Smith v. Zepp
| Decision Date | 02 August 1977 |
| Docket Number | No. 13118,13118 |
| Citation | 173 Mont. 358,567 P.2d 923,34 St.Rep. 753 |
| Parties | Perl SMITH, S. Charlene Smith and Everett Satterfield, Plaintiffs and Respondents, v. Wilbur J. ZEPP, Wesley Farner, C. E. Knowles, and Wolverine Mining, Inc., a Montana Corporation, Defendants and Appellants. |
| Court | Montana Supreme Court |
Crowley, Haughey, Hanson & Toole, Stephen Foster argued, Billings, Boone, Karlberg & Haddon, Sam E. Haddon argued, Missoula, for appellant.
William R. Taylor, Deer Lodge, Radonich, Brolin & Reardon, John N. Radonich argued, Anaconda, for respondents.
This is an appeal by defendants from a district court judgment granting forfeiture of a contract for purchase of mining property by defendants and cancellation of a deed to a number of patented and unpatented mining claims.
In 1964, plaintiff Perl Smith purchased numerous patented and unpatented mining claims in Granite and Powell Counties known as the "Master Mine". Plaintiff thereafter obtained a personal bank loan and mortgaged the Master Mine property as security. When plaintiff failed to repay the loan, the bank obtained a judgment of foreclosure. The property was sold at a foreclosure sale on May 28, 1971, after which plaintiff's sole interest in the property was a year's statutory right of redemption under section 93-5835, R.C.M.1947.
In late April, 1972, plaintiff met with defendants Zepp and Farner and discussed the sale of the Master Mine. On May 15, 1972, the parties entered into a contract whereby plaintiff agreed to sell, and defendants agreed to purchase, the Master Mine properties. As consideration for plaintiff's granting of his ownership rights in the property to defendants, defendants agreed to pay approximately $69,000 for the redemption of the first mortgage on the Master Mine property, and to pay $31,455 to various creditors of plaintiff. In addition, defendants agreed to pay plaintiff Perl Smith a monthly consultation fee of fifteen percent (15 %) of the net operating profit of the Master Mine. The parties contracted that defendants would pay the 15 % consultation fee to plaintiff Perl Smith or to his wife, plaintiff Charlene Smith, during their lifetimes; if both plaintiffs predeceased their son, defendants agreed to pay the son a commission of 71/2 % of the net profits.
To insure that the income from the mine, and consequently, the consultation fee or commission, were maximized, defendants agreed to produce an average of 300 yards of material each working day. The material would then be taken to the mine's washing plant where the gravel would be washed from the gold. There was not sufficient machinery at the gold mine to excavate 300 yards of material per day, but defendants agreed to purchase the larger Caterpillar, dragline with three yard bucket, and dump truck necessary to achieve a 300 yard per day production level.
The parties provided in the contract that in lieu of the consultation fees or commissions to be paid from the net mining profits, they might at a later date negotiate a fixed monthly payment. In case of any dispute between the parties as to the provisions of the contract, plaintiff Perl Smith and defendants agreed to submit the controversy to arbitration.
The contract also contained a provision which provided for a reversion of the property to the seller if defendants defaulted in their "payment of said property", and failed to cure their default within thirty days from receiving the seller's notice of default.
After plaintiff and defendants signed the contract, plaintiff fully performed his contract obligations. Plaintiff gave to defendants a quitclaim deed for all his interests in the Master Mine property and the buildings thereon. The buildings consisted of a main building with dining room, kitchen, bedrooms, showers, five furnished cottages, an assay building, and several other shops, light plants, storage and machinery repair buildings. The land consisted of approximately 360 acres of patented and 1,680 acres of unpatented mining claims. According to a local appraiser, the mining land was also valuable for recreation, timber and livestock grazing. The appraiser set the value of the land on February 12, 1968, at approximately $148,000, excluding mineral rights. According to the report of a geophysicist who took random samples of the earth at the mine site, the property contained an estimated $615 million worth of gold and other noble metals.
Defendants paid the approximately $69,000 necessary to redeem the property from the mortgage foreclosure and paid the approximately $31,455 of plaintiff Perl Smith's debts, as they had agreed to do in the contract. Defendants also successfully prepared the property for mining, by clearing the mine road of snow, repairing damaged equipment, and building dams and settling ponds so as to comply with state and federal environmental regulations. Defendants thereafter, however, failed to meet the contract condition that required them to produce 300 yards of material each day. It was defendants' failure to satisfy this contractual provision which gave rise to plaintiff's successful lawsuit in district court, and defendants' appeal to this Court.
At the time that defendants commenced mining operations on July 16, 1972, they had not acquired the equipment necessary to remove 300 yards of material each day. Rather than using the three yard or bigger dragline that defendants had agreed to obtain, defendants provided a 3/4 dragline for excavation of gravel. The gravel was then hauled from the excavation pit to the washing plant in a truck which held five yards of material. Defendants hauled six to eight truckloads of material per day, so that total daily mining production averaged between thirty and forty yards.
In August, 1972, defendants twice negotiated without success for the purchase of used large draglines. Defendants also ran advertisements in various Montana newspapers and talked to heavy equipment dealers regarding the purchase of a Caterpillar. These efforts likewise were unsuccessful, and defendants continued to mine only thirty to forty yards per day until late August, 1972. On August 30, 1972, the man whom defendants had hired to operate the Master Mine resigned from his job because he felt that the equipment at the mine was grossly inadequate. At that time, after little more than one month of mining thirty to forty yards of material daily, defendants ceased their mining operation.
For the entire month of mining, defendants recovered one ounce of gold. Because expenses of operation far exceeded mining income, there was no net profit, and plaintiff received nothing under the contract provision granting him a 15% commission fee from net mining profits.
On October 29, 1972, plaintiff Perl Smith and defendant C. E. Knowles attempted without success to negotiate a monthly payment to plaintiff to replace the contract's percentage of net profit commission clause. This matter was not submitted for arbitration under the contract's arbitration clause.
Plaintiff Perl Smith sent defendants notice of default in a letter dated March 15, 1973. Plaintiff stated in the letter that defendants were in breach of the contract for failure to mine 300 yards of material per working day. Plaintiff alleged that if 300 yards per day were mined, much gold and silver would be recovered and a net operating profit would be received from which plaintiff could receive his monthly percentage commission payment.
Defendants failed to cure the alleged default within the thirty days allowed in the contract. Plaintiffs on November 13, 1973, filed a complaint in district court, Granite County, alleging that defendants had breached their contract and asking that defendants forfeit all rights under the contract and all money paid pursuant to the contract, and that title to the Master Mine property be quieted in plaintiffs.
On December 9, 1974, the case was tried in district court before the Honorable Robert J. Boyd, sitting without a jury. The district judge found that the 300 yard per day production requirement was a basic term of the contract which required strict compliance by defendants. Defendants' failure to produce 300 yards of material per day was caused, the judge found, by their failure to obtain adequate equipment. The judge concluded that defendants' failure to produce more than fifty yards of material per day when the mine was worked, and their total failure to mine the claims in 1973 and 1974 was a substantial failure of performance. The judge concluded, as a matter of law, that the contract required that defendants' failure to mine 300 yards of material per day would result in cancellation of the contract, cancellation of the deed transferring the property from Perl Smith to defendants, and reversion of the title to the mining claims to plaintiffs Perl Smith and Everett Satterfield.
Defendants assert that the district court erred in ordering a forfeiture of their rights under the contract, which resulted in the loss to defendants of both the mining property and $96,000 in contract payments. Defendants claim that the evidence failed to show that a significant breach of the agreement occurred. Defendants next assert that, even if they did significantly breach the contract, forfeiture was an improper remedy.
Defendants' claim that the evidence failed to support a finding that they significantly breached the contract is without merit. The evidence at trial clearly showed that defendants failed to meet the express contract requirement that they produce 300 yards of material per working day. Defendants do not assert that they performed their contractual duty; rather, they claim that their failure to perform was excused due to impossibility of performance and commercial frustration.
The general rule is that, where a party to a contract obligates himself to a legal and possible performance, he must perform in accordance with the...
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