained in reserves upon the Mining Properties and 
presently classified as Indicated Ore, Lessee shall pay Lessor Seven Million 
dollars ($7,000,000), payable:

"(1) Four Million Five 
Hundred Thousand dollars ($4,500,000) at closing; and

"(2) Two Million Five 
Hundred Thousand dollars ($2,500,000) on or before January 1, 1979.

"B. As concerns 2,400,000 
pounds of U[3]O[8] contained in reserves presently classified as Inferred Ore 
(over and above the said 6,000,000 pounds referred to in A above), an amount 
equal to sixty-two and one half cents (62 1/2¢) per pound of U[3]O[8] in that 
category determined by March 31, 1975, to be Indicated Ore, up to and until a 
maximum of One Million Five Hundred Thousand dollars ($1,500,000) is owed to 
Lessor. Said royalty payment shall be made on or before March 31, 1975. * * 
*

"C. A payment equal to 
fifty percent (50%) of the amount by which the market price for U[3]O[8] 
concentrate exceeds the production cost of such concentrates, which cost shall 
include payments made pursuant to paragraphs A and B above, royalties and 
similar payments (excluding, however, the royalty to be paid pursuant to this 
Article III, paragraph C) all outlays by TVA from date of closing to date of 
delivery of U[3]O[8] concentrates, plus interest at the rate of seven and one 
half percent (7 1/2%) per annum, on a noncompounded basis on the above costs, 
allocated on a per pound basis of delivered U[3]O[8] concentrates. * * 
*"

[¶6.]     To implement the 
development of the mining properties contemplated by the mining lease agreement, 
the parties agreed to a working agreement embodied in the "Interim Agreement." 
Under this agreement FAP, as contractor, assumed the exclusive right and duty to 
manage the properties described in the mining lease, to perform exploratory 
work, and to mill the extracted ore - all on behalf of TVA and at TVA's 
expense.2 The interim agreement was replaced 
one year later by the "Exploration and Milling Agreement, Definitive Agreement," 
which more fully describes FAP's duties as contractor and the procedure for 
payment of costs by TVA. The agreement provides that "all costs incurred in the 
performance of Authorized Operations * * * shall be at TVA's expense." In 
describing the end product of these operations, the definitive agreement 
provides:

"Title to all ore from 
the Mining Properties fed into Contractor's mill, and all U[3]O[8] Concentrate 
derived therefrom, shall remain in TVA."

[¶7.]     In October, 1978, FAP 
began to mine the subject properties in which CMU holds an interest. Between 
December, 1979, and June, 1980, FAP paid CMU a total of $9,000 in minimum 
payments called for under paragraph 4f of the contract of purchase and sale. CMU 
was dissatisfied, however, with the accounting information furnished to it by 
FAP and in March, 1981, initiated this action. CMU first learned of the series 
of agreements between FAP and TVA at that time.

[¶8.]     The trial court 
determined that CMU was entitled to 40% of the annual net profits attributable 
to uranium ore produced from the subject properties between 1978 and 1981. Net 
profits were calculated by deducting from gross proceeds those items specified 
in Schedule A,3 pursuant to paragraph 4a of the 
contract of purchase and sale. The figures for annual gross proceeds due to 
uranium ore were extrapolated from the market values of U[3]O[8] concentrate, 
using one of the three alternative methods of calculation presented by FAP at 
trial. The court adopted appellees' method which updated Atomic Energy 
Commission Circular 5 by incorporating current values of U[3]O[8] concentrate. 
This method followed the contract, according to the court, and resulted in CMU 
receiving its appropriate compensation of $3,306 in addition to the $9,000 in 
minimum payments already received.

[¶9.]     CMU challenges the 
trial court's conclusion in two respects: (1) the calculation of net profits 
based solely on the tonnage of uranium ore mined and milled between 1978 and 
1981 denies CMU the right to participate fully in its pro-rata share of the 
$7,000,000 in advance royalties paid to FAP under Article IIIA of the mining 
lease agreement; and (2) the calculation of gross proceeds attributable to 
uranium ore using a formula purportedly designed to escalate Circular 5 to 
current values is contrary to the express terms of the contract and to the 
intent of the parties to apportion to CMU its fair share of the profits derived 
from the uranium claims. In addition, CMU asserts that it is entitled to rescind 
the contract for purchase and sale as a result of FAP's bad faith in failing to 
proceed in a diligent and minerlike fashion to produce commercial ores, failing 
to account and failing to timely distribute proceeds. We will hold that, under 
the terms of the contract of purchase and sale, CMU became entitled to 
participate in its pro-rata share of the $7,000,000 in advance royalties when 
they were paid to FAP and, further, that a proper calculation of gross proceeds 
attributable to uranium ore requires deducting commercial milling rates from the 
market value of U[3]O[8] concentrate. Finally, we will hold that the trial court 
erred in denying CMU the opportunity to present evidence going to the bad-faith 
performance of FAP for the purpose of establishing grounds for 
rescission.

CONTRACT 
INTERPRETATION

[¶10.]  We repeated the basic purpose and general 
rules of contract interpretation in Amoco 
Production Company v. Stauffer Chemical Company of Wyoming, Wyo., 612 P.2d 463, 465 
(1980):

"Our basic purpose in 
construing or interpreting a contract is to determine the intention and 
understanding of the parties. Fuchs v. 
Goe, 62 Wyo. 134, 163 P.2d 783 (1945); Shellhart v. Axford, Wyo., 485 P.2d 1031 (1971); Oregon Short Line Railroad Company v. Idaho 
Stockyards Company, 12 Utah 2d 205, 364 P.2d 826 (1961). If the 
contract is in writing and the language is clear and unambiguous, the intention 
is to be secured from the words of the contract. Pilcher v. Hamm, Wyo., 351 P.2d 1041 (1960); Fuchs v. Goe, supra; Hollabaugh v. Kolbet, Wyo., 604 P.2d 1359 (1980); Wyoming Bank and Trust 
Company v. Waugh, Wyo., 606 P.2d 725 (1980). And the contract as 
a whole should be considered, with each part being read in light of all other 
parts. Shepard v. Top Hat Land & 
Cattle Co., Wyo., 560 P.2d 730 (1977); Rossi v. Percifield, Wyo., 527 P.2d 819 
(1974); Shellhart v. Axford, supra; 
Quin Blair Enterprises, Inc. v. Julien 
Construction Company, Wyo., 597 P.2d 945 (1979). The interpretation and 
construction is done by the court as a matter of law. Hollabaugh v. Kolbet, supra; Bulis v. Wells, Wyo., 565 P.2d 487 
(1977); Shepard v. Top Hat Land & 
Cattle Co., supra."

A more recent 
case to the same effect is Rouse v. 
Munroe, Wyo., 
658 P.2d 74 (1983).

[¶11.]  In interpreting a conveyance of a mineral 
interest, the court may augment these general rules by considering pertinent, 
extrinsic factors. In Dawson v. Meike, Wyo., 
508 P.2d 15, 18 (1973), we said:

"* * * [W]e find no fault 
with * * * the authority of Houghton v. 
Thompson, 57 Wyo. 196, 115 P.2d 654, that to interpret a contract for the 
conveyance of an interest in oil and gas the court should consider not only the 
terms of the writing but also the surrounding circumstances, attendant facts 
showing the relations of the parties, the nature and situation of the subject 
matter, and the apparent purpose of making the contract.

See also Picard v. Richards, Wyo., 366 P.2d 119 
(1961). The basic purpose of contract interpretation - to determine the 
intention of the parties - remains the same, however, regardless of the form of 
the agreement. Dawson v. Meike, 
supra.

[¶12.]  With the foregoing principles in mind, we 
attempt to ascertain the probable intention of the parties in entering into the 
contract involved in this appeal, had they envisioned the manner in which the 
uranium ore was actually transferred - that is, all rights to the ore were sold 
prior to its being mined and produced. We note that no dispute as to any 
material fact exists between the parties. All mining and milling data were 
supplied by FAP and accepted by CMU at face value. Accordingly, our resolution 
of the issues on appeal turns solely upon the proper means of implementing the 
original contract in light of the subsequent disposition of its subject 
property.

ADVANCE 
ROYALTIES

[¶13.]  The mining lease agreement dated April 
27, 1973, provides in Article III for TVA to pay FAP $7,000,000 for 6,000,000 
pounds of U[3]O[8] contained in reserves classified as indicated ore, or $1.17 
(rounded to the nearest cent) per pound of contained U[3]O[8]. These royalties 
were payable in two lump sums - $4,500,000 at closing and $2,500,000 on or 
before January 1, 1979. The nature of these payments as advance royalties is 
made clear in Article IIIC of the mining lease agreement, which specifies that 
the $7,000,000 is to be amortized as a "production cost" in computing the 
proceeds owed to FAP on each pound of delivered U[3]O[8] concentrate. Thus, FAP 
retains the advance royalties, regardless of the success or failure of a 
particular mining claim, but royalty payments on delivered U[3]O[8] are reduced 
by $1.17 (rounded to the nearest cent) per pound until 6,000,000 pounds of 
U[3]O[8] have been profitably recovered.

[¶14.]  Testimony at trial indicated that of the 
6,000,000 pounds of contained U[3]O[8] specified in Article IIIA of the mining 
lease agreement, 163,500 pounds were located in those properties subject to 
CMU's 40% interest. CMU contended at trial and urges on appeal that, under the 
1957 contract of purchase and sale, it is entitled to a 40% share of $190,739,4 or $76,295.

[¶15.]  The contract of purchase and sale 
provides that CMU is entitled to 40% of the annual net profits from all uranium 
"mined, produced and sold from the property." Under the express language of the 
contract, FAP's obligation to distribute net profits is conditioned upon the 
sale of mined and produced ore. Accordingly, appellees assert that CMU is not 
entitled to participate in the advance royalties which were paid prior to 
mining, production and sale of uranium ore.

[¶16.]  The language in the mining lease 
agreement, as well as surrounding circumstances, leads us to conclude that the 
agreement constituted a sale of ore to TVA, notwithstanding the document's 
designation as a lease. Under the mining lease agreement FAP granted to 
TVA

"* * * the exclusive right to explore, develop, mine, extract and remove from the Mining 
Properties all uranium and other fissionable source materials, * * * and 
thereafter to retain all right title and interest in and to all such severed 
minerals." (Emphasis added.)

[¶17.]  The Pennsylvania Supreme Court in Gilberton Fuels, Inc. v. Philadelphia & 
Reading Coal & Iron Co., 342 Pa. 192, 20 A.2d 217 (1941), construed 
similar language in a 15-year lease as effecting a sale of coal in 
place:

"The instrument in the 
instant case contemplated the exhaustion of the coal in the land. That is, it 
conveyed all the coal and gave the right to mine and take away without limit. It 
is hard to differentiate this from a sale. In our opinion the defendant held 
title to the coal in place for all purposes * * *." 20 A.2d  at 221.

We find this 
reasoning sound and applicable to the instant case. FAP conveyed to TVA the 
right to mine, remove, and retain title to all uranium. It is difficult to 
differentiate this transaction from a "sale," notwithstanding the argument by 
appellees that the federal government owned the minerals in question prior to 
their severance from the ground. No other sale of uranium in any form was ever 
made to TVA from appellant's property. TVA simply retained title to the end 
product - milled uranium - for use as fuel. We conclude, therefore, that the 
mining lease agreement effected a sale of the uranium ore to TVA.

[¶18.]  Next, we must consider whether FAP sold 
TVA "mined [and] produced" ore, so as to trigger FAP's obligation to pay CMU 40% 
of the resulting profits. Under the interim agreement and the subsequently 
executed definitive agreement, FAP acted as contractor on behalf of TVA, 
developing and milling the ore at TVA's convenience and expense. The entire 
series of agreements between FAP and TVA contemplate the mining and production 
of the ore which, as we have seen, was sold to TVA. At the moment that the 
mining lease agreement and the interim agreement were signed, FAP was under a contractual obligation to mine and 
produce ore from the subject properties. The physical performance of these 
obligations is immaterial to our purpose of determining whether FAP owed CMU a 
portion of the advance royalties. The important point is that FAP promised to 
develop the ore for TVA, subject to sanctions for failure to do so. Therefore, 
in light of the terms of the writings, the relationship of the parties, the 
nature and situation of the subject matter and the purpose of making the 
agreements, Dawson v. Meike, supra, 
we hold that the mining lease agreement and the interim agreement constituted a 
sale of mined and produced ore such that FAP became obligated to pay CMU its 
share of the proceeds resulting from those transactions.

[¶19.]  FAP also advances the argument, 
successful at trial, that its investment in the mining properties (for example, 
acquisition and exploration costs) prior to the 1973 mining lease agreement with 
TVA depleted the advance royalties so that, after discounting to present value, 
nothing remained to pay CMU. It is clear, however, that, regardless of 
legitimate investment costs associated with other properties subject to the 
mining lease agreement, no payments were made to CMU for acquisition purposes. 
Furthermore, no documentation so much as suggests that the advance royalties 
attributable to the properties in question were consumed by costs listed on 
Schedule A of the contract of purchase and sale and incurred by FAP prior to 
1973. In contrast, the evidence submitted by FAP shows that after 1973 
approximately $17,000,000 were expended to develop the subject properties over 
and above the actual mining costs from 1978 to 1981.

[¶20.]  Paragraph 4d of the contract of purchase 
and sale requires FAP to furnish complete accounting statements showing factors 
that affected the distribution of profits. In view of FAP's failure to offer any 
documentation whatsoever as to the allocation of the advance profits 
attributable to the properties in question, we must conclude that, absent a 
showing to the contrary on remand, CMU became entitled to 40% of those royalties 
upon their payment to FAP under the mining lease agreement.

ANNUAL NET 
PROFITS

[¶21.]  The parties disagree as to the proper 
method of determining gross proceeds attributable to the uranium ore after 
completion of the milling process. The contract of purchase and sale provides 
that gross proceeds shall be

"* * * based upon prices 
established in Circular 5 Revised, or, in event that such schedule should be 
supplemented by another, the schedule then in effect or the market price then 
current for such ore * * *."

The contract 
expressly excludes from gross proceeds any proceeds from milling the ore into 
U[3]O[8] concentrate, or yellow cake, as it is commonly called. The parties' 
dispute results from the fact that none of the methods specified in the 1957 
contract for computing gross proceeds works to extrapolate ore proceeds from the 
market value of yellow cake between 1978 and 1981.

[¶22.]  Circular 5 listed prices that the Atomic 
Energy Commission would pay for various grades of unprocessed uranium ore based 
on a value of $8 per pound of processed U[3]O[8] concentrate. Neither Circular 5 
nor a supplemental circular was in effect when the ore involved here was mined 
and milled, since the abolishment of the Atomic Energy Commission in 19745 rendered these schedules obsolete. 
In addition, no market for unprocessed ore existed in the Gas Hills district at 
the relevant times, making the contract's alternate basis for determining gross 
proceeds - "the market price then current for such ore" - 
inapplicable.

[¶23.]  In an effort to resolve this dilemma, FAP 
submitted to the trial court three different methods for determining gross 
proceeds. The first method, and the one accepted by the trial court as 
consistent with the contract, purported to update Circular 5 to reflect the 
values of unprocessed ore based on values of U[3]O[8] which ranged from $36 to 
$45.34 per pound at the times relevant here. Gross proceeds were thus calculated 
by multiplying Circular 5 values for raw ore by the factor by which the value of 
U[3]O[8] had increased since the circular went into effect.6

[¶24.]  This method assumes that the costs 
associated with mining increased proportionally to those costs associated with 
milling. We find this assumption erroneous since it ignores the effects of 
technological advances on both procedures, their respective labor intensities, 
and the degree of skill required in each operation. Therefore, we conclude that 
the gross-proceeds figures obtained from Circular 5, as modified, were not 
sufficiently reliable to permit the trial court to award CMU its proper share of 
profits.

[¶25.]  The second theory advanced by FAP for 
determining gross proceeds involved the averaging of three ore purchase-price 
schedules compiled in 1976. Two of the schedules refer to ore mined in 
Utah, and one 
lists standard prices. We agree with the trial court as to the undesirability of 
this method of arriving at gross proceeds, since none of the schedules concerns 
ore mined in the Gas Hills district and all predate the mining of the subject 
properties.

[¶26.]  The third alternative proposed by FAP we 
find to be the most appropriate means of calculating CMU's fair share of profits 
due to mined uranium ore. This method computes gross proceeds by deducting 
commercial milling rates from the sales value of yellow cake. The base 
commercial milling rate was determined to be $23/ton of ore by appellees' expert 
witness who had researched the matter in 1978 for a mining company located in 
the Gas Hills district. For purposes of calculation, the base rate was escalated 
at 8% per year from 1978. This method awards FAP commercial profits for its 
milling operation, consistent with the contract of purchase and sale, based upon 
milling rates that are typical of other mills operating at that 
time.

[¶27.]  We approve of this method as a reliable 
means of implementing the intent of the parties to compensate CMU out of 
proceeds derived from the sale of processed ore, exclusive of milling profits. 
Where the market for disposing of a royalty owner's minerals changes from that 
originally contemplated by the parties, the court's duty is to construe the 
royalty agreement fairly so as to effectuate the intent of the parties. LeCuno Oil Company v. Smith, 
Tex.Civ.App., 306 S.W.2d 190 (1957).

[¶28.]  In view of our holding that CMU is 
entitled to participate in the advance royalties paid to FAP, on remand the 
amount of such royalties proportionate to each pound of recovered U[3]O[8] must 
be deducted from annual net profits payable to CMU.

EVIDENCE ESTABLISHING 
GROUNDS FOR RESCISSION OF THE CONTRACT OF PURCHASE AND SALE

[¶29.]  The trial court refused to admit evidence 
offered by CMU to prove bad faith on the part of FAP in breaching the contract 
of purchase and sale. Such evidence, appellant contends, would have established 
a basis upon which to rescind the contract.

[¶30.]  FAP takes the position on appeal that the 
contract of purchase and sale is a deed transferring title, which instrument is 
not subject to forfeiture absent some express provision such as a right of 
re-entry or a power of termination. We cannot agree.

[¶31.]  A number of courts have held that a 
conveyance of a mineral interest in consideration of royalties on production 
amounts to a lease and may be cancelled upon a proper showing. The Kentucky 
Court of Appeals construed such an agreement in Kentucky Rock Asphalt Co. v. Milliner, 
234 Ky. 217, 27 S.W.2d 937 (1930). There, in consideration of $5 plus future 
royalties, appellee had granted "`all of his right, title and interest, in and 
to all deposits of oil, bitumen and their products.'" 27 S.W.2d  at 937. 
Thirty-nine years later the grantee had made no effort to develop the property. 
In holding that the instrument, regardless of its label, was intended as a lease 
and, therefore, was subject to forfeiture, the court quoted extensively from Eastern Kentucky Mineral & Timber Co. v. 
Swann-Day Lumber Co., 148 Ky. 82, 146 S.W. 438, 46 L.R.A.(N.S.) 672 
(1912):

"`* * * In an attempt to 
ascertain whether a deed like this was intended by the parties to be a 
conveyance in fee simple, or only a contract or lease under which the grantees 
must begin operations within a reasonable time, there is no feature entitled to 
more weight than the one relating to the consideration and the manner of its 
payment. There is and should be a marked difference between the construction and 
effect of a conveyance of timber and minerals, or indeed any interest in land, 
for a stipulated consideration, payable in cash or in secured notes or in some 
other valuable property, and the construction and effect of a conveyance in 
consideration of a royalty or per cent., to be paid out of the income derived by 
the grantees from the property conveyed. * * * When the consideration has been 
fully satisfied, and the grantor has parted with his estate, the transaction 
between the parties is a closed incident. The grantor has no further interest or 
concern in the property conveyed. But a very different situation is presented 
when the only consideration the grantor is to receive is a per cent. of the 
profits the grantee may realize from the development of the estate. Under such a 
contract the consideration is a continuing one, to be paid only by the labor of 
the grantee in the development of the property. The grantor has a continuing 
interest in the estate conveyed, the transaction between the parties is not a 
closed incident, and the grantee is not at liberty to do with the property as he 
pleases. He cannot use or fail to use it to the prejudice of the grantor who has 
rights that must be respected.'" 27 S.W.2d  at 938-939.

See also Davis v. Mann, 234 F.2d 553, 558 (10th 
Cir. 1956); Crain v. Pure Oil Co., 25 F.2d 824, 830 (8th Cir. 1928); Tennessee 
Oil, Gas & Mineral Co. v. Brown, 131 F. 696, 702-703 (6th Cir. 
1904).

[¶32.]  Under the contract of purchase and sale 
in the instant case, the consideration is a continuing one. FAP's ongoing 
obligations to CMU include diligent development and sale of ore, the payment of 
minimum monthly sums once a commercial body of ore is ready for extraction, the 
timely distribution of 40% of annual net profits, and accountings. We conclude 
that such an agreement is properly denominated a "lease" and may be cancelled 
upon a showing of a material breach.

[¶33.]  In Vitro Minerals Corporation v. Shoni Uranium 
Corporation, Wyo., 386 P.2d 938 (1963), we considered the 
grounds necessary to rescind a mining lease, which contained a clause expressly 
providing for forfeiture under certain circumstances. We said that evidence 
going to the bad faith of the lessee is admissible and relevant in establishing 
grounds for rescission, 386 P.2d  at 940. We quoted with approval from Annot., 60 
A.L.R. 901, 925:

"`But it has been held 
that forfeitures, even though expressly provided in a mining lease, for the 
failure to develop and properly mine, are even less favored than are forfeitures 
generally, much being left to the discretion of the operator. In the absence of 
evidence of fraud or bad faith, such forfeitures will not be enforced; for a 
breach of a covenant properly to work the premises, especially if due to a 
mistake of judgment only, the wilful default or bad faith of the lessee not 
being shown, a forfeiture of the lease will not be decreed. * * *'" 386 P.2d  at 
942.

We hold that 
evidence of bad faith and material breach is admissible to establish grounds for 
rescission, should CMU choose to pursue such a remedy on remand.

[¶34.]  Reversed and remanded to the district 
court for proceedings consistent with this opinion.

1 Schedule A lists 14 
items to be deducted from gross proceeds in computing net profits. These items 
include the purchaser's costs of survey and exploration, development, 
transportation, management, labor, supplies, maintenance of equipment, 
insurance, and depreciation.

2 The interim agreement 
contemplated its replacement by an exploration and milling agreement, under 
which TVA would establish an operating account to cover allowable 
costs:

"The definitive 
Exploration and Milling Agreement shall provide that TVA will deposit sufficient 
sums in an Operating Account from which Contractor may withdraw sums on an 
accrual basis to cover allowable costs for which TVA is liable pursuant to the 
definitive Agreement. Until such time as the definitive Agreement is executed, 
Contractor shall pay all sums incurred in the performance of its obligations 
under this contract, including costs of milling TVA ore, making lease rental 
payments to third parties, and all other costs, from its own funds and shall 
submit detailed monthly invoices to TVA covering allowable costs incurred during 
the month in question. Payment for such costs shall be made by TVA within thirty 
(30) days."

3 Note 1, 
supra.

4 $1.1666/lb. of U[3]O[8] 
X 163,500 lbs. of U[3]O[8] = $190,739.

5 Pub.L. 93-438, Title I, 
§ 104(a), October 11, 1974, 88 Stat. 1237.

6 For example, the 
multiplication factor would be 5.335 where the current market value of U[3]O[8] 
is $42.68 per pound and the Circular 5 value of U[3]O[8] is $8 per 
pound.

THOMAS, Chief Justice, 
concurring and dissenting.

[¶35.]  I find that I cannot agree in toto with 
the views of either the majority opinion or the dissenting opinion in this case. 
I am in accord that the case must be reversed for errors of law committed by the 
trial court. I agree with the view taken in the dissenting opinion, however, 
that the Contract of Purchase and Sale entered into by the appellants and the 
predecessor of the appellees is not simply a lease subject to recision for a 
breach of the covenants. In my view the remedy of the appellants is limited to 
damages.

[¶36.]  On this latter point I will content 
myself with saying that the transaction between federal partners and the TVA 
encompasses many of the characteristics of the commonlaw profit a prendre 
recognized by this court in Denver Joint 
Stock Land Bank of Denver v. Dixon, 57 Wyo. 523, 122 P.2d 842, 140 A.L.R. 
1270 (1942); and Boatman v. Andre, 44 
Wyo. 352, 12 P.2d 370 (1932). This latter authority indicates that one may lose 
one's rights under a profit a prendre by abandonment. It would seem to follow 
that a failure of any covenants in connection with the profit a prendre would be 
addressed by the remedy of damages rather than recision. While fraud in the 
inducement might void the transaction if the rights of bona fide purchasers for 
value have not intervened, that is not the claim that I understand is made here, 
and consequently I would not recognize a right of recision in the 
appellants.

[¶37.]  This may not be an important matter 
because it seems to me that damages are going to be the remedy in any event. 
That is essentially what the appellants seek. The real question then is whether 
the appellants have been paid that which is due them under their 
agreement.

[¶38.]  The majority opinion holds that the 
appellants have not been paid that which is due them, and I agree. I find in 
Schedule "A," which is attached to, referred to and made a part of the Contract 
of Purchase and Sale, the following language:

"Gross proceeds shall 
include any and all premium, incentive and other bonus payments received for or 
upon sale of the ores (to the extent permitted by law) and shall include 
development allowance. Any freight allowance in excess of freight costs incurred 
shall be included."

[¶39.]  The dissenting opinion accuses the 
majority of rewriting the contract for the parties. In fact, it was the district 
court which rewrote the contract. The advance royalty of seven million dollars 
which TVA agreed to pay to the appellees and the advance royalty of sixty-two 
and one-half cents per pound for "inferred ore" were payable to the appellees 
without regard to any future production. They were not payments for costs in 
advance, and the application of the third royalty clause in the agreement 
between TVA and the appellees does not have the effect of making them payments 
in advance for costs. That clause protects the right of the appellees to share 
in future profits, and provides for payment in addition to the advance 
royalties, but TVA prudently provided that the advance royalties should be 
counted as costs in the computation of the appellees' right to share in future 
profits. The advance payments come within the definition of Gross Proceeds 
quoted from Schedule "A" and therefore must be included in the computation of 
net profits as provided in paragraph four of the Contract of Purchase and 
Sale between 
appellants and appellees. It follows that the appellants were entitled to have 
net profits computed in accordance with the formula described in the majority 
opinion. I am satisfied with the conclusion of the majority that the record does 
not justify the deduction from those advance royalties of any of the items 
included in Schedule "A" to the Contract of Purchase and Sale.

[¶40.]  With respect to the computation of annual 
net profits, I also agree with the holding in the majority opinion. It is 
compatible with the ends of justice that when assumptions fail with respect to 
contract terms it is fair to look at the facts. The facts in this instance are 
that the price of the U[3]O[8] is known. An acceptable figure for the milling 
expense can be determined. The ore developed from the property sold by the 
appellants is determinable, and net profits are therefore subject to 
computation. The appellees presumably can demonstrate the actual expense of any 
of the items found in Schedule "A" for which they were not reimbursed pursuant 
to their contract with TVA. It is then from this net profit figure that a pro 
rata portion of the advance royalties may be deducted by the appellees in 
accounting to the appellants.

[¶41.]  As I indicated, I would reverse the trial 
court in part and affirm it in part, and I agree that the case should be 
remanded for further proceedings.

ROONEY, Justice, 
dissenting.

[¶42.]  I dissent.

[¶43.]  This dissent was submitted in response to 
an earlier majority opinion, and is equally applicable with reference to the 
final majority opinion, especially concerning (1) the propriety of rewriting by 
the majority opinion of the pertinent agreements of the parties in complete 
disregard of the plain and unambiguous language of such agreements, and (2) the 
determination by the majority opinion of facts on appeal contrary to that done 
by the trial court on the basis of substantial evidence and contrary to our well 
established rule for appellate review. A short addendum has been added to the 
original dissent to point out a few of the inconsistencies in the majority 
opinion.

[¶44.]  The majority opinion fails to accept the 
findings of fact made by the trial court after a two and one-half day trial as 
is required by repeated holdings of this court. As early as 1923, Justice Blume 
noted that we must accept as true the testimony supporting findings on 
conflicting evidence. Seaman v. Big 
HornCanal Ass'n, 29 Wyo. 391, 213 P. 938 (1923). Since then, we 
have often said that in examining the record, the supreme court must assume that 
the evidence in favor of the successful party is true, must not consider the 
evidence of the unsuccessful party in conflict therewith, and must give to the 
evidence of the successful party every favorable inference which may be 
reasonably and fairly drawn from it. Metcalfe v. Winchester, 72 Wyo. 142, 262 P.2d 404, 407 (1953); Holbrook v. 
Continental Oil Company, 73 Wyo. 321, 278 P.2d 798, 802 (1955); Twing v. Schott, 80 Wyo. 100, 338 P.2d 839, 840 (1959); Western Standard Uranium 
Company v. Thurston, Wyo., 355 P.2d 377, 385 (1960); Stock v. Roebling, Wyo., 459 P.2d 780, 
784 (1969); Piner v. Piner, Wyo., 511 P.2d 94, 95 (1973); Douglas Reservoirs 
Water Users Association v. Cross, Wyo., 569 P.2d 1280, 1283 (1977); Farella v. Rumney, Wyo., 649 P.2d 185, 
186 (1982), and many others.

[¶45.]  Secondly, the majority opinion accurately 
sets forth law regarding interpretation of contracts, but misapplies it - in 
effect rewriting the contract for the parties contrary to the plain words of the 
contract. A summary of the applicable law in this respect is set forth in Amoco Production Company v. Stauffer 
Chemical Company of Wyoming, Wyo., 612 P.2d 463, 465-466 (1980):

"Our basic purpose in 
construing or interpreting a contract is to determine the intention and 
understanding of the parties. [Citations.] If the contract is in writing and the 
language is clear and unambiguous, the intention is to be secured from the words 
of the contract. [Citations.] And the contract as a whole should be considered, 
with each part being read in light of all other parts. [Citations.] The 
interpretation and construction is done by the court as a matter of law. 
[Citations.]

"If the contract is 
ambiguous, resort may be had to extrinsic evidence. [Citations.] An ambiguous 
contract `is an agreement which is obscure in its meaning, because of 
indefiniteness of expression, or because a double meaning is present.' 
[Citation.] Ambiguity justifying extraneous evidence is not generated by the 
subsequent disagreement of the parties concerning its meaning. 
[Citation.]

"* * * Whether ambiguity 
exists is a question of law. [Citations.] * * *

"* * * Even if there be 
an ambiguous term or portion of the contract, extrinsic evidence is not 
considered if the meaning of the ambiguous term or portion of the contract can 
be ascertained from other language of the contract, i.e., from the contract as a 
whole. [Citations.]" (Footnote omitted.)

[¶46.]  In this appeal, we must consider two 
contracts: (1) a "Contract of Purchase and Sale" between appellant and 
appellees' assignors and some third-party claim locators who have no pertinency 
in this appeal; and (2) a contract consisting of two basic instruments (a 
"Mining Lease Agreement" and an "Interim Agreement" which was superseded by an 
"Exploration and Milling Agreement") between appellees and Tennessee Valley 
Authority, hereinafter referred to as "TVA."

[¶47.]  The Contract of Purchase and Sale which was executed 
November 1, 1957, defined the subject thereof as follows:

"1. PROPERTY: The 
property concerned, consists of unpatented lode mining claims * * * as 
the same appear of record * * *." (Emphasis added.)

The provisions 
of the contract as they relate to the consideration to be paid by appellees' 
predecessor are separated as they pertain to appellant and as they pertain to 
the third-party claim locators. The portion pertaining to the third-party claim 
locators provides for payment to them of a 10% royalty computed on the gross 
receipts from the sale of ores mined, produced and sold from the claims. Other 
provisions as to them concern the time of payment, payment of taxes, maintenance 
of records, minimum royalty and statement of interest. The portion pertaining to 
appellant provides in part:

"4. OWNER'S [Appellant's] 
PARTICIPATION: * * * the Purchaser [appellees' assignor] covenants and agrees to 
pay to the Owner, its successors, assigns or legal representatives, a sum 
constituting forty per cent (40%) of the 
annual net profits from all uranium, vanadium and other associated minerals 
and ores mined, produced and sold 
from the property, computed in accordance with and under the terms and 
conditions hereinafter set forth. * * *

"a. COMPUTATION: Net 
profits shall be arrived at by deducting 
from gross proceeds those items listed upon the schedule of deductions 
hereto attached as Exhibit A.

"b. BASIS FOR GROSS 
PROCEEDS: Gross proceeds shall include the proceeds from ore sold based upon prices established in 
Circular 5 Revised, or, in event that such schedule should be supplemented by 
another, the schedule then in effect or the market price then current for such 
ore; it shall not include the proceeds from the operation of any concentration 
or milling operation or benefication process which might be erected upon the 
property or erected, owned or operated by the Purchaser.

* * * * * *

"f. MINIMUM PAYMENT: 
During this agreement, Purchaser will work the property diligently and in 
minerlike fashion with the object of 
discovering, producing and marketing commercial ores. Within sixty (60) days 
after Purchaser develops a commercial 
deposit of ore ready for extraction, it shall pay Owner a minimum of Five 
Hundred Dollars ($500.00) per month as net profits therefrom, which payments 
shall be a credit upon any and all of Owners share of net profits as herein 
defined. Such minimum payments shall cease when such ore body has been exhausted 
unless another ore body has been developed and made ready for extraction. * * *" 
(Emphasis added.)

[¶48.]  Included in the numerous items1 listed in Exhibit A referred to in 
subparagraph a, supra, to be deducted from gross receipts are:

"3. Reserves set aside by 
Purchaser for future development work 
* * * adjustment will be made at the end of each fiscal year to reduce said 
reserves to actual development costs 
for the year." (Emphasis added.)

[¶49.]  The foregoing contract language is plain 
and unambiguous in setting forth the intention of the parties to the effect that 
the subject matter of the contract concerns only undeveloped mineral claims and 
that any final payment must wait 
until the claim is worked to result in ores "mined, produced and sold," with an 
interim payment of $500.00 per month to be paid when the ore body is "developed 
and made ready for extraction." All payments are to amount ultimately to 40% of 
"annual net profits" from "ores mined, produced and sold," and gross profits on 
ore sold are to be "based upon prices established in Circular 5 Revised, or, in 
event that such schedule should be supplemented by another, the schedule then in 
effect or the market price then current."

[¶50.]  Of course, these contract provisions only 
reflect the practical aspect of the situation. When the contract was executed, 
the nature and amount of ore was unknown. The claim could turn out to be barren, 
or the ore could be of such poor grade that the cost of mining plus milling would not be economical. 
Generally, it is necessary to mill the mined ore before its sale value can be 
determined. The milling process costs money. When the element (uranium, gold, 
etc.) is not sold until after milling, the cost of milling must be subtracted 
from the sale price to determine the value of the ore.

[¶51.]  There was a conflict of evidence with 
reference to the use or supplementation of Circular 5 Revised and to the market 
price of ore. The trial court heard the testimony and reviewed the exhibits 
placed in evidence and found that the method and alternate method of accounting 
contained in Sections I and II of Exhibit A were the only ones that followed the 
contract.2 It must be remembered that the 
contract was executed November 1, 1957. Only the Atomic Energy Commission could 
buy uranium at that time. Circular 5 Revised was created to govern purchases by 
the Commission. It computed the portion of the purchase price for uranium which 
was attributable to the original cost of ore after subsequent processing 
(milling) had been accomplished.

[¶52.]  Witness Boulton's testimony was, in part, 
as follows:

"A. The basic formula 
outlined in the contract, as I see it, is a determination of the value of 
unprocessed ore, which has been mined, produced and sold, from that number a 
deduction is made for certain mining costs as outlined in Schedule A of that 
exhibit. One which net profit calculated and Owners in this case are would 
participate in 40 percent of that net profit number.

"Q. And on what basis 
would the proceeds or gross proceeds be calculated?

"A. In my opinion with 
respect to taking into account my experience, I would say the X/8 escalation 
formula as applied to Circular 5 table.

* * * * * * 

"Q. Okay. And do you use 
or have you used the Circular 5 with the X/8 revision for calculations on your 
other interests, on other uranium properties.

"A. Yes.

* * * * * *

"Q. Let me ask you, Mr. 
Boulton, when we speak of Circular 5 X/8, what does that mean, what is the X/8 
portion?

* * * * * *

"A. X/8 is the formula to 
escalate the formula in Circular 5 based upon the differences of the prior, 
yellowcake value from $8.00 as established under Circular 5 to whatever the 
current market price of concentrate is.

"Q. So, Circular 5, the 
price of uranium is $8.00?

"A. Circular 5 schedule 
to provide prices for unprocessed ore based upon a selling price of processed 
concentrate at $8.00 per pound.

"Q. And X/8 is the 
adjustment to current market price for concentrate?

"A. To escalate that 
price, based upon changes in yellowcake value from $8.00 to whatever the current 
price is for yellowcake value.

"Q. When you use the 
Circular 5 with X/8 formula, does it matter what year you use that calculation 
in?

"A. No. As an example, if 
the current price of uranium is $40. per pound for yellowcake concentrate, the 
Circular 5 schedules are based upon the 8 dollars, you divide the 8 into current 
price referred to as X, that establishes a factor of five times, multiply the 
Circular 5 schedule by the 5 times which would result being Circular 5 price 
escalated at the same basis of uranium concentrate price changes.

"Q. And that particular 
calculation is used to establish an unprocessed ore price when you have a 
concentrate sale?

"A. Yes, it is to place a 
value on or before it is processed."

[¶53.]  Thus, the trial court applied the plain 
and unambiguous language of the contract relative to determination of the gross 
proceeds from the ore, i.e., "prices established in Circular 5 Revised, or, in 
event such schedule should be supplemented by another, the schedule then in 
effect or the market price then current." It considered the evidence and made a 
factual finding that the X/8 formula as applied to Circular 5 resulted in the 
market price or in the price as intended by the parties to the 
contract.

[¶54.]  The majority opinion concludes that the 
trial court erred in finding that ore was not "mined, produced and sold" under 
the contract until 19783 on the basis that a sale occurred 
in 1973 by virtue of the execution of the first of a series of instruments 
between appellees and TVA, the first of the series being of date April 27, 1973, 
and the eighth amendment being of date September 6, 1979. This series of 
instruments comprise the basic instrument labeled "Mining Lease Agreement." 
There are several faults in the reasoning of the majority opinion in this 
respect.

[¶55.]  Appellant is to be paid under its 
purchase and sales agreement with appellees when the ore is "mined, produced and 
sold." The majority opinion considers the fact that no ore was "mined or 
produced" not to be a material deviation from the requirements of the agreement 
since it was "sold" to be mined and produced later. That is the same as saying 
that there is no material deviation on a trip from Cheyenne to Denver by the way 
of Salt Lake City, Utah. The agreement is plain and unambiguous in requiring 
payment only when the ore is "mined, produced and sold" not only when it is 
"sold." The parties were specific in using language that required all three 
operations as a condition of payment. Their intent was plainly 
expressed.

"* * * [T]he cardinal 
rule in the construction of contracts being * * * that the intention of the 
parties, as exhibited by the language they have used shall govern." Fuchs v. Goe, 62 Wyo. 134, 163 P.2d 783, 
791, 166 A.L.R. 1329 (1945).

"It is one thing to 
interpret a contract or to discern the contractual intent of the parties 
pursuant to established legal rules, but it is another thing to make a contract 
for the parties. We are obliged to do the former, and we are prohibited from 
doing the latter." McCartney v. Malm, 
Wyo., 627 P.2d 1014, 1020 (1981).

"* * * [T]he supreme 
court will not rewrite clear contracts. [Citation.] Nor will this court rewrite 
contracts under the guise of interpretation. * * *" Wyoming Machinery Company v. United States 
Fidelity and Guaranty Company, Wyo., 614 P.2d 716, 720 (1980).

[¶56.]  Additionally, payment to appellant prior 
to the ore being mined and produced is not practical or possible. The Mining 
Lease Agreement between appellees and TVA concerned a great many mining claims 
in the Gas Hills area. (Appellant's two claims are among about 75.) The evidence 
reflected the ore in appellant's claims to be borderline for economic 
production. The Mining Lease Agreement provided for payment for "pounds of 
U[3]O[8] concentrate" (milled uranium). Obviously, the payment includes the cost 
of the ore, its development and the milling. To determine the proportion of any 
amount due appellant from the advance payment for "pounds of U[3]O[8]" would 
require an advance determination of the ore to be produced from appellant's few 
claims in proportion to that from the other claims in addition to advance 
determination of the milling and other costs. The Circular 5, X/8 formula could 
be used to separate the milling from the ore costs but only if there were an 
accurate figure to which to apply the formula. Such figure could not exist prior 
to determination of the actual price received for milled ore from appellant's 
claims. Even if a gross profit figure could be established, the costs 
attributable to taking the ore from these few claims, i.e., salaries, equipment, 
etc. as listed in Exhibit A referred to in subparagraph a, supra, (a special 
problem involving a geologic fault in these claims did surface, causing extra 
expense), would have to be known in advance. This would be an impractical 
situation, and one obviously not intended by the parties.

[¶57.]  The association of the "Mining Lease 
Agreement" and the "Interim Agreement" with the superseding "Exploration and 
Milling Agreement" will be discussed infra.

[¶58.]  Turning then to the two issues as 
presented by appellant on appeal of this case:

ISSUE I: DID THE 
CONCLUSIONS OF LAW CONTAINED IN THE DISTRICT COURT'S FINDINGS OF FACT AND 
CONCLUSIONS OF LAW NOS. 2, 3, AND 4 REFLECT PROPER LEGAL STANDARDS AND 
PRINCIPLES?4

[¶59.]  The two findings of fact and conclusions 
of law referred to and argued by appellant read:

"2. On April 27, 1973, 
defendants entered in an agreement with TVA to develop the property in question 
and other properties. Defendants were to be paid for their costs and profits. 
TVA agreed to pay $7 million to defendants before production as an advance on 
costs. Plaintiff is entitled to participate in this payment to the extent 
reflected in Exhibits A and B of defendants.

"4. From October, 1978, 
through 1981, Defendants mined and produced uranium from the claims held by 
plaintiff. The ore was not sold at that stage but was milled by Defendants and 
then transferred to TVA under that contract, whereupon Defendants were paid for 
both mining and milling in one sum. Nevertheless, the contract held by Plaintiff 
and Defendants can be applied to this situation and may even have been 
anticipated by the contract, which provides in the first instance for 
computation of gross proceeds by application of a predetermined Circular 5 
formula, not by the application of the actual price for which the ore might be 
sold. Therefore, the amounts due Plaintiff can be computed in accordance with 
the contract by applying the Circular 5 prices, as supplemented, to the tonnage 
mined, deducting the costs allowed in the contract, and paying 40% of this to 
Plaintiff, giving Defendants credit for the monthly payments. This was done in 
Exhibit A of Defendants, Section I. This method and the alternative one in 
Section II of Exhibit A are the only accountings presented which follow the 
contract. The method in Section I is the one first mentioned in the contract and 
provides the greatest benefits to Plaintiff. Therefore it is the one which 
should be adopted. Accordingly, judgment will be entered in favor of Plaintiff 
and against Defendants in the amount of $3,306, together with court costs and 
interest at the legal rate from January 1, 1979, as this is a liquidated sum 
which could be determined by mathematical calculations from the contract formula 
and which was due on January 1, 1979."

[¶60.]  With reference to paragraph 2, appellant 
contends that (1) the agreement there referred to, i.e., the Mining Lease 
Agreement, was not to "develop the property in question and other properties" 
but was a sale of minerals in place; (2) the paragraph improperly infers that 
the development was to be a joint one between TVA and appellees; (3) the costs 
were all those of TVA and appellees had none, wherefore the statement that 
appellees "were to be paid for their costs" was error; and (4) TVA's agreement 
to pay $7 million to appellees before production was not an "advance on 
costs."

[¶61.]  As already noted, appellees' ownership of 
the "property" as defined in its acquisition agreement was ownership of 
"unpatented lode mining claims," i.e., undeveloped mineral claims. The minerals 
in place were owned by the United States. Consistent therewith, the Mining Lease 
Agreement between appellees and TVA was one to "develop" the "unpatented lode 
mining claims." The trial court so found. Other provisions of the Mining Lease 
Agreement between TVA and appellees reflect the intention of the parties for it 
to be an agreement to "develop" the claims. The grant is "the exclusive right to 
explore, develop, mine, extract and remove" minerals from the claim, and "thereafter to retain all right[,] title 
and interest in and to all such severed 
minerals" - not a grant to ownership of minerals in place. The instrument 
also contains requirements for annual assessment work, provisions for forfeiture 
upon breach, and it is called a lease - all inconsistent with a sale of minerals 
in place. The trial court would have erred if it found the agreement to be a 
sale of minerals in place in view of the plain and unambiguous language of the 
agreement.

[¶62.]  I cannot find any language in paragraph 2 
of the Findings of Fact and Conclusions of Law from which it can be inferred 
that the property was to be developed jointly by TVA and appellees, contended 
by appellant to have been an erroneous finding of the trial court. The trial 
court's language is plain in stating that appellees "entered in an agreement 
with TVA to develop the property." Certainly, the language of the grant in the 
1973 Mining Lease Agreement between TVA and appellees is positive and plain in 
setting forth the fact that the development was to be "the exclusive" right of 
TVA.

[¶63.]  Considering together appellant's third 
and fourth contentions relative to paragraph 2 of the court's findings and 
conclusions5, the intention of the parties as 
expressed in the contract of which the Mining Lease Agreement is a part, is 
properly reflected in the court's findings and conclusions.

[¶64.]  The April 27, 1973 contract between 
appellees and TVA was contained in two documents, both executed the same day. 
One document was titled "Mining Lease Agreement." It consisted of 23 pages and 
had 23 pages of attached schedules. As already noted, it was amended 8 times 
over a period of about 4 years (81 pages in amendments). The other document was 
titled "Interim Agreement." It consisted of 7 pages and recited 
that:

"WHEREAS, the parties 
hereto have this date entered into a Mining Lease Agreement (hereinafter 
`Lease'), a copy of which is attached hereto as Exhibit A and made a part hereof 
* * *."

It also had an 
additional 10 pages of exhibits and schedules. It provided that it was entered 
into:

"* * * until such time as 
* * * [the parties] are able to develop a definitive Exploration and Milling 
Agreement."

[¶65.]  On April 11, 1974, the "definitive" 
agreement was executed. It provided that the Interim Agreement "is hereby 
superseded by this Exploration and Milling Agreement." It consists of 75 pages 
and 125 pages of exhibits. It was amended 7 times between April 1, 1976 and May 
18, 1980 (68 pages). It made reference to the Mining Lease Agreement as one of 
the bases for its execution. It generally provided as did the Interim Agreement 
but in much greater detail.

[¶66.]  The "Mining Lease Agreement" and the 
"Interim Agreement" are to be considered as a single agreement between the 
parties.

"A written agreement may 
consist of more than one document. Allen 
v. Allen, Wyo., 550 P.2d 1137 (1976). * * *

* * * * * *

"* * * [R]eference in a 
contract to extraneous writings renders them part of the agreement for indicated 
purposes. Kilbourne-Park Corporation v. 
Buckingham, Wyo., 404 P.2d 244 (1965); * * *." Busch Development, Inc. v. City of 
Cheyenne, Wyo., 645 P.2d 65, 68, 70 (1982).

"* * * Where a written 
contract refers to another instrument and makes the terms and conditions of such 
other instrument a part of it, the two will be construed together as the 
agreement of the parties. * * *" 17 Am.Jur.2d Contracts § 263, pp. 
666-667.

"The general rule is that 
in the absence of anything to indicate a contrary intention, instruments 
executed at the same time, by the same contracting parties, for the same 
purpose, and in the course of the same transaction will be considered and 
construed together, since they are, in the eyes of the law, one contract or 
instrument. * * *" 17 Am.Jur.2d Contracts § 264, p. 668.

The Exploration 
and Milling Agreement is a contemplated refinement of the Interim Agreement 
executed on April 27, 1973.

[¶67.]  The Interim Agreement provided that 
appellees' "costs incurred in performing its obligations to TVA under this 
agreement shall be reimbursed to the extent allowable under this paragraph." The 
paragraph sets forth the requirement that the costs be "reasonable" and in 
accordance with "generally accepted accounting principles;" that they "include 
but not be limited to taxes on the mill and reasonable general and 
administrative costs;" that officers' and directors' salaries be excluded; that 
depreciation "on the existing mill" be excluded, but that "[t]o the extent 
capital expenditures are required in order to repair, maintain, or expand the 
mill," as approved by TVA, be included. Similar acceptance of various costs by 
TVA were agreed upon, such as "management of the mining properties," and 
"exploration work" with respect to mining properties. It provided priority for 
milling ores directed to the mill by TVA and for payment by TVA of shutdown, 
standby and start-up costs plus $50,000 per year if the mill was idle; it 
provided a payment of up to $250,000 a year for each year 290,000 tons of ore 
were not processed by the mill. It provided for the setting up of an operating 
account to which TVA would deposit money for withdrawal by appellees for 
allowable costs.

[¶68.]  The definitive "Exploration and Milling 
Agreement" expanded on the terms of the Interim Agreement. It required detailed 
annual budgeting and planning, and it specified the allowable costs in 
detail.

[¶69.]  The "Mining Lease Agreement" required a 
payment by TVA to appellees of:

"fifty percent (50%) of 
the amount by which the market price for U[3]O[8] concentrate exceeds the 
production cost of such concentrates, which costs shall include payments made 
pursuant to paragraphs A and B above * * *." (Emphasis added.)

The costs 
referred to in paragraphs A and B as payments or advancements made toward 
production costs were:

"A. As concerns 6,000,000 
pounds of U[3]O[8] contained in reserves upon the Mining Properties and 
presently classified as Indicated Ore, Lessee shall pay Lessor Seven Million 
dollars ($7,000,000) payable:

"(1) Four Million Five 
Hundred Thousand dollars ($4,500,000) at closing; and

"2. Two Million Five 
Hundred Thousand dollars ($2,500,000) on or before January 1, 1979.

"B. As concerns 2,400,000 
pounds of U[3]O[8] contained in reserves presently classified as Inferred Ore 
(over and above the said 6,000,000 pounds referred to in A above), an amount 
equal to sixty-two and one half cents (62 1/2¢) per pound of U[3]O[8] in that 
category determined by March 31, 1975, to be Indicated Ore, up to and until a 
maximum of One Million Five Hundred Thousand dollars ($1,500,000) is owed to 
Lessor. * * *"

"Indicated ore" 
was defined as:

"* * * [O]re that has 
been sampled at such reasonably close intervals that assumptions can be made on 
the continuity, grade and amount of ore bounded by the sample 
points."

"Inferred ore" 
was defined as:

"* * * [O]re for which 
quantitative estimates are based largely on broad knowledge of the geologic 
character of the deposit and for which there are few, if any, samples or 
measurements. The estimates are based on an assumed continuity or repetition for 
which there is geologic evidence; this evidence may include comparison with 
deposits of similar type. Bodies that are completely concealed may be included 
if there is specific geologic evidence of their presence. Estimates of inferred 
ore should include a statement of the special limits within which the inferred 
ore may lie."

[¶70.]  These instruments adequately reflect the 
contract intention of the parties for appellees to set up and operate a uranium 
processing plant near Riverton for the processing of ore from the many claims 
which they had under lease in the Gas Hills area (including the two of 
appellant), and to sell the milled product to TVA. The costs to be incurred by 
appellees in exploration, milling, administrative operations, property 
management, etc., were to be advanced by TVA. Appellees were to profit to the 
extent of 50% of the amount by which the market price of the concentrate 
exceeded the production costs.

[¶71.]  There was an unqualified recognition by 
the parties to the instruments forming this contract that the amount to be paid 
to the lessors (including appellant) of the numerous properties leased by 
appellant would be determined after the milling process. The large amount of 
money to be received by appellees under the "Mining Lease Agreement" could not 
have been contemplated to consist of payment for ore and thus be subject to be 
allocated among the numerous lessees inasmuch as it was specifically included in 
"payments made" for "production" costs, and inasmuch as the interest of each 
lessee could not be determined until after the milling process resulted in a 
certain number of pounds of concentrate attributable to each claim, and until 
the many costs of extraction, etc., for each claim could be deducted from the 
gross amount. As noted, the contract between the parties was also plain and 
unambiguous in this respect, requiring payment of 40% of the net profit from ore 
"mined, produced and sold."

[¶72.]  Also as noted, even if the money received 
by appellees in 1973 was taken to be for apportionment among the many lessees, 
the result would be the same. The after-milling price would have to be 
determined, the pounds of ore from each claim would have to be determined, the 
costs of development would have to be determined, and the net profit would end 
up with the same amount due appellant as was reflected by the 
evidence.

[¶73.]  The trial court heard over three days of 
testimony relative to the operations of the parties and the accountings 
resulting from the contract. Exhibits were numerous. After considering the same, 
it properly found that appellees were to be paid for their costs by TVA and that 
the $7 million agreed by TVA to be paid to appellees before production was an 
advance on costs.

[¶74.]  Finally with reference to Issue No. 1, 
appellant contends error in the court's Finding of Fact and Conclusion of Law 
No. 4 in that it finds the sale of the ore to have occurred after it was mined 
and produced, and in that the sale price was properly determined by use of the 
Circular 5, X/8 formula. That already said answers this contention. Even if it 
were agreed that title to the ore passed before it was mined and produced, its 
value could not be ascertained until after it was milled. Appellant would have 
this court accept the testimony of its expert witness as to damages while 
acknowledging that damages could not be accurately testified to by him on the 
basis of the information at hand. The trial court opted to believe the other 
witnesses. As noted, this court must accept the evidence in support of the 
findings by the trial court and disregard conflicting evidence.

[¶75.]  The trial court's Findings of Fact and 
Conclusions of Law were supported by substantial evidence and were in accordance 
with the intent of the parties to the two contracts pertinent to this 
case.

ISSUE 2: DID THE 
DISTRICT COURT ERR IN REJECTING APPELLANT'S CONTENTIONS THAT IT WAS ENTITLED TO 
A CANCELLATION OF THE CONTRACT OF PURCHASE AND SALE AND AN ACCOUNTING FOR ONE 
HUNDRED PERCENT (100%) OF THE VALUE OF THE URANIUM REMOVED FROM THE CLAIMS, LESS 
REASONABLE COSTS OF MINING AND MILLING SAID URANIUM, BECAUSE OF APPELLEES' 
BREACH OF DEPENDENT COVENANTS CONTAINED IN THE CONTRACT OF PURCHASE AND SALE OF 
NOVEMBER 1, 1957, OR BECAUSE OF APPELLEES' BAD FAITH IN FAILING TO ACCOUNT AND 
PAY NET PROFITS AS CONTEMPLATED BY SAID CONTRACT OF PURCHASE AND SALE; AND, AS A 
RESULT THEREOF, DID THE COURT ERR IN REFUSING TO ADMIT AND CONSIDER APPELLANT'S 
EXHIBITS 27 THROUGH 64 IN SUPPORT OF SUCH CONTENTIONS?

[¶76.]  That which I have already said relative 
to the misconceptions of the majority opinion and relative to appellant's 
argument on the first issue presented reflects the lack of error on the part of 
the district court in connection with this issue.

[¶77.]  The plain language of the contract 
reflects that payment to appellant was not to be made until the ore was "mined, 
produced and sold," and that the minimum payment of $500 per month "as net 
profits therefrom, which payments shall be a credit upon any and all of owner's 
share of net profits" shall be made within 60 days "after purchaser develops a 
commercial deposit of ore ready for extraction." Implicit in the judgment of the 
district court is the finding that the $9,000 paid by appellees was the amount 
due under the minimum payments clause, which clause required the payments to 
begin 60 days after the ore was ready for extraction. Also implicit in the 
judgment is the finding that the claims were developed in a minerlike fashion as 
required. There was evidence to support these findings, and the court awarded 
interest of $963.72 for the delay in payment of some of the minimum payments. 
Also implicit in the judgment is the finding that any deviation from the terms 
of the Contract of Purchase and Sale of the claims was not a substantial one. 
There was evidence to support these findings which are implied in the 
judgment.

[¶78.]  Appellant received that called for by the 
Contract of Purchase and Sale. It received 40% of the net profits from the sale 
of the ore from the two claims. It contended that it was entitled to a share of 
the profit from the milling process, but such was obviously not required by the 
Contract of Purchase and Sale.

[¶79.]  The court found the accounting presented 
by appellees to be proper, and it rejected the testimony of appellant's 
accountant witness. Appellees' accounting reflected the gross proceeds received 
from the two claims as determined by application of the Circular 5, X/8 formula. 
The propriety of this method was discussed supra. A monthly itemization of tons, 
grade, pounds contained, market price, etc., was set forth. The accounting lists 
the pit mining costs by items (waste removal, mining, reclamation, production 
taxes, etc.) for each year since the operation began in 1978. The net profit was 
the difference between the gross proceeds and the costs. The court awarded 40% 
of the net profit so determined to appellant, less the $9,000 minimum payment 
already made, and plus the accrued interest of $963.72.

[¶80.]  Appellant argues that the Contract of 
Purchase and Sale, dated November 1, 1957, was a lease and not a deed and that 
the obligation of appellees to pay appellant is a dependent covenant wherefore 
the lease must fail if payment is not made, and appellant is entitled to 100% 
and not 40% of the net profits. Not only was proper payment made, but the 
instrument has the requisites of a deed since in it appellant and the 
third-party claim locators to it "convey, quitclaim and assign" the claims to 
appellees' predecessor (see Whalon v. 
North Platte Canal & Colonization Co., 11 Wyo. 313, 71 P. 995 (1903)). 
Since it was a deed without a right of reentry or reversion, it would not fail. 
But, even if it were a lease, performance was made under it, and any failure to 
make some of the minimum payments on time, or furnish accountings, are not 
dependent covenants, the violation of which are material deviations from the 
terms of the contract. The case cited by appellant for definition of a dependent 
covenant supports this finding; a finding implicit in the trial court's 
judgment.

"A covenant is dependent 
where it goes to the whole consideration of the contract; where it is such an 
essential part of the bargain that the failure of it must be considered as 
destroying the entire contract; or where it is such an indispensable part of 
what both parties intended that the contract would not have been made with the 
covenant omitted. * * *" Steak House, 
Inc. v. Barnett, Fla., 65 So. 2d 736, 738 (1953).

[¶81.]  Accountings by appellees were required 
under the Contract of Purchase and Sale, but only when distribution of payments 
was made. Appellees contended that such distributions were never in order 
because the claims did not produce one sufficient for a net profit. In fact, 
appellees contended that a loss occurred from developing these two claims. The 
trial court found otherwise and found a small resulting profit. Fraud and bad 
faith cannot be said to have existed on appellees part simply because the trial 
court found their sincere position to be wrong. It is further noted that 
appellant was authorized by the Contract of Purchase and Sale to examine the 
records of appellees "during business hours and not oftener than once each 
month" and if appellant reasonably believed the payments to be incorrect, it had 
"the right to cause an audit to be made of the records * * * by an independent 
certified public accountant." It did not do so.

[¶82.]  The foregoing refutes appellant's final 
contention that the trial court erred in refusing to admit appellant's Exhibits 
27 through 64 into evidence, they being in support of appellant's position 
relative to there being a breach of dependent covenants in the Contract of 
Purchase and Sale and the existence of bad faith on the part of appellees. 

[¶83.]  When offered, the objection was for the 
reason that the only purpose served would be to support appellant's count for 
punitive damages which the court had already ruled against. Appellees had argued 
to the district court that punitive damages are not usually awarded in breach of 
contract actions, Waters v. 
Trenckmann, Wyo., 503 P.2d 1187, 1188 (1972). The propriety of the trial 
court's ruling in this respect is not before us. Appellant argued to the 
district court that the exhibits were offered for all the issues in the case. An 
offer of proof was dispensed with because the exhibits were included in the 
record.

[¶84.]  The exhibits consisted of material from 
appellees' files. They were interoffice memorandums, letters between appellees 
and TVA and between appellees and their legal counsel. They concerned the 
economic feasibility of developing the two claims and the time table for doing 
so. They referred to the necessity for beginning the minimum payments at the 
proper time, and similar matters.

[¶85.]  It would seem that their admission into 
evidence would have little bearing on the matter one way or the other. In any 
event, the failure of appellant's theory relative to the requirements of the two 
pertinent contracts makes the admission or nonadmission of the exhibits to be 
immaterial. They would be pertinent only if the wording of the contracts were to 
be changed by the court to require payment to appellant when the transaction 
between appellees and TVA was entered into rather than when the ore was "mined, 
produced and sold."

ADDENDUM

[¶86.]  The majority opinion alleges 
that:

"* * * all rights to the 
ore were sold prior to its being 
mined and produced. * * *" (Emphasis in original.)

and 
again:

"The language in the 
mining lease agreement, as well as surrounding circumstances, leads us to 
conclude that the agreement constituted a sale of ore to TVA, notwithstanding the 
document's designation as a lease. Under the lease agreement FAP granted to 
TVA

"`* * * the exclusive 
right to explore, develop, mine, extract and remove from the Mining Properties 
all uranium and other fissionable source materials, * * * and thereafter to retain all right title and 
interest in and to all such severed minerals.' * * *" (Emphasis in original 
omitted, and emphasis added.)

[¶87.]  It may be that the "rights to the ore" 
were sold prior to its being mined and produced, as recited in the first 
quotation, but the majority opinion completely disregards the word "thereafter" 
in the second quotation - language which is plain and unambiguous in reflecting 
the time of transfer of "all right title and interest" in the ore to be after it is extracted and 
produced.

[¶88.]  Additionally, the second quotation 
indicates that the agreement was for a sale "notwithstanding the document's 
designation as a lease." Then, subsequently, the majority opinion 
reads:

"* * * We conclude that 
such an agreement is properly denominated a `lease' and may be cancelled upon a 
showing of a material breach."

The 
inconsistency is obvious.

[¶89.]  Since I find no error by the trial court, 
I would affirm.

1 E.g., costs of 
equipment, machinery, salaries, supplies, development work, royalty, taxes, 
depreciation, etc.

2 The court applied 
Section I because it "provides the greater benefits to" appellant.

3 The fact that the ore 
was not mined, produced or sold until 1978 was firmly established by the 
evidence.

4 In its brief, appellant 
withdrew its objections to paragraph 3 of the Findings of Fact and Conclusions 
of Law.

5 The costs were all those 
of TVA and appellees had none, wherefore, the statement that appellees "were to 
be paid for their costs" was error, and TVA's agreement to pay $7 million to 
appellees before production was not an "advance on costs."