Opinion ID: 1598921
Heading Depth: 1
Heading Rank: 1

Heading: Minex vs. The Estate

Text: The trial court interpreted the personal representative's deed to place responsibility on Minex for payment of an appropriate share of operating expenses after the completion and payout of the Mosser 1-26. Although extrinsic evidence had been received on the meaning of the deed, the trial court ruled that, because neither party asserted that the deed was ambiguous, the parol evidence rule barred use of extrinsic evidence to determine the meaning of the deed. Instead, the trial court relied on a treatise definition of net revenue interest [2] to support its decision and concluded that the phrase, Grantor's share of costs on Mosser 1-26 are paid by the operator, did not constitute a representation that the net revenue interest will be free of such costs in the future. We believe that the trial court mistakenly concluded that it could not consider extrinsic evidence of the intention of the parties to the personal representative's deed. Documents that convey oil and gas interests are subject to the same general rules that govern interpretation of contracts. Miller v. Schwartz, 354 N.W.2d 685, 688 (N.D.1984). A contract is ambiguous when rational arguments can be made for different positions about its meaning. Graber v. Engstrom, 384 N.W.2d 307, 309 (N.D.1986). Whether a contract is ambiguous is a question of law for the court to decide. Johnson v. Arithson, 417 N.W.2d 373, 375 (N.D.1987). On appeal, this court will independently review the contract to determine whether it is ambiguous. Nat'l Bank of Harvey v. International Harvester, 421 N.W.2d 799, 801 (N.D.1988). If a contract is ambiguous, extrinsic evidence can be considered to clarify the intent of the parties. Thompson v. Thompson, 391 N.W.2d 608, 610 (N.D.1986). These contract principles apply to this personal representative's deed. When both parties claim a contract is unambiguous but advance different rational arguments as to its meaning, a court is not limited by the parties' failure to specifically assert ambiguity. The parties' failure to assert ambiguity does not preclude the court from determining that the contract is ambiguous nor keep the court from considering extrinsic evidence of the parties' intentions. Because this personal representative's deed is ambiguous as to the specific nature of the interest in the Mosser 1-26 that the Estate conveyed to Minex, the trial court erred in refusing to consider extrinsic evidence here. The Estate argues that, by transferring to Minex all of Grantor's working interest in the six wells on the leasehold, including the Mosser 1-26, the Estate conveyed everything Kathleen owned including her working interest. The Estate reasons that net revenue interest is the lessee's share of production after subtracting all overriding royalty, oil payments, and other nonoperating interests, so that the term includes the lessee's working-interest expenses as well as the net profit after those expenses are deducted. The Estate claims that the -0- listed under Working Interest, as explained by the referenced phrase, Grantor's share of costs on Mosser 1-26 are paid by the operator, was merely a means of informing Minex that there was a contractual duty owed by a third party to pay those expenses. The Estate contends that the payment of those expenses by Patrick was a beneficial contract right that was assigned to Minex by the granting language of the deed. Minex relies on the testimony of Rustan, the personal representative of the Estate, and of Dennis Tippets, president of Minex, for its definitions of net revenue interest and working interest. [3] Both Rustan and Tippets testified to the effect that net revenue interest meant the income from a well and that working interest, as used in the agreement, meant the costs and expenses associated with a well. [4] Minex argues that placement of the -0- under the heading Working Interest means that Minex did not acquire any working interest through the conveyance. Minex argues that the referenced phrase, Grantor's share of costs on Mosser 1-26 are paid by the operator, means that the working-interest expenses were not included in the conveyance because the expenses were being paid by the operator. Minex also relies on post-conveyance correspondence between the parties which indicates that expenses on the Mosser 1-26 were not Minex's responsibility. The trial court reasoned that the treatise definition of net revenue interest [ see Footnote 2], is consistent with Minex being responsible for expenses after completion of the well. Construing the phrase Grantor's share of costs on Mosser 1-26 are paid by the operator, the trial court reasoned that because the sentence uses the verb are, which is the present tense of the verb be, it was a true statement at the time of the conveyance and not a representation that the net revenue interest will be free of such costs in the future. Because several different rational arguments can be made about the meaning of the disputed language in the deed, we conclude that the language is ambiguous and that a question of fact exists as to what the parties intended by the use of that language. We therefore reverse and remand to the trial court for resolution of this factual question. The trial court, in its discretion, may open the record for additional evidence. [5]