No. 80-82 IN THE SUPREME COURT OF THE STATE OF MONTANA 1981

DONALD McSWEYN, Plaintiff and Respondent,

VS. MUSSELSHELL COUNTY,MONTANA, HOUGEN LAND, INC., a Montana Corporation, Defendants and Appellants.

Appeal from: District Court of the Fourteenth Judicial District, In and For the County of MusselsLell HonorableAlfred B. Coate, Judge presiding. Counsel of Record: For Appellant: John Pratt argued,CountyAttorney, Roundup, Montana Moulton, Bellingham, Longo & Mather, Billings,Montana Sidney Thomas argued, Billings, Montana For Respondent: Holmstrom, Dunaway and West, Billings, Montana Robert Holmstrom argued,Billings, Montana

Submitted: April 20, 1981 Decided: August 10, 1981 Filed:

## AUG10 

## 198%



# . ClerkMr. Justice Fred J. Weber delivered the Opinion of the Court.

This is an appeal by the defendants from a judgment of the DistrictCourt, Fourteenth Judicial District, MusselshellCounty, declaring certain oiland gas leases owned by the plaintiff, Donald McSweyn, tobe valid. Wereverse the judgment of the DistrictCourt. Defendants raise these issues on appeal: 1. Were the provisions of a contract for deed between Musselshell County and A. D. Shields, containing a 2 1/2 percentmineral reservation, merged into a subsequent deed between those parties inwhich the County reserved a 2 1/2 percent royalty interest? 2. Is a quiet titledecree entered prior to the execution and delivery of the deed from the County to Shields,

res judicata as to the successors ininterestand other parties inthis case? 3. Did the deed inwhich the County reserved the royalty interestresultinan unconstitutional giftto Shields? 4. Is McSweyn barred by estoppel, laches, or waiver from claiming that the County has a mineral interestrather than a royalty interest? This case comes tous on an agreed statement of facts. The County through tax proceedings had acquired the real property described inthe oiland gas leases toMcSweyn with which 

### we are concerned. In 1933 the County entered into a contract with Shields for the sale to Shields of the real property. The contract contained the following reservation: 

# ".

. . vendor [County] reserves to itself and its successors anundivided two and one-half percent of alloil, gas and other minerals lying in, under and beneath the premises hereinbefore described. 11 

# . . . Allparties agree that the above language created a mineral reservation.Before fullpayment had been made and deed delivered under the 1933 contract for deed, Shields filed a quiet title action against the County and other defendants which resulted ina 19'43 decree. The decree inpart stated: 

# ".



# . .A. D. Shields, is the owner, seized infee and entitled to the possession of the following described real property

# . .

# . excepting and reserving to the said defendant Musselshell County, Montana, 2 1/2%of alloil, gas or other minerals lying in, under and beneath [the said land] 

# . .

# ." Approximately one year later, in 1944, the County executed and delivered to Shields a deed covering the property 

### inquestion which contained the following reservation: 

# ".

.

# . and reserving unto 

# . 

# . . [theCounty] its successors and assigns, an undivided two and onehalf percent royalty of alloil, gas, and other minerals lying in, and thatmay be produced from the premises hereinbefore described, delivered freeof cost

# . .."
The parties again agree that the foregoing deed language constitutes a royalty reservation as distinguished from the mineral reservation contained in the contract for deed. After 1944 the lands described inthe deed were transferred by Shields and his successors ininterest to other parties. In 1974, 30 years after the deed, the successors ininterest of Shields executed oiland gas leases toExeter Company, which assigned its interest toExeter Exploration Company, which inturnmade partial assignments to True Oil Company. Oilwellsweredrilled on the lands in 1976 and four of the fivewells drilled arepresently producing oil.. In 1976, one day before drilling started on the first well, plaintiff, McSweyn, obtained from the County the first of his oiland gas leases covering the County's mineral interest inthe lands. The second leasewas obtained by McSweyn from the County 19 days later. The McSweyn leases, which arevalid only if the County owned and retained amineral interestrather than a royalty interest, contained the following disclaimer: "The execution of this instrument shall inno way prejudice the right of Musselshell County to claim its interest

### is a royalty interestrather than a mineral interest." McSweyn brought this action in 1977 asking the District Court to declare and determine hisrights and interests under his oiland gas leases from the County. After the commencement of that action, the County entered intoa written agreement with allof the real property owners, who

areShields' successors ininterest, and other parties. The agreement covered the land involved inthis action aswell

asother lands. The agreement points out that the County executed contracts for deed containing mineral reservations, not only covering the Shields land but also other County lands. Allof such contracts for deed were followed by deeds containing royalty reservations similar inform to the deed to Shields. The agreement further stated: "The parties hereto aredesirous of settling these differences and settling the County's interest in the above described property, and the parties hereto mutually agree thatwhere the deeds from the County to the various Purchasers show that there was a 2 1/2%royalty, that said royalty interest be considered tobe a 2%interest, and wherever the County reserved a 6 1/4%royalty inthe above described property, that said interestbe considered tobe a 4%royalty interest. Furthermore, the County makes no claim to any mineral interest inthe above described property, and makes claim to only royalty interest as set forth above." The agreement further conveys to the County the 2 percent royalty interest inthe land described inthiscase. The DistrictCourt held that the contract for deed contained a reservation of mineral interest and the issuance of the deed ata later date gave Shieldsmore than he had bargained for. The court found thata mineral interestismore valuable than a royalty interest and that the deed by theCounty to Shieldswas an unconstitutional donation or gift by the County. The court further found that the 1943judgment inthe quiet titleaction cannot be attacked and that such decree commanded the County to issue a mineral interestdeed which the County failed todo. The court further found that the 1943 decree isres judicata inthisproceeding. The court found no element of estoppel or laches and held that thewaiver argument failsinthat itpresupposes that the County could give away itsmineral interestwithout compensation. The DistrictCourt found the McSweyn leases tobe valid. The law of oiland gas inMontana passed through periods of growth and change during the 1930's and 1940's. Judge Jameson refers to the statutoryhistory inSuperior OilCo.

v. Vanderhoof (1969), 307 F.Supp. 84. Hepoints out that section 4481.2, R.C.M., 1935, described the reservation which a county could make during the 1930's. That code section is confusing. Itrefers tomineral rightreservations and then uses terminology which ismore consistent with royalty reservations. The statutewas so confusing that it would have been difficult for any county official todetermine the correct application. Superior 

### -- OilCo. points out that the code sectionwas repealed by Chapter 171of the session laws of 1941, which alsoprovided that on sales of real property "thecounty may reserve not toexceed six and one quarter percent (6 1/4%) royalty interest in the oil, gas and minerals produced and saved from said land." In this case, the 1933 contractbetween the County and Shields attempted to follow the old code section and contained

a reservation of a 2 1/2 percentmineral interest. The 1943 decree quieting title contained the same reservation. Thatquiet title decree isnot particularly significant. Itwas brought by the then county attorney for Musselshell County. Our fact situation is similar to thatdescribed by Judge Jameson inSuperior OilCo.: 

### -- "Nor is the decree quieting titleparticularly significant. It simply sets forth the reservation as it appeared in the deeds [inour case the contract for deed]. Obviously no issuewas raised inthat action as towhether the reservation was a mineral or royalty interest. As noted supra, apparently the county attorney represented the Vanderhoofs inthe action. [Thiswas also true as toMusselshell County and the county attorney.] No appearance was made by the county. 

# .

# ." 307 F.Supp. 91. Next in thiscase is the 1944 deed inwhich the County

reserves an undivided 2 1/2 percent royalty interest. This is the firsttime the County directly participated after the 1933 contract. In 1944 the County was operating under the 1941session laws. While there isno evidence in the agreed statement of facts, the statutoryhistory gives an obvious explanation for the change inthe provisions of the deed by the County. The deed was accepted by the grantee, Shields, and recorded. No question

### was raised by eitherparty for

more than 30 years. Merger -- By Deed McSweyn requests that his oiland gas leases be found valid, and the DistrictCourt so determined. It

### isimportant thatwe keep inmind that thisrequest has the effectof asking the court toreform the 1944 deed. We must, therefore, consider the rules regarding reformation of deeds and merger. In substanceMcSweyn contends that the 1944 deed should be reformed because of themutual mistake of the County and Shields. The elements for such reformation are setoutin Voyta v. Clonts (1958), 134 Mont. 156, 328 P.2d 655, as follows:"'A sequence statement of reformation is this: There isa prior understanding of the parties; the parties execute a written contract; somewhere and sometime between the understanding reached and the actual creation of the written instrument, a mistake occurs. It occurs inreducing towriting the agreement which the parties have intended. Obviously the alleged mistake must relate to something then inthe contemplation of the parties. The fault sought tobe 

### - -- corrected is that the executed written instrument --- does not reflect the actual and true understanding of 

### -- 

### -- the parties. This isa cardinal principle in the field of reformation formutual mistake. Then, and only 

### - 

## -- then, can the powers of equitybe invoked to correct 

### - -- the mistake.

### '" (~m~hasis added.) 134 ~onc 166, 328 P.2d 661. McSweyn contends that the fault sought tobe corrected is that the 1944 deed does notreflect the actual and true understanding of theparties ascontained inthe 1933 contract. However, as stated inVoyta, inorder toreform the deed on the ground of mutual mistake, the evidence of mistakemust be clear, convincing and satisfactory. The court inVoyta further states: 

### "

## 'The 

### presumption is 

### --- that thewriting contains the finalagreement 

### -- of the parties 

## - and expresses their realpurpose and intent. 

### ---- To meet and over- come thatpresumption plaintiff wasrequired to 

### -- present clear, convincing and satisfactoryprGf.



# ... 1 II 134 Mont. 167, 328 P.2d 661. Other than the instruments, there isno evidence inthe record concerning the intent of the County and Shields at the time of the 1944 deed. Inaddition there is absolutely

no evidence of mutual mistake unless 

### we should find that the instruments themselves show such mutual mistake. As stated above, 

### we begin with the presumption that the 1944 deed contained the final agreement of the County and Shields and expressed their real purpose and intent. The DistrictCourt found that the 1943 quiet title decreewas

res judicata as to the interests of the party and defined the County's reservation as a 2 1/2 percent mineral interest Resjudicata isdiscussed later in this opinion. While itis true that the decree specified the interests of the parties in 1943, that does notprevent the parties from making a subsequent change intheir respective interests. The 1944 deed shows that the County made a change inits reservation. As

### we pointed out inour brief history, the 1941 statute afforded a reasonable explanation for the change on the part of the County. The execution of a deed by the County in 1944 containing a royalty reservation does not on its face indicatemutual mistake asbetween the parties when compared to the 1933 contract for deed. As stated inVoyta: "'Itcannot be said that the evidence in this case iseither clear, convincing, or satisfactory, as to the allegedmistake. 

# . .I II 134 Mont. 167, 328 P.2d 662. In addition, the County and allother parties agreed in 1977 that the 1944 deed reserved a royalty. Not one of the interested parties areclaimingmutual mistake. The only claim of mutual mistake ismade by McSweyn, who seeks to apply a technical rulewhich directlycontradicts the desires of the partieswho own the mineral and royalty interests. Equitable principles do not allow this Court toreform the deed indirectdisregard of themutual understanding of all of the parties owning an interest inthe property. Equity alsorequires thatwe consider the effecton the County. There are a number of operatingwells on the land inquestion. If the County's interestis a royalty, the County willbe entitled toreceive 2 percent of production under its agreement with the balance of the parties. If the McSweyn contentions areupheld, the County willlosemore than 80 percent of such 2 percent of production. The benefit of the difference flows primarily toMcSweyn.McSweyn has agreed that the execution of his leases with the County shall inno way prejudice the right of the County to claim its interestisa royalty interestrather than a mineral interest. The County does claim thatits interest is a royalty interest. Itwould be inequitable to disregard thisprovision. We find that the plaintiff has failed to overcome the presumption that the 1944 deed contains the final agreement between the parties and that the doctrine of merger does apply, so that the 1944 deed effectively reserved to the County the 2 1/2 percent royalty interestdescribed inthe deed.Unconstitutional Gift Although the issue had notbeen presented by either party, the DistrictCourt concluded that all things being equal, a mineral interest inreal property ismore valuable than a royalty interest. Reasoning from thatposition, the court concluded that the deed resulted inan unconstitutional giftor donation by the County to Shields. Ristv. Toole County (1945), 117 Mont. 426, 159 P.2d 340, points out that the holder of a mineral interesthas an interest inthe land and has the right to go on the property, toexplore and drill for oiland gas and the obligation to pay for a proportionate share of development costs. A holder of a royalty interestdoes not have the right to go

on the property toexplore forundeveloped oiland gas, but the royalty holder isnot obligated topay the costs of development. The holder of the royalty interest simply shares inthe profit from production. The District Court apparently concluded thatbecause the mineral interest holder has greater rightswith respect to real property itself than the royalty interest holder, such a mineralright has a greater value. There isnothing inthe agreed statement of facts to show the comparative values of royalty and mineral interests inthisparticular land. The agreed statement of facts does show that the royalty interestwhich

we find isowned by the County willhave a much larger present share inproduction than would be true of a mineral interest. Asa result, we conclude that the record does not show a 1944 gift, or the equivalent, by the County to Shields. QuietTitleDecree AsRes Judicata 

### -- The DistrictCourt held that the 1943quiet title action which was completed prior to the issuance of the 1944 deed was res judicata as to the present action. The District Court relied on Smith v. County of Musselshell (1970), 155 Mont. 376, 472 P.2d 878. Wedo not find Smith to be authority for the position taken by the District Court. There are major differences between the Smith case and the present

case.In the Smith case, on June 4, 1941, Musselshell County (the same county as involved inthe present case) entered into a contract for deed inwhich itreserved an undivided 6 1/4 percent of alloil, gas and other minerals lying in, under and beneath the premises. Next by deed dated April 5, 1944, the County conveyed the land by a deed inwhich it reserved an undivided 6percent royalty of alloil, gas and otherminerals lying in, and thatmay be produced from the premises hereinbefore described, delivered freeof cost. In 1945, the buyer from the County brought an action toquiet title to the land, inwhich the County's reservation was decreed tobe 6 1/4 percent of alloil, gas and other minerals lying 

### inand thatmay be produced from the saidpremises.The County attempted to argue that under the 1941 statute, the County could reserve only a 6 1/4 percent royalty interest and excluded the right of the County toreserve a mineral interest. In the Smith case this Court found that the 1945 decree was res judicata of the particular issues involved. The result isthat inSmith the quiet titledecree was the lastconclusive statement concerning the interests of the parties, having been entered after the deed from the County. In contrast, in the present case, the quiet title action occurred before the deed was executed, delivered and accepted. Therefore, the quiet titleisnot res judicata of the interests of the parties here involved. See Brannon v. Lewis and Clark County (1963), 143Mont. 200, 387 P.2d 706. Aspreviously discussed, the 1943decree was not the result of litigationbetween Shields and the County. The County defaulted. The attorney for Shieldswas also the county attorney. Our fact situationiscomparable to that inSuperior -- OilCo. Because the issues involved inthe 1943 quiet titleaction arenot of necessity the same issues involved in the 1944 deed, because the mineral interestquestion

was not litigated inthe quiet title action, and because the deed was executed, delivered and accepted the year following the issuance of the quiet titledecree, the quiet title decree isnotres judicata. Estoppel, Laches and Waiver The agreed statement of factssuggeststhat theremay be

a proper basis for the application of the doctrines of estoppel, laches and waiver. However, inview of our opinion

on the other issues, itisunnecessary for us toreach decisions on these theories. Wealso note the approach 

### of the Montana legislature to the question of long-standing conveyances and reservationsinvolving mineral and royalty interests. In "validation" statutes such as sections 16-1122 and 16-1122.1, R.C.M., 1947, the legislature confirmed and validated mineral and royalty reservationsmade by counties. While we do not find itnecessary to determine if such validation sections are applicable inthepresent case, we take note that the legislaturedeemed itworthwhile toeradicate doubts as to longstanding conveyances and reservations, some of which may have contained provisions which arequestionable under its

own "uncertain or ambiguous" statutes

# . We find thatMusselshell County owned a 2 1/2 percent royalty interestinthe lands involved in this case and not a mineral interest and conclude that the oiland gas leases from Musselshell County toMcSweyn did not grant an effective lease upon a mineral interest. The judgment of the ~istrict Court isreversed, and the DistrictCourt is instructed to enter appropriatejudgment inconformity with this opinion.

,-'-; ,* 

# ,' ,'

Justices

### Mr. Justice John C. Sheehy dissenting: I disagreewith the holding in this case. Themajority opinion goes against its own statement of facts. It translates a purported ambiguity in a statute authorizing counties to reserve oil and gas interests into a contract between the County and Shields in 1933 that is unambiguous as to a mineral reservation. To repeat the reservation in the 1933 contract: 

# ".



# ..vendor [County] reserves to itself and its successors an undivided two and one-half percent of all oil, gas and other minerals lying in,under -- 

### and beneath the premises hereinbefore described.. 

# .." (Emphasisadded.) As themajority sets out in its statement of facts "[all] parties agree that the above language created 

### a mineral reservation." Themajor force upon which the majority relies in changing

an outright,plain mineral reservation into a royalty reservation is the holding in Superior Oil Co. v. Vanderhoof

(1969), 307 F.Supp. 84. The majority relies upon Superior Oil Co. due to inadequate legal research into that case, and 

### -- the majority hopes, perhaps, to tilt the legal balance in favor of their opinionby associating the name of Judge Jameson in their behalf. (Thismethod is called "tilt-byassociation".) The trouble is the majority did not read Judge Jameson far enough as to what SuperiorOil -- 

### Co. -

### held,

nor look at the applicable statutes. Therewas no contract fordeed shown in the Superior Oil -- 

### Co. case. The decision turns upon the language in a deed from Richland County to a transferee, in which the following reservationwas set out:

### "Furtherreserving unto said grantor [County] six and one-fourth (6 

### 1/4%) percent of allminerals contained in and hereafter mined, produced, extracted or otherwise taken from the above described property." 307 

### F.Supp. at 85. 

### The quiet title action in the Superior 

### -- Oil Co. case resulted in a decree recognizing the following interest: "All of the above described property being subject to a reservation in and to Richland County,Montana, of six and one-fourth (6 

### 1/4%) percent of allminerals contained in,mined, produced, extracted or otherwise taken from said lands;.

# .." 307 

### F.Supp. at 85. 

### Contrast, if youwill, the language contained in the deed and quiet title decree in the Superior 

### -- Oil Co. case with the language contained in the 1933 contract for deed above quoted, and also with the language in the quiet title decree in this case which stated: 

# ".



# .

# .A. D. Shields, is the owner, seized in fee and entitled to the possession of the following described realproperty 

# ... [lands described] excepting and reserving to the said defendant Musselshell County, Montana, 2 

### 1/2% of all oil, gas or other minerals lying in, under and beneath [the described land] 

# .

# .." ".

..That the defendants

# ... have no right, title or interestwhatsoever in said premises



# . .. save and except the reservation of the mineral rights to the said Musselshell County, Montana 

# .

# .. ".

.. That upon the payment of the said balance by the plaintiff, the said defendant,Musselshell County,Montana execute and deliver a deed to the plaintiff, conveying the entire legal title, as well as the equitable title to the said lands, and that the defendant,Musselshell County, Montana be thereafter perpetually enjoined from any manner interfering with the plaintiff's title to or possession of the said premises or any part thereof except as to the reservation ---- 

### of oil; gas and other minerals hereinbefore set forth." (Emphasisadded.) The federal judge in Superior Oil -- 

### Co. 

### -consideredmany factors in determining that the deed and quiet title action with which he was faced constituted a royalty interest and not a mineral interest. He did not say in that opinion that

### the ambiguity in a statute constituted an ambiguity in a contract between the parties. He gave critical emphasis to the absence of the language "in,under or upon" in the Superior Oil Co. deed and quiet title action reservation. 

### -- He said: "Many factorsmay be considered in determining whether amineral or royalty reservation is intended. Of primary importance is the use of -- 

### the term 'in,under or upon' as indicatinq a - 

### mineral interest and 'produced and saved' as indicating a royalty interest. The Montana court is consistentwith amajority of the jurisdictions in holding that thesephrases are the most significant guides to the parties' intentions

# . .." 307 F.Supp. at 90. (Emphasis added.) 

### The critical term "in,under or upon" is contained in the reservation of minerals in the 1933 contract for deed between Musselshell County and Shields and in the quiet title action in 1943,determining the effect of that contract. There can be no ambiguity as to what was reserved. Itwas purely and simply a mineral interest. The deductive process upon which the majority opinion depends therefore is that the contract between the County and Shields was not ambiguous; a statutewas ambiguous; therefore, the County-Shields contractwas ambiguous. By the same kind of deductive reasoning,we can prove that any cat has ten tails: No cat has nine tails; any cat has one

more tail than no cat; therefore any cat has ten tails. It is significant to me and I think the majority has not considered that in 1933 when the Musselshell CountyShields contractwas executed, therewas no statute authorizing -- 

### or not authorizing counties to reserveminerals or royalties -- - - in 

### transfers of unredeemed tax title lands. The first such authorization for counties came with the adoption in 1935 of Ch. 154, Laws of 1935. Section 2 

### of thatAct became section

### 4481.2, R.C.M. 1947, which Superior 

### -- Oil Co. found to be ambiguous. The whole of thatAct refers to mineral reservations, and in no place mentions royalties. Of particular significance, however, to this case are the provisions of section 4 of the 1935Act which provided: "Section 4. All mineral reservations heretofore -- 

### made by counties in this state, whether the same are of a greater percentage than isherein fixed, or not, and all agreements in connection with such reservations, heretofore made, whether in conformitywith this act or not, are hereby ratified confirmed and validated." Section 4, Ch. 154,Laws of 1935. (Emphasisadded.) The 1933 executory agreement for an unambiguousmineral reservation between Musselshell County and Shieldswas validated by the Montana legislature in 1935 ormy cat has ten tails. Again, this validation statutewas not before the federal court in Superior 

### -- Oil Co., supra,because the deed in that case was executed in 1940. The 1935 validation statute brings us to the res judicata issue and the quiet title decree, which the majority dismisses

as "notparticularly significant." On the contrary, the quiet title decree is of decisive significance. It determined in a judgmentwhich became final that the interest of Musselshell County was a 2 1/2 percent mineral reservation and it directed the County when the purchase price had been paid, to deliver a deed to Shieldswith such a mineral reservation in it. The County has unexplainedly failed to carry out the direction of the District Courtwhen it issued the deed in this case, possibly because in 1944,Roland V. 

### Colgrovewas the Musselshell county attorney and not A. G. 

### McNaught, who was the county attorney at the time of the quiet title action. The effect of the quiet title decree can not be avoided

on the ground that whether the County reserved 

### a royalty

### interest instead of a mineral interestwas not litigated, because there could be no such issue. The language of the 

### ---- contractwas unambiguously a mineral reservation;the contract had been given legislativeblessing through a validation statute. Any attempt by the Musselshell county attorney in 1943 to raise an issue as to whether the 1933 contract stated a royalty reservation rather than a mineral reservation would have been frivolous. It is plain that such an issue could not have been litigated because no such issue existed. The 1943 quiet title decree is therefore res judicata

as to the purport and meaning of the mineral reservation, and as to the duty of the County to deliver a deed with a mineral reservation. If that be not true, there is no such rule of law as res judicata. Where does all this leave themajority,whose opinion is premised upon the supposition that the 1933 contract between the County and Shields attempted to follow a code section before its enactment and that Ch. 171, Laws of 1941 (which has no application to the Shields contract) affords a "reasonableexplanation" for the change to a royalty reservation in the Shieldsdeed from the mineral reservation provided in the contract? They are in theposition of an oil driller pumping a hole drilled in granite--there is no oil there. Clearly and convincingly, this record establishes that Musselshell County and Shields contracted for a mineral reservation, and that the District Court decreed a mineral reservationbe delivered to Shields. When the deed was delivered to Shields in 1944, it contained a royalty reservation. On the agreed statement of facts before us, there is nothing that gives any clue that the parties changed their intention, contracted otherwise, or knew that the deed did not reflect

### their intention expressed in the contract and the quiet title decree. Any statement that they did change their intention,or their contract,would be sheer speculationon

our part sincewe have only the agreed statement of facts to go on. It is only if merger by deed applies that there could be any justification for holding in favor of the County on the royalty reservation. The majority opinion glides by merger by deed, as though it rigidly applies here. This is not my view of the law. Merger by deed, denominated a doctrine by some, is a broad statement that the grantor in a deed has completed the contract for deed even though he may not have fullyperformed. By finding a merger in the deed of all prior agreements between the parties, written or unwritten, courts have exonerated grantors from all legal responsibility for unperformed promises in the contract for sale. Through merger, in its purest form, the grantee in a breached contract,by accepting the deed, loses all right of rescissionor cancdlation or suit for damages occasioned by the breach. This is the result apparently accepted by the majority in reversing the District Court. Merger by deed, as a legal concept, is so drastic that exceptions to ithave grown up which are as old as the concept itself. Merger does not apply to agreements collateral to or independentof the contract for sale. Bull 

### v. Willard

(N.Y. 1850), 

### 9 Barb. 641, 645. Itdoes not apply where the omission in the deed is the result of mistake, accident or fraud. See, Union Producing Co. 

### v. Sanborn (E.D. 

### Texas 1961), 194 F.Supp. 121, 126; Stevens v. Vail Associate, Inc. (1970), 28 Colo.App. 344, 472 P.2d 729. Professor Allison Dunham insists, in Merger 

### -- By Deed, 10 Ga.L.Rev. 419, 420, 421 (Winter1976), that the "doctrine"appears in the Restatement of Law of Contracts, § 413 (19351, through the pervasive influence of ProfessorWilliston; but that Professor Corbin suggests that there never was such a "doctrine" (Dunham,citing 3A Corbin, Contracts, 

### 55 586, 587, 604.) Professor Dunham also points to the provisions of the Uniform Land TransactionsAct (UTLA1975), which repeal the doctrine of merger by deed ((UTLA)has not been adopted in Montana), and to the provisions of the Uniform Commercial Code (UCC) which expressly rule out merger in contracts to sell goods. Section 30-2-607(2), MCA: 

# ".

. . acceptance does not of itself impair any other remedy provided by this chapter for nonconformity." Bull, supra, the 1850 case, attempts to establish merger by deed as to promises concerning "title, possession, quantity, and emblements," holding these areas to be foreclosed by the grantee's acceptance of the deed. Again, Professor Dunham, op cit., supra, at 443, notes the many exceptions. See also, Comment, Merger 

### -- of Land Contract in Deed, 25 -- Albany L.Rev. 122 (1924). Montana has not heretofore expressly adopted merger by deed, though it has been noted in dictum. See, Schillinger



### v. Huber (1957),133 Mont. 80, 87, 320 P.2d 346, 348, (discovery of error and acquiescence preventing reformation of a deed); Sullivan

### v. Marsh (1950),124 Mont. 415, 425, 225 P.2d 868, 872, (reformation denied, mutual mistake not supported in absence of a prior contrary agreement); Voyta v. Clonts

(1958),134 Mont. 156, 328 P.2d 655 (reformationdenied, where evidence failed to show the instrument did not reflect the actual agreement of the parties). If merger by deed does apply inMontana, it is not as broad and as absolute as

some abbreviated statementsmake it out to be. Its statutory embodiment seems to be section 28-2-905, MCA, which provides

### that "when the terms of an agreement have been reduced to writing, it is to be considered as containing all of those terms,

# . ." Yet the same statute sets forth exceptions, including "mistake or imperfection of the writing put in issue by the pleadings." See, section 28-2-905(1)(a), MCA. Land contracts enjoy no special statutory exception and are to be interpreted as any other contract so as to give effect to themutual intention of the parties as it existed at the time of contracting, so far as the same is ascertainableand lawful. Section 28-3-301,MCA. Even if merger by deed applies, therefore, the court should search for the intention of the parties in determining rights under a deed. The burden of the parties seeking to set aside plain and unambiguous terms in the deed as contra to the actual intention of theparties is by clear, convincing and satisfactoryproof. Sullivanv. Marsh, supra; Voyta v. Clonts, supra. Once that burden ismet, the duty of the court is to enforce the true contract and not to make a new contract nor to perpetuate ormake final 

### a contract only partially or imperfectlyperformed. In so doing, the court would merely be reenforcing the reasons for the many exceptions to the concept ofmerger by deed. In determining the true intention of the parties, the Court must place itself as nearly as possible in the position of the contracting parties, and their intent will be ascertained in the same manner as with any other contract. See, Szabo

v. Superior Court (1978),84 Cal.App.3d 839, 148 Cal.Rptr. 837; section 28-3-301,MCA. If 

### we are going to adopt the rule of merger by deed in Montana, we should at least restate the rule to say that the concept will control except where the intentionsof the parties are otherwise or where the

### stipulations of the contracts sought to be enforced are collateral to the functionsperformed by the deed. Carsek Corp. v. Stephen SchXifter, Inc. (1968),431 Pa. 550, 246 

## 8- A.2d 365. The intention of the parties here should be determined from the instrumentspresented in the agreed statement of facts. The District Court had before it, as we do now, (in equity cases,we review all questions of fact arising upon the evidence presented in the record, section 3-2-204(5), MCA), a contract for deed providing for a mineral reservation, and a deed providing for a royalty interest. If these two instrumentswere allwe had, wemight consider the evidence evenly balanced. The overbalancing factor,however, is the quiet title decree which not only determined that the parties had contracted for a mineral reservation, but ordered the County to deliver a deed with the mineral reservation in it. The quiet title decree is a determination by an outside agencywith full authority to act that the true intentionof the parties to the 1933 contract for deed was for a mineral interest reservation. The language of the contract for deed and the determination of the rights of the parties in the quiet title action, taken together, are clear, convincing and satisfactoryproof that the executed deed does not speak the true intention of the parties. Moreover, to hold that the executed deed controls,we would have to assume something that does not appear in the agreed statement of facts: that sometime between the date of the quiet title decree and the execution of the deed, the intention of the parties changed and the new agreementwas made. Absent direct evidence, it is as easy to assume that the executed deed is the result of accident or of a scriveners mistake as it is to assume that

### the intention of the parties had changed. It ismerely

a resort to speculation. The defendants contend that since the deed was executed and delivered after the quiet title decree that the deed is not subject to the res judicata application of the quiet title decree, citing Brannon v. Lewis and Clark County

(19631,143Mont. 200, 387 P.2d 

### 706. In Brannon, the plaintiff brought a quiet title action to certain lands in Lewis and Clark County and obtained a quiet title decree in 1950. Unknown to the plaintiff and the County, the lands to which the titlewas quieted were occupied in part by a highway which passed diagonally through the lots in issue. The plaintiff discovered the problemwhen she sought to sell the real property in 1960 and was advised that the realproperty had no realvalue because of the location of the paved highway. She commenced action in 1961 against Lewis and Clark County for trespass for the maintenance of a highway

acrossher land. Summary judgmentwas granted against her, adjudging that the County had obtained a prescriptive right to the land 

### as a highway and easement following the quiet title decree. This Court upheld the summary judgment. Under the ruling in Brannon, itmight be possible here to assume that following the quiet title decree new circumstances arose, or new agreementswere made, which led to the execution of the deed providing the royalty interest to the County. There is evidence of prescriptive rights accruing after the quiet title decree in Brannon. Under that possibility, however, defendants run against the same barrier of proof that faces them in connection with merger by deed. Unless

we guess, speculate or assume that some such change did occur,we have no evidence under the agreed statement of

### facts which can justify any ruling except that the order quieting title, issued by the District Court, remains in full force and effect. That the County allowed a default judgment against it in the quiet title action is not a 

### sufficient legal excuse later to avoid the conclusive effect of the default judgment. Friedrichsen

### v. Cobb (1929),84 Mont. 238, 275 P. 

### 267. I come now to the agreement of February 28, 1977, executed some 34 years after the deed from the County to Shields, and entered into between Musselshell County and the present landowners of the deeded lands. McSweyn is not a party to the agreement of February 28, 1977,which was executed 5

### months after McSweyn acquired the oil and gas leases from Musselshell County, and 25 days after McSweyn filed this lawsuit for a declaration as to the validity of his leases. The agreement of February 28, 1977 should have

no effect therefore as to McSweyn. Themajority opinion places great store upon the February 28, 1977 agreement, contending that by the agreement, the "[dlounty and all other parties in 1977 agreed that the 1944 deed reserved a royalty." Of course they did. There is no dispute in the record or between these parties that the 1944 deed was a royalty reservation,and not a mineral reservation. What is important is that the agreement of February 28, 1977,between the County and the present landowners,

was an arms-length agreement wherein the parties settled their conflicting differences as to whether the Countywas entitled to a mineral reservationor a royalty reservation under the Shieldsdeed or other deeds held by the present landowners. The pertinent parts of the February 28, 1977 agreement

are these: -23-

# ".

. .WHEREAS, at one time the County acquired all of the above described real property for delinquent taxes and subsequently conveyed the Tract 

### Iproperty to oneA. D. Shields and the Tract I1 

### property to John P. 

### McCleary. Said transferswere made by virtue of contracts for deed to the purchasers set forth above. "WHEREAS,when the County entered into contracts on the above described real property, certain reservationswere made whereby the County made mineral reservations -- 

### as set forth below. When the deedswere placed of record after complete performanceby the purchasers under the contracts for deed, the County of Musselshell made royalty reservations in the deeds. The various royalty reservations are set forthbelow. 

# ".

..WHEREAS, the parties hereto are in dis--- agreement as to the interestof the County in

7-- 

### -- - the above described property. The parties hereto are desirous of settling such difference and settling the County's interest in the above described property; and the parties hereto mutually agree that where the deeds from the County to the various purchasers show that there was a 2 1/2 percent royalty, that said royalty interest be considered to be a 2 percent interest, and whenever the County reserved a 6 

### 1/4 percent royalty in the above described property that said interestbe considered to be a 

### 4percent royalty interest. Furthermore, the County makes no claim to any mineral interest in the above described property, and makes claim only to royalty interest as above set forth. "NOWTHEREFORE, for and in consideration of the sum of ten and no/100 ($10.00) dollars and other good and valuable consideration,and in full and complete settlement of the County's interest in and to the above described property, the parties hereto by these presents grant, bargain, sell, convey and confirm somuch of their interest in and to the above described property that the County's sole and only interest is the following described royalty interest: "[2 

### percent royalty interest in the lands concerned with the case at bar] "This indenture ismade for the purpose of conveying unto the County the 

# .

# . . [royalty] free and clear of all costs of all oil, gas and hydrocarbons and other minerals produced and delivered in pipelines or otherwiseproduced and marketed from the above described premises, and this indenture is further made for the purpose of the County renouncing and

### transferring to all of the other parties to

- 

### this instrument any and all other claim they may have to any of the above described property I1 

# ... It is clear from the terms of the agreement that instead of that agreement being a declaration of the parties as to what their intentionswere in 1944, it is instead an armslength agreement settling conflicting claims between the parties, but without the presence or assent of McSweyn. The present landowners stand to gain, under the majority opinion of this case, by virtue of the agreement of February 28, 1977. Under the decision of the District Court, if we

were to uphold it, the royalties under the McSweyn leases would be divided as follows: Percentagedistribution of oil Assuming 2.5% 

### County Mineral Reservation Lessee-producers Landowners McSweyn County

Under the majority opinion, the distribution of oil proceeds will be as follows: Percentage of distribution of oil Assuming 2.5% 

### Royalty Reservation and theAgreement of 2/28/77 ~essee-producers Landowners McSweyn County

The agreement of February 28, 1977, should have no bearing under considerations of equity or otherwise as to the disposition of this case. I should have no difficulty, if the majority otherwise agreed with me, in showing that estoppel, laches and waiver constituted no bar to the validity of the McSweyn leases.Because themajority do not reach those issues, I reserve a discussion, I trust to a future time. I would uphold the judgment of the District Court determining that the McSweyn oil and gas leases of Musselshell County were valid and subsisting.

-\

Justice

k ,'