Atlantic-Pacific Oil Co. v. Gas Development Co.

ATLANTIC-PACIFIC OIL MONTANA, COMPANY OF Re Appel CO., v. GAS DEVELOPMENT

spondent, al., et lants.

(No. 7,556.) (Submitted January 5, February 1937. Decided 1937. on Resubmitted April Rehearing May 24, 1937. 1937.) Decided (2d) Pac.

[69 750.] Huntington O’Hern, F. for Appellants, Mr. and Mr. L. G. D. brief; orally. argued the cause submitted a Mr. O’Hern Wiggenhorn, for Respondent, brief, B. submitted G. Mr. orally. argued the cause opinion MR. JUSTICE MORRIS delivered the of the court. brought Plaintiff action, this in the nature of quiet suit title, seeking to certain have relating produc- contracts recovery tion and oil gas adjudged and to be valid.

The case was tried sitting jury. before the court without a Findings of fact proposed requested were plaintiff, and and requested, proposed, findings but not submitted were on be- half the defendants. The court findings made and filed of fact conclusions, and and thereafter both objected writing in findings to certain of the findings and conclusions. and con- as clusions made the court were thereafter in modified con- formity objections with some of the on plaintiff. behalf of the Judgment thereupon conformity in was findings entered with the and conclusions of law as The judgment thus made. awarded plaintiff sought by appeal judg- the relief it. The is from the ment. The dispute. facts in the in nowise in case are serious December, 1926,

Between February, 1928, there is- were sued at one time or gas prospecting permits by another oil States, number, permit- the United four in one to each four identity important. permits tees whose These described in lands located what is referred to the Baker-Glendive G-as Field. acreage permits approximately The total these Wight 2,000 an acres. defendant secured John irrevocable attorney power permittee from authorizing each him to con- permits. Acting reference tract with to these under powers attorney, Wight agreements executed operating each of permits names these and on behalf of each of per- respectively, mittees, with agreements Herbert Stokes. These subsequently writing by permittees were ratified them- agreements subject-matter are the selves. These controversy They except here in issue. were identical as to descriptions. By their parties, dates, permittee terms assigned permit any he had not or agreed that his done act subject cancellation; upon he to rendered would which apply for time within which request comply extensions of to permit, he would do no act which in- and that would with the permit subject validate the or render it The to cancellation. right permittee granted “the sole to Stokes exclusive to enter permit, prospect the lands described” to the same gas, permit oil and to to the States a to apply for United for drill the same for premises and cause the to be drilled oil and gas permit during granted the term for which the was or ex- tended, things comply regula- in all and “and to the rules with may imposed by Depart- tions which have been which be or drilling gas Interior ment of the relative to the of oil and or wells public pay agreed on lands.” to the entire cost of all Stokes drilling permittee any from and to save harmless claim name, arising drilling every or demands out of the nature description, drilling under operations to be his sole and agreed royalties pay to due to exclusive control. Stokes permittee States, pay royalty United and to to on the cent, per gas where the produced and and recovered 7% cent., per other and all lands royalty to the United States was right granted to Stokes to royalty per was cent. 2% premises produced and saved from the gas oil and purchase all prices. the field at assignments royalty were not to was made that

Provision furnished with a certified unless he was binding on Stokes right gas to use oil and accorded thereof. Stokes was copy agreed if He oil or drilling operations without cost. proceed found, he would with was quantities commercial gas in produc- maximum develop premises to diligence to due right conditions. was the market with commensurate tion Department of the Interior apply to Stokes granted might he be entitled lease or leases as for such own name in his permit, his under contract States from United royalty contained reservations of to be leases might, Stokes if he provided that contract agreement. The production for the not suitable premises were determined abandon the at his election quantities, gas in commercial oil or upon giving rights thereunder writ- all surrender contract keep perform Stokes to Upon the failure .of notice. ten subject to eancella- the contract it terms and conditions was made permittee. The contract option tion at the of the the Secretary Interior and of “subject approval of the to the of right the consent assign by made to to Stokes was ’’ necessary. It his Secretary of the Interior if consent was the inured its stipulated agreement that the and all covenants was heirs, assigns of the successors, the and of benefit respectively. agreements assignments various

By these various was in this action. Stokes property plaintiff the became the January, corporation. In plaintiff managing the officer of and the plaintiff was entered into between a contract - permits. It was a relating to these Capital Corporation Gas drilling gas wells document, provided for lengthy but by large permits held by number of corporation the latter on a gas involved this field, including in this the four plaintiff marketing gas at a suit, production for the and and called Pursuant stipulated compensation plaintiff. rate producing gas during wells agreement, this the summer of permits drilled each of the four here involved. Some- were plaintiff in 1931 herein that the defendant time asserted Capital Corporation in its contract com- Gas had defaulted same, after" trial resulted menced an cancel the which action to Capi- November, 1932, canceling judgment, in a entered restoring possession of Corporation contract and tal Gas judgment plaintiff. This thereon to the the lands and wells case, are not further in evidence in and we was received this defendant. concerned with this Capital Corporation pend- was against

While the suit Gas operating agreements of the ing, written notices cancellation likewise John respective permittees, signed their were any ground state did not Wight. notices of cancellation These February action; they not served until were or reason this East- 20, 1931, the defendant Montana February 8, 1933. On organized and soon thereafter Pipe Company Line ern was made to question were this de- permits assignments Wight. gather As we from permittees and John fendant corpora- managing of this officer record, Wight John tion as well as Capital Corporation. Gas offices Capital Corporation Gas and of the defendant Montana Pipe Eastern Company Line were maintained in the same rooms in the same building, office corporation and the officers each substantially were the same. personal These officershad knowl- edge of the operating agreements. existence terms of these Pipe defendant Montana Eastern Company Line was not a party canceling suit Capi- the defendant contracts of Corporation. tal The corporations Gas stockholders of the two apparently were not identical.

Thereupon controversy Department followed a before the of the being Interior which resulted in a lease leases issued to Pipe Company the Eastern Line defendant Montana to the lands in permits. department described these The declined to deter- controversy parties validity mine these as the between to the of operating relegated agreements, and to the courts the the adjudication question. leases, for These as of that we under- subject ruling department, any stand the issued of were to rights plaintiff might establish in the courts. This be able to adjudication rights. these purpose action has for its The held, under similar plaintiff company at one time or another operating agreements, many thousands of acres of land on the Secretary Interior had him same structure. The of the before agreements his copies operating prior to decision. He of these them, disapprove expressly approve expressly he did not nor did recognize discloses, them. far the record he did them. So as findings lengthy. By court are its conclusions agreements it decided that the were valid and of law upon binding effective, legal, outstanding, and defend- ; Pipe Company that the defendant Montana Eastern Line ants subject outstanding assignment permits to took rights thereunder; plaintiff and the that the agreements Secretary granted of the Interior or leases to the lease Pipe Company Line operat- Eastern are to the Montana subject to plaintiff, the terms and agreements; ing agreements, right op- had the these exclusive to conditions gas premises lands and under the oil and lease without erate the restriction By from the its further defendants. conclusions the fully operating agreements right court sustained these and the plaintiff proceed judgment thereunder. con- formity findings with the of fact and conclusions of law. proceeding

Before its the consideration of case on merits, practice questions of have been which raised we will first determine. The secured defendants various extensions of time within which excep file a proposed serve and bill tions. Under the granted by last extension trial the time 60-day court was in period excess of the addition to statu tory time of days, only upon therefore made could showing affidavit necessity pursuant time, further provisions of section Revised Codes. The record discloses that “upon presentation order was made of affi O’Hern, davit of D. L. attorneys one of the of record for the defense of this action.” Nowhere in the ap bill exceptions pears juris this affidavit. Counsel insists that we are without diction to appeal, except hear this appearing to matters out side the exceptions, namely, judgment bill of roll, unless this incorporated affidavit is exceptions, relying bill of the decision of this court in the case of City O’Donnell v. Butte, 449, 707, Mont. 235 Pac. language appears 708. Some in justifies However, that ease which the contention of counsel. the statement of in the facts found that decision reveals the fol lowing: any “The record does not disclose that affidavit show ing necessity for presentation further time for the of a bill exceptions presented was ever filed or to the court.” Here the order discloses that an affidavit was filed on which the trial showing court based its order. The order that it was based on an was sufficient presumption affidavit to cause the arise to that jurisdiction; words, presumed, the court had in other will showing in contrary, the absence of a to the that the affidavit was sufficient to invoke the discretion of the trial court. In the nothing there in the to pre O’Donnell record cause that Case arise; words, apply sumption to in the same rule in other to presume Case, this first to that court would have had O’Donnell seeking filed, an the order had and then base affidavit been on affi- presumption that a further inference it whs a sufficient that presumption davit. Under the familiar rule that a cannot be a correct con- presumption, court arrived at based this clusion in difference Case; in the but view of the be- O’Donnell in there cases, tween the state of the records the two what was may controlling. Accordingly, said is not we hold that we here exceptions. consider bill

It specifications is contended that are of error questions argued

insufficient to raise in brief. some specifications In various the court of error it asserted that findings, in in denying exceptions erred defendants’ certain making conclusions, judgment, in mak entering certain in argued ing findings fact; certain and in this connection it urge position insufficiency that the are in defendants no findings findings, requested prop of certain in not or that were erly excepted 9370, provisions of sections 9369 and within the effect, argument Revised made is in Codes. The defendants stated, briefly support the evidence is insufficient to findings respects, and, and conclusions certain warrant judgment. support the therefore, the evidence is insufficient to sections, findings, the absence These with reference to deal with findings, is, omissions—-issues findings and defective findings. Here defendants raised which are not decided they In findings declare. such case the attack the for what application. (Fergu rules announced these sections have no 245; Standley, Hecklen, Mont. 300 Pac. son Cobban v. v. 805, 806.) 70 Pac. 27 Mont. specification to the effect that court erred

A error judgment granting plaintiff entering plaintiff question the in- sufficient to raise the relief was affirmative (Bowles support judgment. sufficiency of the evidence to 467, 23 Bank, 94 Mont. Com. v. Midland Nat. Livestock Co. 967.) (2d) Pac. the defendants is that under argument on behalf

The chief valid agreement it did become and bind Secretary approved as such time it was ing until following upon language argument is based Interior.

15 subject appearing agreement: in this “This contract is made approval Secretary Interior.” foregoing part opinion adopted this is from the ma- jority opinion February rehearing handed down 1937. A granted grave for the reason that doubt existed as to agreements, above, whether the in quoted clause correctly had been a precedent” construed to be “condition or not. On further consideration is the writer satisfied that such does not any clause constitute a condition of nature but is mere covenant. suggested has been

It that we are confined the definition of precedent” by a “condition provided statute, Codes; section Revised that it useless to is resort to other jurisdictions for further illumination of the in so far as the definition is concerned. 7402 Section is not a product. home adopted jurisdiction It is in toto from the of California and will found, word, be in word section of the Civil Code of state; original it and was not with California but came original York, from the old Field Code of New see. 678. Ob viously, proprietary right have definition, we no in the and it peculiar meaning arbitrarily has no here unless we clothe it with our own view what how it means and it be shall construed in disregard opinions of jurisdictions of the in courts from statutory which it comes. And far so as the definition is con cerned, wrangled question courts over same that we have early days judicial history here of the country back will be presently shown the citations which we will give. any event, phrase In only not a localism that has meaning jurisdiction arbitrarily as we of this choose give it. Moreover, controversy definition is of value in here, little merely get relied the endeavor to but at inten parties operating agreements, tions as it is well party that the intentions of the or established determine any provision instrument precedent, whether is a condition subsequent, merely concurrent, or or a covenant. page J., (note

In G. is said: 35) “Conditions have they precedent subsequent idiom—Whether no is a ques- 16 purely

tion intent; of intention determined must be considering particular clause, only the words of but also language of the whole contract as well of as the nature required, act and the matter to which The it relates.” Dictionary as "Special New Standard defines an "idiom” char- Peculiarity.” acter; New International defines it as Webster’s If, Corpus says, as "Peculiarity; special nature.” Juris con- idiom, means, course, they ditions have no of that have no characteristics; unchangeable special appli- peculiarities or no meaning justify construing cation or that will a court a clause except precedent, condition where the con- a contract a in- clearly expressly such to tract as a whole shows be the parties. tention of the generally stereotyped have found that forms of

That courts have are of little value and that others met the same definitions us, abundantly is has arisen demonstrated difficulty that with nearly all, all, spite In of the fact if not the books. "conditions,” of as the term is statutory states have definitions instruments, courts provisions various continue applied to meaning of terms with definitions to illuminate the strive their own. precedent” following "condition has the The definition many precedent’ "A ‘condition one support authorities: agreement effective, performed before the becomes to be perform happening of event or the some and which calls contract have the terms been act after some ance of binding parties.” on the shall be contract on, agreed before 97 Co., 1, St. Ohio & Southern (Mumaw Western Ins. v. Life 61, 85 Pac. Or. 165 135; Rogers Maloney, 132, 133, v. N. 119 E. 3, 6; 67 So. Simnons, 280, La. 136 Sunshine Merger 358; v. 357, 143, 152 N. Bros., 30 N. D. Roquette Co. v. W. & Suit Cloak 1916E, 932; Metropolitan Ins. v.Co. 362, L. R. A. 359, Life 449; 446, 65 So. Northwestern Nat. App. Ala. Goodman, 10 Life 188, 155 524, 526; Lilly Haynes Pac. Ward, v. Okl. 56 Co. Ins. v. 556, 465, 196 559; Co., 50 N. N. W. Franklin D. Co-op. Min. Coal others.) 335, many 334, 188 Pac. Okl. Parks, v. subsequent” “condition is ac- following of a definition “ cepted 'Condition subse- in substance most authorities: vested, quent’ already created and ren- operates the estate (Hall defeated, dering if condition is broken.” it liable 20.) Quinn, N. E. 18, C. 130 S. v. attempt is difficulty any made fit defi arises when controversy arising as to

nitions to a of facts out state provisions whether certain instruments constitute a condition following or not. The decisions come from California and New statutory rule, definition from those York a and as our comes as upon rely no little confidence the conclusions sources, we with premises. Conditions are not favored in of those courts 574; Butler, 50 (Front M. & R. R. v. Cal. law. Street O. Co. 56, 225; 64, 222, 83 Cal. 23 Pac. Sprigg, Cullen v. Deacon 416, 159; Kennedy 44 Pac. Blodget, 111 Cal. Antonelle v. & v. 319, 968; Co., 309, 966, 140 73 Pac. Cal. Shaw Lumber Shaw v. 1, 6, 941; Caldwell, App. 115 Pac. Hislop, 16 Richardson Cal. v. 440, 168, cited; App. 293 and cases 109 Cal. Pac. Indem Union A.) (2d) 901, 906; Lang, (C. 71 Fed. nity C. Gramer Co. v. v. (2d) 2 41 Sacramento, (2d) 432, 543; Pac. City Cal. Munro of 224, 516, 200 Y. 93 Co., N. N. 21 Syracuse, E. L. S. & N. R. v. 594.) Ann. Cas. Sprigg, supra, Cullen it was said:

In v. “Contracts and laws strictly construed, must declaring forfeiture a for- implication, place never take but must be feiture can effected ** * unambiguous language. An express, estate by deed, except the terms cannot be created when condition interpretation.” grant admit no other reasonable will supplied.) (Italics Co., supra, it Kennedy & Lumber was

In v. Shaw Antonelle conditions are not that such favored is well settled “It said: against strictly seeking to be construed one law, and are by the ’’ himself them. to avail disinclined, are said: “Courts court California Another Appeals York ([Tipton New Court of observed stipulations 423), construe con- 20 N. Y. v. Feitner] compelled by precedent, language unless as conditions tract 18 plainly St., contract expressed,” (Front etc., Butler, v.

supra), “particularly when so the result would be to work (San a forfeiture.” Diego Mannix, 548, Const. 175 Co. v. Cal. 325, 329.) 166 Pac. precedent

A condition subsequent question or is not a phrase or (Markham form but parties. of the intention of the Hufford, 505, 222, 123 Rep. v. Mich. 82 N. 81 Am. 222, W. St. 48 L. 580; (N. R. 2 Madan, Y.), 145; A. Jones Barruso v. Con necticut Fire Jeary, 338, Ins. 60 Neb. 83 78, Co. v. N. W. 51 698; R.L. A. Co., Dunham 596, v. Toledo-Detroit 238 Mich. R. 156, 214 N. 159; W. Conick, 187, De Conick v. De 154 Mich. 117 570, (n. 417; W. 22 L. s.) N. R. A. Roethlisberger, v. Scott 178 581, 307; Mich. 146 N. W. Dombrowski, 103, v. 267 Ill. Nowak 807, Sweedler, 107 N. E. 808; Zweig App. 319, 140 Div. 125 v. Supp. 171; Y.N. 283 Co., Kerens v. St. Louis Union Trust Mo. 601, 288; 223 W. A. R. 645, S. L. Burdis, Va. Burdis v. Rep. (28 825; S. E. 70 Am. Finlay King, St. 3 Pet. v. 701.) S.) 346, 374, 7 Ed. U. L. In last-cited Chief case Marshall, speaking court, for the said: Justice “There are no always appropriate technical words which determine whether a precedent a condition' subsequent. devise be on The same differently; been question words have determined and the always intention.” one of provision a

Whether of a contract a or deed is condition or a depends parties. (4 on intention of the L., covenant R. C. 433, 290; Weber, 439, 332; 98 Cal. 33 Pac. see. Stockton v. Con Bldg. Everett, 79, Md. gregational v. 36 Church Soc. 85 Atl. 693; Rep. 308, 60 St. 35 R. A. Am. L. Wharton on 654, Con Hislop, supra, tracts, 555; page 318; Richardson v. at Union 2 Lang, supra; Elliott on Indemnity Contracts, v. sec. ; Co. 1580 202, Stark, 531; 106 Cal. 39 v. Pac. Suisun Bank Antonelle Co., supra.) In Lumber the case Kennedy & Shaw last cited v. considerations, “But, from these aside we are said: satis it was parties in stipulations upon the contract that the fied this precedent, but, in effect, were conditions whole proviso As said Parsons: ‘Words simply covenants.

19 into words of covenant when such will be construed condition meaning (Parsons apparent parties.’ intent and on ** * 511.) depends Contracts, 2, The construction vol. sec. particu- each parties, to be collected intention itself, agreement and from the lar case from terms provision in a subject-matter it relates. Whether a to which * * * * * * is stipulation condition a contract a ’’ gathered from whole document. be (Antonelle strictly construed. Ken v. Conditions must supra; nedy Co., Front & Lumber Street etc. R. Co. v. Shaw supra; Blodget, supra; Sprigg, v. Butler, Cullen v. Deacon 204, 603; 149 App. Tilley 27 Pac. Bridge, v. Cal. supra; Schwab 936.) 461, E. When doubt whether King, 109 C. 13 S. N. v. precedent, a condition subse deed condition clause a is a covenant, construe it as covenant. courts will quent, or a 170; App. Rehmann, Ill. 214 Hughett, 243 Earle v. (Carder v. Iowa, 784, 345; Co., 243 N. T. W. Walker v. W. Smith Lumber (Tex. 65, 572; 145 v. Christenson, 226 So. White Land Ala. Co. 21, 79 (2d) 369; Fraley Wilkinson, Okl. 14 S. W. v. App.) Civ. App. 597, 74 Ind. Co., 127 156; Sheets Vandalia R. 191 Pac. v. 609; Church, E. Creek Ev. Luth. v. First Luth. N. Books Church 1422, annotation; L. 793, 124 7 A. R. 133, N. E. 290 Ill. (D. C.) Savings Whipple, & 254 Bank Trust v. Norfolk Railway, & Elec. v. 195; Gas Co. South Caro Fed. Columbia 306, 629; Sup. L. Ed. 236, Ct. 67 261 S. 43 Carroll lina, U. Ky. 621, Academy, 104 Academy Trustees Gallatin County v. Ky. 339,122 Patterson, 169; 135 S. W. Patterson v. 617; 47 S. W. Sanitarium, 352, Div. 115 App. 131 Springs v. Glenn Freer E. 575, 92 N. 734, 1085; 198 N. Y. Demp affirmed Supp. Y.N. 645; 163, Angeles Atl. 213 Pa. Los Univer Greybill, v. wolf 798, 262; R. Fed. L. A. A.) 107 Munro Swarth, (C. C. sity v. 93 N. E. N. Y. Co., 200 & Syracuse, L. N. R. S. v. Dombrowski, supra.) the case last 594; uIn Nowak v. Ann Cas. precedent conditions “The distinction between is said: cited it it is not al consequences, in its but subsequent is obvious create. estates words of these easy determine which ways cited. 616, N. and cases 98, 92 E. Ill. Gannon, 246 v. Phillips 20 will

What or will not constitute a condition in a deed is often a matter of nice construction. is It sometimes difficult to deter provisions mine whether agreement annexed to the con stitute a covenant, restriction, condition limitation or [or a] imposed trust property. language on the If from employed is doubtful whether the clause is a condition or covenant, it (Koch will be construed to be a covenant.” euter, 232 Ill. v. Str 594, 1072; Estate, 83 N. E. ed., 970b.) Devlin on Real 3d sec.

In construing prefers doubtful conditions the court condi subsequent tions precedent, conditions but conditions subse quent, forfeitures, order to relied on to work must be by express created implication clear strictly and construed (Washburn ed., 941, 942). on Real Property, 6th secs. When grant terms admit any other interpretation, they (1 will not be held create an'estate Jones on condition. on Property, 632; Real sec. Caples, 528, v. 257 Ill. O’Neil 101 N. E. 50.) logical application

A of these established rules to the contract parties impels between the the conclusion that the controverted agreements clause is not a condition but a promise or covenant. agreement parties

A “covenant” is an between to do or not particular do 5; a act. (Lowery May, 66, v. Ala. 104 So. Rooks Creek First Church, Ev. Luth. Church v. Lutheran 133, 1422.) Ill. 124 N. E. 7 A. R.L. A “condition” dif a covenant. “A agree fers from condition is created mutual binding both; ment on a whereas covenant agreement only.” (12 an J., covenanter C. p. 2.) see. “The difference between a covenant and a condition largely remedy. agreement If the relates breach validity ground pertains to the of the instrument or is for condition; but, remedy if feiture, it is for a breach is damages, agreement merely action at for then the an law is a legal responsibility non-fulfillment a cove covenant. damages. party violating respond it must nant is that consequence of non-fulfillment of a condition is a forfeiture (12 J., p. 402.) the estate.” C. Wight associates, any If or their either or their or of Stokes assignees permits the to be can- anything had done to cause by party Department, celed the the whose act caused the can- damages in to the other. cellation would have been liable Such to doubt. No contention well established admit of is too law agree- in the right the controverted clause such would if exist ment were a condition.

True, operating agreements provided that paragraph 10 of the agree- terms of the keep perform of to and the failure Stokes option subject the them to cancellation at ments rendered obligation Wight provision Wight, created an between but that respective assignees, their not between Stokes and Stokes and Wight question Department. pause the to have the did not legally agreements to the terms of the keep of Stokes’ failure his agreements on own determined, but assumed to revoke the (Plaintiff’s Department volition. The decision of the Exhibit 7) Company, Wight’s Line Pipe Eastern holds that the Montana agreements following attempt the assignee, the cancel with to assignment subject the Stokes, permits to Stokes took the Pipe Company notice agreements, provided had of the Line agreements assignment, and such notice Stokes when took being clearly Such the situa- in this action. established condition, tion, even were a it was if the controverted clause agreements any parties acted or not of the to Department. ground not it a Wight make his at- did tempt agreements Stokes; Department to cancel the with did recognize cancellation, attempt any to invoke did not agreements parties, between the condition out but set Company lease Pipe made it Line held the clear that Stokes, company notice agreements if that had to the with attempted agreements. short, gave or give In no one Stokes precedent” “subsequent” op- any life “condition original opinion. in thfe agreements, except erating this court any agreements only party that affects between act attempt in the Wight Wight act of cancel and Stokes permits assignment Pipe agreements and the to the agreements. Wight in violation of the Stokes Company Line right against still ahas damages, action Stokes for he if can any show agreements by act in violation of Stokes which he, Wight, damaged. been In Wight has reference to Stokes as contending parties, made their no mention is respective assignees parties and other involved in the contro- brevity. versy, for the sake of parties agreements have could made an

equally binding by inserting provision, contract “It is under- agreed stood respectively that each of the herein will comply regulations Department with all such In- terior are necessary gas lease,” an to obtain oil and and the meaning would have been the same.

It is obvious that the defendants construed the controverted the operating agreements covenant, clause of promise as or and a rely precedent, thereon, not as a condition not defendants did remedy upon provided relied contract, but the the paragraph thereof, 10 in which case we think the rule laid down in Rosen Paper Folding thal Co. v. Paper Co., App. National & 175 Box 606, 814, Div. 162 Supp. applies N. Y. here. It was there said: “Where, instrument, from a consideration of the whole is remedy party upon clear one his upon that relies and not the performance other, performance of the conditions the sueh precedent’; is not the a ‘condition but where intention towas rely upon performance promise, the and not on rem the ‘ ’ ’’ 'performance edy, precedent. the condition

Paragraph operating agreements provides that, of 10 the part party on the part “Failure the of of the second [Stokes] keep perform terms to and the and conditions of agreement this option render it cancellation at shall to of party ’’ [Wight]. Wight depended part, of first and acted on this operating remedy when he undertook to cancel the agreements, assignee any plaintiff his and not failure or to com- precedent” the so-called “condition ply with relative to the Secretary approval the Interior. precedent” the “condition

Taking theory: another view of a qualified applicant It has been held substance cannot regulations impair permit, right nor can be refused a such to a

23 manda explore lands, gas federal permit to for oil on (West applicant’s right thereto. v. will lie to enforce the mus 329, (2d) C. 30 Fed. App. 58 D. Alling, ex United States rel. “sub containing clause, 739.) agreement hold To that an Interior,’! gives rise to ject approval Secretary to liability agree until no contractual between the is, opinion, in direct approved by Secretary ment is our only compel conflict with the decision. Mandamus lies to above performance duty. (State a ministerial rel. School ex Pac. Cooney, (2d) District No. Mont. v. right cited.) approve disapprove

cases The to or agreements here, theory as contended for under the lia quoted precedent any clause is a condition to contractual bility discretionary may parties, power between the is a which just not be mandamus controlled under the case cited. minority presents “commonplace por- illustration” tray “fallacy” quite of our The illustration conclusions. presents inapt. laboring It ease a man the handi- under cap being acts; of not the master his own of a case where pleasure-seeking individual inclined to invest in a vehicle, must sovereignty may he presume spend bow before before his cash present for a car. illustration is not a fortunate one to constituent precedent. a condition elements of Conditions subject-matter contract, deed, will, relate to of a merely ability re- party. .the contractual illustration a The not the made mind but has up fers to an individual who his power special permission; to contract without a mere dreamer act; may gain permission hope that” he to his contract of a offing, merely contemplation. the in have entirely in Here we executory subject-matter is complete contract; the full and a designated, respective parties the their stated; are specifically defined; nominal consideration named and powers and the duties admitted, provided the real consideration receipt its to do nicety. promises parties of the The mutual measured with ele- acquire lease vital necessary government are things to all regulations promises observe the agreement; the the ments of part much of the Department made, ostensibly, as are the agreements promise thing as the do might jeopardize no that impossible make obtaining the lease, of a bnt the clause is not an part essential agreements; of the regulations refers to government. operating agreements The would have been fully binding upon as the parties if the clause had been omitted entirely; parties just would fully be as bound to observe the regulations government of the if no mention had been made of regulations such in operating agreements. Governmental regulations private cannot be by contract, varied or evaded the insertion agreements of the in the controverted clause gesture. a useless nothing anything It to nor takes adds from expressed obligations implied the parties as set out agreements. operating Passing phases controversy, kept to other it must be mind that the contending to the action at bar are for the right Department by to a from the lease Interior reason de- upon velopment permitted work performed lands Capital Corporation, Gas and the record shows that such develop- corporation work was done pursuant drilling ment to its plaintiff. appears with contract It East- Montana strength Pipe Company, development ern Line on Capital Corporation, applied work done to the fed- Gas permits; eral Land for leases under the the decision was Office first, Pipe Company, appealed, to the Line and it adverse Secretary then, of the Interior. and, commissioner Secretary of Interior on the First Assistant decision of the appeal, Exhibit directed Plaintiff’s the leases to issue to the Pipe applicant, Montana Eastern Company, Line defendant, said, permittees declaring but “The action of the operat- their ing Stokes agreements with Herbert canceled need not neces- binding sarily regarded assigns, Stokes and his even referred in the absence of decree to. permittees en- agreements, agree- into and unless tered these any assignment finally permittees are declared canceled ments subject thereto, assuming would he suhsequenty made that the (Italics assignees sup- knowledge agreements.” had no plied.) clearly record assignees knowl- shows that the did have

edge assignments of the is to Stokes. It also shown the validating operations strength on the of which the Montana Pipe Eastern Company granted lease, Line per- was were by formed in their entirety Capital Company under its Gas agreement plaintiff. appears practi- with the It further cally all Pipe the material of the Montana contentions Eastern Company Line presented application lease, its for a wherein challenged rights favorably plaintiff of the were not con- by commissioner, sidered and on the appeal Secretary to the of the again Interior there such contentions were found to be untenable Secretary. the First however, Assistant lease, granted to the Pipe Montana Eastern Line Company, sub- ject rights operating plaintiff agreements. under the It appears clear from plaintiff the decision that all the is now required by Department todo entitle it to the sought relief that Montana Pipe to show Eastern Line Company, which assignee became the permits after the attempt to cancel operating agreements Stokes, permits with took the with knowledge agreements with plaintiff, Stokes. The course, majority must show that corporation interest by citizens; held attempting, that it is not directly or indirectly, get 2,560 more hold than acres of land under permits on structure, nor 7,680 more than acres state; that the gas rights oil and will separated not be but held the same royalties party, and that the several properly protected, are comply regulatory measures; with other but we are con- here only question cerned with the first mentioned: Did the Montana Pipe Company knowledge Eastern Line have of the outstand- agreements ing with Stokes when it took the assign- permits? The solution ment of questions other does jurisdiction under our come but will be determined Department of the Interior. phases advisable

We deem it to mention other of the contro- versy support which tend to our conclusion. Paragraph 10 of provides operating agreements cancellation on failure of keep plaintiff perform the terms of the agreements, option right advantage being of of such failure at the take attorney permit- the party, Wight, authorized of the first as the conjunction Wight, permittees, gave tees. in with the no- and, giving notices, assigned cancellation, in no rea- tices of specified particular way manner in act, son nor for the any provisions comply had failed to with of the plaintiff which exer- any right to cancel could arise or be agreements. Before necessary Wight, possibly the that cised, we think was attention or show wherein give timely notice and call permittees, agree- such comply with assignees had failed to or his Stokes Papoose Rainey, v. 89 Okl. In the case of Oil Co. ments. equity went so far as to hold that before Pac. the court implied in of covenants a grant forfeiture breach will notify lessee of the breach and demand lease, must the lessor Every party his is entitled to the covenants. compliance with any property legally deprived of may be day in court before he agree- operating attempted of cancellation right. In the attempt was made to hearing; no given no ments, Stokes determined, legally but rights of the respective have the reinvest them- arbitrarily assumed permittees Wight and the permits can- control of over and power full with selves doing clearly in agreements, and so of cellation Hence, admitting, agreements. paragraph 10 of violated agreements carried condi- argument, that of sake for the by their own breach caused the defendants precedent, the tion complain. they now It is ob- which plaintiff of default permittees had not violated the Wight and the if vious mentioned, and encum- manner in the agreements with Stokes antagonistic Department with their the records of bered without con- the lease have obtained would claims, plaintiff of one position in placed thus are troversy. defendants comply with of another complains the failure of who his alleged failure is due to where agreement, an terms of breach, advantage of his own take party cannot A acts. own he has party which the other occasioned. default nor 312, 253 W. Neb. N. Bennison, in v. Burnham was said It “ which weakening principle of law’ ‘We are 88, 94: performance precedent, requires unconditional conditions equally asserting rule, equally as old and ‘but we are another person where a interested binding, that, when declare we wrongfully performance precedent, the condition prevents the ’ ’’ advantage his wrong. he shall not be allowed to take own

We find material error in record, judgment no and the the trial court is affirmed. Concurring Specially: Angstman,

Mr. Justice opinion I concur in the result announced Mr. Justice Morris, with all that stated it. but not expended placing much effort been too has I think “subject approval clause the Secre- proper on the label enough in an Interior,” attempt tary the to ascertain of parties in use. The of the its construction of the intention this controversy. virtually determines merits this clause the of paragraph in con- appears troublesome clause the last of the subject tract, ap- which reads: “This contract is made Secretary right assign Interior proval of of the to part, [being it, party in in the second Herbert whole or Secretary Interior, Stokes], to the consent of the of the ’’ party. to second necessary, is reserved if his consent operating agreement evidently placed This in the was clause (Act 25, 1920, of in the the federal statute Feb. contract because amended, A., 184, reading in Title U. S. sec. 27) sec. C. corporation part person, association, or shall as follows: “No gas permits time oil or leases or exceeding take or hold at one aggregate thousand six eighty in the seven hundred and acres any State, one and no granted hereunder in more than two sixty geologic five hundred and acres within thousand struc- * * » gas producing oil or field. And pro- the same ture of * * * any further, deposits That if of the lands or vided subchapter provisions of shall subleased, under the this be leased by any possessed, permanently, controlled device trusteed, or any directly, indirectly, tacitly, or in manner temporarily, what- * * * they part form a control soever, so that excess provided subchapter, amounts of lands this lease by appropriate proceedings.” thereof shall forfeited court plaintiff’s agreement purported give here to to predecessor right gas in ques- to take oil or from the lands government upon payment royalty per- tion and to the mittees. have ob- Before this could be done lease must been Secretary from The record shows tained the Interior. practice is not Department the Interior acreage any person, limit the association, corporation which or may prospecting permits, hold under but that the statute above acreage restricting applied referred to when are leases sought gas Consequently, after oil or is discovered. when plaintiff’s permittees predecessor percent- offered interest a age required approval oil or of the gas, offer Secretary Interior; approval of the but that would come when I applied for, gas after oil think a lease was was discovered. only purpose clause. that was the of this entirety When section 11 of the contract is in its read it is contracting parties apparent that the had doubt as to the extent authority Secretary respect of the Interior with by the use contracts. is shown of the clause “if his This necessary.” consent is agree provisions

I Mr. Morris that the of section with Justice If precedent. a condition it intended that 11 did not create was Secretary’s approval precedent, I think that condition clearly expressed. have If was intended- intention would been Secretary part of the of the Interior silence on the that mere being effective, contract from prevent the is it would not strik- provide strange the contract does not ingly that who shall take his attempting approval to secure ? initiative in the the effect now appellant, the above clause had claimed If suppose parties that the would have left it reasonable to Secretary’s approval as to the must be silent how contract the parties obtained, or how the it should be or when expressed, knowledge thereof, so as to be advised notice and obtain were to city ? Even ordinance their contract effective date of the as to language given containing similar has not been this construc- 337.) 318, 44 N. E. (Doty Lyman, tion. 166 Mass. v. recognized it as parties operating agreement

Here the proceeded promised effective. Plaintiff thereunder to do the drilling, by Capital Corporation, and did contract with the Gas everything necessary permittees to enable the to obtain leases. permittees operation, recognized in because the contract as became, If they later never served notice of cancellation. it its ¶ effective, why require any its did it to effect cancellation action Moreover, Secretary recognized the of the Interior has con- being tract as It was Secretary effect. submitted to the shortly the Interior after Secretary its execution. The ex- permits operator’s tended the from time to time repre- sentations, accepted drilling requirements permits, of the strength actually on and thereof authorized the issuance of premises. purposes leases on the all intents To the Secre- tary agreements Interior held has that these proceeding Secretary were effective. In a before the of the In- involving question terior he should issue whether a lease to Pipe plain- Company, protest the Montana Eastern Line over issued, that, subject tiff if it should be made to the operating agreements, official held as follows: permittees “The en- operating agreements, tered into these agree- unless such any assignment finally canceled, are declared ments the permit- subsequently thereto, made assuming tees would be assignees knowledge agreements.” had operating agreements, I think these between assigns, their expressed thereto and were effective without the approval Secretary Furthermore, Interior. Secretary gone of the Interior has as far as he approve can to them. analogy

I can see no between this case illustrations opinion. given dissenting Neither I do believe clause question simply can be construed as covenant. I think it Secretary’s if approval means that consent or con- give validity law, essential under then re- tract was his parties operate to release the approve would to consent or fusal obligations the contract. from 11 of the language used in section parties by I think the regarded per- This, it. by so well their conduct contract as as condi- was a the condition that haps, leads to the conclusion legal with the I so much concerned subsequent, am not tion but arriving the intention at I am at applied it, is as label that language used and their ascertained from the (cid:127)of the as brings these are considered it acting under it. When conduct opinion of Mr. Jus- in the conclusion announced to the same me reached in his I in the result Morris, therefore concur tice and opinion. Chief Justice Sands:

Mr. Angstman Justice expressed in the Mr. I concur views above. : Justice Anderson

Mr. long utility dissenting has opinion dissent. of a been I The beneficiary promulgation chief of their is doubted. upon public thereby printer, placed an burden is additional buying public. Bearing these taxpayer and the conclusions my briefly possible. mind, I shall views as record upon is majority agreed a result but of the court has arriving at a deci- itself the reasons divided within meaning upon the diversity opinion is sion. The closing paragraph of the in the given appearing to the words ap- namely: contract is made contract, “This Justice Morris Secretary Interior.” Mr. of the proval promise a covenant that these words the view advances par- that effect was to declare that their made, and regulations rules be bound would the contract ties Justice Secretary Interior. Mr. by promulgated covenant, but not a are that these words asserts Angstman precedent it has been if condition condition; effect a not been broken. subsequent, it has waived; if a condition binding. valid and the contract therefore, conclude Both, appears It clear from reading of the contract and these words precedent that a condition was created. It is in useless jurisdiction adjudicated this to resort to for a cases definition precedent” of a subsequent,” “condition or of a “condition as they are by 7402, Codes, pro- defined statute. Section Revised “A precedent performed vides: condition is one which is to be right dependent before some accrues, thereon some act or de- pendent performed.” thereon is 7404 Section declares: “A subsequent condition referring event, is one to a future happening obligation which longer becomes no bind- ing upon party, the other he if to avail chooses himself of the condition.”

A nothing “covenant” is promise. more than a The distinc- promise, covenant, tion between a or and a condition toas effect, is well in stated Professor Williston his work on Con- tracts, Edition, 665, Revised section where written: it is “The promise distinction covenant, hand, between a or on one a condition other, on the legal both their effect and in their wording, is obvious and familiar. promise subjects Breach of promisor liability to damages, necessarily but does not performance excuse on the Breach other side. of nonoccurrence prevents promisee of a acquiring right, condition from or subjects deprives him of one, but him liability. to no ap- Words distinction, propriate promise and to to condition make this legal which is clear in produced, effect also clear as a matter English construction.” language interpretation govern “The of a contract is to its if (Sec. language explicit.” 7529, Codes.) is clear and Rev. In Story the case Dredging Gold Wilson, Co. v. 99 347, Mont. “ 42 (2d) 1003, 1006, Pac. we said: plain ‘Where a contract is terms, interpretation and clear in its neither nor construction * ** permissible. is language When employed by the ambiguity “is uncertainty, beyond free from or it is power enlarge application court to or restrict its or ’ meaning.” (McDaniel Hager-Stevenson Co., Oil 75 v. Mont. cited.) 582, 584, 243 356, Pac. and cases ‘Courts must enforce made, contracts parties, make ones for new no matter 32 (McConnell may

how unreasonable the terms appear.’ v. ” 64.) Blackley, 510, 66 214 Mont. Pac. In the Nagle 275, ease of 97 Stafford, State ex rel. Mont. 34 v. (2d) 372, Pac. 379, meaning had under we consideration the “subject confirmation,” arriving words to at a “ ‘Subject conclusion said: means to’ subservient subordinate Mints, 746; (Englestein 48, 345 Ill. N. E. Byrne v. v. Drain, 663, the command 433), 127 Cal. 60 Pac. and embodies complied until that the act shall not be effective the condition ‘subject con representative, taken with. Thus orders ripen until con house, firmation’ his do not into contracts (Allen 86; Simmons, Royal S. E. firmed W. Va. v. Co., 129 Wash. Dairy Spokane Dairy Co. v. Products Products ex 412), city 225 Pac. and when a council authorized ‘subject approval to’ changes tend and make in streets mayor has mayor, changes made until cannot be acted, permitted time which is to act has within he elapsed. (Makemson Dillon, 302, 24 673.)” v. N. M. 171 Pac. distinguished from prom illustration condition as a

As an of a following given in the Restatement of the ise we find the Law against 260: “1. A B’s house Contracts, of section insures fire. signed by policy prepared A it is stated ‘the insured In the ’ keep Refraining from keep gasoline premises. on the is not to promise. gasoline premises is of A’s ing on the a condition by promise B.” The words are a to demon- following commonplace illustrations serve majority: If Jones fallacy conclusions of the strate automobiles, Smith, is a dealer and invites meets who Smith demonstration, Smith, its conclusion Jones a and at states to subject buy approval my wife,” to the “I this automobile of will expresses Mrs. Jones demonstrates the automobile to Smith who disapproval, one approval or no would contend on this neither purchased facts had If that Jones automobile. state attorneys Henderson, representing each who are Brown pending a number of lawsuits different sides' of be- clients on settlement, respective clients, the terms of discuss their tween embodying sign details stipulation settle- a draft and they agreed, concluding ment which have para- but as a graph stipulation they stipulation their en- say, is “This approval respective tered into clients seriously represented by undersigned,” again no one would litigation approved until contend that the was settled principals. illustra-

According majority, to the views of the all these binding any approval. tions would result in contracts without imagine precedent is It difficult to a clearer case of a condition question. The being expressed in a than the one contract approval contract was subservient or subordinate Secretary Interior, approval could be manifested his or confirmed the con- officially, acts sanction ratified which the con- Although Secretary the Interior knew of tract. any part his which would tract, to show acts on the record fails confirming officially, approving it or sanctioning amount to it. Waiver been waived? contract

But has the condition of the un manifested some intention. It must be is matter of must in all cases manner, as such it equivocal operate and to (Williams Copper Co., Min. be intentional. Anaconda v. when the time 649.) A mere silence at (2d) Mont. 29 Pac. from nor evidence speak is not a waiver there no occasion to especially such silence may inferred, where which waiver (Northwest any to mislead. calculated unaccompanied act 238 Pac. Pollard, Mont. ern & Marine Ins. v. Fire Co. 594.) say that this con- foregoing rules, I am unable to

Under judgment should I think dition in the contract waived. reversed. be Stewart:

Mr. Justice dissenting Anderson. opinion I of Mr. Justice concur Rehearing.

On Motion for (Filed 18, 1937.) June Opinion: PER CURIAM. petition rehearing court,

On for defendants contend this justice in order re parties, ought to do between quire plaintiff expenditures to reimburse defendants for made in preserving protecting property rights involved paying royalties compensatory government the federal given We have otherwise. consideration to this contention presented questions believe that the first to the trial should be court. by appropriate

Accordingly, it the view this court court, supplemental pleadings addressed trial to the amended subject, questions court, these should considered the trial may course, plaintiff interpose, ex- any defense that the cept is barred the decision the defense that relief this case. petition rehearing is denied. and Anderson:

Associate Justices Stewart foregoing denying opinion from portion We dissent rehearing, residue we concur. the motion for and as

Case Details

Case Name: Atlantic-Pacific Oil Co. v. Gas Development Co.

Court Name: Montana Supreme Court

Date Published: Feb 2, 1937

Citation: 69 P.2d 750

Docket Number: No. 7,556.

Court Abbreviation: Mont.