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 

Honorable Alfred B. Coate, Judge presiding. 

Counsel of Record: 

For Appellant: 

John Pratt argued, County Attorney, 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: AUG 1 0 198% 

. Clerk 
Mr. Justice Fred J. Weber delivered the Opinion of the Court. 

This is an appeal by the defendants from a judgment of 

the District Court, Fourteenth Judicial District, Musselshell County, declaring certain oil and gas leases owned by 

the plaintiff, Donald McSweyn, to be valid. We reverse the 

judgment of the District Court. 

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 percent mineral reservation, merged into a subsequent deed 

between those parties in which the County reserved a 2 1/2 

percent royalty interest? 

2. Is a quiet title decree entered prior to the execution and delivery of the deed from the County to Shields, 

res judicata as to the successors in interest and other 

parties in this case? 

3. Did the deed in which the County reserved the royalty 

interest result in an unconstitutional gift to Shields? 

4. Is McSweyn barred by estoppel, laches, or waiver 

from claiming that the County has a mineral interest rather 

than a royalty interest? 

This case comes to us on an agreed statement of facts. 

The County through tax proceedings had acquired the real 

property described in the oil and gas leases to McSweyn 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 an undivided two and one-half percent of 

all oil, gas and other minerals lying in, under 

and beneath the premises hereinbefore described. 11 . . . 

All parties agree that the above language created a mineral 

reservation. 
Before full payment 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 in a 19'43 decree. The decree in part stated: 

". . . A. D. Shields, is the owner, seized in fee 

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 all oil, 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 

in question which contained the following reservation: 

". . . and reserving unto . . . [the County] its 

successors and assigns, an undivided two and onehalf percent royalty of all oil, gas, and other 

minerals lying in, and that may be produced 

from the premises hereinbefore described, delivered free of 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 in the deed were transferred by Shields and his successors in interest to other 

parties. In 1974, 30 years after the deed, the successors 

in interest of Shields executed oil and gas leases to Exeter 

Company, which assigned its interest to Exeter Exploration 

Company, which in turn made partial assignments to True Oil 

Company. Oil wells were drilled on the lands in 1976 and 

four of the five wells drilled are presently producing oil.. 

In 1976, one day before drilling started on the first 

well, plaintiff, McSweyn, obtained from the County the first 

of his oil and gas leases covering the County's mineral 

interest in the lands. The second lease was obtained by 

McSweyn from the County 19 days later. The McSweyn leases, 

which are valid only if the County owned and retained a 
mineral interest rather than a royalty interest, contained 

the following disclaimer: 

"The execution of this instrument shall in no way 

prejudice the right of Musselshell County to claim 

its interest is a royalty interest rather than a 

mineral interest." 

McSweyn brought this action in 1977 asking the District 

Court to declare and determine his rights and interests 

under his oil and gas leases from the County. After the 

commencement of that action, the County entered into a 

written agreement with all of the real property owners, who 

are Shields' successors in interest, and other parties. The 

agreement covered the land involved in this action as well 

as other 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. All of such contracts for deed were followed by 

deeds containing royalty reservations similar in form to the 

deed to Shields. The agreement further stated: 

"The parties hereto are desirous of settling 

these differences 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% royalty, that said royalty interest 

be considered to be a 2% interest, and wherever 

the County reserved a 6 1/4% royalty in the above 

described property, that said interest be considered 

to be a 4% royalty interest. Furthermore, the County 

makes no claim to any mineral interest in the 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 in the land described in this case. 

The District Court held that the contract for deed contained a reservation of mineral interest and the issuance of 

the deed at a later date gave Shields more than he had bargained for. The court found that a mineral interest is more 

valuable than a royalty interest and that the deed by the 
County to Shields was an unconstitutional donation or gift 

by the County. The court further found that the 1943 judgment 

in the quiet title action cannot be attacked and that such 

decree commanded the County to issue a mineral interest deed 

which the County failed to do. The court further found that 

the 1943 decree is res judicata in this proceeding. The 

court found no element of estoppel or laches and held that 

the waiver argument fails in that it presupposes that the 

County could give away its mineral interest without compensation. The District Court found the McSweyn leases to be 

valid. 

The law of oil and gas in Montana passed through periods 

of growth and change during the 1930's and 1940's. Judge 

Jameson refers to the statutory history in Superior Oil Co. 

v. Vanderhoof (1969), 307 F.Supp. 84. He points 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. It refers to mineral right reservations 

and then uses terminology which is more consistent with 

royalty reservations. The statute was so confusing that it 

would have been difficult for any county official to determine 

the correct application. Superior -- Oil Co. points out that 

the code section was repealed by Chapter 171 of the session 

laws of 1941, which also provided that on sales of real 

property "the county may reserve not to exceed 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 contract between the County and 

Shields attempted to follow the old code section and contained 

a reservation of a 2 1/2 percent mineral interest. The 1943 

decree quieting title contained the same reservation. That 
quiet title decree is not particularly significant. It was 

brought by the then county attorney for Musselshell County. 

Our fact situation is similar to that described by Judge 

Jameson in Superior -- Oil Co.: 

"Nor is the decree quieting title particularly 

significant. It simply sets forth the reservation as it appeared in the deeds [in our case the 

contract for deed]. Obviously no issue was raised 

in that action as to whether the reservation was a 

mineral or royalty interest. As noted supra, 

apparently the county attorney represented the 

Vanderhoofs in the action. [This was also true as 

to Musselshell County and the county attorney.] 

No appearance was made by the county. . ." 307 

F.Supp. 91. 

Next in this case is the 1944 deed in which the County 

reserves an undivided 2 1/2 percent royalty interest. This 

is the first time the County directly participated after the 

1933 contract. In 1944 the County was operating under the 

1941 session laws. While there is no evidence in the agreed 

statement of facts, the statutory history gives an obvious 

explanation for the change in the provisions of the deed by 

the County. The deed was accepted by the grantee, Shields, 

and recorded. No question was raised by either party for 

more than 30 years. 

Merger -- By Deed 

McSweyn requests that his oil and gas leases be found 

valid, and the District Court so determined. It is important 

that we keep in mind that this request has the effect of 

asking the court to reform the 1944 deed. We must, therefore, 

consider the rules regarding reformation of deeds and merger. 

In substance McSweyn contends that the 1944 deed should 

be reformed because of the mutual mistake of the County and 

Shields. The elements for such reformation are set out in 

Voyta v. Clonts (1958), 134 Mont. 156, 328 P.2d 655, as 

follows: 
"'A sequence statement of reformation is this: There 

is a 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 in reducing to writing the agreement which 

the parties have intended. Obviously the alleged 

mistake must relate to something then in the contemplation of the parties. - The faul t sought -- 

to be 

corrected --- is that the executed written instrument 

-- does not reflect the actual -- and true understanding of 

the parties. This is a cardinal principle in the field 

of reformation for mutual mistake. - Then, -- and only 

- then, -- can the powers of equity be invoked to correct 

the mistake. ' " (~m~hasis added.) 134 ~onc 166, 328 

P.2d 661. 

McSweyn contends that the fault sought to be corrected 

is that the 1944 deed does not reflect the actual and true 

understanding of the parties as contained in the 1933 contract. 

However, as stated in Voyta, in order to reform the deed on 

the ground of mutual mistake, the evidence of mistake must 

be clear, convincing and satisfactory. The court in Voyta 

further states: 

" ' The presumption --- is that the writing contains 

the final agreement -- of the parties - and expresses 

their real purpose and intent. ---- To meet and over- 

-- come that presumption plaintiff was required to 

present clear, convincing and satisfactory prGf. 

... 1 II 134 Mont. 167, 328 P.2d 661. 

Other than the instruments, there is no evidence in the 

record concerning the intent of the County and Shields at 

the time of the 1944 deed. In addition 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 

District Court found that the 1943 quiet title decree was 

res judicata as to the interests of the party and defined 

the County's reservation as a 2 1/2 percent mineral interest 

Res judicata is discussed later in this opinion. While it 
is true that the decree specified the interests of the 

parties in 1943, that does not prevent the parties from 

making a subsequent change in their respective interests. 

The 1944 deed shows that the County made a change in its 

reservation. As we pointed out in our 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 indicate mutual mistake as between the 

parties when compared to the 1933 contract for deed. As 

stated in Voyta: 

"'It cannot be said that the evidence in this case 

is either clear, convincing, or satisfactory, as 

to the alleged mistake. . . I II 134 Mont. 167, 328 

P.2d 662. 

In addition, the County and all other parties agreed in 

1977 that the 1944 deed reserved a royalty. Not one of the 

interested parties are claiming mutual mistake. The only 

claim of mutual mistake is made by McSweyn, who seeks to 

apply a technical rule which directly contradicts the desires 

of the parties who own the mineral and royalty interests. 

Equitable principles do not allow this Court to reform the 

deed in direct disregard of the mutual understanding of all 

of the parties owning an interest in the property. Equity 

also requires that we consider the effect on the County. 

There are a number of operating wells on the land in question. 

If the County's interest is a royalty, the County will be 

entitled to receive 2 percent of production under its agreement with the balance of the parties. If the McSweyn contentions are upheld, the County will lose more than 80 percent 

of such 2 percent of production. The benefit of the difference 

flows primarily to McSweyn. 
McSweyn has agreed that the execution of his leases 

with the County shall in no way prejudice the right of the 

County to claim its interest is a royalty interest rather 

than a mineral interest. The County does claim that its 

interest is a royalty interest. It would be inequitable to 

disregard this provision. 

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 interest described in the 

deed. 

Unconstitutional Gift 

Although the issue had not been presented by either 

party, the District Court concluded that all things being 

equal, a mineral interest in real property is more valuable 

than a royalty interest. Reasoning from that position, the 

court concluded that the deed resulted in an unconstitutional 

gift or donation by the County to Shields. 

Rist v. Toole County (1945), 117 Mont. 426, 159 P.2d 

340, points out that the holder of a mineral interest has an 

interest in the land and has the right to go on the property, 

to explore and drill for oil and gas and the obligation to 

pay for a proportionate share of development costs. A 

holder of a royalty interest does not have the right to go 

on the property to explore for undeveloped oil and gas, but 

the royalty holder is not obligated to pay the costs of 

development. The holder of the royalty interest simply 

shares in the profit from production. The District Court 

apparently concluded that because the mineral interest 

holder has greater rights with respect to real property 

itself than the royalty interest holder, such a mineral 
right has a greater value. There is nothing in the agreed 

statement of facts to show the comparative values of royalty 

and mineral interests in this particular land. The agreed 

statement of facts does show that the royalty interest which 

we find is owned by the County will have a much larger 

present share in production than would be true of a mineral 

interest. As a result, we conclude that the record does not 

show a 1944 gift, or the equivalent, by the County to 

Shields. 

Quiet Title Decree As -- Res Judicata 

The District Court held that the 1943 quiet 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. We do 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 in the present case) entered 

into a contract for deed in which it reserved an undivided 6 

1/4 percent of all oil, 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 in which it 

reserved an undivided 6 percent royalty of all oil, gas and 

other minerals lying in, and that may be produced from the 

premises hereinbefore described, delivered free of cost. In 

1945, the buyer from the County brought an action to quiet 

title to the land, in which the County's reservation was 

decreed to be 6 1/4 percent of all oil, gas and other minerals 

lying in and that may be produced from the said premises. 
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 to reserve a mineral 

interest. In the Smith case this Court found that the 1945 

decree was res judicata of the particular issues involved. 

The result is that in Smith the quiet title decree was the 

last conclusive 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 title is not res judicata of the interests 

of the parties here involved. See Brannon v. Lewis and Clark 

County (1963), 143 Mont. 200, 387 P.2d 706. 

As previously discussed, the 1943 decree was not the 

result of litigation between Shields and the County. The 

County defaulted. The attorney for Shields was also the 

county attorney. Our fact situation is comparable to that 

in Superior -- Oil Co. Because the issues involved in the 1943 

quiet title action are not of necessity the same issues involved in the 1944 deed, because the mineral interest question 

was not litigated in the quiet title action, and because the 

deed was executed, delivered and accepted the year following 

the issuance of the quiet title decree, the quiet title 

decree is not res judicata. 

Estoppel, Laches and Waiver 

The agreed statement of facts suggests that there may be 

a proper basis for the application of the doctrines of 

estoppel, laches and waiver. However, in view of our opinion 

on the other issues, it is unnecessary for us to reach 

decisions on these theories. 

We also note the approach of the Montana legislature to 

the question of long-standing conveyances and reservations 
involving 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 reservations made by counties. While we do not find 

it necessary to determine if such validation sections are 

applicable in the present case, we take note that the legislature deemed it worthwhile to eradicate doubts as to longstanding conveyances and reservations, some of which may 

have contained provisions which are questionable under its 

own "uncertain or ambiguous" statutes . 

We find that Musselshell County owned a 2 1/2 percent 

royalty interest in the lands involved in this case and not 

a mineral interest and conclude that the oil and gas leases 

from Musselshell County to McSweyn did not grant an effective 

lease upon a mineral interest. The judgment of the ~istrict 

Court is reversed, and the District Court is instructed to 

enter appropriate judgment in conformity with this opinion. 

,-'-; 

,* ,' ,' 

Justices 
Mr. Justice John C. Sheehy dissenting: 

I disagree with the holding in this case. 

The majority 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.. . ." (Emphasis added.) 

As the majority sets out in its statement of facts 

"[all] parties agree that the above language created a 

mineral reservation." 

The major 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 opinion by associating the name of Judge 

Jameson in their behalf. (This method is called "tilt-byassociation".) The trouble is the majority did not read 

Judge Jameson far enough as to what Superior Oil -- Co. - held, 

nor look at the applicable statutes. 

There was no contract for deed 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 reservation was set out: 
"Further reserving unto said grantor 

[County] six and one-fourth (6 1/4%) 

percent of all minerals 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 all minerals contained in, mined, 

produced, extracted or otherwise taken from 

said lands;. . ." 307 F.Supp. at 85. 

Contrast, if you will, 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 real property . . . [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 interest whatsoever 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." (Emphasis added.) 

The federal judge in Superior -- Oil Co. - considered many 

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 factors may be considered in determining 

whether a mineral 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 consistent with a majority of the 

jurisdictions in holding that these phrases 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. It was 

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 statute was ambiguous; 

therefore, the County-Shields contract was 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 contract was executed, there was -- no statute authorizing 

-- 

or not authorizing counties - to reserve minerals - 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 that Act became section 
4481.2, R.C.M. 1947, which Superior -- Oil Co. found to be 

ambiguous. The whole of that Act 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 

1935 Act which provided: 

"Section 4. All mineral reservations heretofore -- made by counties in this state, whether the same 

are of a greater percentage than is herein fixed, 

or not, and all agreements in connection with 

such reservations, heretofore made, whether in 

conformity with this act or not, are hereby ratified 

confirmed and validated." Section 4, Ch. 154, Laws 

of 1935. (Emphasis added.) 

The 1933 executory agreement for an unambiguous mineral 

reservation between Musselshell County and Shields was 

validated by the Montana legislature in 1935 or my cat has 

ten tails. Again, this validation statute was 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 "not particularly significant." On the contrary, the 

quiet title decree is of decisive significance. It determined 

in a judgment which 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 Shields with such a mineral reservation in it. 

The County has unexplainedly failed to carry out the direction 

of the District Court when it issued the deed in this case, 

possibly because in 1944, Roland V. Colgrove was 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 interest was not litigated, 

because there ---- could be no such issue. The language of the 

contract was unambiguously a mineral reservation; the contract 

had been given legislative blessing 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 the majority, 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 

"reasonable explanation" for the change to a royalty reservation 

in the Shields deed from the mineral reservation provided in 

the contract? They are in the position 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 

reservation be 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 speculation on 

our part since we 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 fully performed. 

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 rescission or 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 it have grown up which are as old as the 

concept itself. Merger does not apply to agreements collateral 

to or independent of the contract for sale. Bull v. Willard 

(N.Y. 1850), 9 Barb. 641, 645. It does 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 (Winter 1976), that the "doctrine" 
appears in the Restatement of Law of Contracts, § 413 (19351, 

through the pervasive influence of Professor Williston; 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 Transactions Act (UTLA 1975), 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 (reformation denied, 

where evidence failed to show the instrument did not reflect 

the actual agreement of the parties). If merger by deed 

does apply in Montana, it is not as broad and as absolute as 

some abbreviated statements make 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 the mutual intention of the parties as it existed at the 

time of contracting, so far as the same is ascertainable and 

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 the parties is by clear, convincing 

and satisfactory proof. Sullivan v. Marsh, supra; Voyta v. 

Clonts, supra. Once that burden is met, the duty of the 

court is to enforce the true contract and not to make a new 

contract nor to perpetuate or make final a contract only 

partially or imperfectly performed. In so doing, the court 

would merely be reenforcing the reasons for the many exceptions 

to the concept of merger 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 functions performed 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 instruments presented 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 

instruments were all we had, we might 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 

agency with full authority to act that the true intention of 

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 satisfactory proof 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 agreement was 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 is merely 

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, 143 Mont. 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 title was quieted were occupied in part by a highway 

which passed diagonally through the lots in issue. The 

plaintiff discovered the problem when she sought to sell the 

real property in 1960 and was advised that the real property 

had no real value 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 

across her land. Summary judgment was 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, it might be possible here 

to assume that following the quiet title decree new circumstances arose, or new agreements were 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. 

The majority 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 County was 

entitled to a mineral reservation or a royalty reservation 

under the Shields deed 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 I property to one A. D. 

Shields and the Tract I1 property to John 

P. McCleary. Said transfers were 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 

reservations were made whereby the County made 

mineral reservations -- as set forth below. When 

the deeds were placed of record after complete 

performance by the purchasers under the contracts 

for deed, the County of Musselshell made royalty 

reservations in the deeds. The various royalty 

reservations are set forth below. 

". . . WHEREAS, the parties hereto --- are in disagreement as 7-- 

to the interest -- of the County - in 

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 interest be considered to be a 4 percent 

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. 

"NOW THEREFORE, 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 so much 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 is made 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 

otherwise produced 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 intentions were 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: 

Percentage distribution 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 the Agreement 

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 the majority 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 ,'