No. 83-244 

IN THE SUPREIE COURT OF THE STATE OF MONTANA 

1984 

BARNEY REAGAN, 

Plaintiff and Respondent, 

UNION OIL COMPANY OF CALIFORNIA, 

a corp., and THE MONTANA POWER CO., 

a corp. , 

Defendants and Respondents. 

APPEAL FROM: District Court of the Second Judicial District, 

In and for the County of Silver Bow, 

The Honorable -, Judge presiding. 

FR+SQK E.23tfig'R 

COUNSEL OF FECORD: 

For Appellant: 

Jardine, Stephenson, Riewett & Weaver; Curtis G. 

Thompson and Alexander Blewett argued, Great Falls, 

Montana 

For Respondents: 

Poore, Roth & Robinson; C. Richard Anderson and 

Robert Poore argued, Butte, Montana 

Submitted: November 17, 1983 

Decided: January 23, 1984 

J a 1': tx ik\ . j :$d6 Filed: 

Clerk 
Mr. Justice L.C. Gulbrandson delivered the Opinion of the 

Court. 

This case comes on appeal from an order granting 

plaintiff's motion for partial summary judgment on September 

14, 1982, by the District Court of the Second Judicial 

District, Silver Bow County. We vacate the order of the 

District Court. 

Pursuant to a 1944 agreement, Reagan's predecessor in 

interest and his associates (Reagan Associates) owned a 

twenty percent "net proceeds" interest in profits derived 

from production obtained from certain oil and gas leases on 

the Blackfoot Indian Reservation. The twenty percent "net 

proceeds" interest was to be paid by Union Oil. Pursuant to 

an agreement entered into on October 18, 1954, the "net 

proceeds" interest was converted into a "general obligation 

and liability" of Union Oil and Montana Power to pay Reagan 

Associates certain sums of money annually. The reason for 

converting the "net proceeds interest" to a "general 

obligation and liability" was that the parties were aware 

that the Department of Interior might not approve an 

assignment of an overriding royalty on a Tribal lease. 

Under the agreement, the "net proceeds" interest was 

quit-claimed to Union Oil in return for Reagan Associates 

receiving a "general obligation and liability" of Union and 

Montana Power to pay Reagan Associates certain sums of money 

"measured by and that [were] equal in amount" to a fixed 

percentage of the value of the petroleum produced. The 

agreement did not use the terms "royalty" or "overriding 

royalty" and was silent as to payment of taxes. Plaintiff, 
Barney Reagan, succeeded to ownership of the "general obligation and liability" upon the death of his father in 1969. 

Since 1954, Union and Montana Power have deducted from 

the payments under the agreement certain sums for payment of 

various state and federal taxes including the following: 

(a) Oil and gas conservation tax, Section 82-11-131, 

MCA. 

(b) Oil and gas severance tax, Section 15-36-101, MCA. 

(c) Resource indemnity trust tax, Section 15-38-104, 

MCA. 

(d) Oil and gas net proceeds tax, Title 15, Chapter 

23, part 6, MCA. 

(e) Windfall Profits Tax, 26 USCA Sections 4986 - et. 

seq. 

In 1970, Reagan executed and delivered to Union Oil 

division orders pertaining to the production of oil and gas. 

The division orders provided that "[tlhe undersigned . . . 

certify and warrant they are the legal owners in the 

proportions set out . . . of all the oil, and in the 

proceeds from casinghead gas produced from . . . " Union's 

Tribal leases. 

The division orders stated that payments should be 

made to the respective parties for amounts due, "less any 

taxes required by law to be deducted and paid by [Union] ." 

In addition, Section (5) of the division orders provided: 

"It is distinctly understood that the 

Owners will pay their respective portions 

of all taxes imposed upon the products 

produced from said land, including but 

not by way of limitation, taxes imposed 

upon the production, severance, gathering 

and disposition of such products, and if 

Union pays any such tax on account of the 

interests of the Owners, the amount so 

paid may be deducted from payments due 
the Owners hereunder." 

The central issue before the District Court was 

whether Union Oil and Montana Power had properly withheld 

portions of Reagan's annual payments for tax purposes 

because Regan held a taxable "economic interest." 

Reagan filed suit against Union and Montana Power in 

May, 1981, alleging that the deductions for taxes were in 

derogation of the 1954 agreement and requesting judgment in 

the amount of all the sums withheld together with interest 

from the dates of such withholdings. On June 30, 1982, 

Reagan moved for a partial summary judgment pursuant to Rule 

56(c) of the Montana Rules of Civil Procedure. Union and 

Montana Power filed opposing briefs on August 19, 1982. On 

September 14, 1982, the District Court entered its order 

granting Reagan partial summary judgment. The District 

Court ordered that any and all payments made pursuant to the 

1954 agreement were not subject to the taxes at issue; that 

contrary to the express provisions of the 1954 agreement, 

defendants unlawfully withheld money from Reagan; that the 

money had to be accounted for and returned; and that the 

defendants were prohibited from any future withholdings. 

Further, the District Court, upon Reagan's concession, 

applied the statute of limitation defense raised (Section 

27-2-202(1), MCA, and limited Reagan's recovery to amounts 

withheld during the eight years preceding the commencement 

of the action. In addition, the District Court denied 

defendant's motion for leave to conduct further discovery. 

On September 23, 1982 the defendants moved the 

District Court for an order rescinding, amending or 

modifying its order granting partial summary judgment. On 
November 12, 1982, the District Court denied the motion 

stating ". . . as a matter of law the written contract of 

the parties of October 18, 1954, created a general 

obligation and liability of Union Oil and Montana Power and 

not a economic interest with respect to the oil or gas in 

place in the ground. This is fatal to Defendant's 

contentions." Thereafter, defendants filed their notice of 

appeal. 

Appellants, Union Oil and Montana Power, raise six 

issues on appeal: 

(1) Did the Distict Court err in granting respondent's 

motion for partial summary judgment ruling as a matter of 

law that there was no genuine issue of material fact as to 

respondent's payments being non-taxable? 

(2) Did the division orders executed by respondent 

create a question of fact as to authorization by respondent 

of deduction for taxes? 

(3) Was there a question of fact regarding the defense 

of laches and, as a matter of law, the appellants could not 

rely on the defense of laches? 

(4) Did the District Court's denial of appellants' 

motion for leave to conduct further discovery, which was 

filed after submission of respondent's motion for summary 

judgment, constitute reversible error? 

(5) Did the District Court's order granting partial 

summary judgment on September 14, 1982, and its further 

order of November 10, 1982, sufficiently explain the basis 

for granting respondent's motion for partial summary 

judgment? 

(6) Did the District Court err in awarding respondent 
prejudgment interest? 

We find the first two issues dispositive of the 

matter. 

The purpose of summary judgment is to encourage 

judicial economy by eliminating unnecessary trials and an 

order for summary judgment will be upheld in those cases in 

which the complaining party fails to demonstrate the 

existence of material and substantial facts that would alter 

the decision made below. Cereck v. Albertsons, Inc. (Mont. 

1981), 637 P.2d 509, 38 St.Rep. 1986. Summary judgment is 

never to be used as a substitute for trial if a factual 

controversy exists. Reaves v. Reinbold (Mont. 1980), 615 

P.2d 896, 37 St.Rep. 1500. The standard that an appellate 

court applies in reviewing a grant or denial of a motion for 

summary judgment is the same as that utilized by the trial 

court initially under Rule 56, M.R.Civ.P.--a summary 

judgment is proper when it appears "that there is no genuine 

issue as to any material fact and that the moving party is 

entitled to a judgment as a matter of law." 10 Wright and 

Miller, Federal Practice and Procedure, section 2716 p. 643. 

Summary judgment is proper only if the pleadings, 

depositions, answers to interrogatories and admissions on 

file show there is no genuine issue of material fact. 

Anderson v. Applebury (1977), 173 Mont. 411, 567 P.2d 951. 

If there is any doubt as to the propriety of a motion for 

summary judgment, it should be denied. Cheyenne Western 

Bank v. Young (1978), 179 Mont. 492, 587 P.2d 401; Kober v. 

Stewart (1966), 148 Mont. 117, 417 P.2d 476. 

In the present case, the District Court determined 

that there was no genuine issue of material fact because the 
October 18, 1954 contract created a "general obligation and 

liability" and not an "economic interest" thereby precluding 

appellants from withholding portions of respondent's 

annual payments for tax purposes. However, the record 

indicates there was a genuine issue of fact as to whether 

the October 18, 1954 agreement created a taxable "economic 

interest." Although the agreement refers to respondent's 

payment as a "general obligation and liability," the 

payments were totally dependent on the amount and value of 

production. In Forbes v. Mid-Northern Oil Company (1935), 

100 Mont. 10, 45 P.2d 673, we said that the nature of the 

interest is determined by the instrument considered as a 

whole and not by the labels used by the parties. Similarly, 

in Palmer v. Bender (1933), 287 U.S. 551, 557, 53 S.Ct. 225, 

77 L.Ed. 489, 493, the United States Supreme Court said that 

the retention of an ownership or legal interest in the oil 

is not a necessary prerequisite to an "economic interest." 

An "economic interest" is defined in Treas.Reg., section 

1.6.11-l(b)(l) as follows: 

"An economic interest is possessed in 

every case in which the taxpayer has 

acquired, by investment, any interest in 

mineral in place . . . by any form of 

legal relationship, income derived from 

the extraction of the mineral . . . to 

which he must look for a return of his 

captial. " 

Although it would be premature for us to decide 

whether the October 18, 1954 agreement created an "economic 

interest," this was a genuine issue of material fact and the 

District Court erred in granting respondent's motion for 

partial summary judgment. 

In addition, the conduct of the parties in the 

execution and acquiesence to the terms of the division 
orders created a genuine issue of fact. Specifically, the 

division orders provided that respondent certified and 

warranted that he was the legal owner of a certain portion 

of the oil and gas produced by appellants. Moreover, 

section (5) of the orders states that respondent will pay 

his respective portion of taxes imposed upon production, 

including but not by way of limitation, taxes for 

production, severence and gathering. Section (5) of the 

division orders also provides, ". . . and if Union pays any 

such tax on account of the interests of the Owners, the 

amount so paid may be deducted from payments due the Owners 

hereunder ." Thus, the language of the division orders, if 

used to supplement the terms of the 1954 agreement, could be 

construed as a representation of ownership of the oil and 

gas by respondent and as authorizing the challenged 

withholdings. 

Williams and Meyers, Oil and Gas Law, section 705, p. 

451, abridged edition, states: 

"Insofar as the division or transfer 

order differs from the lease as concerns 

the measurement of quantity, quality, 

price or value of the production, the 

lease provisions are modified by the 

provisions of the order as to all parties 

to the unrevoked order. Thus the lease 

may provide in very general terms for the 

payment of royalty on production and the 

division order (or a contract of sale 

incorporated in the division order by 

reference) may contain much more specific 

provisions on the same matters, which may 

be inconsistent with details of the lease 

royalty clause. Under such circumstances 

the provisions of the division or 

transfer order govern until such order is 

revoked. " 

Williams and Meyers, Oil and Gas Law, section 711, p. 455, 

abridged edition, also states: 

"Where there is disagreement over the 
construction of a, particular instrument, 

the provisions of a division order 

executed by the parties to such other 

instrument may be evidence of the proper 

construction thereof on the theory of 

contemporaneous construction of the 

latter instrument by the parties." 

We cannot speculate as to what the parties intended, 

however, summary judgment is usually inappropriate where the 

intent of the contracting party is an important 

consideration. Fulton v. Clark (1975), 167 Mont. 399, 538 

P.2d 1371; Kober, supra. 

The language of the division orders, which is part of 

the District Court record, raise a doubt as to the propriety 

of the partial summary judgment and the motion therefore 

should have been denied. Cheyenne Western Bank, supra. The 

party opposing a motion for summary judgment must be 

afforded the benefit of all reasonable inferences which may 

be drawn from the offered proof. Reaves, supra. 

In addition to the language contained in the division 

orders, the provisions of the tax statutes at issue should 

have persuaded the District Court to deny respondent's 

motion for partial summary judgment. For example, the oil 

and gas severence tax, Section 15-36-101(3), MCA, as well as 

the resource indemnity trust tax, Section 15-38-104, MCA, 

allow for the deduction of a pro rata share of the tax from 

payments made in settlements under division of proceeds 

orders and other contracts. 

In sum, there existed genuine issues as to whether the 

appellants properly withheld portions of respondent's annual 

payments and we therefore vacate the decision of the 

District Court and remand the case for further proceedings. 
We concur: 

Justice / 

Chief Justice 

Justices 
Justice John C. Sheehy, dissenting: 

I dissent and would affirm the decision of the District 

Court granting summary judgment in favor of Barney Reagan. 

The majority opinion shows a startling indifference to, 

or lack of knowledge of, the operation and effect of division 

orders on their underlying instruments in the oil and gas 

production business. 

The production of oil and natural gas in Montana, at the 

time of this case, is subject to the following taxes: 

1. Oil and Gas Conservation Tax, section 82-11-131, 

MCA. Under this tax provision, the producer pays the tax for 

oil or gas "produced for himself, as well as for another, 

including a royalty owner. . ." 

2. An Oil and Gas Severance Tax, section 15-36-101, 

MCA. Here the producers are required to pay this tax in full 

for their own account and for the account of each other owner 

"of the gross proceeds in value or in kind of all 

the marketable . . . oil or natural gas extracted 

and produced, including owner or owners of working 

interest, royalty interest, overriding royalty 

interest, carried working interest, net proceeds 

interest, production payments, and all other 

interest or interests owned or carved out of the 

total gross proceeds in value or in kind" 

of such production. Section 15-36-101(3), MCA. That statute 

also provides " [ulnless otherwise provided - in - a contract - or 

lease, the pro rata share of any royalty owner or owners will 

be deducted from any settlements under said lease or leases 

or division of proceeds orders or other contracts." 

(Emphasis suppl-ied) . 

3. A Resource Indemnity Trust Tax, section 15-38-104, 

MCA. This tax is laid on any person engaged in the business 

of mining, extracting or producing minerals in Montana. The 

statute provides further "[ulnless otherwise provided - in - a 
contract - or lease, the pro rata share of any royalty owner or 

owners may be deducted from any settlements under the lease 

or leases or division of proceeds orders or other contracts." 

(Emphasis supplied) . 

4. An Oil and Gas Net Proceeds Tax, section 15-23-607, 

MCA. This tax includes a.n assessment of royalties paid to a 

royalty owner (section 15-23-605), and is payable by the 

operator or prod-ucer who may deduct from the royalty owner an 

estimated amount of the tax to be paid by him upon the 

royalty or royalty interest. 

5. A Windfall Profits Tax, levied by the Federal 

government under section 26 U.S.C. 5 4986, et seq. The 

windfall profits tax is laid on the producer of taxable crude 

oil and gas, and the producer is defined as the "holder of 

the economic interest with respect to the crude oil." 26 

U.S .C. S 4996 (a) (1) (A) . Internal Revenue regulations provide 

that a producer is the "holder of the economic interest with 

respect to the crude -- oil in place -- in the ground." IRS reg. 

51. 4996-1 (b) (1) (Emphasis supplied) . 

I have stated those tax provisions at length to 

demonstrate to the reader that the various state taxes are 

laid upon the producers and the royalty owners of the oil and 

gas, and in the federal case, upon the owner of the crude oil 

in place in the ground. 

At issue in this case then is who is the owner of the 

oil and gas rights here in question, the Montana Power Co. 

and Union Oil Co. on the one hand or Barney Reagan on the 

other, as one of the Reagan Associates. 

Clearly in this case, Montana Power Co. and Union Oil 

Co. are the owners of the working interest, subject only to 

the royalty payments to the land owners (in this case, the 
tribes). Clearly in this case, Barney Reagan, and the Reagan 

Associates, have no ownership in the oil and natural gas 

either produced and saved, or in place in the ground. 

It should further he clear that the precise issue in 

this case is not the payment of the oil and gas taxes. Those 

taxes have been paid, and will in the future continue to be 

paid. The point at issue in this case is whether Montana 

Power Co. and Union Oil Co. can deduct from Barney Reagan's 

rightful payments here the amounts of those oil and gas 

taxes. 

Prior to October 18, 1954, the Reagan Associates under a 

contract with Union Oil were entitled to 20% of the net 

profits derived from production of oil and ga.s under certain 

leases on tribal lands, from all formations down to and 

including the Madison formation, and 15% of the net profits 

derived from production from all formations under the Madison 

formation. On October 18, 1954, by written agreement, the 

Reagan Associates converted the 20%-15% net profits interest 

in production from said oil and gas leases to a general 

obligation and liablity Oil and Montana Power 

Co. based upon 5% of the value of the oil and gas produced 

from the leased tribal lands. 

On October 18, 1954, the Reagan Associates was a group 

of persons and entities which included Ed. Reagan, the father 

of the plaintiff here, the then governor of Montana, J. Hugo 

Aronson, J. E. Corette, Jr., either the attorney for or 

president of the Montana Power Co. at the time, and numerous 

officers or attorneys of the Montana Power Co. and members of 

their families. 
The underlying leases in which the Reagan Associates had 

a 20%-15% net profits interest ea.ch contained the following 

language : 

"The lessee hereby agrees that he will not. assign 

or sublet any part of the lands herein leased 

without the written consent of the lessor and the 

approval of the Secretary of the Interior. The 

assignment of this lease or any interest therein 

without such written consent and approval shall 

constitute a violation of one of the material and 

substantial terms and conditions of this lease and 

be cause of cancellation thereof." 

It is therefore clear that if the written agreement of 

October 18, 1954 converted the 20%-15% net profits interest 

of the Reagan Associates into an overriding royalty interest, 

then the agreement should necessarily be submitted to the 

tribe !the lessor) and the Secretary of the Interior for 

approval. The attorneys representing Union Oil Co., and the 

Montana Power Co., and the members of the Reagan Associates 

themselves recognized that in 1954 such a conversion to an 

overriding royalty interest would not be approved either by 

the tribe or by the Secretary of the Interior, but 

particularly by the latter. The clear intent of the parties 

was to devise an instrument tha.t did not constitute a 

transfer of ownership that must be approved by the Secretary 

of the Interior, but rather to find a way to create a general 

obligation of Union Oil Co. and Montana Power Co. which would 

not have to be submitted to the Secretary of the Interior for 

approval. 

Discovery procedures conducted before the District Court 

here, have yielded letters which shed much light on the 

intention of the parties with respect to the problem of the 

agreement. On January 28, 1954, Mr. L. V. Ketter, a Butte 

attorney, wrote to Mr. J. E. Corette, at the Montana Power 
Co. , a letter reporting on a meeting of January 22, 1954, in 

Great Falls, "concerning the conversion of the net profits 

interest of the Reagan Associates in the production from the 

Union lands to 5% overriding royalty in the production from 

Union and Montana lands." In long dissertation in the 

letter, Mr. Ketter outlines that an overriding royalty 

interest would probably be subject to the approval of the 

Secretary of the Interior, and that the risk involved was 

cancellation of the tribal leases. Mr. Ketter enclosed 

copies of the a.greement which was executed on October 18, 

1954, and stated: 

"If the leases were to be cancelled for the breach 

of the provisions therein, or of the regulati.ons, 

requiring prior approval of an assignment of any 

interest in them, then of course, Union and Montana 

would lose the respective leaseholds and the 

Associates would lose not only the overriding 

royalty but their net profits interest which the 

royalty interests were to supplant. If the the 

leases were not cancelled but only the royalty 

assignments were voided through some action of the 

government, or the government and the tribe, then 

there would be a failure of consideration for the 

surrender of the net profits interest and the 

latter would probably be reinstated as a matter of 

law. " 

Mr. Corette thereafter wrote a letter to Mr. Ketter on 

March 30, 1954. It is not clear from the letter whether Mr. 

Corette was wearing the chapeau of J. E. Corette, Jr. one of 

the Reagan Associates, or the sombrero of an officer or 

attorney of the Montana Power Co. At any rate however, he 

said: 

"Union, from its contacts with the Department of 

the Interior, is satisfied that the Department will 

not approve any overriding royalty on Indian 

leases,*but will approve net proceeds arrangements 

comparable to the former arrangement with Reagan 

Associates. Bert [refers to Bert Gibbons, then 

general counsel of Union Oil Co.] suggests that we 

consider the following alternatives: 
"1st. Execute the agreement and send it to Reagan 

Associates with a letter stating that we are not 

getting approval and that therefore they -- have no 

interest -- in the leases and only the obligation of - 

Montana and Union to pay 5% of the gross income. 

Under this procedure the question arises as to 

whether thisLmight be considered a transfer of an 

interest in the leases which could be used as a 

basis by the Government for claiming forfeiture of 

the leases; or 

"2nd. Get approval of the Department. Bert thinks 

there is no possiblity of doing this. 

"Bert believes that if we follow Plan No. 1 and if 

that is agreeable to the Reagan. Associates there is 

probably no great risk from a practical 

sta-nd-point; that his information from Frary and 

others is that this is not an unusual procedure. 

"Union is willing to go along with Plan No. 1, set 

forth above, without any approval by the Tribal 

Counsil or the Department of the Interior." 

(Emphasis supplied). 

Thereafter, the agreement of October 18, 1954, was 

executed by the Reagan Associates, acting through attorneys 

in fact, the Union Oil Co. and the Montana Power Co. Under 

the written agreement, the Reagan ~ssociates released and 

quit-claimed forever their interest in the net proceeds 

[profits] in the leases, and accepted instead "a genera1 

obligation and. liability of Union and Montana" measured by an 

amount equal to 5% of the value of the oil produced and saved 

from the Union and Montana lands. The general obligation and 

liability continues in force as long as the oil and gas 

Leases remain in effect. The agreement further provided that 

the Reagan Associates would d.ivide the 5% general obligation 

and liability among themselves in proportion to their 

ownership of the 20% net profits interest. 

When District Judge Frank E. Blair granted a summary 

judament in favor of Barney Reagan in this case, he did so on 

the ground that no material issue of fact existed, and that 

"as a matter of law the written contract of the parties of 
October 18, 1954, created a general obligation and liability 

of Union Oil and Montana Power and not any economic interest 

with respect to the oil or gas in place in the ground. This 

is fatal to Defendants contentions." 

District Judge Frank E. Blair was indubitably correct. 

His finding is absolutely in accord with the terms of the 

agreement of October 18, 1954, all of which provide that it 

is a general obligation and liability of the two companies, 

E) and which provisions include a release and quit-claim forever 

the net profits interest of the Reaqan Associates. The 

reasons for the agreement are clear from the communications 

between the Elontana Power Co., its attorneys, and 

representatives. By creating a general obljgation and 

liability instead of an overriding royalty interest in the 

leased lands, the parties avoided the necessity of submitting 

the agreement for approval to t.he tribe and to the Secretary 

of the Interior. 

There is no ambiguity in the agreement of October 18, 

1954. The intent of the parties is clear that a general 

obligation and liability against Montana Power Co. and Union 

Oil Co. was created. The Reagan Associates under the 

agreement stand in the position of general creditors of the 

corporations. Because of their release and quit-claim, they 

are not the owners of any economic interest, overriding 

royalty interest or other interest in the oil and gas in 

place, or produced and saved from the tribal lands leased. 

Defendants, Montana Power Co. and Union Oil Co. however, 

have managed to obfuscate the clear issue for the majority of 

this Court, by raising the specter of the division orders 

signed by Barney Reagan. I use the term "specter" here 
because those persons who have observed such beings report 

that they are so ethereal that they a-re easily seen through. 

Barney Reagan, the plaintiff here, is the son of Ed 

Reagan, one of the attorneys - in-fact who executed the 

inst-rument here, and of course, one of the Reagan Associates. 

Barney Reagan succeeded to the interest of Ed Reagan in 1969. 

In March of 1970, he signed division orders for the Union Oil 

Co. relating to the division of interest to which he was 

d entitled, 16.668 of 5% 'of the whole interest. It is the 

contention of the defendants that the language of the 

division orders show that Barney Reagan is an overriding 

royalty interest owner, and not a general creditor of the 

companies involved. 

Each of the division orders, submitted by Union Oil to 

Barney Reagan, contained the language that the signer 

certifies 2nd warrants that he is "the legal owner in the 

proportions set out below of all the oil, and in the proceeds 

from casinghead gas produced from Union's lease" on the 

tribals lands. The division order has other printed language 

on it which is material. It provides that the oil received 

under the division order shall be paid for by the purchaser 

(in this case Union) in accordance with the djvision of 

interest shown on the face of the division order; the 

division order is revocable by either party upon thirty days 

notice; revocation by Barney Reagan, however, would not 

constitute revocation by any other of the Reaga-n Associates. 

The majority are completely in error that the language 

of the division order can be used to supplement the terms of 

the 1954 agreement or to constitute a representation of 

ownership of the oil and gas by Reagan. 
First, under the agreement of October 18, 1954, the 

Reagan Associates forever release and quit-claimed their net 

profits interest in the oil and gas leases. No matter what 

Barney Reagan warranted or represented in the division order, 

he cannot become an owner of an overriding royalty interest 

in those 1ea.ses unless there is an instrument deeding back to 

him from Un.ion and Monta.na Power Co. such an interest. None 

appears here. 

Secondly, the ma-jority miss or confuse the purpose of a 

division order. 

"A division order is an instrument prepared by the 

purchaser of oil and gas which directs to whom and 

in what proportion the purchase price is to be 

paid. Primarily, it is for the protection of the 

purchaser of the oil. . . " Sullivan, Handbook of 

Oil and Gas Law (1955), p. 140 

And Sullivan further states: 

". . .A division order is separate and distinct 

from a conveyance of unaccrued royalty. It merely 

directs to whom payments should! be made for oil 

that has already been produced.. A division order 

does not supersede the lease by operating 2s a 

novation as to the royalty." ~uflivan, supra, pp. 

141-142. 

(Sulliva.n, it should be noted, served for many years as Dean 

of the Law School at the University of Montana. He then 

became Vice-President and General Counsel of M0nta.n.a Power 

Co. He did not participate in this case.) 

Sullivan is of course in accord with the law on the 

purpose and effect of division orders. Such instruments 

determine who is entitled to payment for the sale and 

purchase of oil and gas, and in what proportions. As stated 

in Phillips Petroleum Co. v. lililliams (5th Cir. 1946) 158 

"As to contention one, the division and transfer 

orders, with their definite declaration that the 
market value of the gas at the mouth of the well is 

to be the measure of lessors' rights and lessee's 

obligations, and their clear and full provision for 

precisely arriving at the value, we agree with 

defendant, that, until withdrawn or modified, they 

constitute the precise and definite basis for 

payments, and payments made in accordance with them 

are final and binding. The very existence of this 

and the numerous other litisations which have 

arisen over the meaning and effect of market price 

or rate provisions and over what was the market 

price or value of the gas, and the fact that these 

agreements fix, as due, sums which may from time to 

time be more or 1-ess than the prevailing market 

price, give full support to and make binding 

~avments and settlements made thereunder. Bindins 

-das'^ thev are. however. in res~ect of ~avments made 

and accepted under them7thesg diviso;s >r - transfer 

orders did not rewrite or supplant the lease 

contract7~hr are bindinsonly for thetime and 

to the extent4th.at they - h>.ve been, or are being 

acted on and made the basis of settlements and 

payments. . . l1 

In Maddox v. Gulf Oil Corp. (Kansas 1977), 222 Kan. 733, 567 

P.2d 1326, 1328 it is said: 

". . .The insertion in the division orders of 

matters contrary to the oil and gas leases, or 

contrary to the law, cannot be unilaterally imposed 

upon the lessor by the lessee or the purchaser. 

Here the unilateral attempt by Gulf in the division 

orders to amend the oil and gas leases, and thereby 

deprive the royalty owners of interest to which 

they were otherwise entitled, was without 

consideration. Therefore, the provisions of the 

division order regarding waiver of interest are 

null and void as determined by the trial court." 

It is therefore clear from the cases the division orders 

signed by Barney Reagan could have no legal effect on his 

rights under the agreement of October 18, 1954. Therefore no 

material issue of fact exists with respect to those division 

orders. Judge Blair's summary judgment ought to be affirmed 

We join in the dissent of Justice John C. Sheehy. 

,I?