Resource Management Co. v. Weston Ranch and Livestock Co., Inc.
| Decision Date | 23 August 1985 |
| Docket Number | No. 18387,18387 |
| Citation | 706 P.2d 1028 |
| Parties | RESOURCE MANAGEMENT COMPANY, a Utah Corporation, Plaintiff and Appellant, v. WESTON RANCH AND LIVESTOCK COMPANY INC., George W. Weston, Theda M. Weston, Norman E. Weston, Nethelle W. Weston, J. Simeon Weston, Reta W. Weston, Forty-six Company, Inc., Diamond W. Ranch Company, Inc., and Morrell Weston & Sons Ranching Company Inc., and John Does 1 through 5, Defendants and Respondents. |
| Court | Utah Supreme Court |
Michael J. Mazuran, Salt Lake City, for plaintiff and appellant.
Bryce E. Roe, Robert Adkins, Salt Lake City, for defendants and respondents.
The plaintiff, Resource Management Co. (RMC), sued for a decree of specific performance directing defendants, the Westons, to convey to RMC certain oil and gas royalty rights pursuant to the terms of a contract. The trial court ruled against RMC holding that the contract was unenforceable because (1) there was "no bargained for consideration received by defendants in exchange for their promises" and (2) even if the consideration for the contract were not illusory, the contract was unconscionable because "the consideration promised by plaintiff for defendant's royalty and mineral interests was grossly inadequate." RMC appeals.
Defendants George W. Weston, Norman E. Weston, J. Simeon Weston and Morrell Weston ("the Westons") are brothers engaged in the ranching business. Collectively, they own and manage over 8,000 acres of ranch land located in Rich County, Utah. The Westons were the principal shareholders and officers in Weston Ranch and Livestock Co., Inc. 1
Sometime in mid-1974, the Westons began to receive contacts from land men interested in leasing the Westons' property for purposes of oil and gas exploration. In August, 1974, two of the brothers entered into an oil and gas lease with Ram Petroleum. Norman Weston leased 722 acres, and Simeon Weston leased 400 acres for $1 per acre bonus, $1 per acre annual rental, and the reservation of a 12 1/2% royalty. Neither brother engaged in any negotiation concerning the terms of the lease except that Norman insisted that the term of his lease run five years, instead of ten. According to Simeon Weston, negotiations concerning his lease started "about the same time that they were completed, really." For both, it was the first oil and gas lease they had ever negotiated.
RMC is a closely held Utah corporation in the business of providing consulting and management services to persons owning land having mineral potential. Its president and principal shareholder is William A. Stevenson, who in one capacity or another has been involved in the oil and gas business since 1957.
William Stevenson and Simeon Weston first met at a cattlemen's convention in Salt Lake City sometime prior to September, 1974. Stevenson explained to Weston the nature of his business. Simeon later agreed to arrange a meeting between Stevenson and his brothers. The record is not entirely clear, but apparently there were two meetings between Stevenson and the Westons. The first, on September 19, was apparently informal, and the terms of an agreement were discussed only generally. On September 20, the Westons and Stevenson, accompanied by Gerald Miller, who at the time was considering an offer of employment from RMC, met at an unoccupied ranch house owned by the Westons. By all accounts, the meeting lasted several hours, taking up most of the afternoon. At the meeting, Stevenson attempted to sell the Westons on the contract. According to the trial court's findings, Stevenson represented to the Westons that by entering into a contract with RMC, RMC's knowledge and skill, its services in preparing surveys and evaluations, and its help in negotiating leases would greatly enhance the value of the Westons' property and would make them wealthy. Stevenson had in his possession at least one copy of a blank form contract that he had apparently used on numerous previous occasions. 2 The contract set forth the terms of the agreement on two legal-size sheets of paper.
The testimony is in conflict as to what occurred during the meeting. Stevenson read through either all or most of the contract provisions but did not elaborate or endeavor to explain any provisions unless one of the Westons specifically requested him to do so. Though one of the brothers testified that he supposed they could have had copies of the contract to read through had they asked, none of the Westons read through the contract at the meeting.
The Westons did not agree to all the terms of the contract. Specifically, they insisted that paragraph 3 be changed. In its original form, this paragraph granted RMC an option to extend the contract for an additional five years beyond its initial five-year period. The provision was modified by deleting the option to extend. 3 As modified, paragraph 3 is not necessarily consistent with paragraph 9, which provides that "the term of this Agreement and any extensions thereof shall be automatically extended to coincide with the longest term of any agreement entered between the OWNERS and any third parties regarding any mineral or mineral rights covered by the terms of the Agreement." The parties did not discuss the possible conflict between the two provisions.
During the meeting, Norman Weston indicated that his property was not to be included in the contract, as it was already leased to another oil company. However, there is contrary testimony by Stevenson indicating that he thought the property was to be included, but only to the extent of non-oil and gas minerals that might be located on the property.
The primary obligations of the parties were embodied in paragraphs 12 and 5 of the contract. Paragraph 12 enumerated the obligations of RMC under the contract:
12. THE COMPANY agrees:
(a) To make a preliminary geological evaluation of the subject real properties covered by this Agreement.
(b) To prepare applicable preliminary maps and sketches.
(c) When requested by the OWNERS to prepare a preliminary report to the OWNERS covering such evaluation.
(d) To confer with the OWNERS concerning results of preliminary investigations and evaluations.
(e) To make general recommendations to the OWNERS after considering the objectives and desires expressed by the OWNERS.
(f) To provide, when requested, an annual re-evaluation of the mineral potential of the real properties covered by this Agreement.
(g) When requested by the OWNERS, to provide submittals and proposals to companies and operators which might be interested in the mineral potential of the subject real properties.
(h) When requested by the OWNERS, to negotiate with such companies and operators in an attempt to obtain satisfactory sales, leases or working arrangements.
It is expressly understood that the extent and scope of geological evaluations and the preparation of attendant materials, shall be at the sole discretion of THE COMPANY, and that failure of THE COMPANY to make any specific, detailed study or evaluations of the real properties covered by the Agreement, except as hereinabove provided, shall not be cause for termination of this Agreement by OWNERS.
In return, the Westons agreed, in paragraph 5, to compensate RMC as follows:
5. The consideration which OWNERS agree to pay to THE COMPANY for the consulting service of THE COMPANY hereunder, shall be as follows:
(a) OWNERS shall, upon execution of this Agreement by THE COMPANY, execute a Royalty Deed 4 conveying to THE COMPANY an undivided two percent (2%) interest in and to all of the oil, gas, oil shale, bituminous sandstone, and all other hydrocarbons produced, mined and saved and an undivided one percent (1%) interest in and to all other minerals, including all heat, steam, hot water or other geothermal power produced, mined and saved from the foregoing described properties; plus
(b) on all oil, gas, oil shale, bituminous sandstone and all other hydrocarbons produced, mined and saved, thirty-one percent (31%) of the royalties in excess of and above fourteen and one-half percent (14 1/2%) reserved and received above by the OWNERS, plus thirty-one percent (31%) of all cash or other income or consideration received above by the OWNERS from the sale, leasing, or other development of the minerals underlying the real property covered by this Agreement regardless of the form in which such payment or consideration are [sic] received; plus (c) on all other minerals, including but not limited to, all heat, steam, hot water or other geothermal power produced, mined and saved, thirty-one percent (31%) of the royalties in excess of and above six percent (6%) reserved and received by the OWNERS from the sale, leasing or other development of the minerals underlying the real property covered by this Agreement regardless of the form in which such payment or consideration are [sic] received.
Other contractual provisions pertinent to this litigation include paragraphs 7, 9, 13, 16 and 30.
7. The OWNERS agree to notify THE COMPANY of all agreements which they entered into during the term of this Agreement, including but not limited to, sales of mineral leases involving land covered by this Agreement.
9. The term of this Agreement and any extensions thereof shall be automatically extended to coincide with the longest term of any agreement entered into between the OWNERS and any third parties regarding any minerals or mineral rights covered by the terms of this Agreement.
13. THE COMPANY shall continue throughout the term of this Agreement and any extensions thereof, without cost to the OWNERS and when requested by the OWNERS, to consult with, advise and assist the OWNERS in their efforts to manage and/or develop the mineral potential of the lands covered by this Agreement.
16. It is agreed and understood by the parties that THE COMPANY may, at any time, in its sole discretion, terminate this Agreement in the event it determines there is not sufficient promise of minerals of...
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