Court Opinion

ID: 3544245
Source: CourtListenerOpinion
Date Created: 2016-07-05 22:55:42.579195+00
Date Added: 2024-06-11T14:22:18.378505
License: Public Domain

As I see it, this case was tried, not upon the contract, but upon plaintiffs' attempted interpretation of paragraph 10 thereof as pleaded in the complaint. The mooted paragraph reads: "One of the inducements to the parties of the second part to the making of this agreement is that the lands embraced within the terms of this agreement shall be drilled into production as rapidly as possible and the party of the first part hereby binds itself to the exercise of reasonable diligence in the drilling of oil wells on such premises, to such number and extent as said premises will admit of."
After much consideration, this provision was drafted and agreed upon by lawyers; it received the approval of Mr. Cowley, a lawyer, who acted for the plaintiffs.
"The whole of a contract is to be taken together, so as to give effect to every part, if reasonably practicable, each clause helping to interpret the other," in the language of section 7532, Revised Codes 1921. When the contract is read in the light of this statutory direction, I cannot see any ambiguity in it. Paragraph 10 is not in conflict with paragraph 3, so much stressed by the majority, but is merely supplementary to it. The language of paragraph 3 respecting production applies only to leases obtained from the government after production is secured.
Much of the mischief which crept into this case was caused by the contentions of counsel, precipitated in the first instance by the allegations of plaintiffs' complaint as to whether paragraph 10 is a covenant for future production or a covenant for exploration, and this unnecessary contention is seized upon by the majority as the determining factor in the case. *Page 343 
I think it does not make any difference, as an abstract proposition, whether we say it contemplated exploration, or production after exploration. From a practical standpoint it contemplated both. The lands were "wildcat"; no one knew whether they contained oil or gas. The key word of the section is production, but it was necessary to find oil before it could be produced. The drilling of wells in the circumstances necessarily was, in the first instance, of an exploratory character; and, if oil were found in paying quantities, further production was contemplated — "the lands embraced within the terms of this agreement shall be drilled into production as rapidly as possible." Reasonable diligence is required "in the drilling of oil wells on such premises, to such number and extent as said premises will admit of."
I am unable to see any ambiguity in paragraph 10. Its meaning is plain, and, as will be demonstrated presently, when His Honor, the trial judge, came to instruct the jury, it was plain to him.
Is there any suggestion in this entire contract that any of its language can be said to require the defendants to demonstrate "the existence or nonexistence of oil and gas in, under and upon said lands and the whole thereof?" Indubitably there is not. Yet, without alleging that there was any mistake or imperfection in the contract, or that it was in any way tainted with fraud or misrepresentation, plaintiffs alleged in the complaint that "before the agreement was reduced to writing it was orally understood and agreed between the parties thereto that all of the lands embraced in the aforesaid prospecting permits would be fully explored, tested and drilled for the purpose of demonstrating the existence or nonexistence of oil and gas in, under and upon the said lands and the whole thereof, and that wells upon said lands would be drilled as rapidly as possible in the exercise of reasonable diligence and to the number and extent as said lands would admit of," and that, after the agreement was reduced to writing and prior to the signing thereof by plaintiffs and the defendant corporation, "it was there orally agreed and understood between the plaintiffs *Page 344 
and said defendant and was expressly stated and recited by the said defendant to the plaintiffs, that said Homestake Exploration Corporation understood and interpreted such paragraphs to mean and to bind the corporation to drill, as rapidly as possible, with reasonable diligence, a sufficient number of exploratory oil and gas wells upon all of the above described lands, in a number and to a depth sufficient to fully explore, test and demonstrate the existence or nonexistence of oil and gas in said land, to a depth of not less than 2,000 feet, in each well, unless oil and gas, or either of them, should be discovered in paying quantities at a lesser depth, * * * for the purpose of reasonably demonstrating the existence or nonexistence of oil and gas, or either of them, upon said lands. * * *"
The defendants seasonably moved to strike out these and similar allegations, but the motion was overruled. This was error. Section 7520 of the Revised Codes of 1921 provides that "the execution of a contract in writing, whether the law requires it to be written or not, supersedes all the oral negotiations or stipulations concerning its matter which preceded or accompanied the execution of the instrument." And section 10517 provides: "When the terms of an agreement have been reduced to writing by the parties, it is to be considered as containing all those terms, and therefore there can be between the parties and their representatives, or successors in interest, no evidence of the terms of the agreement other than the contents of the writing, except in the following cases: 1. Where a mistake or imperfection of the writing is put in issue by the pleadings. 2. Where the validity of the agreement is the fact in dispute. But this section does not exclude other evidence of the circumstances under which the agreement was made, or to which it relates, as defined in section 10521, or to explain an extrinsic ambiguity, or to establish illegality or fraud. * * *"
"The rule which prohibits the reception of evidence of oral promises or agreements made prior to or contemporaneously with the execution of a written contract purporting to embrace all its terms, which contradict, change, add to, or subtract *Page 345 
from the express terms, is declared and interpreted by the decisions of this court, as well as prescribed by statute. (Knox v. Gerhauser, 3 Mont. 278; Fisher v. Briscoe,10 Mont. 124, 25 P. 30; Anderson v. Perkins, 10 Mont. 154,25 P. 92; Gaffney Mercantile Co. v. Hopkins, 21 Mont. 13,52 P. 561; Sanford v. Gates, Townsend  Co., 21 Mont. 277,289, 53 P. 749; Armington v. Stelle, [27 Mont. 13], 69 P. 115 [94 Am. St. Rep. 811].) This rule is applicable to oral negotiations and agreements which vary the legal construction and import of a written contract, although they do not contradict its express terms. (Cliver v. Heil, 95 Wis. 364, 70 N.W. 346, and cases there cited; 27 Am.  Eng. Enc. Law, 1st ed., p. 862)." (Riddell v. Peck-Williamson H.  V. Co., 27 Mont. 44,69 P. 241, 242.)
The terms of a contract are not to be deemed ambiguous merely because a party to it claims he does not understand them, or that they do not mean to him what he thought they did when he signed the contract, or that he and the other party to it agreed that it should mean something other than that which its language imports.
The interpretation pleaded by plaintiffs undoubtedly is an attempt to add to the terms of the contract. This is in effect but an averment that the parties understood and intended the contract should mean something different from that which is therein expressed.
"Upon well-established principles, parties themselves may not so alter the terms of a written contract. (Brintnall v.Briggs, 87 Iowa, 538, 54 N.W. 531. See, also, Fisher v.Briscoe, 10 Mont. 124, 25 P. 30, and Anderson v. Perkins,10 Mont. 154, 25 P. 92.) Nor will the courts do for them that which they could not themselves accomplish. From the allegations of the complaint it is manifest that the plaintiff does not contend for the reformation of the written contract on the ground of fraud, accident or mistake, but seeks to reform such contract, complete upon its face, and the terms of which were understood and assented to by the plaintiff at the time it was made, upon the ground that the parties understood and intended *Page 346 
to interpret it in a sense contrary to that expressed by its language. This may not be done. (Brintnall v. Briggs, and section 3132, supra.)" (Gaffney Mercantile Co. v. Hopkins,21 Mont. 13, 52 P. 561, 562.)
"The written contract superseded all prior negotiations and agreements, and to it alone must we look to determine the obligation of the defendant. (Kelly v. Ellis, 39 Mont. 597,104 P. 873; Rowe v. Emerson-Grantingham Co., 61 Mont. 73,201 P. 316; State ex rel. Broadwater Farms Co. v. BroadwaterElevator Co., 61 Mont. 215, 201 P. 687; Cook v. NorthernP. Ry. Co., 61 Mont. 573, 203 P. 512; Leigland v. RundleLand  Abstract Co., 64 Mont. 154, 208 P. 1075; Webber v.Killorn, 66 Mont. 130, 212 P. 852].)" (Burnett v.Burnett, 68 Mont. 546, 219 P. 831, 832.)
McDaniel v. Hager-Stevenson Oil Co., 75 Mont. 356,243 P. 582, 584, is directly in point, and sustains my views: "A contract may not be changed or revised under the guise of interpretation. Where a contract is plain and clear in its terms neither interpretation nor construction is permissible. (Ming
v. Pratt, 22 Mont. 262, 56 P. 279; Spaulding v. Maillet,57 Mont. 318, 188 P. 377.) When the language employed by the parties `is free from ambiguity or uncertainty, it is beyond the power of the court to enlarge or restrict its application or meaning.' (Union Bank  Trust Co. v. Himmelbauer, 56 Mont. 82,181 P. 332.) And when the terms of a contract are plain and unambiguous, resort may not be had to extrinsic circumstances under the pretense of ascertaining its meaning. (Purdin v.Westwood R.  L. Co., 67 Mont. 553, 216 P. 326; Berne v.Stevens, 67 Mont. 254, 215 P. 803.) If through fraud or mistake the writing did not truly express the intention of the parties, it might, upon the application of the one aggrieved have been revised to express that intention (sec. 8726, R.C. 1921), but no such application was made."
"Resort may be had to extrinsic evidence in aid of interpretation only when the contract appears on its face to be ambiguous *Page 347 
or uncertain." (Hill Cattle Corp. v. Killorn, 79 Mont. 327,256 P. 497, 502.)
Sutton v. Masterson, 86 Mont. 530, 284 P. 264, 266, is relied upon by the majority. It has little, if any, application. Therein we said: "Clearly the so-called `buyers order' is not free from ambiguity; that it does not contain all the terms of the agreement is obvious, and, even from the language used, the intention of the parties is not clear. Indeed, it is apparent that the writing is nothing more than a brief memorandum of certain points of the agreement; it is uncertain and ambiguous, and the court ruled correctly in admitting the evidence complained of."
In Musselshell Valley F.  L. Co. v. Cooley, 86 Mont. 276,283 P. 213, testimony had been admitted concerning the intention of the grantor in a deed; it was pointed out that the challenged testimony did not tend to vary the terms of the instrument in any degree.
In view of our own statutes and decisions which are clear and fully adequate, I see no reason to resort to the decisions of other courts on the subject.
The matter challenged by defendants' motion was sham and irrelevant, and the motion should have been sustained. This is good practice. (State v. American Surety Co., 78 Mont. 504,255 P. 1063; McCormick v. Shields, 63 Mont. 9,205 P. 831.)
Thereafter, as they were required to do, defendants filed their answer, in the course of which they denied inter alia the matter which they had unsuccessfully moved to strike from the complaint.
At the beginning of the trial, over the objections of the defendants, among others that the written contract "is the entire contract relating to the subject-matter of the complaint, and that such allegations purporting to state an oral understanding or an oral interpretation of said contract are immaterial, irrelevant and incompetent," the plaintiffs proceeded to introduce testimony to support the allegations of their complaint. It will not be useful to set forth here the testimony *Page 348 
even in brief — time and space will not permit — which the plaintiffs offered and the court admitted in support of the pleaded conversations and oral understandings of the parties prior to the signing of the contract; it is enough to say that the testimony would not have been admitted if the case had been tried upon the written contract in the absence of the prior oral statements; and, if the statutes which I have quoted mean what they plainly say, this testimony was inadmissible and highly prejudicial to defendants. Two illustrations will suffice to verify this statement. One of the plaintiffs over the objection of the defendants was permitted to testify that, while prior negotiations were being carried on between the plaintiffs and the Homestake Exploration Corporation, Mr. Peters, the president of the corporation, said "they would make a sieve out of the lands." The witness continued: "We took the expression literally, and understood from such remark that he would make that territory look like a sieve, and that was our conception of what his obligation and these corporations' obligation under the contract was."
A witness for plaintiffs, a drilling contractor, having qualified as an expert, was permitted over objection to answer the question as to what number of wells to the forty would be a reasonably fair test to determine the existence of oil or gas in paying quantities. He answered, "Four wells to the forty." Much other testimony along this line was permitted over defendants' objections.
And yet, after all this testimony was before the jury, the court instructed the jury without striking any of the testimony from the record, and without directing the jury to disregard any of it, that "the contract provides that the Homestake Exploration Company `hereby binds itself to the exercise of reasonable diligence in the drilling of oil wells on said premises to such number and extent as said premises will admit of.' By this is meant that the Homestake Exploration Corporation obligated itself to drill the number of wells upon the property which the reasonably prudent operator would have drilled under all the facts and circumstances in this case, *Page 349 
exercising reasonable diligence. If a reasonably prudent oil and gas operator, under all the circumstances, would not have drilled more exploratory wells on the permit acreage in question, then the application of the contract in that particular has been fulfilled. * * * If a reasonably prudent oil and gas operator, under all the circumstances, would have drilled more exploratory wells on the permit acreage in question, then the obligation of the contract in that particular has not been fulfilled."
This advice to the jury was based upon paragraph 10 as it was written. It was given without any reference to the oral testimony which had been admitted. If the instruction was correct — and it was — it demonstrates the error committed in admitting oral testimony respecting the meaning of the paragraph.
I shall quote two more. In instruction 12 the court said: "By this contract the defendants were and are bound to the exercise of reasonable diligence in the drilling of oil wells on the premises described in the complaint to such number and extent as said premises will admit of. The defendants were not bound to drill additional wells on the permit acreage merely to demonstrate the existence or nonexistence of oil or gas, nor to drill any additional wells where there was no reasonable expectation of securing oil or gas in paying quantities." Instruction 16: "The contract does not, by specific terms, require the drilling upon the Frank E. Flaherty permit, or the John Andersch permit of any particular number of wells beyond the limited requirements of the governmental permits. The contract does require the exercise of reasonable diligence upon the part of the operator in the drilling of oil wells upon the lands therein described. In determining the question of whether or not other wells should have been drilled you must give consideration to all of the facts regarded collectively. Some of these are: the result of oil operations and exploration work on adjacent premises, the extent of the subterranean oil reservoir; also its character and contour; market conditions; the prospects for further production; and the knowledge possessed by those expert in locating oil bodies. *Page 350 
This contract was intended for the benefit of both parties, and the defendants had the right to regard their own interests as well as those of the plaintiffs. In short, the diligence required of the defendants involved such a course of conduct upon their parts as operators of ordinary prudence would pursue, having in mind the securing of the financial benefits sought by both parties to this contract."
These two instructions illustrate still more forcibly the error which was ever present during the presentation of plaintiffs' case, and which prevented defendants from having a fair trial.
I think the case should go back for a new trial with directions as to the rule which should be given the jury to guide it in fixing damages. It does not seem to me that the "well-cost" rule is the one which should be given in a case like this. I have no quarrel with the Ardizonne Case (Ardizonne v. Archer,72 Okla. 70, 178 P. 263), for there the defendants were expressly obligated to drill a specific well to a certain depth. It does not seem reasonable to me that "well-cost" measure of damages can be allowed where the wells to be drilled are not definitely specified in the contract. How can that rule be applicable here, when the contract provides that the plaintiffs are to receive only a royalty after the expense of drilling the well has been first paid, and this without proving, or even attempting to prove, that any oil would have been encountered? If, as a matter of fact, oil would not have been found in the Andersch and Flaherty lands, and from the explorations of others upon adjacent territory that might be the result, how could drilling have benefited the plaintiffs? If that be the case, then, if this verdict is sustained, the plaintiffs will receive $80,000, where, if any number of dry wells had been drilled, they would not have received a cent. Upon the proof it is not shown that plaintiffs have lost anything. This verdict is based upon speculation alone, and that is not an allowable basis for a verdict under our statutes. (Secs. 8667, 8668, Rev. Codes 1921.)