Title: DEVON OIL GAS CO INC v AYERS
Citation: N/A
Docket Number: 85-161
State: Montana
Issuer: Montana Supreme Court
Date: October 8, 1985

No. 85-161 IN THE SUPREME COURT OF THE STATE OF MONTANA 1985 DEVON OIL & GAS COMPANY, INC., a Washington corporation, Plaintiff and Respondent, -vs- MILAN R. AYERS, et al., Defendant and Appellant. 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 Appellant: William Conklin; Dzivi, Conklin & Nybo, Great Falls, Montana For Respondent: James C. Nelson; Werner, Nelson & Epstein, Cut Bank, Montana Filed: Submitted on briefs: Aug. 15, 1985 Decided: October 8, 1985 *@? Clerk M r . J u s t i c e Frank B. Morrison, Jr., d e l i v e r e d t h e Opinion of t h e Court. Defendants Milan K. Ayers and Ayers O i l & Gas Corpora- t i o n appeal t h e February 25, 1985, f i n d i n g s o f f a c t and o r d e r o f t h e Ninth J u d i c i a l D i s t r i c t Court g r a n t i n g motion f o r summary judgment a g a i n s t both defendants i n f a v o r o f p l a i n - t i f f Devon O i l & Gas Company, Inc. W e a f f i r m t h e summary judgment. O n J u l y 10, 198'1, Nilan Ayers (Ayers) , Terry Dunne, Rockne T i m m , and Kenneth Halverson m e t i n Spokane, Washing- t o n , t o d i s c u s s t h e p o s s i b i l i t y o f e n t e r i n g i n t o an agreement t o p a r t i c i p a t e i n working g a s l e a s e s h e l d by Ayers. Dunne and T i m m w e r e p a r t n e r s i n R & T Company o f Spokane, and a l s o w e r e on t h e board o f d i r e c t o r s o f Devon O i l & Gas Company, Inc. (Devon) . The t r i a l c o u r t found t h a t t h e meeting pro- duced two agreements. The f i r s t agreement was e n t i t l e d Devon Gas F i e l d Option Agreement, and i d e n t i f i e d R & T Company a s d e s i r i n g t o pur- chase an option from Ayers for t h e development and production of g a s r e s e r v e s . Tha agreement provided t h a t R & T Company would make an o p t i o n payment, which Ayers would use t o h i r e an engineer t o study t h e a r e a ' s p o t e n t i a l . The balance o f t h e o p t i o n payment was t o be used t o p e r f e c t t i t l e on Ayers' e x i s t i n g l e a s e s and t o purchase a d d i t i o n a l l e a s e s . Ayers O i l & Gas, Inc. was i d e n t i f i e d a s o p e r a t o r o f t h e p r o j e c t , and agreed t o hold R & T harmless from a11 l a w s u i t s o r l i a b i l i - t i e s a r i s i n g o u t o f t h e execution o f t h e agreement. The document was signed by Dunne, Timm, and Ayers. Ayers signed b o t h a s an i n d i v i d u a l and a s p r e s i d e n t o f Ayers O i l & Gas, Inc . A handwritten addendum a t t h e bottom of t h e l a s t page s t a t e d t h a t t h e agreement was s u b j e c t t o t h e approval o f Devon O i l & Gas Co. t o p a r t i c i p a t e . F u r t h e r , t h a t upon approval o f Devon, a replacement document f u l l y executed w i t h i n 15 days would p r e v a i l . T h i s addendum was i n i t i a l e d by a l l p a r t i e s . The second agreement was i d e n t i c a l t o t h e f i r s t , w i t h Devon being s u b s t i t u t e d f o r R & T Company a s provided f o r i n t h e addendum t o t h e f i r s t agreement. T h i s agreement was n o t f u l l y executed u n t i l sometime between J u l y 10, 1981, and J u l y 20, 1981. I t was signed by Dunne, C.W. McWhorter ( p r e s i d e n t of Devon) , Ayers, a s an i n d i v i d u a l and a s p r e s i d e n t o f Ayers O i l & Gas, Inc., and h i s wife, Yvonne, a s s e c r e t a r y o f Ayers O i l & Gas, Inc. O n J u l y 21, 1981, an advance o f $50,000.00 was p a i d t o Ayers o u t of Devon's account, t o enable Ayers t o proceed w i t h e v a l u a t i o n of t h e gas f i e l d . O n August 1 4 , 1981, Devon's board o f d i r e c t o r s unani- mously voted t o d e f e r c o n s i d e r a t i o n o f involvement w i t h M r . Ayers, following a phone c a l l r a i s i n g q u e s t i o n s about Ayers' c r e d i b i l i t y . O n August 1 6 , 1981, Ayers s e n t Devon P r e s i d e n t McWhorter a l e t t e r informing him, ". . . t h e escrow is a r e c a l l a b l e one t o t a l l y s u b j e c t t o t h e purchasers f i n a l a p p r o v a l , " and t h a t Ayers considered t h e p a r t i e s ' d i s c u s s i o n s t o be i n a holding p a t t e r n . O n November 2 4 , 1981, Devon e n t e r e d i n t o an Escrow Agreement and Release w i t h Ayers and Ayers O i l & Gas, Inc. The agreement provided t h a t Ayers and Ayers O i l & Gas, Inc. would j o i n t l y be r e f e r r e d t o a s "Ayers". Attached t o t h e document was t h e f i r s t Devon Gas F i e l d Option Agreement. The Escrow Agreement and Release provided: 1) t h e t e r m s , condi- t i o n s , and o b l i g a t i o n s o f t h e o p t i o n agreement had been f u l f i l l e d by b o t h p a r t i e s ; 2 ) the o p t i o n agreement was r e s c i n d e d , and t h e p a r t i e s r e l e a s e d a l l c l a i m s a g a i n s t e a c h o t h e r ; 3 ) "Ayers" a g r e e d t o p a y t o Devon, o n o r b e f o r e J a n u - a r y 3 0 , 1982, $50,000.00 p l u s i n t e r e s t computed from August 1 6 , 1981; 4 ) a s s e c u r i t y f o r t h e d e b t , "Ayers" a g r e e d t o p l a c e i n e s c r o w 37%% of t h e w o r k i n g i n t e r e s t i n leases de- s c r i b e d i n a n a t t a c h e d e x h i b i t ; and 5) i n c o n s i d e r a t i o n o f t h e $50,000.00 payment, Devon conveyed t o "Ayers" a n y i n t e r - est i n t h e l e a s e s it h a d a c q u i r e d u n d e r t h e o p t i o n a g r e e m e n t . The Escrow Agreement a n d R e l e a s e was s i g n e d by Devon P r e s i - d e n t McWhorter, and A y e r s , b o t h a s i n d i v i d u a l and a s p r e s i - d e n t o f A y e r s O i l & G a s , I n c . A y e r s was g r a n t e d a n e x t e n s i o n u n t i l March 1, 1982, t o make t h e payment. A y e r s r e q u e s t e d a d d i t i o n a l e x t e n s i o n s , b u t t h e r e i s n o e v i d e n c e i n d i c a t i n g t h e y w e r e g r a n t e d . On J u l y 3 , 1982, Timm w r o t e A y e r s demanding i m m e d i a t e payment or t h e m a t t e r would be t u r n e d o v e r t o a n a t t o r n e y . On Jul-y 1 4 , 1982, a n a t t o r n e y f o r Devon s e n t a letter t o A y e r s g i v i n g him u n t i l J u l y 3 0 , 1982, t o p a y t h e $50,000.00 p l u s i n t e r e s t . O n J u l y 29, 1982, A y ~ r s s i g n e d a s i g h t d r a f t f o r $56,000.00 p a y a b l e t o t h e t r u s t e e ; upon h o n o r o f t h e d r a f t , t h e t r u s t e e was t o a s s i g n Devon's i n t e r e s t i n t h e l e a s e s h e l d i n escrow b a c k t o A y e r s O i l & Gas, I n c . The s i g h t d r a f t w e n t u n p a i d d u e t o i n s u f f i c i e n t f u n d s . Due t o A y e r s ' f a i l u r e t o s a t i s f y t h e d e b t , Devon re- q u e s t e d A y e r s t o p o s t more s e c u r i t y . A y ~ r s a s s i g n e d a d d i - t i o n a l i n t e r e s t t o Devnn i n h i s o i l and g a s l e a s e s on November 30, 1982. The f o l l o w i n g March, Devon s e n t o u t i n q u i r i e s c o n c e r n i n g t h e c u r r e n t s t a n d i n g o f A y e r s ' l e a s e s . The r e s p o n s e s i n d i c a t e d A y e r s ' l e a s e s h a d l a p s e d for nonpay- ment. Devon f i l e d s u i t . Based upon t h e e x h i b i t s , a f f i d a v i t s , and b r i e f s before t h e District C o u r t , m o t i o n f o r summary judgment was g r a n t e d t o p l a i n t i f f Devon a g a i n s t Ayers p e r s o n a l l y and Ayers O i l and Gas Corporation i n t h e amount o f $71,320.55 on March 11, 1985. O n a p p e a l , a p p e l l a n t s r a i s e t h e f o l l o w i n g i s s u e s : 1) Whether t h e D i s t r i c t Court e r r e d i n r u l i n g t h a t no mate- r i a l f a c t was i n d i s p u t e concerning t h e l i a b i l i t y of t h e c o r p o r a t e d e f e n d a n t Ayers O i l & Gas, I n c . , t o p l a i n t i f f f o r t h e sum o f $50,000.00 p l u s i n t e r e s t , based upon s o - c a l l e d admissions o f l i a b i l i t y by d e f e n d a n t Milan R. Ayers on b e h a l f o f d e f e n d a n t Ayers O i l & Gas, I n c . , and i n g r a n t i n g summary judgment i n f a v o r o f p l a i n t i f f a g a i n s t Ayers O i l & Gas, I n c . , on t h a t b a s i s . 2 ) Whether t h e D i s t r i c t Court e r r e d i n its implied r u l i n g t h a t t h e Escrow Agreement and R e l e a s e document d a t e d November 24, 1981, i s supported by c o n s i d e r a t i o n a s t o c o r p o r a t e d e f e n d a n t Ayers O i l & Gas, I n c . , and i n g r a n t i n g summary judgment a g a i n s t d e f e n d a n t Ayers O i l & Gas, I n c . 3 ) Whether t h e D i s t r i c t Court e r r e d i n g r a n t i n g summary iudgment a g a i n s t both d e f e n d a n t s founded upon t h e Escrow Agreement and R e l e a s e , which document i s ambiquous and re- q u i r e s e x p l a n a t i o n w i t h p a r o l e evidence. A p p e l l a n t s contend numerous f i n d i n g s o f f a c t were made by t h e t r i a l c o u r t on a d i s p u t e d r e c o r d . While some o f t h e f i n d i n g s may n o t b e p r e c i s e l y correct, w e b e l i e v e t h e r e a r e s u f f i c i e n t undisputed f a c t s i n t h e r e c o r d t o uphold t h e summary judgment a g a i n s t t h e c o r p o r a t e d e f e n d a n t . Ayers contends t h e c o r p o r a t i o n i s n o t a c o n t r a c t u a l p a r t y and i s n o t l i a b l e . Ayers a t t e m p t s t o r a i s e a c o r p o r a t e v e r s u s i n d i v i d u a l d i s t i n c t i o n i s s u e a f t e r d e a l i n g w i t h Devon f o r o v e r a y e a r where h e r a r e l y d i s t i n g u i s h e d whether h e was a c t i n g i n d i v i d u a l l y o r a s c o r p o r a t e head. The t w o v e r s i o n s o f t h e Devon Gas F i e l d Option Agreement w e r e e n t e r e d i n t o by "Milan R. Ayers, P.O. Box 7 3 7 , Shelby, Montana, 59474." The c o r p o r a t i o n w a s n o t shown a s a c o n t r a c t i n g p a r t y a t t h e t o p o f t h e agreement. However, Ayers' a d d r e s s was used by t h e c o r p o r a t e defendant, Ayers O i l & Gas, Inc. Both o f t h e agreements w e r e signed by Ayers, a s i n d i v i d u a l , and a s p r e s i d e n t o f Ayers O i l & Gas, Inc. The agreements i d e n t i f i e d Ayers O i l & Gas, Inc. a s o p e r a t o r o f t h e p r o j e c t , and f u r t h e r provided Ayers O i l & Gas, Inc. would be h e l d r e s p o n s i b l e f o r any l a w s u i t s a r i s i n g o u t o f t h e execution o f t h e agreements. That Ayers O i l & Gas, Inc. i s named i n t h e agreements and Ayers signed a s p r e s i d e n t is s u f f i c i e n t t o support t h e t r i a l c o u r t ' s f i n d i n g it was a p a r t y t o both v e r s i o n s o f t h e Devon Gas F i e l d Option Agree- m e n t . Section 28-10-603, MCA. The Escrow Agreement and Release c l e a r l y i d e n t i f i e s Ayers O i l & Gas, Inc. a s a p a r t y t h e r e t o , and was signed by Ayers i n d i v i d u a l l y , and a s c o r p o r a t e head. The document i s a r e c o g n i t i o n t h a t both Ayers and Ayers Oil & Gas, Inc. w e r e indebted f o r $50,000.00 p l u s interest t o Devon. Subsequently, a s i g h t d r a f t drawn by Ayers f o r $56,000.00 had h i s s i g n a t u r e followed by "Ayers O i l & Gas, Inc." This i s e f f e c t i v e consent t o t h e c o n t r a c t by t h e c o r p o r a t i o n under 5 28-2-501 ( I ) , MCA. I n sum, w e f i n d t h e t r i a l c o u r t was c o r r e c t i n holding t h e r e was no evidence o f a genuine i s s u e o f m a t e r i a l f a c t and i s s u i n g summary judgment a g a i n s t both defendants. Our holding t h a t Ayers O i l & Gas, Lnc. was a p a r t y t o the Devon Gas F i e l d Option Agreement i s s u f f i c i e n t t o f i n d t h a t c o n s i d e r a t i o n flowed t o Ayers O i l & Gas, Inc. under t h e Escrow Agreement and Release. The r e l e a s e r e l i e v e d Ayers 0j.l & Gas, Inc. o f i t s o b l i g a t i o n t o perform and any p o s s i b l e claims a g a i n s t it a r i s i n g under t h e o p t i o n agreement. F.e- l e a s e from c o n t r a c t o b l i g a t i o n s and forbearance t o sue a r e both adequate c o n s i d e r a t i o n . S e c t i o n s 28-2-801 and -802, MCA . Appellants a s s e r t t h e Escrow Agreement and Release i s ambiguous due t o t h e attachment and i n c o r p o r a t i o n o f t h e R & T Company v e r s i o n o f t h e Devon Gas F i e l d Option Agree- ment. They f u r t h e r contend t h a t t h e R & T document was t h e only v a l i d agreement s i n c e t h e Devon board o f d i r e c t o r s voted n o t t o pursue involvement w i t h Ayers. N e i t h e r c o n t e n t i o n i s supported by t h e f a c t s . The f i r s t option agreement contained an addendum provid- i n g t h a t it was c o n t i n g e n t upon t h e approval of Devon, w i t h a subsequently executed document t o supercede. The second document was executed and signed by Devon's p r e s i d e n t , ac- cording t o t h e t e r m s o f t h e addendum. The s i g n a t u r e s o f t h e p a r t i e s made t h e c o n t r a c t binding; t h e v o t e by Devon's board o f d i r e c t o r s d i d n o t a f f e c t t h e v a l i d i t y o f t h e c o n t r a c t . The two v e r s i o n s o f t h e Devon Gas F i e l d Option Agreement w e r e v i r t u a l l y i d e n t i c a l . Each i d e n t i f i e d Ayers O i l & Gas, Inc. a s a p a r t y t h e r e t o , and each was signed by Ayers a s p r e s i d e n t . The attachment o f one r a t h e r t h a n t h e o t h e r does n o t make t h e Escrow Agreement and Release ambiguous. The d e c i s i o n o f t h e t r i a l c o u r t i s affirmed. . W e concurs J u s t i c e s k