Somont Oil Co., Inc. v. Nutter

• Decision Date: 06 October 1987
• Docket Number: No. 87-66,87-66
• Citation: 44 St.Rep. 1685,743 P.2d 1016,228 Mont. 467
• Parties: SOMONT OIL COMPANY, INC., a Montana corporation, Plaintiff and Respondent, v. John Kiehl NUTTER and Peggy Faye Nutter, Defendants and Appellants.
• Court: Montana Supreme Court

Page 1016

743 P.2d 1016

228 Mont. 467

SOMONT OIL COMPANY, INC., a Montana corporation, Plaintiff and Respondent, v. John Kiehl NUTTER and Peggy Faye Nutter, Defendants and Appellants.

No. 87-66.

Supreme Court of Montana.

Submitted on Briefs Aug. 13, 1987.

Decided Oct. 6, 1987.

Ralph T. Randono and Daniel Donovan, Great Falls, for defendants and appellants.

Marc G. Buyske, Anderson, Beatty & Lee, Shelby, for plaintiff and respondent.

HARRISON, Justice.

This appeal arises from a bench trial which occurred in the Ninth Judicial District on June 17 and 18, 1986, and thereafter by deposition, before the Honorable Robert M. Holter. The District Court issued a judgment supported by findings of fact and conclusions of law on December 18, 1986. Judgment was rendered in favor of plaintiff-respondent Somont Oil Company, Inc. ("Somont"). Defendants John and Peggy Nutter appeal. We affirm.

This appeal involves the parties' rights and obligations under an agreement to develop and operate a mineral interest on a parcel of land in Toole County, Montana. The Nutters own 80% of the mineral rights to the tract of land in issue. Respondent Somont claims the remaining 20% of the mineral rights. Additionally, Somont claims it is the proper lessee of one-half of the Nutters' mineral interests as assignees of a mineral lease executed by the Nutters to a third party. The sequence of events and pertinent facts in this case are fairly complex.

The original owner of the land involved was Anna Kenny who received ownership through a patent from the United States Government. Anna Kenny is now deceased. In 1920, Anna Kenny leased the mineral interests underlying the land to Gordon Campbell. Anna Kenny reserved a landowner's royalty interest and the lease was structured to remain in force for twenty years or for so long after that period that oil was produced from the land in commercial quantities. In 1922, Anna Kenny conveyed an interest to Stevenson Associated Royalties Company ("Stevenson"). In that conveyance, Kenny granted Stevenson 20% of her royalty payments under the lease to Campbell. Additionally, Stevenson received a reversionary interest in 20% of the minerals in the event the Campbell lease was ever forfeited or cancelled.

Campbell eventually assigned his lease interest to Texaco, Inc. Texaco developed and maintained oil wells on the property but eventually ceased production. Texaco later abandoned the lease and filed a release on March 13, 1981. According to the terms of the lease with Campbell and the grant to Stevenson, 80% of the interest in the minerals underlying the land have reverted to the successors of Anna Kenny, while the remaining 20% reverted to the successors of Stevenson.

Upon Anna Kenny's demise, Marie Kenny succeeded to her interest in the land. In 1974, Marie Kenny conveyed the property to defendants John and Peggy Nutter. The contract for deed was recorded on January 2, 1976. A warranty deed executed by Marie Kenny was filed on February 20, 1981. By virtue of the conveyance and Texaco's abandonment of their mineral lease, the Nutters claim 80% of the mineral rights to the land.

Despite the conveyance to the Nutters, Marie Kenny conveyed an oil and gas lease on the same land to Somont in September of 1979. Because of the conveyance to the Nutters, both parties agree the lease from Marie Kenny to Somont is void. Somont filed a release of the void lease in August of 1984.

The remaining 20% mineral interest originally granted to Stevenson by Anna Kenny in the form of a reversionary interest follows a lengthy chain of title. We will discuss this chain of title more fully under the third issue raised by appellants. Suffice it to say that in 1980 Somont claimed title to this 20% mineral interest by instruments with the personal representatives of one L.R. Baily, holder of one-half of the 20% interest, and the personal representative of one A.H. Raymond, holder of the other one-half. Subsequently, Somont began oil exploration and development on the property.

On March 6, 1981, the Nutters and Buffalo Jump Oil and Gas, Inc. ("Buffalo Jump"), a Montana corporation, entered into an oil and gas lease and a supplemental agreement to operate the mineral interests belonging to the Nutters. Appellant John Nutter and the president of Buffalo Jump, Chris Owen, negotiated the agreement. On May 1, 1981, Buffalo Jump assigned its interest in the Nutter lease and agreement to Rimrock Drilling Company ("Rimrock"). Rimrock is a partnership consisting of Chris Owen and Norman Eberhardt as partners. Rimrock subsequently developed oil wells which produced oil in commercial quantities. John Nutter assisted in the oil operation and the District Court found that he acted in the capacity of an employee rather than a joint operator. The result was that both Somont and Rimrock were simultaneously developing oil well operations on the land. Each operation maintained separate storage tanks and pipelines.

On February 1, 1984, Rimrock assigned its interest in the Nutter lease to Somont. The Nutters and Somont subsequently engaged in a dispute regarding their rights and obligations in developing and operating the oil pumping operation. Somont alleged John Nutter padlocked oil production equipment located on the property and sold approximately $5,000 of crude oil produced by Somont. Somont sought a declaratory judgment to clarify and determine the rights and obligations of Somont and the Nutters pursuant to the lease agreement between Buffalo Jump and the Nutters. A complaint was filed with the District Court on March 22, 1984.

A preliminary hearing was held on March 30, 1984 and a stipulation was created dictating the oil operations until the time of trial. The stipulation directed a joint operation in which Somont would conduct the actual day-to-day operations subject to a right of inspection by the Nutters. Somont was to pay a portion of the gross proceeds of the operation into a special account established by the court pending the outcome of the litigation. An order directing the scope and contents of the stipulation was apparently signed on March 30, 1984, but was not filed until November 7, 1985 after a dispute arose between the parties while acting under the stipulation. Somont alleged that as a result of omissions and contradictory actions by the Nutters, it refused to make the scheduled payments. Following a hearing on November 7, 1985, the District Court issued findings of fact and an order stating that the order directing the stipulation was still in effect and Somont was ordered to make the payments.

The case was tried on June 17 and 18, 1986, and additional evidence was taken in July by deposition. On December 18, 1986, the District Court issued findings of fact, conclusions of law, and an order. The contested issues were resolved in favor of Somont.

The District Court concluded that as a result of the assignment from Rimrock to Somont, Somont held all of the rights and obligations of Buffalo Jump and Rimrock under the agreement entered March 6, 1981.

The District Court directed that Somont would continue to conduct the day-to-day operations in developing the mineral estate. It required Somont to operate "in a manner consistent with good practices in the oil and gas industry and in conformance with the rules and regulations of the Board of Oil and Gas Conservation for the State of Montana." The Nutters were given the right to inspect the operations at any time, but were prohibited from interfering with the operations without the consent of Somont or a court order. Somont was required to provide the Nutters with monthly statements indicating gross production from the property, royalties paid, taxes paid, and operational and development costs.

Appellants have raised three issues for our consideration on appeal:

(1) Did respondent Somont acquire contract rights to develop and manage the mineral operations pursuant to the "Nutter-Buffalo Jump" contract?

(2) If Somont did acquire contract rights, did the District Court properly interpret the rights and obligations of the parties under the contract?

(3) Does Somont properly hold a 20% mineral interest in the property on a leasehold basis?

We will consider each issue separately. First, however, we must note that the standard of review on appeal is that the District Court's findings of fact will not be disturbed unless they are clearly erroneous. Rule 52(a), M.R.Civ.P. Further, respondent cites a statement made by this Court which is applicable under these circumstances:

In a nonjury trial, the credibility of witnesses and the weight of their testimony are matters for the District Court to determine. The sufficiency of the evidence must be reviewed from the perspective most favorable to the prevailing party. The District Court's findings and judgment are presumed correct and will not be overturned unless the appellant meets the burden of proving with a preponderance of evidence that they are wrong. Merely showing the evidence establishes reasonable grounds for reaching a different conclusion is insufficient to reverse the District Court findings. Lumby v. Doetch (1979), 183 Mont. 427, 431, 600 P.2d 200, 202.

Frank L. Pirtz Const. v. Hardin Town Pump (Mont.1984), 692 P.2d 460, 462, 41 St.Rep. 2366, 2368.

I. SOMONT'S CONTRACT RIGHTS

In March, 1981, the Nutters and Buffalo Jump entered an oil and gas lease along with a supplemental agreement to operate the mineral interests belonging to the Nutters. Buffalo Jump assigned the lease to Rimrock on May 1, 1981, and Rimrock then assigned the lease to Somont on February 1, 1984. The Nutters allege that the original contract with Buffalo Jump was too vague to constitute a contract. The Nutters contend the Buffalo Jump agreement was merely "an agreement to agree" and not a binding contract. Therefore, they argue, the later assignment to Somont is invalid.

The agreement entered between Buffalo Jump and the Nutters...