NO. 87-66

INTHE SUPREME COURT OF THE STATE OFMONTANA
1987

SOMONT OILCOMPANY, INC., a Montanacorporation,

Plaintiff and Respondent,-VSJOHN KIEHL MUTTER and PEGGY FAYE NUTTER, Defendants and Appellants.

APPEAL FROM: DistrictCourtof theNinthJudicialDistrict, Inand for the Countyof Toole, The Honorable RobertHolter, Judge presiding.

COUNSEL OF RECORD:
For Appellant: RalphT. Randonoand DanielDonovan, GreatFalls, Montana

For Respondent:

MarcG. Buyske; Anderson, Beatty & Lee, Shelby, Montana

Submittedon Briefs: Aug. 13, 1987

Decided: October 6, 1987

Filed:

## 0(3

## 6

# -1987,

ClerkMr. JusticeJohnConway Harrisondelivered the Opinion of the Court.

This appeal arises fromabench trialwhich occurred in the Ninth Judicial District on June 17 and 18, 1986, and thereafter by deposition, before the Honorable Robert M. Holter. The District Court issued a judgment supported by findingsof factand conclusionsof lawonDecember 18, 1986. Judgmentwas rendered in favorof plaintiff-respondent Somont Oil Company, Inc. ("Somont"). Defendants John and Peggy Nutter appeal. We affirm. This appeal involves the parties' rights and obligations under an agreement to develop and operate a mineral interest on a parcel of land in Toole County, Montana. The Nutters own 80% of the mineral rights to the tract of land in issue. Respondent Somont claims the remaining 20% of the mineral rights. Additionally, Somont claims it is the proper lessee of one-half of the Nutters' mineral interestsas assignees of amineral lease executedby the Nutters to a third party. The sequence of events and pertinent facts in this caseare fairlycomplex. The original owner of the land involvedwasAnna Kenny who received ownership through a patent from the United States Government. Anna Kenny is now deceased. In 1920, Anna Kenny leased the mineral interests underlying the land to Gordon Campbell. Anna Kenny reserved a landowner's royalty interest and the lease was structured to remain in force for twentyyears or for so long after thatperiod that oil was produced from the land in commercialquantities. In 1922,Anna Kenny conveyed an interestto StevensonAssociated Royalties Company ("Stevenson"). In that conveyance, Kenny granted Stevenson 20% ofher royaltypayments under the leaseto Campbell. Additionally, Stevensonreceived a reversionary interest in 20% of the minerals in the event the Campbell leasewas ever forfeited or cancelled. Campbell eventually assigned his lease interest to Texaco, Inc. Texaco developed and maintained oil wells on the property but eventually ceased production. Texaco later abandoned the lease and filed a release on March 13, 1981. According to the terms of the lease with Campbell and the grant to Stevenson, 80% of the interest in the minerals underlying the land have reverted to the successors of Anna Kenny, while the remaining 20% reverted to the successorsof Stevenson. Upon Anna Kenny's demise, Marie Kenny succeeded to her interest in the land. In 1974, Marie Kenny conveyed the property to defendants John and Peggy Nutter. The contract for deed was recorded on January 2, 1976. A warranty deed executed by Marie Kenny was filed on February 20, 1981. By virtue of the conveyance and Texaco's abandonment of their mineral lease,the Nutters claim 80% of themineral rights to the land. Despite the conveyance to the Nutters, Marie Kenny conveyed an oil and gas lease on the same land to Somont in Septemberof 1979. Because of the conveyance to the Nutters, both parties agree the lease from Marie Kenny to Somont is void. Somont filed a release of the void lease inAugust of 1984. The remaining 20% mineral interest originally granted to Stevenson by Anna Kenny in the form of a reversionary interest follows a lengthy chain of title. We will discuss this chain of title more fully under the third issue raised by appellants. Suffice it to say that in 1980 Somont claimed title to this 20% mineral interest by instruments with thepersonal representatives of one L.R. Baily, holder of one-half of the 20% interest,and thepersonal representative of one A.H. Raymond, holder of the other one-half. Subsequently,Somont began oilexplorationand developmenton theproperty. On March 6, 1981,the Nutters and Buffalo Jump Oil and Gas, Inc. ("Buffalo Jump"), a Montana corporation, entered into an oil and gas lease and a supplemental agreement to operate the mineral interests belonging to the Nutters. Appellant John Nutter and the president of Buffalo Jump, Chris Owen, negotiated the agreement. On May 

### 1, 1981, Buffalo Jump assigned its interest in the Nutter lease and agreement to Rimrock Drilling Company ("Rimrock"). Rimrock is a partnership consisting of Chris Owen and Norman Eberhardt as partners. Rimrock subsequently developed oil wells which produced oil in commercial quantities. John Nutter assisted in the oil operation and the District Court found that he acted in the capacity of an employee rather than a joint operator. The resultwas that both Somont and Rimrock were simultaneouslydeveloping oil well operationson the land. Each operation maintained separate storage tanks and pipelines. On February 

### 1, 1984, Rimrock assigned its interest in the Nutter lease to Somont. The Nutters and Somont subsequently engaged in 

### a dispute regarding their rights and obligations in developing and operating the oil pumping operation. Somont alleged John Nutter padlocked oil production equipment located on the property and sold approximately $5,000of crude oilproduced by Somont. Somont sought a declaratory judgment to clarify and determine the rights and obligations of Somont and the Nutters pursuant to the lease agreement between Buffalo Jump and the Nutters. A

### complaint was filed with the District Court on March 22, 1984. A preliminary hearingwas held onMarch 30, 1984and a stipulation was created dictating the oil operations until the time of trial. The stipulation directed a joint operation inwhich Somontwould conducttheactual day-to-day operations subject to a right of inspectionby the Nutters. Somont was to pay a portion of the gross proceeds of the operation into a special account established by the court pending the outcome of the litigation. An order directing the scope and contents of the stipulation was apparently signed onMarch 30, 1984,butwas not filed untilNovember 7, 1985 after a dispute arose between the parties while acting under the stipulation. Somont alleged that as a result of omissions and contradictory actions by the Nutters, it refused tomake the scheduledpayments. Following a hearing

on November 7, 1985, the District Court issued findings of fact and an order stating that the order directing the stipulation was still in effect and Somont was ordered to make thepayments. The case was tried on June 17 and 18, 1986, and additional evidence was taken in July by deposition. On December 18, 1986, the District Court issued findings of fact,conclusionsof law,and an order. The contested issues

were resolved in favorof Somont. The District Court concluded that as a result of the assignment from Rimrock to Somont, Somont held all of the rights and obligations of Buffalo Jump and Rimrock under the agreemententered March 6,1981. The District Court directed that Somont would continue to conduct the day-to-day operations in developing the mineral estate. It required Somont to operate "in a manner

### consistent with good practices in the oil and gas industry and in conformance with the rules and regulations of the Board of Oil and Gas Conservation for the State ofMontana." TheNutters were given the right to inspect the operations at any time, but were prohibited from interfering with the operations without the consent of Somont or a court order. Somont was required to provide the Nutters with monthly statements indicating gross production from the property, royalties paid, taxes paid, and operational and development costs. Appellants have raised three issues for our consideration on appeal: (1) 

### Did respondent Somont acquire contract rights to develop and manage the mineral operations pursuant to the "Nutter-BuffaloJump"contract? (2) If Somont did acquire contract rights, did the District Court properly interpret the rights and obligations of theparties under the contract? (3) 

### Does Somont properly hold a 20% mineral interest in theproperty on a leaseholdbasis? We will consider each issue separately. First, however,we must note that the standard of review on appeal is that the District Court's findings of fact will not be disturbed unless they are clearly erroneous. Rule 52(a), M.R.Civ.P. Further, respondent cites a statement made by this Court which is applicable under these circumstances: In a nonjury trial, the credibility of witnesses and the weight of their testimony are matters for the District Court to determine. The sufficiency of the evidence must be reviewed from the perspective most favorable to the prevailing party. The District Court's findings and judgment are presumed correctandwill notbe overturned unlessthe appellant meets theburden ofproving with a preponderance of evidence that they are wrong. Merely showing the evidence establishes reasonable grounds for reaching a different conclusion is insufficient to reverse the District Court findings. Lumby 

### v. Doetch (1979), 183 Mont. 427, 431, 600 P.2d 200, 202.
Frank L. Pirtz Const. v. ~ardin Town Pump (Mont. 1984), 692 P.2d 460, 462, 41 St.Rep. 2366, 2368.

I. SOMONT

### 'S CONTRACTRIGHTS InMarch, 1981,theNutters and Buffalo Jump entered an oil and gas lease along with a supplemental agreement to operate the mineral interests belonging to the Nutters. Buffalo Jump assigned the lease to Rimrock on May 1, 1981, and Rimrock then assigned the lease to Somont on February 1, 1984. The Nutters allege that the original contract with Buffalo Jump was too vague to constitute a contract. The Nutters contend the Buffalo Jump agreement was merely "an agreement to agree" and not a binding contract. Therefore, they argue,the later assignmentto Somont is invalid. The agreement entered between Buffalo Jump and the Nutters on March 

### 6, 1981, consisted of two documents: (1) a standard formoil and gas leasewith certain portionsdeleted and other portions added; and (2) a supplemental agreement consisting of six pages. The oil and gas lease was specificallymade subject to the supplementalagreement. The supplemental agreement provided the parties would enter a formal operating agreementafter two wells were drilled. The "formal operating agreement" was to "embody and embrace all of the terms and conditions necessary to cope with all information,data,and knowledge which hasbeen acquired from the drilling of the first two wells

# . . . " Although Rimrocksubsequently drilled eight wells, the parties never entered into a formal operating agreement. The Nutters contend the agreement actually entered contained almost no specifics and that the parties merely agreed to reach various future agreements. As examples, the Nutters state the document states they will determine the locations of additional oil wells and the terms of the formal operating agreement in the future. TheNutters contend the result is that the agreement with Buffalo Jump was not a binding contract,but simply an

"agreementtoagree." As a general rule, the terms of a contract must be reasonably certain. See,Bishopv. Hendrickson (Mont. 1985), 695 P.2d 1313, 1314, 42 St.Rep. 259, 260. However, it is also true that "if the material elements are stated in general terms, all the details or particulars need not be stated." McNabb v. Norine (1983), 204 Mont. 330, 335, 664 P.2d 927, 930. Respondent Somont points outanumber of specific items thatwerepart of the agreement, including: [Tlhat the mineral interest of the Nutters would be developed by Buffalo Jump at no personal expense to Nutters; that 

### a certain number of wells would be drilledwithin a specificperiod of time; that the wellswould be drilled to test a particular geological formation; that after Buffalo Jump recovered certain specific development and operational costs, Buffalo Jump and Nutters would share the net profits from production on an equal basis; that equipment actually contributed by a party, would belong to such party; that Buffalo Jump would perform all office and administrative work necessary to production; that any landowner's royalty interest owned by either party would be paid as all other landowner's royalty and not count towardthe owner's share of net profits; and, that the agreement could be "amended and changed from time to time in accordance with the agreement of theparties."

The agreement included the subject matter of the contract, the division of profits, payment of operating expenses, and certain references to the time frame involved. Admittedly, the agreement does not include every item that might have been included in regards to the actual operational aspects. However, "a contract is not invalid simply because it does not contain all the provisions or conditions the parties might have incorporated into it." Wilkerson v. School District No. 15, Glacier County (Mont. 1985), 700 P.2d 617, 621,42 St.Rep. 745, 749. An additional reason why the Buffalo Jump-Nutter agreement is a valid contract is because the Nutters performed under that agreement as if it were valid. Until Somont received the assignment of the lease in February of 1984, Rimrock drilled and completed eight wells without any objection from the Nutters as to whether the agreement was valid. "Part performance under an agreement may remove uncertainty and establish that a contract enforceable as a bargain has been formed." Restatement (Second)of Contracts 34(2) (1979)

# . The parties performed under the agreement for nearly three years and such performance strongly indicates a valid contract existed. Therefore,we conclude that performance under the agreementcombined with the actual termsprovided demonstrate the existenceof avalid contract. In the alternative, theNutters contend that if avalid contract existed it was personal in nature and therefore nonassignable. The Nutters state they entered the Buffalo Jump agreement relying on the particular personality and skillof thosepeople operating the Buffalo Jump corporation.

### It is contended that the personal nature of the agreement is evidencedby the fact that severalpoints were left to future mutual agreements by the parties: well locations, arrangements for developing wells, and the terms of an operating agreement. The Nutters allege they entered the agreement based on an estimate of the personalities of each party and their ability to work comfortably together. The Nutters conclude that when Rimrock assigned the agreement to Somont without their permission they were deprived of the benefit of theirbargain. We recognize that rights arising under a contract are generally assignable unless the contract prohibits assignment. See, Standard Sewing-Machine Co. v. Smith

(1915), 51Mont. 245, 248, 152P. 38, 39. The assignment is not prohibited by the Buffalo Jump-Nutter agreement. The supplemental agreement is silent as 

### to assignments and the lease document appears to contemplate the possibility of 

### assignment by making a reference to the lessors "heirs,

successorsand assigns." Despite the fact that the agreement does not prohibit assignment, the Nutters point out that an exception to the general rule iswhen a contract is personal in nature and an assignment would deprive a party to the contract of the benefit of his bargain. We agree that a contractmay be so personal in nature that the assignment of rights and delegationofduties under the contract should be prohibited. As statedby the Supreme Court ofCalifornia: The terms and purpose of a contractmay show,however, that it was intended to be nonassignable. Thus the duties imposed upon one party may be of such apersonal nature that their performance by someone else would in effect deprive the other party of that for which he bargained.

### The duties in such a situation cannotbe delegated. (Citation omitted.) Rights likewise cannot be assigned if the assignment would materially impair the nonassigning party's chance of obtaining the performance he expected. (Citation omitted.) 

### Farmland Irrigation Co. v. Dopplmaier (Cal. 1957)

## , 308 P.2d 732, 740, 741. The Restatement (Second) of Contracts g 

### 317(2) (1979)similarly recognizes that the assignmentof 

### a contractual right should be prohibited if (a) the substitution of a right of the assignee for the right of the assignor would materially change the duty of the obligor, or materially increase the burden or risk imposed on him by his contract, ormaterially impairhis chance of obtaining return performance, or materially reduce itsvalue tohim

# ..

# . Likewise, the Restatement addresses the delegation of a duty and states:(2) Unless otherwise agreed, a promise requires performance by a particular person only to the extent that the obligee has a substantial interest in having that personperform or control the actspromised.
Id. at g 

### 318(2). 

### With the above rules inmind,we agree with respondent Somont in that the duties imposed on Buffalo Jump "were not

sounique in the oil and gas industry as to involve a degree of trust and confidence singularly personal to the contracting parties.

### " We reach this conclusionby examining

a number of factors. As noted, the supplemental agreement fails to prohibit any assignment or delegation,and the lease itself appears to contemplate the possibility of assignment. The 

### agreement actually was assigned from Buffalo Jump to

### Rimrock on May 1, 1981. 

### None of the parties involved objected to the assignment and Rimrock continued oil production for nearly three years without any objection. Although Buffalo Jump and Rimrock appear to be related entities, the assignment indicates that assignments were not prohibited. We affirm that the contract was assignable. The Nutters also challenge the District Court's conclusion that the Nutters were estopped from alleging the contract with Buffalo Jump was invalid. Since we have already considered appellants' argument regarding the invalidity of the agreement and decided the agreementwas a valid assignable contract, this issueneed notbe discussed.

11. INTERPRETATION OF RIGHTS AND OBLIGATIONS UNDER THE CONTRACT. The supplemental agreement to the Buffalo Jump-Nutter contract indicates that the parties would operate the oil operation as joint operators. The District Court concluded that the agreementwas ambiguousas towho should conductthe day-to-day operations of the property. The District Court found the ambiguity was compounded because Mr. Nutter acted

as an employee and not a joint operator. In resolving the conflict between the parties, the court directed Somont to conduct the daily operations and granted theNutters a right of inspection: Somont shall continue to conduct the development and operation of the mineral estateunderlying the Et of Section 15 in a manner consistent with good practices in the oil and gas industry and in conformance with the rules and regulations of the Board of Oil and Gas Conservation for the State of Montana. Nutters have the right to inspect such operations at any time but may not

### physically interfere with the operations unless they have Somont's consent or unless they have an order of the Court. Conclusionsof Lawdated December 18, 

### 1986 at 8. TheNutters contend they are entitled to a 

### joint operator status in the day-to-day operations. Additionally, they request thepower to make decisions regarding the daily operations if the parties are unable to agree. We agree with the District Court that the agreement is not entirely clear as to who will conduct the actual daily operations. The agreement does indicate that theNutters and Buffalo Jump are to be joint operators, but also seems to imply that the daily operations are to be performed by BuffaloJump. For example,Buffalo Jump isgiven the task of performing the necessary administrative functions, determining the capability of commercial production, and paying development and operation costs. Evidence was presented demonstrating that when Mr. Nutter worked on the oil operations he did so as an employee rather than a joint operator. Mr. Nutter himself gave the following testimony: Q: I 

### refer you back to testimony that was given with reference to your working on the east half of Section 15,Township 35

### N,Range 2

### W, andyoudidwork on that lease after the Buffalo Jump Oil and Gas leasewas executed, signed and delivered?

A: 

### Yes.
Q: 

### Inwhat capacity?

A: At different times I 

### did different things. 

### Iworked on the rigwhenwewere drilling thewells.
Q: 

### Wereyou an employee?

A: 

### Supposedly,yes.Q: And, were you supposed to be paid for that?

A: Yes.

We conclude that the District Court decision to grant Somont the authority to conduct the daily operations subject to a right of inspectionby theNutters is correct. Despite this conclusion, the Nutters retain a significant amount of control over the oil operations in that they have the right to inspect the operations at any time; receive monthly statements fromSomont indicatinggross production, royalties paid, taxes paid and operational and development costs; and to request and receive an explanation of any specific development and operational cost item they question. Additionally, the District Court order requires Somont to followgood practices within the industry and to conform with applicable state regulationsand rules.

111. SOMONT'S 20%MINERAL INTEREST. Somont asserts it holds avalid lease to the remaining 20% mineral interest for the parcel of land in question. This lease interest is derived from a lengthy chain of title and originated when Anna Kenny granted Stevenson Associated Royalites Company a 20% reversionary interest in the mineral estate in 1922. In 1926, Stevenson conveyed the interest by warranty deed to Sunburst Oil and Refinery Company. That deed purported to transfer "any and all interest

# .. . to real estate.

# .. in the State of Montana." Sometime during the 1930s, Sunburst became insolvent. In October of 1939, a federal court order authorized Sunburst's receiver, John Hamilton, to transfer Sunburst's assets. Hamilton transferred the property interestby deed to

### V.B. Carlson in1939. Thatdeed purported to convey "alland singular of the undesignated and unknown assets 

# . ..wherever situated within the state of Montana." V.B. Carlson conveyed the interest to L.R. Baily by quitclaim deed in March of 1940. Thatdeed purported to convey "every species of realproperty



# . . .which Grantor owned or claimed to own within Toole County, Montana. " The remaining transfers in the chain of title purport to transfer the interest acquired from Carlson and no legal description is offered. L.R. Bailey made a conveyance of one-half of his interest by quitclaim deed in May of 1947to HazelDeschon. That samemonth,Hazel Deschon transferred her interest to A.H. Raymond by quitclaim deed. In 1980, Somont obtained a lease interest on the entire 20% by entering an oil and gas lease with both L.R. Baily's personal representative and A.H. Raymond's personal representative. TheNutters claim Somont's lease is invalidbecause the deedswithin the chain of titlewere too vague and indefinite topass marketable title,and severaldeeds failed to include any description of the land involved. The District Court examined the deeds comprising the chain of title and concluded theywere sufficiently definite. Themajority rule is "that a deed describing land as a the grantor's property or a his property in a certain locality is not defective or void for want of a sufficient description

# .. . " 23 Arn.Jur.2d Deeds $ 59 (1983). See also, Wilsonv. Boyce (1875),92U.S. 320, 325, 23 L.Ed. 608, 610. We agree with the District Court and find that the deeds were sufficiently definite. Moreover, we note that several of the deeds refer specifically to oil and gas interestsand royal.ties.

### Finally, the Nutters claim the chain of title is defective because there is no evidence in the record to establish John Hamilton's authority to act as a receiver. However, a review of the District Court file demonstrates that an order issued by the United States District Court, DistrictofMontana,granted Hamilton the authority to actas receiver and convey assets of Sunburst Oil and Refining Company. Therefore, this contention iswithoutmerit. For the foregoingreasonswe affirm the decision of the DistrictCourt.

We concur: