Title: SOUDERS v MT POWER CO
Citation: N/A
Docket Number: 82-231
State: Montana
Issuer: Montana Supreme Court
Date: April 26, 1983

NO. 82-231 IN THE SUPREME COURT OF THE STATE OF MONTANA 1983 HELEN J. SOUDERS and KENNETH D. LUFF, Plaintiffs and Respondents, THE MONTA2JA POWER COMPANY, a Mont. corp., Defendant and Appellant. Apgeal from: Dlstrict Court of the Thirteenth Judicial District, In and for the County of Carbon, The Ilonorable William J. Speare, Judge presiding. Counsel of Record; For Appellant: Jardine, Stephenson, Blewett & Weaver; John 2 . Weaver, P.O. Box 2269, Great Palls, l\lontana For Respondent : Raymond K. Peete, Billings, Montana - - - Submitted: March 3, 1983 Decided: April 26, 1983 M r . J u s t i c e L . C. Gulbrandson d e l i v e r e d t h e Opinion of t h e C o u r t . P l a i n t i f f s i n i t i a t e d t h i s a c t i o n f o r a d e c l a r a t o r y judgment t o d e t e r m i n e t h e i r r i g h t s under a r e s e r v a t i o n i n an assignment of a n o i l and g a s lease. The D i s t r i c t Court of t h e T h i r t e e n t h J u d i c i a l D i s t r i c t r Carbon County, d e c i d e d t h a t t h e r e s e r v a t i o n was n o t r e s t r i c t i v e and t h a t t h e g a s had been r e s e r v e d f o r a l l p u r p o s e s , n o t j u s t t h o s e s p e c i f i e d i n t h e r e s e r v a t i o n . P l a i n t i f f , Helen J. S o u d e r s , is t h e d a u g h t e r and s u c c e s s o r i n i n t e r e s t of h e r p a r e n t s , Margaret Souders and S.M. Souders. M a r g a r e t Souders and S .M. Souders were secre t a r y - t r e a s u r e r and p r e s i d e n t of Montana I n d u s t r i a l Company. I n August 1926, S.M. Souders became t h e l e s s e e of two o i l and g a s leases; one from t h e Montana I n d u s t r i a l Company, t h e o t h e r from h i s w i f e Margaret Souders. Souders a s s i g n e d t h e s e leases to t h e Ohio O i l Company on A p r i l 4 , 1927. The assignment c o n t a i n e d t h e f o l l o w i n g c l a u s e : "EXCEPTING AND RESERVING, however, unto t h e p a r t y of t h e f i r s t part [Souders I , t h e r i g h t t o produce, t a k e and use g a s from t h e Eagle Sandstone and above on t h e above d e s c r i b e d l a n d s , f o r t h e purpose of e x t r a c t i n g , making, or manufacturing casing-head g a s o l i n e o r by- p r o d u c t s or carbon b l a c k , t o g e t h e r with t h e r i g h t of i n g r e s s and e g r e s s and t h e r i g h t of i n s t a l l i n g machinery and equipment f o r t h e p u r p o s e of d r i l l i n g f o r and producing g a s from t h e e a g l e s a n d s t o n e and stratas above, pro- v i d e d t h a t t h e p a r t y of t h e f i r s t p a r t s h a l l so l o c a t e h i s o p e r a t i o n s and equipment so as t o i n t e r f e r e as l i t t l e as p r a c t i c a l w i t h t h e o p e r a t i o n s of t h e p a r t y of t h e second p a r t . " The d i s p u t e h e r e c e n t e r s upon t h e i n t e r p r e t a t i o n of t h e words " f o r t h e purpose of e x t r a c t i n g , making, o r manufacturing c a s i n g - head gas01 i n e or by-products or carbon b l a c k . " I n 1964, t h e a p p e l l a n t , Montana Power Company, was a s s i g n e d t h e s e leases from Ohio O i l Company's s u c c e s s o r i n i n t e r e s t , Marathon O i l Company. I n 1975, Helen Souders a s s i g n e d h e r i n t e r e s t s under t h e above r e s e r v a t i o n t o Kenneth L u f f . Helen Souders and Luff brought t h i s a c t i o n to d e t e r m i n e t h e i r r i g h t s under t h e r e s e r v a t i o n i n t h e assignment of t h e l e a s e s . The D i s t r i c t Court a t t r i a l admitted i n t o e v i d e n c e o r a l and w r i t t e n t e s t i m o n y t o h e l p i n i n t e r p r e t i n g t h e o r i g i n a l 1927 a s s i g n m e n t . Based on t h i s e x t r i n s i c e v i d e n c e , t h e D i s t r i c t Court concluded t h a t t h e r e s e r v a t i o n was n o t r e s t r i c t i v e , and t h a t p l a i n t i f f s had t h e r i g h t t o produce and use t h e g a s from t h e Eagle Sandstone format i o n and above f o r any purpose w h a t s o e v e r . The f i v e i s s u e s r a i s e d by a p p e l l a n t , Montana Power Company, may be summarized i n t h e f o l l o w i n g t w o i s s u e s : 1. Whether t h e r e s e r v a t i o n is ambiguous; and 2. Whether t h e D i s t r i c t Court e r r e d i n a d m i t t i n g t h e e x t r i n - s i c e v i d e n c e to show t h e i n t e n t of t h e p a r t i e s . Under s e c t i o n 28-2-905(2), MCA, e x t r i n s i c e v i d e n c e may be used t o e x p l a i n an ambiguity i n a w r i t t e n c o n t r a c t . An ambiguity arises when a c o n t r a c t , t a k e n as a whole i n its wording or phras- e o l o g y , is r e a s o n a b l y s u b j e c t t o two d i f f e r e n t i n t e r p r e t a t i o n s . S-W C o . v . Schwenk ( 1 9 7 7 ) , 176 Mont. 546, 568 P.2d 145. T h i s C o u r t h a s also d e t e r m i n e d , however, t h a t when t h e c i r c u m s t a n c e s of t h e p a r t i e s and t h e i r real purpose i n e x e c u t i n g and r e c e i v i n g t h e i n s t r u m e n t s are s u b j e c t t o i n t e r p r e t a t i o n , par01 t e s t i m o n y may be used to d e t e r m i n e what t h e p a r t i e s meant by use of par- t i c u l a r terms or p h r a s e s . Brown v. Merrill Lynch, P i e r c e , Fenner & Smith, I n c . ( 1 9 8 2 ) , Mont . . - , 640 P.2d 453, 457, 39 St.Rep. 305, 309; F i l l b a c h v. Inland C o n s t . Corp. ( 1 9 7 8 ) , 178 Mont. 374, 379, 584 P.2d 1274, 1277. Here, t h e r e a l purpose of t h e p a r t i e s i n a s s i g n i n g t h e o i l and g a s leases is open t o q u e s t i o n . The f i r s t h a l f of t h e reser- v a t i o n seems r e s t r i c t i v e , w h i l e no r e s t r i c t i o n was placed i n t h e e g r e s s and i n g r e s s c l a u s e . "By-products " a c c o r d i n g to t h e e x p e r t t e s t i m o n y a t t r i a l , could mean n e a r l y any use of n a t u r a l g a s , i n c l u d i n g t h e use of " d r y g a s " o r g a s burned f o r h e a t i n homes. What t h e p a r t i e s meant by t h e use of t h e term "by-products" is t h e r e f o r e s u b j e c t to i n t e r p r e t a t i o n . Where t h e language of a c o n t r a c t is d o u b t f u l and ambiguous, t h e conduct of the p a r t i e s under t h e c o n t r a c t is one of t h e b e s t i n d i c a t i o n s of t h e i r t r u e i n t e n t . Rumph v. Dale Edwards, I n c . ( 1 9 7 9 ) , 1 8 3 Mont. 359, 600 P.2d 163. Here, t h e e v i d e n c e i n t r o - duced by r e s p o n d e n t s showed t h e c o u r s e of conduct between S.M. Souders and Ohio O i l Company, and was t h e r e f o r e r e l e v a n t and com- p e t e n t . T h i s e v i d e n c e amply s u p p o r t s t h e District C o u r t ' s c o n c l u s i o n t h a t t h e r e s e r v a t i o n was n o t meant to s tr ic t i v e . The District C o u r t ' s judgment is af f irmed . W e concur: Chief J u s t i c e \ Judge, s i t t w i n p l a c e of M r . J u s t i c e John C. Sheehy