### No. 14492 

### IN THE SUPREME COURT OF THE STATE OF MONTANA 1979

M

# .E. ROGERSI 

### Plaintiff and Respondent,

-vsGEORGE A. RELYEA and DOROTHY RELYEA, Defendants and Appellants.

Appeal from: District Court of the First Judicial District, Honorable Peter G. Meloy, Judge presiding. Counsel of Record: For Appellants: Daniels and Mizner, Deer Lodge,Montana For Respondent: Gough, Shanahan, Johnson & 

### Waterman, Helena,Montana

- ,--,- :' , 

## 6!- ._. 

# - Filed: Submitted on briefs: August 1, 1979

### Mr. Justice John Conway Harrison delivered the Opinion of the Court.

This is an appeal from Broadwater County concerning the specific performance of an agreementand option to purchase mining claims. DefendantsRelyea are the owners of patented and unpatented mining claims in Broadwater County. In 1965 defendants entered into an agreementpermitting the Finley Company to mine the property onwhich the claimswere located and keep all proceeds from the mining operations. The agreement included an option to purchase the mining claims and provided for the establishment of escrow and a deposit of a deed in escrow by the defendants. In 1967 Finley and the defendantsmodified the schedule of payments in the agreement. The original agreementwith itsmodification was assigned by Finley to plaintiff M. E. 

### Rogers also in 1967. The assignment specifically recited that the escrow mentioned in the original agreementhad never been established. Between 1967 and 1974, the parties modified the assigned contract four or more times because of plaintiff's failure to make timely payments. One of these modifications was a document entitled "OptionAgreement" where plaintiff was granted the exclusive right to purchase the mining claims and payments were made annually beginning on January 2, 

### 1974. The first January 2nd payment was further extended until June 15, 1974,by a modification executed by the parties onMarch 15, 1974. Plaintiff failed to make the June 15th payment. InMay 1974 plaintiff contacted Richard Voit to secure financing for the development of the mine. Voit and plain-tiff observed the mining property and went to the bank where the escrow 

### was tohave been established. They discovered, however, that the escrow had not been established. Voit told plaintiff thathe would withdraw his financial commitment to the mine if the escrow was not established. Plaintiff then went todefendants' residence and requested that the deed be placed inescrow. Defendants refused, however, claiming thatplaintiff had not complied with the terms of the agreement. Defendants thereafter assumed the relationship

### was terminated with plaintiff and arrangements were made with other parties for the development of the property. Prior to the termination of the agreement, plaintiff, defendants and a third party entered into a contract in 1974 for the cuttingof stumpage on the mining property. Under the stumpage contract, payments by the third party

### weremade todefendants and applied toplaintiff's annual payment under the contract between defendants and plaintiff. Plaintiff filed a complaint on December 

### 8, 1975, seeking torestrain defendants from terminating the agreement, requiring defendants to specifically perform portions of the agreement, and requesting damages for the breach of the agreement. Upon a motion for partial summary judgment, the DistrictCourt found that a valid agreement existed between the parties which agreement was breached by defendants' failure toestablish an escrow agreement and creditcertain payments toplaintiff. The court excused plaintiff from his performance under the agreement. Upon the trial of the remaining issues, the courtreformed the contract and ordered specificperformance. Damages resulting from thebreach

were denied. From thisjudgment, both plaintiff and defendants appeal.Several issues 

### are raised on appeal: 1. id the District Court 

### err ingranting plaintiff specificperformance because the agreement contained an option to purchase and therefore lacked mutuality required for the granting of specific performance? 2. Was defendants' failure to establish an escrow agreement a material breach of the contract which excused plaintiff's failure tomake required payments under the contract? 3. Did the District Court 

### err infinding that defendants failed tocreditpayments under the stumpage contract toplaintiff? 4. Was the stumpage contract not binding on the par

### ties because 

### itwas not supported by consideration? 5. In reforming the contract, did the District Court



### err inrequiring plaintiff toexecute a promissory note and realmortgage upon payment of one-fifth of the balance of the purchase price? 6. Did the District Court 

### err in failing

### to grant plaintiff damages for the breach of the agreement? With regard tothe firstissue, defendants argue that equity 

### willnot decree the specificperformance of an option topurchase contained within a mining agreement because options areunilateral innature and lack mutual obligations. We disagree. The rule 

### is

### well settled that options to purchase may be specifically enforced incircumstances like the present case. Steen

### v. Rustad (1957), 132Mont. 96, 313 P.2d 1014; McLaren Gold Mining Co. v. Morton (1950), 124 Mont. 382, 224 P.2d 975. The McLaren case isparticularly analogous to this case. McLaren involved an action for specific performance of an option topurchase contained

### within a 

### mining lease. The plaintiff, aslessee, assigned his interest inthe contract toa third party who expended considerable sums indeveloping and mining the property. In directing the defendant lessor to specifically perform the terms 

### of the contract and option topurchase, the Court stated: "'There is

### no 

### class of contracts connected with the mining industrymore familiar tothe profession than thatof options topurchase, working bonds, or executory contracts of sale. Unlike other classes of real estate, the value of a mine cannot be determined by mere superficialobservation. Expensive investigations, involvingmeasurements, examination of underground geological conditions, and sampling invariably precede the consummation of a purchase or 

### sale of mining property. Inorder tojustify an intending purchaser inmaking the requisite investigations and incurring the attendant expense, he invariably exacts some contract from the owner by which he secures the firstprivilege of purchasing the property inthe event the examination proves satisfactory. In addition to this, a large army of "promoters," recruited from the ranks of all professions, trades, and occupations, swarm through the mining regions, seeking exclusive privileges and "options" on mining properties of allclasses for thepurpose of marketing them in themoneyed centers of theworld. These conditions have given rise toa class of contracts infinite invariety, from a 

### mere letter signed by the owner, agreeing toaccept a certain price for hismine if paid within a certain time, 

### toa formidable working bond, which contemplates entry intopossession and extensive exploitation to prove thevalue of themine before the privilege of purchase must be exercised. The ultimate object of allof them, however, is 

### to secure the exclusive privilege of purchasing ata given price, within a specified 

### time. 

## * * *

"I* 

## * * the rule that contractswhich do not involve mutuality cannot be specifically enforced is

### modified infavor of the holder of thisclass or contracts. He 

### is

### afforded this equitable remedy, 

### where he fullyand fairlyperforms, or offers toperform, the terms

### of his contract within the time stipulated. "'The very purpose of an optional contractof this nature is

### toextinguish thismutuality of right and vest inone of theparties the privilege of determining whether the contract shall be vitalized and enforced. An option tobuy or sellland, more than any other form of contract, contemplates

### a specific performance of its terms; and it is the right to have them specifically enforced that imparts to them their usefulness and value.'" 124 Mont. at 392-93, quoting 3 Lindley on Mines (3rd Ed.), section 859,pp. 2123-2127. We hold, therefore, that the option to purchase contained within the contract in the instant casemay be enforced by specific performance. With respect to the second issue, defendants argue that the covenant to establish escrowwas not a material part of the contract and was independent of plaintiff's covenant to make timely payments. On this basis defendants argue that their failure to establish the escrow did not excuse plaintiff's failure to make the June 15payment. In the alternative, defendants contend thatplaintiff waived the establishmentof escrow as a material part of the contract. It is argued that plaintiff knew from the modifications and the assignment that the escrow had never been established and that this became an immaterial part of the agreement. We disagree. The covenant to establish escrow was a material part of the contract and a condition precedent to plaintiff's obligation to make payments. The object of the contract entered into between the parties was the purchase, development and financing of the mining claims. The establishment of the deed in escrowwas an integral part in the attainment of this object. Without the escrow, it is highly probable that the parties would not have even contemplated such an agreement. As to defendants' argument thatplaintiff waived the establishment of escrow as a material part of the contract, the record is clear that plaintiff did not waive this requirement. Though the assignment acknowledged the escrow had never been established, plaintiff went to defendants' resi-dence inMay 1974 torequest the establishment of the escrow. At that 

### time, plaintiff 

### was current inhis payments. Plaintiff did not defaultuntil he failed tomake the June 15payment; defendants, however, defaulted earlier when they refused to establish the escrow. The general rule is that a party committing a substantialbreach of a contract cannot maintain an action against the other contracting party orhis predecessor 

### in interest for a subsequent failure toperform if the promises 

### are dependent. 17Am.Jur.2d Contracts, S366, p. 807. A substantial ormaterial breach 

### isone which touches the fundamental purposes of the contract and defeats the object of the parties inmaking the contract. Here, the District Court found that defendants committed a substantial breach of the agreement and ordered defendants to specifically perform the 

### terms of the contract. Implicit in the court's order was the fact that the covenants were dependent. It 

### is the general rule that the court's findings

### willnot be disturbed on appeal unless unsupported by substantial evidence. Arrowhead, Inc. v. Safeway Stores, Inc. (1978), Mont. 

## , 587 P.2d 411, 413, 35 St.Rep. 1830, 1832. Here,

we find that there is sufficient credible evidence to support the findings of the court. Defendants next argue that the District Court erred in finding that defendants failed to credit certain amounts received toplaintiff's annual payment under the agreement. These amounts stemmed from a separate contract for the sale of stumpage on themining property. Under this contract plaintiff, defendants and a third party agreed thatpayments under the stumpage contract would be made to defendants and

### applied against the plaintiff's annual payment under the agreement between plaintiff and defendants. Defendants contend that the finding isnot supported by substantial evidence, since the record does not reflect the receipt of any such money. Plaintiff argues, however, that defendants admitted the finding because they failed to

answer a request for admission regarding the matter within 30 days. The request asked defendants to admit that they failed tocreditpayments from the stumpage contract to plaintiff's annual payment. Under Rule 36, M.R.Civ.P., "thematter is

### admitted unless, within 30 days after service of the request, or within such shorter or longer time asthe courtmay allow, the party towhom the request isdirected serves upon the party requesting the admission 

### a written answer or objection



# . 

# . ." Here, 

### the record discloses that defendants failed to

answer the request and 

### were not granted an extension by the court. Therefore, asplaintiff properly contends, the 

### matter was deemed admitted. 

### In so holding, however, 

### we feel it is

### noteworthy tomention that the District

### Court also ordered an accounting toascertain the exact amount of plaintiff's credit inthe instantcase and that, if defendants' assertion is 

### in fact true, it will

### bear itself out when that accounting occurs. Defendants also argue that the stumpage contractwas not a binding agreement on the parties because it was 

### not supported by any consideration. This is 

### simply not true. Defendants had an injunction and a suitpending against plaintiff and the third party regarding the cutting of stumpage on themining property. They later relinquished their claimwhen the parties resolved their disagreement byexecuting the stumpage contract. This 

### was sufficient consideration tocreate 

### a binding contract. Murray v. White (1911), 42 Mont. 423, 113P. 754; Mustang Equipment, Inc. v. Welch (1977), 564 P.2d 895, 115Ariz. 206. The fifthissue raised concerns the extent towhich a courtmay reform a contract. Plaintiff contends that 

### it was error for the DistrictCourt, inreforming the contract, to require plaintiff toexecute a promissory note and a real estatemortgage upon payment of one-fifth of the balance of the purchase price. It 

### is argued that this requirement imposed greater burdens on plaintiff than originally contemplated by the parties: it obligated plaintiff tomaking all further payments aftermaking the firstpayment; 

### it created personal liability on the part of plaintiff for the unpaid balance of the purchase price; and it gave defendants the right toforeclose inthe event of a future default. Defendants also contend it was error for the District Court inreforming the contract toorder an accounting, schedule a new option topurchase date, and setup a new payment schedule. The power of a court toreform a contract was discussed inSullivanv. Marsh (1950), 124Mont. 415, 421-22, 225 P.2d 868, 872, where this Court stated: "One may not employ 

### a suitfor reformation of a contract for the purpose of making an entirely new agreement. Such suitsareonly toestablish and perpetuate an already existing agreement, and tomake it express the real intentof the parties as such intent existed atthe timeof themaking of the agreement. A court of equity 

### isnot empowered to supply by decree an agreement which 

### was never made 

# . . . It is the duty of the court to enforce contractswhich the par

### ties themselves have made and not tomake new and different contracts for the parties or to make significant additions thereto and thus give toone ormore of the parties, benefits and advantages on which theminds of the contracting parties have never met."We hold that 

### it was not error for the District Court to order an accounting, schedule a new option topurchase date and 

### set up a new payment schedule. These adjustments 

### were necessary todetermine the stateof affairsbetween the parties and carry out their agreement once the contract had been breached and the dates forplaintiff's performance had passed. Without these adjustments, 

### it was impossible for the court to give effect tothe order for specific performance. The adjustment of these 

### termswas consonant with the powers of a court inequity and the purposes of equitable relief. Amos v. Bennion (1969), 23 Utah2d 40, 456 P.2d 172. However, it 

### was error for the DistrictCourt torequire plaintiff to execute a promissory note and real estate mortgage upon the payment of one-fifth of the balance of the purchase price. Although the requirement was, understandably,

a sincere effortby the court to remedy the pattern of untimely payments by plaintiff, 

### it nevertheless exceeded the scope of the agreement asoriginally contemplated by the parties. It altered the original agreement by creating new rights and obligations, and 

### it was not necessary toreinstatethe contractual relationship between the parties. For these reasons, 

### we order that the requirement be deleted. Finally plaintiff argues that the DistrictCourt erred innot granting damages for the breach of the contract. The thrust of plaintiff's contention 

### is that defendants' breach "drove off 

### a potential investor [Voit] attracted to the mine" and prevented plaintiff from financially developing the mine. Montana statutes set forth the measure of damages in the case of breach of contract. Section 27-1-311, MCA, provides:

### "For the breach of an obligation arising from contract, themeasure of damages, exceptwhere otherwise expressly provided by this code, is the amount which 

### willcompensate the party aggrieved for all 

### the detriment proximately caused thereby or which inthe ordinary course of things would be likely toresult therefrom. No -

### damages

The District

### Court held thatplaintiff's claims

### were too speculative or not supported by the evidence topermit an award of damages. We

### agree. We cannot say with absolute certainty thatthemine would not have been developed if Voit had not decided toinvest inthe venture. Another investor could have possibly expressed interest, or it

### might have been thatVoit would have decided for some other reason not to invest inthemine regardless of the establishment of

escrow. Affirmed inpart and reversed inpart.

We 

### concur:



### - C>ief Justice

*

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# 1, ,Jd&d*L-,,/ 

### Justices 

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