Atlas Corp. v. Clovis Nat. Bank

• Citation: 737 P.2d 225
• Decision Date: 28 April 1987
• Docket Number: No. 19239,19239
• Parties: ATLAS CORPORATION, a Delaware corporation, Plaintiff and Respondent, v. The CLOVIS NATIONAL BANK, The Citizens Bank of Clovis, National Growth Corporation, a Colorado corporation, et al., Defendants and Appellants.
• Court: Utah Supreme Court

Page 225

737 P.2d 225

ATLAS CORPORATION, a Delaware corporation, Plaintiff and Respondent, v. The CLOVIS NATIONAL BANK, The Citizens Bank of Clovis,

National Growth Corporation, a Colorado

corporation, et al., Defendants and Appellants.

No. 19239.

Supreme Court of Utah.

April 28, 1987.

Steven D. Hull, Dale A. Kimball, Ronald G. Russell, Salt Lake City, Allen C. Dewey, Jr., Albuquerque, N.M., for defendants and appellants.

L. Robert Anderson, Lyle R. Anderson, Monticello, Stephen D. Alfers, William A. Hillhouse, David R. Hammond, Eliza C. Finkenstaedt, Denver, Colo., for plaintiff and respondent.

ZIMMERMAN, Justice:

Appellants The Clovis National Bank and The Citizens Bank of Clovis (jointly referred to as "Clovis") appeal from a summary judgment declaring that they have no interest in certain uranium mining claims owned by respondent Atlas Corporation. Clovis asserts that the trial court erred in two respects: first, in ruling as a matter of law that the terms of an operating agreement and a sales agreement executed by the parties' predecessors in interest had terminated upon the completion of a "single mining venture" and, second, in ruling as a matter of law that the net profits interest created by those agreements was not an interest in land that survived the termination of the agreements. On the first issue, we reverse the trial court's ruling and resolve the issue as a matter of law in favor of Clovis. On the second issue, we also reverse the trial court, but remand the matter for further proceedings to determine by extrinsic evidence the intention of the parties.

In the late 1950s, one Abernathy and his two partners owned several unpatented uranium mining claims known as the Velvet and Royal Flush claims, covering approximately 700 acres in San Juan County, Utah. After some preliminary exploration, Abernathy and his partners agreed on April 18, 1957, to sell the claims to Kerr-McGee Industries, Inc., and Mercury Uranium & Oil Company. The parties signed both a sales agreement and an operating agreement that defined the parties' rights and obligations. A mining deed conveying the claims subject to the terms and conditions of the April 18th agreements was executed approximately two months later and recorded in San Juan County, Utah.

The crux of this action is the proper interpretation of the agreements and deed; therefore, a detailed discussion of the terms of each is required. Under the sales agreement, Abernathy and his partners conveyed to Kerr-McGee and Mercury all of their right, title, and interest in the Velvet and Royal Flush claims. In exchange, Abernathy and his partners received $100,000 in cash and 50,000 shares of Mercury stock valued at $1 per share. The sales agreement obligated Kerr-McGee and Mercury to "explore said claims with reasonable diligence" and, if commercially valuable ore was discovered, to "define and develop the ore body indicated" and to "mine, remove and sell such ore from said claims with reasonable diligence and reasonable continuity and in a good workmanlike manner...." The sales agreement then provided that, contingent upon the discovery and development of commercially valuable ore and after Kerr-McGee and Mercury had recovered certain costs and expenses detailed in the agreement, Abernathy and his partners would receive a forty percent share of "the net profits from all ores mined, produced and sold from said claims."

Contemporaneously with the execution of the sales agreement, the parties entered into an operating agreement which designated Kerr-McGee as operator. This operating agreement was incorporated into the sales agreement by reference. The provisions of the operating agreement were consistent with those of the sales agreement. It recited that Abernathy and his partners had "reserved unto themselves an undivided net profits interest ... in and to the net profits from all ores mined, saved, removed and sold from said claims ..." and went on to define the net profits interest and describe its calculation as it had been defined and described in the sales agreement. Also, just as in the sales agreement, the operating agreement obligated Kerr-McGee to diligently explore and develop "said claims." The operating agreement contained additional specific provisions detailing the methods for defining and developing any ore body, for abandoning any mine, and for allowing any claim to expire. In the event that such an abandonment or expiration were contemplated, Abernathy and his partners were granted an option to reacquire any mine or claim.

The operating agreement allowed both Kerr-McGee and Mercury to transfer their interests, subject to a right of first refusal in favor of the other. It then expressly provided that "[a]ll sales made by either [Kerr-McGee] or Mercury or their respective successors in interest shall be subject to the terms, covenants, and conditions of [the agreement]," which were declared to be covenants running with the land and the mineral estate. The agreement was deemed to be binding upon the parties, their heirs, successors, and assigns and was to be "in full force and effect so long as any of the [subject] mining claims ... are in force and effect."

The mineral deed, executed two months later, did not expressly reserve or except a net profits interest in favor of Abernathy and his partners. Instead, it stated only that the conveyance was made "subject to the terms, covenants and conditions contained in [the sales and operating] agreement[s] ... between the parties."

The trial court found that after the agreements were executed, Kerr-McGee "commenced with reasonable diligence and diligently prosecuted exploration and other activities sufficient in [its] ... opinion ... to test the lands covered by the [subject claims] for the presence of commercial ore deposits. In this exploration work, [Kerr-McGee] discovered commercial ore and proceeded to define the ore body indicated thereby." The discovery of that ore body resulted in the development in 1958 of the seven-acre Bardon Mine. The Bardon Mine was worked for about three years.

In December of 1960, Kerr-McGee abandoned the Bardon Mine in accordance with the terms of the agreements. Neither Abernathy nor his partners exercised their option to reacquire the claims located on the seven acres involved in the Bardon Mine when Kerr-McGee abandoned the property. In 1967, Clovis acquired Abernathy's interest under the sales agreement.

For reasons not clear from the record, Kerr-McGee did not develop further the other property covered by the claims. Atlas asserts that "Kerr-McGee performed additional exploration activity in an unsuccessful attempt to discover another commercial ore body," while Clovis claims that "Kerr-McGee intended to conduct further exploration and mining ... [but its] planned operations were stalled by the commencement of litigation seeking an accounting of the proceeds from the Bardon [Mine]." ¹ The trial court's factual findings do not resolve this issue.

Through various conveyances, Atlas acquired the claims in 1977. In 1978, Atlas began developing the Velvet Mine. The Velvet ore body, one of the richest in the Colorado Plateau, is distinct from the ore body tapped by the Bardon Mine.

In 1979, Atlas instituted this action to quiet title to the claims. In December of 1982, Clovis moved for summary judgment, seeking a declaration that the net profits interest described in the 1957 agreements was a real property interest of perpetual duration and binding upon Atlas, that Atlas purchased the property with notice that the claims were encumbered by that interest, and that Clovis owned a 14.07 percent interest in the net profits from all the ores mined, produced, and sold in the development of the claims. The district court denied Clovis's motion.

Shortly thereafter, Atlas filed a motion for summary judgment, contending that the net profits interest created by the agreements was a personal covenant between Abernathy, his partners, Kerr-McGee, and Mercury and therefore was not binding on Atlas. Atlas also argued that the agreements contemplated only a single mining venture--that venture being the development of the Bardon Mine--and that since the Bardon Mine had been abandoned, the agreements had expired. In response, Clovis renewed its earlier-denied motion for summary judgment.

After a hearing, the trial court entered an order granting summary judgment in favor of Atlas on two grounds: First, the court held that the agreements contemplated only a single mining venture and that all rights and obligations under the agreements had therefore terminated upon the abandonment of the Bardon Mine. Second, the court held that the net profits interest was a contractual profit-sharing arrangement, rather than an interest in land or a covenant running with the land, and had therefore expired when the operating agreement terminated. Clovis filed this appeal, challenging both of the trial court's conclusions.

In considering Clovis's appeal, it is important to note the appropriate standard of review. Because disposition of a case by summary judgment denies the benefit of a trial on the merits, we will review the facts and inferences in the light most favorable to the party against whom the judgment was granted. Young v. Texas Co., 8 Utah 2d 206, 331 P.2d 1099 (1958); Durham v. Margetts, 571 P.2d 1332, 1334 (Utah 1977). If, when so considerred, we conclude that there is a dispute as to a genuine issue of material fact, we must reverse the grant of summary judgment and remand for trial on that issue. Thornock v. Cook, 604 P.2d 934, 936 (Utah 1979); see Utah R.Civ.P. 56(c). In addition, because a summary judgment is granted as a matter of law rather than fact, we are free to reappraise the trial court's legal conclusions. Betenson v. Call Auto Equipment & Sales, Inc., 645 P.2d 684, 686 (Utah 1982); Morris v. Mountain States Telephone & Telegraph Co., 658 P.2d 1199, 1200-01 (Utah 1983...