No. 90-517 IN THE SUPREME COURT OF THE STATE OF MONTANA

KEESUN PARTNERS, a Wyoming general partnership, Plaintiff and Respondent,

-vs- 

# LySk,LitL FERDIG OIL COMPANY, INC. a corporation; CLE~~ OFSIJPI-U'I.~~E COURI and SOMONT OIL CO., INC., a corporation, STATEOFpn0rdTANA Defendants, Counterclaimantsand Appellants,

KEESUN PARTNERS, a Wyoming general partnership, consisting of V.C. KNIGHT, J. KENNETH FINSTAD, RONALD VANDERHOEF, individually,and as partners; and JOHN DOES 1, 2, 3, 4,and 5 and DOE COMPANIES 1 and 2, corporations, individually,and as partners of Keesun partnership, Counterdefendants.

APPEAL FROM: District Court of the Ninth Judicial District, In and for the County of Toole, The Honorable R. D. McPhillips, Judge presiding.

COUNSEL OF RECORD: For Appellants: Gregory H. Warner and George 

### R. Crotty, Jr.; Graybill, Ostrem, Warner & Crotty, Great Falls, Montana For Respondent: Carolyn Ostby; Crowley, Haughey, Hanson, Toole & Dietrich, Billings, Montana

Filed: Submitted on Briefs: May 24, 1991 Decided: August 1, 1991

ClerkJustice Karla 

### M. Gray delivered the Opinion of the Court.

The appellants, Ferdig Oil Company, Inc. and Somont Oil Co., Inc. (referredto collectively as Ferdig/Somont)

## , appeal from an order of the District Court of the Ninth Judicial District, Toole County, granting partial summary judgment in favor of the respondent,Keesun Partners. We affirm. Ferdig/Somont raises the following issues on appeal: 1. Did the District Court err in determining that there are
no genuine issues of material fact as to the absence of a contract between the parties? 2. Did the District Court err in holding that even if a contract did exist between the parties, its enforcement is barred by the statute of frauds? 3. Did the District Court err in refusing to consider remedies of rescission or restitutionand the return of theparties to the status quo in granting quiet title relief? The appellants, Ferdig Oil Company, Inc. and Somont Oil Co., Inc., are Montana corporations in oil and gas production and processing. Both corporations have the same ownership and same management. Charles Jansky is an officer of both corporations. Ferdig is involved primarily in the gathering and processing of natural gas. Somont is involved primarily intheproduction of oil and natural gas. Therespondent,Keesun Partners, is aWyoming oil and gas producing partnership which was formed in October of 1987. J. Kenneth Finstad is a partner in Keesun and acts as operations manager. 2Ferdig/Somont constructed and operatesa gasprocessingplant located in Section 28 of Township 35 North, Range 4 West, Toole County, Montana. The original intent of Ferdig/Somont in constructing theplant was toprocess both sweet and sour gas from its own wells located adjacent to the plant. In the summer of 1987, Ferdig/Somont presented its lenders with proposals which called for extending its gas gathering pipeline system through the northern part of Township 35North, Range 4West into the southern part of Township 36North, Range 4 West. Ferdig/Somont determined that its ownwell in Section 34 of Township 36North, Range 4 West, along with anotherwell inthat section, justifiedthe installation of that pipeline. Shortly thereafter,Mr. Jansky and Mr. Finstad discussed the possibility of a market for gas from additional wells drilled in Section 34. On September 16, 1987,Mr. Jansky sent a letter toMr. Finstad and Don Lee, a Shelby attorney who represented both Ferdig/Somont and Finstad. The stated purpose of the letter was to llsummarize the deal we [Ferdig/Somont] are proposing to enter into with Mr. Finstad, et al.I1 for thepurchase of wellhead gas on

a long-term basis. Neither Mr. Finstad nor Keesun, after its formation in October of 1987, responded inwriting toMr. Janskyls letter. Keesun pursued its drilling activities on acreage controlled by Keesun and on acreage acquired from Ferdig/Somont and others through farmout agreements or outright assignments. Although no written gas purchase contract was in place, Ferdig/Somont tookdeliveries of gas from Keesun on a month to month basis. The parties apparently were hopeful that an acceptable gas purchase contract would eventually be agreed upon and executed. Contemporaneouswith Keesunfsdrilling activities,Mr. Jansky sent a number of letters to Keesun setting forthhis understanding of the state of thenegotiations, summarizing proposals and making

new offers. Keesun did not respond in writing to any of this correspondence; it does appear from the record that ongoing negotiations occurred, eitherdirectlyor throughattorneyDonLee. Eventually, a meeting between Keesun and Ferdig/Somont was held on March 3, 1988, at Don Lee's office in an attempt to finalize a wellhead gas purchase contract between the parties. The followingday,Mr. Janskywrote Keesun another letter in which he summarized those terms he believed had been agreed upon and, in addition,listed eighteenproposed terms I1stillpending agreement." Mr. Jansky wrote: ItThose things still pending agreement are summarized in our offer presented below, for you to either accept or reject

# .'I Ferdig/Somont thereafter instructedDon Lee toprepare a draft wellhead gaspurchase contract which was then forwarded to Keesun for review. OnMay 18, 1988,Keesun communicated its dissatisfactionwith the draft contract to Don Leewho, in turn, informed Ferdig/Somont that Keesun did not agree with theproposed gaspurchase contract. That same day, Mr. Jansky wrote Keesun a letter alleging that Keesun had breached Ititscontractual obligations.Ig He stated that Ferdig/Somont would release Keesun from those obligations on thecondition that Keesun relinquish title to fourproducing wells and the leases upon which those wells were located in Section 27 of Township 36 North, Range 4 West, and Section 19 of Township 36 North, Range 3 West. In his letter, Mr. Jansky stated that Ferdig/Somont had assigned this acreage to Keesun "in reliance on the fact that Keesun represented it would enter into a long term gas sales contractIrwith Ferdig/Somont. He also stated that since all the "acreage

# . . .was acquired from orvia [Ferdig/Somont] in accordance with the agreement since breached by Keesun, [Ferdig/Somont]wants all this landback." Inanother letterdated May 24, 1988, Mr. Jansky informed Keesun that Ferdig/Somont intended toproceed as I1equitable owner" of thedisputedwells, and that a ItNoticeof Interestvf to that effect had been recorded in Toole County. On June 21, 1988, Keesun filed a complaint in the District Court of theNinth Judicial District,Toole County, seeking relief against Ferdig/Somont on four counts. Count 

### I sought quiet title relief for the disputed oil and gas leasehold interests held by Keesun; Count I1 sought declaratory relief that Ferdig/Somont had

no right to operateor control the fourproducing gaswellsdrilled by Keesun on the leases described in Count I; Count I11 sought declaratory relief that Ferdig/Somont had no rights to leases acquiredby Keesun in the future;and Count IV sought an accounting and payment for deliveries by Keesun to Ferdig/Somont of gas from the disputed wells. Ferdig/Somont filed a motion to dismiss which was briefed bythe parties. Prior to a ruling on the motion to dismiss, Keesun filed amotion forpartial summary judgment as to Counts I, I1and IV of its complaint. This motion was briefed by the parties and,

on January 25, 1990, argued to the District Court. Ferdig/Somontlsmotion to dismiss was subsequently denied. Thereafter Ferdig/Somont filed its I1Answer,Affirmative Defenses and 

### counterclaim^.^^ This pleading set forth numerous affirmative defenses and counterclaims most of which were premised upon an alleged contractual relationshipbetween Keesun and Ferdig/Somont for the purchase of wellhead gas. The parties then commenced discovery. Shortly before the discovery deadline, the District Court granted partial summary judgment to Keesun on July 23, 1.990. The court stated that its reason for granting partial summary judgmentwas that: There is nothing before the Court to suggest there is a contract between the parties. There is nothing before the Court that would take the contract between the parties, if there were one,out of the statute of frauds. The District Courtlsjudgment quieted title to the disputed leases and wells in Keesun and ordered payment to Keesun for all gas delivered to Ferdig/Somont from the disputed wells. The court certified its judgment as finalpursuant to Rule 54(b)

## ,M.R.Civ.P. Ferdig/Somont thenmoved the District Court to alter or amend its ordergranting Keesunpartial summary judgment. The court did not rule on thismotion within 45 days and, therefore, the motion

was deemed denied pursuant to Rule 59(g), M.R.Civ.P. This appeal followed. The first issue on appeal iswhether the District Court erred 6in determining that there are no genuine issues of material fact

as to the absence of a contract between the parties. Summary judgment isproperly granted where the record disclosesno genuine issue ofmaterial factand themoving party is entitled to judgment as a matter of law. Rule 56(c), M.R.Civ.P. The party seeking summary judgment has the burden of demonstrating the absence of genuine factual issues. OtBagy

### v. First Interstate Bank (1990), 241 Mont. 44, 46, 785 P.2d 190, 191. If the movant has met this burden, the burden then shifts to the non-moving party to demonstrate a genuine issue of material fact. OtBasy,241 Mont. at 46, 785 P.2d at 191. Tomeet this burden, thenon-movingparty must proffer substantial evidence, not mere speculation and conclusory statements. Handov. PPG Indus., Inc. (1989), 236Mont. 493, 497, 771 P.2d 956, 959; Frigon v. Morrison-Maierle, Inc. (1981), 233 Mont. 113, 117, 760 P.2d 57, 60. No evidence exists in the record of a signedwritten contract between the parties. Therefore, the initial question with which

we are faced is whether an oral contract existed between the parties for the purchase of wellhead gas. Ferdig/Somont contends that a valid oral contractwas entered intoby theparties or that, at a minimum, factual issues exist regarding the formation of a contract. According to Ferdig/Somont, an agreement was reached between the parties in which Keesun would sell its gas to Ferdig/ Somont for a period of twenty years. Ferdig/Somont contends that the September 16, 1987 letter from Mr. Jansky to Mr. Finstad and attorney Don Lee set forth the terms of, and confirmed, thatagreement. Ferdig/Somont further contends that Mr. Janskyls correspondence with Keesun and Don Lee after the September 16th lettermerely reflected negotiations between theparties regarding optional additions to and modifications of thebasic agreement for the purchase of wellhead gas. In support of its contention that a contractwas entered into between the parties, Ferdig/Somont refers to a portion of Mr. Finstad's deposition and argues that he testified that Keesun had accepted the proposed wellhead gas purchase contract as set forth in the September 16, 1987 letter: Q [ByMr. Crotty] Isthere anything in that letter that you did not agreewith? MS. OSTBY: Objection. The question is too general. A The essence of the proposed well head purchase contract we 

# . . 

# . I agreed to. Ferdig/Somont also refersto aportion of DonLeels deposition with regard to the meeting he attended with the parties on March 3, 1988 as further support that the parties had reached 

### an agreement. What I recall is when everybody left and went out thedoor thatwhateverhadbeen discussed atthatmeeting was agreed upon, other than the quantum of overriding royalty that Somont would be entitled to on various leases. All contracts must contain four essential elements. These elements are: (1) identifiable parties capable of contracting; (2) their consent; (3) a lawful object;and (4)consideration. Section 28-2-102, MCA. The issue of whether or not there was a contract in this case relates to the requirement of consent.Theremust be mutual assent or a meeting of the minds on all essential terms to form a binding contract. Chadwick v. Giberson (1980), 190 Mont. 88, 92, 618 P.2d 1213, 1215. Consent is established when there has been an offer and an acceptance of that offer. More specifically, this Court has stated that in order to effectuate a contract theremust be not only a valid offer by one party, but also an unconditional acceptance, according to its terms, by the other. Kuchinski v. Security General Ins. Co. (1963), 141Mont. 515, 519, 380 P.2d 889, 891. In this case, the purported contract fails for lack of consent. The record indicates that, although some of the terms of the wellhead gas purchase contract may have been agreed upon, the parties were involved in an ongoing negotiation process regarding many essential termsof the contract and no finalizedagreement was ever reached. At the January 25, 1990 hearing on partial summary judgment, Don Lee testified as follows: Q [By

### Ms. Ostby] If the parties would have reached an agreement, you were to be the scribner [sic] of that agreement, were you not? A Yes. Q Were you ever aware an agreement was reached on all the essential terms of a contract, so you could draft such an agreement? MR. WARNER: Objection, leading. THECOURT: Itis somewhat,but 1'11 lethim answer. A On everything? Q Yes. A No.Mr. Lee reaffirmed his belief that there was never any finalized agreement between the parties in his subsequent deposition. Q [ByMs. Ostby] This letter [referring to the letter fromMr. JanskytoKeesundatedMarch 4,19881 indicates, toward the bottom third of the first page, that there were severalthings Ifstill pending agreement;Irdoyousee that? A Yes. Q Thataccords withyourunderstanding,doesn't it,that therewere still some things that were pending agreement at that time? A Yes. In addition, Mr. Janskylsown admissions in his letters to Keesun demonstrate that no finalized contract between the parties existed. In his March 4, 1988 letter to Keesun, Mr. Jansky, on behalf of Ferdig/Somont, stated that: Along with the latest version of the proposed qas purchase contract attached herewith, 

### Iwant to confirm those things Ferdig believes already mutually agreed, which will be incorporated in a side agreement executed concurrently with the gas purchase contract, and those thinss Ferdia acknowledqes as still pendinq asreement. Those thinss still pendinq aqreement are summarized in our offer presented below, for you to either accept or reiect

# . [Emphasisadded.

### ] Further, in a letter dated April 25, 1988, to the Montana Power Company with whom Ferdig/Somont had negotiated a delivered gas purchase contract, Mr. Jansky stated: I1[W]e do not yet have contracts finalized with Keesun or Berenergy.I1 The date that letterwas written, April 25, 1988,wasmore than sixmonths after the date uponwhich Ferdig/Somont now claims a contractwas formed between the parties. Mr. Janskylsown statements in his letters to Keesun andMontana Power refute Ferdig/Somontls contention that the correspondence subsequent to the September 16, 1987 letter merely reflected negotiations regarding optional additions to and modifications of a basic agreement between the parties. In our view, they also reflect recognition by Ferdig/Somont that the parties had not yet agreed upon all essential terms of a contract. Ferdig/Somont also contends that this Court should find the existence of a contract between the parties based on the doctrine of promissory estoppel. The elements of promissory estoppel are:

(1) a promise clear and unambiguous in its terms; (2) reliance on the promise by the party to whom the promise is made; (3) reasonableness and foreseeability of the reliance; and (4) the party assertingthe reliancemust be injuredby the reliance. Tope

v. Taylor (1986), 224 Mont. 131, 136-37, 728 P.2d 789, 793. With respect to the first element, this Court stated in Keil

v. Glacier Park, Inc. (1980), 188Mont. 455, 462-63, 614 P.2d 502, 506, that promissory estoppel cannot be based on preliminary negotiations or an agreement to negotiate the terms of a contract. In the present case, the evidence before the District Court established nothing more than that the parties had engaged in preliminary negotiationsanddiscussionsof thetermsof awellhead gas purchase contract. Mr. Janskylsletters to Keesun reflected that finalization of the terms of a contractwould require further negotiations between the parties. This evidence does not constitute the clear and unambiguous promise necessary to satisfy the first element of promissory estoppel.Additionally, Ferdig/Somont cannot establish factssufficient to show reliance on any alleged promise by Keesun. Inmaking the business decision to install thenorthern leg of its gas gathering pipeline system, Ferdig/Somont had previously determined that its own well in Section 34 of Township 36 North, Range 4 West, along with another well in that section, justified installation of the pipeline. This decision is reflected in Ferdig/Somontlsletters to its lenders during the summer of 1987,prior to the date of the alleged formation of the wellhead gas purchase contract. Keesun, as themoving party,met its initialburden of showing that no evidence existed to prove the formation of a binding contract between the parties. The burden then shifted to Ferdig/Somont to show facts sufficient to raise a genuine issue. Ferdig/Somont has failed to meet this burden. The District Court correctly determined that the evidence proffered by Ferdig/Somont

was insufficient to raise any genuine issue of material fact as to the existence of a gas purchase contract between the parties and, thus,properly granted partial summary judgment on this issue. Having determined that the record reveals that no valid oral contract existed between the parties, it is unnecessary for us 

### to address Ferdig/Somontls second issue on appeal regarding the applicability of the statute of frauds. The next issue on appeal is whether the District Court erred by not awarding Ferdig/Somont the remedies of rescission or restitution and return of the parties to the status quo when it granted Keesun quiet title relief. Ferdig/Somont contends that,as consideration for a long-termgaspurchase contract with Keesun, it assigned various leasehold acreage interests to Keesun. It argues that to allow Keesun to retain thebenefits of the contract in the form of acreage interestsassigned to it, without enforcing the contract, results in unjust enrichment. Ferdig/Somont argues that it is entitled to rescission of those assignments, restitution,and the return of the parties to the status quo based

on the theories of repudiation or breach of contract and fraud. We disagree. Mr. Finstad's affidavit and accompanying documents show that the lease assignments were separately executed written contracts for which consideration was received by Ferdig/Somont. For example, with respect to the tlSpencer-Lohof" lease assignment in Section 27 of Township 36 North, Range 4 West, Ferdig/Somont retained a 7%%overriding royalty interest. Mr. Jansky admitted that he considered the assignments to be separate land contracts. When questioned during the January 25, 1990 hearing onpartial summary judgment about one of the disputed wells in Section 19 of Township 36North, Range 3West,Mr. Jansky testified as follows: 

### Q [ByMs. Ostby] And, it [theSection 19 acreage]was not part of that Contract,was it? A No,ma'am. 

### Q And, despite the fact that it'snot part of the Contract that you're contendingwas breached, you're claiming ownership? A Yes,ma'am. The record shows that Keesun drilled the well in Section 19pursuant to a separate,written farmout agreement between Western Natural Gas Company (WNG) and Ferdig/Somont and, in turn, a separate, written assignment to Keesun of Ferdig/Somontlsrights under the WNG agreement. Again, Ferdig/Somont retained a 7$% overriding royalty. Nowhere in these documents is there any language suggestingtheassignmentstobedependentupon someother agreement. In addition,the record does not reveal any fraud on Keesunls part. There isnothing to indicate thatKeesun intended tomislead or deceive Ferdig/Somont by concealing material facts, or that somehow Ferdig/Somont was misled to its detriment. To the contrary,the record clearly establishes thatMr. Janskywas fully

aware that negotiations were ongoing. We hold that the District Court didnot err inrejectingFerdig/Somontlsclaims of rescission and restitution. Affirmed.