No. 14492 

IN THE SUPREME COURT OF THE STATE OF MONTANA 

1979 

M . E. ROGERS I 

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 agreement and option to purchase 

mining claims. 

Defendants Relyea are the owners of patented and unpatented mining claims in Broadwater County. In 1965 defendants entered into an agreement permitting the Finley Company to mine the property on which the claims were located 

and keep all proceeds from the mining operations. The 

agreement included an option to purchase the mining claims 

and provided for the establishment of escrow and a deposit 

of a deed in escrow by the defendants. In 1967 Finley and 

the defendants modified the schedule of payments in the 

agreement. 

The original agreement with its modification was assigned by Finley to plaintiff M. E. Rogers also in 1967. 

The assignment specifically recited that the escrow mentioned in the original agreement had never been established. 

Between 1967 and 1974, the parties modified the assigned 

contract four or more times because of plaintiff's failure 

to make timely payments. One of these modifications was a 

document entitled "Option Agreement" where plaintiff was 

granted the exclusive right to purchase the mining claims 

and payments were made annually beginning on January 2, 

1974. The first January 2nd payment was further extended 

until June 15, 1974, by a modification executed by the 

parties on March 15, 1974. Plaintiff failed to make the 

June 15th payment. 

In May 1974 plaintiff contacted Richard Voit to secure 

financing for the development of the mine. Voit and plain- 
tiff observed the mining property and went to the bank where 

the escrow was to have been established. They discovered, 

however, that the escrow had not been established. Voit 

told plaintiff that he would withdraw his financial commitment to the mine if the escrow was not established. Plaintiff then went to defendants' residence and requested that 

the deed be placed in escrow. Defendants refused, however, 

claiming that plaintiff 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 cutting of stumpage on the mining property. Under 

the stumpage contract, payments by the third party were made 

to defendants and applied to plaintiff's annual payment 

under the contract between defendants and plaintiff. 

Plaintiff filed a complaint on December 8, 1975, seeking to restrain 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 

District Court found that a valid agreement existed between 

the parties which agreement was breached by defendants' 

failure to establish an escrow agreement and credit certain 

payments to plaintiff. The court excused plaintiff from his 

performance under the agreement. Upon the trial of the 

remaining issues, the court reformed the contract and ordered 

specific performance. Damages resulting from the breach 

were denied. From this judgment, both plaintiff and defendants appeal. 
Several issues are raised on appeal: 

1. id the District Court err in granting plaintiff 

specific performance 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 to make required payments under the 

contract? 

3. Did the District Court err in finding that defendants failed to credit payments under the stumpage contract 

to plaintiff? 

4. Was the stumpage contract not binding on the parties because it was not supported by consideration? 

5. In reforming the contract, did the District Court 

err in requiring plaintiff to execute a promissory note and 

real mortgage 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 to the first issue, defendants argue that 

equity will not decree the specific performance of an option 

to purchase contained within a mining agreement because 

options are unilateral in nature and lack mutual obligations. 

We disagree. The rule is well settled that options to 

purchase may be specifically enforced in circumstances like 

the present case. Steen v. Rustad (1957), 132 Mont. 96, 313 

P.2d 1014; McLaren Gold Mining Co. v. Morton (1950), 124 

Mont. 382, 224 P.2d 975. The McLaren case is particularly 

analogous to this case. McLaren involved an action for 

specific performance of an option to purchase contained 
within a mining lease. The plaintiff, as lessee, assigned 

his interest in the contract to a third party who expended 

considerable sums in developing and mining the property. In 

directing the defendant lessor to specifically perform the 

terms of the contract and option to purchase, the Court 

stated: 

"'There is no class of contracts connected with 

the mining industry more familiar to the profession than that of options to purchase, working 

bonds, or executory contracts of sale. Unlike 

other classes of real estate, the value of a mine 

cannot be determined by mere superficial observation. Expensive investigations, involving measurements, examination of underground geological 

conditions, and sampling invariably precede the 

consummation of a purchase or sale of mining 

property. In order to justify an intending purchaser in making the requisite investigations 

and incurring the attendant expense, he invariably exacts some contract from the owner by which 

he secures the first privilege of purchasing the 

property in the 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 

all classes for the purpose of marketing them in 

the moneyed centers of the world. These conditions have given rise to a class of contracts 

infinite in variety, from a mere letter signed by 

the owner, agreeing to accept a certain price for 

his mine if paid within a certain time, to a 

formidable working bond, which contemplates entry 

into possession and extensive exploitation to 

prove the value of the mine before the privilege 

of purchase must be exercised. The ultimate object of all of them, however, is to secure the 

exclusive privilege of purchasing at a given 

price, within a specified time. * * * 

"I* * * the rule that contracts which do not 

involve mutuality cannot be specifically enforced 

is modified in favor of the holder of this class 

or contracts. He is afforded this equitable 

remedy, where he fully and fairly performs, or 

offers to perform, the terms of his contract 

within the time stipulated. 

"'The very purpose of an optional contract of this 

nature is to extinguish this mutuality of right 

and vest in one of the parties the privilege of 

determining whether the contract shall be vitalized and enforced. An option to buy or sell land, 

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 case may be enforced 

by specific performance. 

With respect to the second issue, defendants argue that 

the covenant to establish escrow was not a material part of 

the contract and was independent of plaintiff's covenant to 

make timely payments. On this basis defendants argue that 

their failure to establish the escrow did not excuse plaintiff's failure to make the June 15 payment. In the alternative, defendants contend that plaintiff waived the establishment of escrow as a material part of the contract. It 

is argued that plaintiff knew from the modifications and the 

assignment that the escrow had never been established and 

that this became an immaterial part of the agreement. 

We disagree. The covenant to establish escrow was a 

material part of the contract and a condition precedent to 

plaintiff's obligation to make payments. The object of the 

contract entered into between the parties was the purchase, 

development and financing of the mining claims. The establishment of the deed in escrow was an integral part in the 

attainment of this object. Without the escrow, it is highly 

probable that the parties would not have even contemplated 

such an agreement. 

As to defendants' argument that plaintiff waived the 

establishment of escrow as a material part of the contract, 

the record is clear that plaintiff did not waive this requirement. Though the assignment acknowledged the escrow had 

never been established, plaintiff went to defendants' resi- 
dence in May 1974 to request the establishment of the escrow. At that time, plaintiff was current in his payments. 

Plaintiff did not default until he failed to make the June 

15 payment; defendants, however, defaulted earlier when they 

refused to establish the escrow. 

The general rule is that a party committing a substantial breach of a contract cannot maintain an action against 

the other contracting party or his predecessor in interest 

for a subsequent failure to perform if the promises are 

dependent. 17 Am.Jur.2d Contracts, S366, p. 807. A substantial or material breach is one which touches the fundamental purposes of the contract and defeats the object of 

the parties in making 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 will not 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 to plaintiff's annual payment under the agreement. 

These amounts stemmed from a separate contract for the sale 

of stumpage on the mining property. Under this contract 

plaintiff, defendants and a third party agreed that payments 

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 is not 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 to credit payments from the stumpage contract to 

plaintiff's annual payment. 

Under Rule 36, M.R.Civ.P., "the matter is admitted 

unless, within 30 days after service of the request, or 

within such shorter or longer time as the court may allow, 

the party to whom the request is directed 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, as plaintiff properly contends, the 

matter was deemed admitted. In so holding, however, we feel 

it is noteworthy to mention that the District Court also 

ordered an accounting to ascertain the exact amount of 

plaintiff's credit in the instant case and that, if defendants' assertion is in fact true, it will bear itself out 

when that accounting occurs. 

Defendants also argue that the stumpage contract was 

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 suit pending against 

plaintiff and the third party regarding the cutting of 

stumpage on the mining property. They later relinquished 

their claim when the parties resolved their disagreement by 
executing the stumpage contract. This was sufficient consideration to create a binding contract. Murray v. White 

(1911), 42 Mont. 423, 113 P. 754; Mustang Equipment, Inc. v. 

Welch (1977), 564 P.2d 895, 115 Ariz. 206. 

The fifth issue raised concerns the extent to which a 

court may reform a contract. Plaintiff contends that it was 

error for the District Court, in reforming the contract, to 

require plaintiff to execute a promissory note and a real 

estate mortgage 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 to making all 

further payments after making the first payment; it created 

personal liability on the part of plaintiff for the unpaid 

balance of the purchase price; and it gave defendants the 

right to foreclose in the event of a future default. 

Defendants also contend it was error for the District 

Court in reforming the contract to order an accounting, 

schedule a new option to purchase date, and set up a new 

payment schedule. 

The power of a court to reform a contract was discussed 

in Sullivan v. Marsh (1950), 124 Mont. 415, 421-22, 225 

P.2d 868, 872, where this Court stated: 

"One may not employ a suit for reformation of a 

contract for the purpose of making an entirely 

new agreement. Such suits are only to establish 

and perpetuate an already existing agreement, 

and to make it express the real intent of the 

parties as such intent existed at the time of 

the making of the agreement. A court of equity 

is not empowered to supply by decree an agreement which was never made . . . It is the duty 

of the court to enforce contracts which the parties themselves have made and not to make new 

and different contracts for the parties or to 

make significant additions thereto and thus give 

to one or more of the parties, benefits and advantages on which the minds 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 to purchase date 

and set up a new payment schedule. These adjustments were 

necessary to determine the state of affairs between the 

parties and carry out their agreement once the contract had 

been breached and the dates for plaintiff's performance had 

passed. Without these adjustments, it was impossible for 

the court to give effect to the order for specific performance. 

The adjustment of these terms was consonant with the powers 

of a court in equity and the purposes of equitable relief. 

Amos v. Bennion (1969), 23 Utah2d 40, 456 P.2d 172. 

However, it was error for the District Court to require 

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 effort by the court to remedy the pattern of 

untimely payments by plaintiff, it nevertheless exceeded the 

scope of the agreement as originally contemplated by the 

parties. It altered the original agreement by creating new 

rights and obligations, and it was not necessary to reinstate the contractual relationship between the parties. For 

these reasons, we order that the requirement be deleted. 

Finally plaintiff argues that the District Court erred 

in not 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, the measure of damages, except where 

otherwise expressly provided by this code, is 

the amount which will compensate the party aggrieved for all the detriment proximately caused 

thereby or which in the ordinary course of things 

would be likely to result therefrom. No - damages 

The District Court held that plaintiff's claims were too 

speculative or not supported by the evidence to permit an 

award of damages. We agree. We cannot say with absolute 

certainty that the mine would not have been developed if 

Voit had not decided to invest in the venture. Another 

investor could have possibly expressed interest, or it might 

have been that Voit would have decided for some other reason 

not to invest in the mine regardless of the establishment of 

escrow. 

Affirmed in part and reversed in part. 

We concur: 

- 

C>ief Justice 

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

Justices 9