No. 13118 INTHE SUPREME COURT OF THE STATE OF MONTANA 1977

PERL SMITH, S. CHARLENE SMITH, and EVERETT SATTERFIELD, Plaintiffs and Respondents,

WILBUR J. ZEPP, WESLEY FARNER, C. E. KNOWLES, and WOLVERINE MINING, INC., a Montana corporation, Defendants and Appellants.

Appeal from: DistrictCourt of the Third Judicial District, Honorable Robert Boyd, Judge presiding. Counsel of Record: For Appellant: Crowley, Haughey, Hanson and Toole, Billings, Montana Stephen Foster argued, Billings, Montana Boone, Karlberg and Haddon, Missoula, Montana Sam E. Haddon argued, Missoula, Montana For Respondents: William R. Taylor 

## ,Deer Lodge, Montana Radonich, Brolin and Reardon, Anaconda, Montana John N. Radonich argued, Anaconda, Montana



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-. Filed: Submitted: April 20, 1977 Decided:

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# IsnMr. Chief Justice Paul G. Hatfield delivered the Opinion of the Court.

This is an appealby defendants from a district court judgment granting forfeiture of a contract for purchase of mining property by defendants and cancellation of a deed to a number of patented and unpatented mining claims. In 1964,plaintiff Perl Smith purchased numerouspatented and unpatented mining claims in Granite and Powell Counties known as the "MasterMine". Plaintiff thereafter obtained a personal bank loan and mortgaged the Master Mine property as security. When plaintiff failed to repay the loan, the bank obtained a judgment of foreclosure. Theproperty was sold at a foreclosure saleon May 28, 1971, after which plaintiff's sole interest in the property

was a year's statutory right of redemption under section 93-5835, R.C.M. 1947. In lateApril, 1972,plaintiff met with defendants Zepp and Farner and discussed the sale of the Master Mine. On May 15, 1972, the parties entered into a contractwhereby plaintiff agreed to sell, and defendants agreed to purchase, the Master Mine properties. As consideration for plaintiff's granting of his ownership rights in theproperty to defendants,defendants agreed to pay approximately $69,000 for the redemptionof the firstmortgage on the Master Mine property, and to pay $31,455 to various creditors of plaintiff. In addition, defendants agreed topay plaintiff Perl Smith a monthly consultation fee of fifteenpercent (15%)of the net operatingprofit of the Master Mine. The parties contracted that defendantswould pay the 15% consultation fee to plaintiff Perl Smith or to his wife, plaintiff Charlene Smith,during their lifetimes; if both plaintiffs predeceased their son,defendantsagreed to pay the son a commission of 7-1/2% of the net profits. To insure that the income from themine, and consequently,the consultation fee or commission, were maximized, defendants agreed to produce an average of 300 yards of material each working day. The material would then be taken to the mine's washing plant where the gravelwould be washed from the gold. Therewas not sufficientmachinery at the gold mine to excavate 300 yards of material per day,but defendants agreed to purchase the larger Caterpillar,draglinewith three yard bucket, and dump truck necessary to achieve a 300 yard per day production level. The parties provided in the contract that in lieu of the consultation fees or commissions to be paid from the netmining profits, theymight at a later date negotiate a fixedmonthly payment. In case of any dispute between the parties as to the provisions of the contract,plaintiff Per1 Smith and defendants agreed to submit the controversy to arbitration. The contract also contained a provision which provided for

a reversion of the property to the seller if defendants defaulted in their "paymentof said property", and failed to cure their default within thirty days from receiving the seller's notice of default

# . After plaintiff and defendants signed the contract,plaintiff fully performed his contract obligations. Plaintiff gave to defendants a quitclaimdeed for all his interests in the Master Mine property and the buildings thereon. The buildings consisted of amain building with dining room, kitchen,bedrooms, showers, five furnished cottages,an assay building, and several other shops, lightplants, storage and machinery repair buildings. The land consisted of approximately 360 acres of patented and 1,680 acres of unpatented mining claims. According to a local appraiser, the mining land was also valuable for recreation,timber and livestock grazing. The appraiser set the value of the land on ~ebruary 12, 1968,at approximately $148,000,excludingmineral rights. ~ccordingto the report of a geophysicistwho took random samples of the earth at the mine site, the property contained an estimated $615 million worth of gold and other noble metals. Defendantspaid the approximately $69,000 necessary to redeem theproperty from the mortgage foreclosure and paid the approximately $31,455 of plaintiff Per1 Smith's debts, as they had agreed to do in the contract. Defendants also successfullyprepared the property formining, by clearing the mine road of snow,repairing damaged equipment,and building dams and settlingponds so as to complywith state and federal environmental regulations. Defendants thereafter, however, failed tomeet the contract condition that required them to produce 300 yards of material each day. It was defendants' failure to satisfy this contractualprovision which gave rise to plaintiff's successful lawsuit in district court, and defendants' appeal to this Court. At the time that defendants commenced mining operations on July 16, 1972, they had not acquired the equipmentnecessary to

remove 300 yards of material each day. Rather than using the three yard or bigger dragline that defendants had agreed to obtain, defendants provided a 3/4 yard dragline for excavation of gravel. The gravelwas then hauled from the excavation pit to the washing plant in a truck which held five yards ofmaterial. Defendants hauled six to eight truckloads of material per day, so that total daily mining production averaged between thirty and forty yards. InAugust, 1972,defendants twice negotiated without success for the purchase of used large draglines. Defendants also ran advertisements invariousMontana newspapers and talked to heavy equipmentdealers regarding the purchase of a Caterpillar. These efforts likewisewere unsuccessful, and defendants continued to mine only thirty to forty yardsper day until lateAugust, 1972. On August 30, 1972, theman whom defendants had hired to operatethe Master Mine resigned from his job because he felt that the equipment at the mine was grossly inadequate. At that time,after littlemore than onemonth of mining thirty to forty yards of material daily, defendants ceased their mining operation. For the entire month of mining, defendants recovered one

ounce of gold. Because expenses of operation far exceededmining income, there was no net profit, and plaintiff received nothing under the contract provision granting him a 15% commission fee from netmining profits. On October 29, 1972,plaintiff Perl Smith and defendant C. 

### E. Knowles attempted without success to negotiate amonthly payment to plaintiff to replace the contract's percentage of net profit commission clause. Thismatter was not submitted for arbitration under the contract's arbitration clause. Plaintiff Perl Smith sent defendants notice of default in

a letter dated March 15, 1973. Plaintiff stated in the letter that defendants were in breach of the contract for failure tomine 300 yards of material per working day. Plaintiff alleged that if 300 yardsper day were mined,much gold and silverwould be recovered and a net operating profit would be received fromwhich plaintiff could receive hismonthly percentage commissionpayment. Defendants failed to cure the alleged defaultwithin the thirty days allowed in the contract. Plaintiffson November 13, 1973, filed a complaint in district court, Granite County, alleging that defendantshad breached their contract and asking that defendants forfeit all rights under the contract and allmoney paid pursuant to the contract, and that title to the Master Mines property be quieted in plaintiffs. On December 9, 1974, the casewas tried in district court before the Honorable Robert J. Boyd, sitting without a jury. he district judge found that the 300 yard per day production require-ment was a basic term of the contract which required strict compliance by defendants. Defendant2failure to produce 300 yards of material per day was caused, the judge found,by their failure to obtain adequate equipment. The judge concluded that defendants' failure to produce more than fifty yards of material per day when themine was worked, and their total failure to mine the claims in 1973 and 1974was a substantial failure of performance. The judge concluded, as amatter of law, that the contract required that defendantsffailure to mine 300 yards ofmaterial per daywould result in cancellationof the contract, cancellation of the deed transferring the property from Perl Smith to defendants, and reversion of the title to themining claims to plaintiffs Perl Smith and Everett Satterfield. Defendants assert that the district court erred in ordering

a forfeiture of their rights under the contract,which resulted in the loss to defendants of both the mining property and $96,000 in contractpayments. Defendants claim that the evidence failed to show that a significantbreach of the agreement occurred. Defendants next assert that, even if they did significantly breach the contract, forfeiturewas an improper remedy. Defendants' claim that the evidence failed to support a finding that they significantly breached the contract iswithout merit. The evidence at trial clearly showed that defendants failed to meet the express contract requirement that they produce 300 yards of material per working day. Defendants do not assert that they performed their contractualduty;rather, they claim that their failure to perform was excused due to impossibility of performance and commercial frustration. The general rule is that,where a party to a contract obligates himself to a legal and possible performance,he must perform in accordance with the contract terms. Brown v. FirstFed. Savings and Loan Assn., 154 Mont. 79, 460 P.2d 97. Defendants, however,would have had no duty to perform their contractual promise to produce 300 yards of material daily if,due to facts of which neither plaintiffs nor defendantshad reason to know, the promise was impossible of performance at the time the contract

was made. 2 Rest. Contracts, section 456. Impossibility encompasses "notonly strict impossibility but impracticability because of extreme and unreasonable difficulty, expense, injury or loss involved." 2 Rest. Contracts, section 454. Defendants assert that itwas a basic assumption of all the parties to the contract that the Master Mine contained substantial gold, and that when their aborted efforts tomine yielded only about one ounce of gold, their failure to produce 300 yards of material daily was excused. Defendants contend that even if they had produced the ,300yardsper day, therewould have been no profit from which plaintiffs could receive a commission,because therewas no gold. Defendants therefore concluded that it was impossible to operate the mine at a profit. Defendants cite 2 Rest. Contracts, section 460,which says: "(1)Where the existence of a specific thing 

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## * is, either by the terms of a bargain or in the contemplation of both parties, necessary for the performance of a promise in the bargain, a duty to perform the promise (a) never arises if at the time the bargain ismade the existence of the thing 

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## * within the time for seasonableperformance is impossible 

## * * *." The flaw in defendants' argument,however, is that they never proved that the "specific thing", gold,did not exist in the Master Mine properties in sufficient quantities tomake a placer mining operationprofitable. Plaintiffshad no duty to prove that marketable quantities of gold did exist in the Master Mine. Rather, the burden of proving impossibility rested on the party asserting the defense. Hensler v. City of Los Angeles, 124 Cal.App.2d 71,268 P,2d 12. DefendantWilbur Zepp testified that only one ounce 

### of gold was recovered. Yet defendantspresented no expert testimony to establish thatproduction of merely 30-40 yards of material per day for onemonth was conclusive evidence that substantial quantities of gold did not exist on the property. Defendants did not introduce any evidence of geologists' or geophysicists' reports

as to the minerals contained in the land. Furthermore, a geophysicist's reportprepared at the request of plaintiff Per1 Smith prior to the sale of the property indicated that the Master Mine contained valuable gold and other noble metals. Defendants, during the one month in which they operated the mine, were unable to achieve a 300 yard per day production because theirmining equipmentwas insufficient. "The party pleading impossibility must demonstrate that it took virtually every action within its powers to perform its duties under the contract." Kama Rippa Music, Inc. v. Schekeryk, 510 F.2d 837. Defendants explained that they advertised in the state newspapers and contacted two private parties and one dealer concerning larger equipment, but failed to explainwhy other sources in nearby states

were not contacted. A final reasonwhy the failure of defendants to satisfy the contract provision requiring 300 yards of productionper day

was not excused due to impossibility is that the possible absence of gold at the mine was a risk of the bargain. It is uncertain whether or not an appreciable amount of gold exists at theMaster Mine. In a gold mining venture such as this one,however, where defendants failed to inspect the mine or geologically test the soil before purchase, the possibility existed that the rewards might range from lucrative to nonexistent. Defendants could have hired geologists to study the mineral content in the Master ~ine prior to signing their contract with plaintiff rather than relyingsolely on geological reportsprepared several years previously for Per1 Smith. This they failed to do. 2 Rest. Contracts, section 456,excusesa promisor from performing a contractual promise due to impossibilityonly when the promisor and promisee had no reason to know of the impossibilitywhen they contracted. In this case, the possibility of an unprofitablemine should have been foreseen by defendants and specifically provided for in the contract. It ispossible that the Master Mine properties contain so trifling an amount of gold that further mining would be economically disastrous. If this is the case,defendants did not prove it at trial. If such is the case,however, defendantsmerely made a bad bargain by not providing for this very foreseeable contingency in the contract or by themselves inspecting and testing the mining property before the purchase. This Courtmay not rewrite the terms of the contract in this case. Rather,we follow the law as stated by this Court in Hein v. Fox, 126 Mont. 514, 520-521, 254 P.2d 1076: "Courts can give no solace where parties to a contract find themselves minus expected profit through failure to exercise care indrawing up such contract. What this court said in Hinermanv. Baldwin, 67Mont. 417, 433, 215 Pac. 1103, 1108, well applies here,viz: 

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## * * The court has no right to make a contract for the parties different from that actually entered into by them.

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"'Whether the plaintiff made a good or a bad bargain is of no concern to the court.

## * * * Merely because the terms of the contract now appear unreasonable or burdensom affords no reason to permit him to avoid his contract. 

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## * * The duty of the court is to enforce contracts,not tomake new ones for the parties, however unwise the termsmay appear.'" The doctrine of commercial frustration is also inapplicable to the facts of this case. To relieve a promisor from a duty to perform under this doctr-ine,the expected value of the performance must be destroyed by an unforeseeable, intervening event. Lloyd v.Murphy, 25 Cal.2d 48, 153 P.2d 47. The possibility that there is negligible gold at the Master Mine was foreseeable at the time the parties contracted. Furthermore,no intervening event has reduced the quantity of gold at themine. Defendants are not excused from breaching their contractualduty tomine 300 yards of material daily. The remaining issue on appeal is the propriety of forfeiture

as a remedy for defendants' breach. The district judge based his judgment that the defendants should forfeit their payments and rights under the contract on the contractprovision which stated in pertinent part that "In case of default by purchaser in payment of said property, it shall immediately revert to the seller,Perl Smith,provided first seller givespurchaser thirty (30)days' written notice of any default and purchaser shall then have thirty

(30)days from receipt of said notice to remedy said default

## * * *." Plaintiff Perl Smith did give defendants written notice of their default in failing to produce 300yards of material per day. Defendants did fail to remedy the default within thirty days of receiving the notice. Defendants' default, however,was not of the type thatwould trigger the contract's forfeitureprovision. Montana law does not favor forfeitures. Table Mtn. Farms



### v. Burton, 128Mont. 434, 278 P.2d 213; State ex rel. Green v. Bird, 62Mont. 408, 205 P. 241. Section 58-212,R.C.M. 1947, provides: "Acondition involving a forfeituremust be strictly interpreted against theparty for whose benefit it is created." This Court has consistently given section 58-212 and its predecessor statutes an expansive interpretation,enforcing forfeiture provisions only in situationswhere "the strict letter of 

### the contract requires it" and language of forfeiture is "plainly expressed". Finley v. School DistrictNo. 1, 51Mont. 411, 416,153 P. 1010 (1915);Lipsker v. Billings Boot Shop, 129Mont. 420, 288 P.2d 660;Cedar Creek Oil & Gas Co. v. Archer, 112Mont. 477, 117 P.2d 265. Interpreting the forfeiture clause against plaintiffs, the parties for whose benefit the provisionwas created, it can hardly be said that the contract requires forfeiture for failure to produce 300 yards of material each working day. The provision required reversion of the property to the seller "In case of default by purchaser in payment of said property

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## *." Defendantsmade all the'paymentsfor the property" that were required under the contract. Thesepayments included furnishing the redemption price for the property, and paying various debts of Per1 Smith. The production clause onwhich defendantsdefaulted,directly related to a consultation fee or commission to be paid from the netmining profits. The forfeiture clause, strictly interpreted,did not relate to this contract provision or to any provision other than the property payment clauses. Section 58-212,R.C.M. 1947, isborrowed from Section 1442, Ca1.Ci.v. Code. The California Court of Appeals refused to declare that mine buyers' contract rights and purchase moneys were forfeited in a case in which the buyers failed to perform a contract obligation tomine for aminimum amount of hours per month. The court stated that "if an agreement can be reasonably interpreted

so as to avoid forfeiture, it is the duty of the court to avoid it." Nelson v. Schoettgen, 1 Cal.App.2d 418, 36 P.2d 665. Plaintiffs claim that the clause is not a forfeiture clause, but is a reversion clause forwhich the rules regarding forfeituresare inapplicable. A forfeitureby any other name is still a forfeiture. There has been a forfeiture where parties such as defendants lose all the money they have paid on a contract, as well as all their rights and interests in the property. Although plaintiffs and defendants have themselvesprovidedin their contract for all future contractdisputes to be decided by arbitration, this Court cannotorder that the question of damages be submitted to arbitration, pursuant to this contract clause. Thepartiesmay agree that this specific issue of the "value" of damages be submitted to binding arbitration, and then they will be bound by the arbitrators' decision. School District No. 1v. Globe & Republic Ins. Co., 146 Mont. 208, 404 P.2d 889. The arbitration provision aswritten, however,was nearly identical to the arbitration clause which this Court held tobe unenforceable in Green v. Wolff, 140Mont. 413, 372 P.2d 427. Any contract provision which states that all future contractdisputes shall be submitted to arbitration isvoid under section 13-806,R.C.M. 1947, which invalidatesany contract provision restricting access to the courts. Although arbitration may be themost speedy and economical means available to parties for a binding resolution of their disputes, this Court cannot enforce as broadly worded an arbitration clause as exists in this contract until the legislature amends or repeals section 13-806. The legislature intended,in section 17-301,R.C.M. 1947, to insure that onewho is injured by another's wrongful breach of contract has a right to recover such damages aswill make him whole again. Bos v. Dolajak, 167 Mont. 1, 534 P.2d 1258. The contract in this case provided thatplaintiff Perl Smith,hiswife, or son would receive consultation fees or commissions for a limited period of time,measured by how long they should live. plaintiffs can

never recover those lostyears of fees or commissions from net profits except by way of damages. The proper measure of damages

so as to make the seller in this case "whole again", therefore, is the amountwhich the district judge finds that plaintiff Perl Smithwould have received in consultation fee royalties from net mining profits if defendants had produced 300 yards of materialeach working day since the property was made ready to be mined in 1972, plus interest from the date the royaltieswould have accrued. See Freeport Sulpher Co. v. American sulph@-rRoyalty Co.

### , 117 Tex. 439, 6 S.W.2d 1039. Plaintiffshave the burden of proving, by competent evidence, the amount of damageswhich they suffered due to defendants failure to produce 300 yards of material during each working day. Rigney v. Swingley, 112Mont. 104, 113 P.2d 344. Plaintiffs will not be denied recovery merely because the damages in this

case are difficult to ascertain,as long as they prove damages with reasonable certainty. In Brown v. Homestalte Exploration Co., 98Mont. 305, 337, 39 P.2d 168, this Court stated plaintiff must provide the district judgewith: "Areasonable basis for computation and the best evidence obtainable under the circumstances and which will enable [the judge] to arrive at a reasonably close estimate of the loss

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(Bracketedmaterial substituted.) Such evidencemay include,but isnot limited to, the testimony of geologists and geophysicistswho test themine's soil, the past history of the mine, the cost of mining 300 cubic yards of gravel per day and the value of gold and other noble metals in the soil during the time that defendants failed tomine. Although plaintiffs in their complaint asked solely for forfeitureas a remedy for defendants' contract breach, the trial judgemust grant such other relief as isproper under the proven facts of the case. Rule 54(c), M.R.Civ.P., which is identical with Rule 54(c)

### ,Fed.R.Civ.P., provides: 

## "** * Except as to a party againstwhom a judgment is entered by default, every final judgment shall grant the relief to which the party in whose favor it is rendered is entitled, even if theparty has not demanded such relief in his pleadings." In Garland v. Garland, 165 F.2d 131, the plaintiff, in her complaint,asked soleJyfor recission and cancellation of a contract.The court held that Rule 54(c), Fed.R.Civ.P., authorized the trial court to grant the plaintiff damages, aswell as specific performance, even though the plaintiff did not request that relief in her pleadings. In the case at bar, plaintiffs have proven that defendantsbreached their contract and have made a case for possible damages, though thiswas not the relief they requested. Although they are not entitled to forfeiture,under Rule 54(c),M.R.Civ.P., the trial judge has the duty to give plaintiffs a hearing on damages, the remedy to which they are entitled under the factsproven at trial. See also: Columbia Nastri & Carta Carbone v. Columbia Mfg. Co., 367 F.2d 308; Hutches v. Renfroe, 200 F.2d 337. The district judge's findings that defendantsbreached their contract is affirmed. The judge's ruling that defendants forfeited all rights and money paid under the contract is reversed. The cause is remanded,with instructions to proceed in accordance with this opinion. 

# vw ,.4& /- Chief Justice i