No. 80-82
IN THE SUPREME COURT OF THE STATE OF MONTANA
1981
DONALD McSWEYN,
Plaintiff and Respondent,
VS.
MUSSELSHELL COUNTY, MONTANA, HOUGEN
LAND, INC., a Montana Corporation,
Defendants and Appellants.
Appeal from: District Court of the Fourteenth Judicial District,
In and For the County of MusselsLell
Honorable Alfred B. Coate, Judge presiding.
Counsel of Record:
For Appellant:
John Pratt argued, County Attorney, Roundup, Montana
Moulton, Bellingham, Longo & Mather, Billings, Montana
Sidney Thomas argued, Billings, Montana
For Respondent:
Holmstrom, Dunaway and West, Billings, Montana
Robert Holmstrom argued, Billings, Montana
Submitted: April 20, 1981
Decided: August 10, 1981
Filed: AUG 10 198%
.
Clerk
Mr. J u s t i c e F r e d J . Weber d e l i v e r e d t h e O p i n i o n of t h e C o u r t .
T h i s i s a n a p p e a l by t h e d e f e n d a n t s from a judgment of
t h e D i s t r i c t C o u r t , F o u r t e e n t h J u d i c i a l D i s t r i c t , Mussel-
s h e l l County, d e c l a r i n g c e r t a i n o i l and g a s l e a s e s owned by
t h e p l a i n t i f f , Donald McSweyn, t o b e v a l i d . W e reverse the
judgment o f t h e D i s t r i c t C o u r t .
D e f e n d a n t s r a i s e t h e s e i s s u e s on a p p e a l :
1. Were t h e p r o v i s i o n s of a c o n t r a c t f o r deed between
M u s s e l s h e l l County and A. D. S h i e l d s , c o n t a i n i n g a 2 1/2 per-
c e n t m i n e r a l r e s e r v a t i o n , merged i n t o a s u b s e q u e n t d e e d
between t h o s e p a r t i e s i n which t h e County r e s e r v e d a 2 1 / 2
percent royalty interest?
2. I s a q u i e t t i t l e d e c r e e e n t e r e d p r i o r t o t h e execu-
t i o n and d e l i v e r y o f t h e d e e d from t h e County t o S h i e l d s ,
res j u d i c a t a a s t o t h e s u c c e s s o r s i n i n t e r e s t and o t h e r
p a r t i e s i n t h i s case?
3 . Did t h e d e e d i n which t h e County r e s e r v e d t h e r o y a l t y
i n t e r e s t r e s u l t i n an unconstitutional g i f t t o Shields?
4 . I s McSweyn b a r r e d by e s t o p p e l , l a c h e s , o r w a i v e r
from c l a i m i n g t h a t t h e County h a s a m i n e r a l i n t e r e s t r a t h e r
than a royalty i n t e r e s t ?
T h i s c a s e comes t o u s on a n a g r e e d s t a t e m e n t of f a c t s .
The County t h r o u g h t a x p r o c e e d i n g s had a c q u i r e d t h e r e a l
p r o p e r t y d e s c r i b e d i n t h e o i l and g a s l e a s e s t o McSweyn w i t h
which w e a r e c o n c e r n e d . I n 1933 t h e County e n t e r e d i n t o a
c o n t r a c t w i t h S h i e l d s f o r t h e s a l e t o S h i e l d s of t h e r e a l
property. The c o n t r a c t c o n t a i n e d t h e f o l l o w i n g r e s e r v a t i o n :
". . . vendor [County] r e s e r v e s t o i t s e l f and i t s
s u c c e s s o r s a n u n d i v i d e d two and o n e - h a l f p e r c e n t of
a l l o i l , g a s and o t h e r m i n e r a l s l y i n g i n , u n d e r
and b e n e a t h t h e p r e m i s e s h e r e i n b e f o r e d e s c r i b e d .
. . . 11
A l l p a r t i e s a g r e e t h a t t h e above l a n g u a g e c r e a t e d a m i n e r a l
reservation.
B e f o r e f u l l payment had been made and deed d e l i v e r e d
under t h e 1933 c o n t r a c t f o r deed, S h i e l d s f i l e d a q u i e t
t i t l e a c t i o n a g a i n s t t h e County and o t h e r d e f e n d a n t s which
r e s u l t e d i n a 19'43 d e c r e e . The d e c r e e i n p a r t s t a t e d :
". . . A. D. S h i e l d s , i s t h e owner, s e i z e d i n f e e
and e n t i t l e d t o t h e p o s s e s s i o n of t h e f o l l o w i n g de-
scribed r e a l property ... e x c e p t i n g and r e s e r v i n g
t o t h e s a i d d e f e n d a n t M u s s e l s h e l l County, Montana,
2 1 / 2 % of a l l o i l , g a s o r o t h e r m i n e r a l s l y i n g i n ,
under and b e n e a t h [ t h e s a i d l a n d ] ... "
Approximately one y e a r l a t e r , i n 1944, t h e County
e x e c u t e d and d e l i v e r e d t o S h i e l d s a deed c o v e r i n g t h e p r o p e r t y
i n q u e s t i o n which c o n t a i n e d t h e f o l l o w i n g r e s e r v a t i o n :
". . . and r e s e r v i n g u n t o . . . [ t h e County] i t s
s u c c e s s o r s and a s s i g n s , a n u n d i v i d e d two and one-
h a l f p e r c e n t r o y a l t y of a l l o i l , g a s , and o t h e r
m i n e r a l s l y i n g i n , and t h a t may be produced
from t h e p r e m i s e s h e r e i n b e f o r e d e s c r i b e d , de-
l i v e r e d f r e e of c o s t . . ."
The p a r t i e s a g a i n a g r e e t h a t t h e f o r e g o i n g deed l a n g u a g e
c o n s t i t u t e s a r o y a l t y r e s e r v a t i o n a s d i s t i n g u i s h e d from t h e
m i n e r a l r e s e r v a t i o n c o n t a i n e d i n t h e c o n t r a c t f o r deed.
A f t e r 1944 t h e l a n d s d e s c r i b e d i n t h e deed were t r a n s -
f e r r e d by S h i e l d s and h i s s u c c e s s o r s i n i n t e r e s t t o o t h e r
parties. I n 1974, 30 y e a r s a f t e r t h e d e e d , t h e s u c c e s s o r s
i n i n t e r e s t of S h i e l d s e x e c u t e d o i l and g a s l e a s e s t o E x e t e r
Company, which a s s i g n e d i t s i n t e r e s t t o E x e t e r E x p l o r a t i o n
Company, which i n t u r n made p a r t i a l a s s i g n m e n t s t o True O i l
Company. O i l w e l l s w e r e d r i l l e d on t h e l a n d s i n 1976 and
f o u r of t h e f i v e w e l l s d r i l l e d a r e p r e s e n t l y p r o d u c i n g oil..
I n 1976, one day b e f o r e d r i l l i n g s t a r t e d on t h e f i r s t
w e l l , p l a i n t i f f , McSweyn, o b t a i n e d from t h e County t h e f i r s t
of h i s o i l and g a s l e a s e s c o v e r i n g t h e C o u n t y ' s m i n e r a l
i n t e r e s t i n the lands. The second l e a s e was o b t a i n e d by
McSweyn from t h e County 19 d a y s l a t e r . The McSweyn l e a s e s ,
which a r e v a l i d o n l y i f t h e County owned and r e t a i n e d a
mineral i n t e r e s t r a t h e r than a r o y a l t y i n t e r e s t , contained
t h e following disclaimer:
"The e x e c u t i o n of t h i s i n s t r u m e n t s h a l l i n no way
p r e j u d i c e t h e r i g h t of M u s s e l s h e l l County t o c l a i m
i t s i n t e r e s t i s a r o y a l t y i n t e r e s t r a t h e r than a
mineral i n t e r e s t . "
McSweyn b r o u g h t t h i s a c t i o n i n 1977 a s k i n g t h e D i s t r i c t
C o u r t t o d e c l a r e and d e t e r m i n e h i s r i g h t s and i n t e r e s t s
under h i s o i l and g a s l e a s e s from t h e County. After the
commencement of t h a t a c t i o n , t h e County e n t e r e d i n t o a
w r i t t e n agreement w i t h a l l of t h e r e a l p r o p e r t y owners, who
a r e S h i e l d s ' s u c c e s s o r s i n i n t e r e s t , and o t h e r p a r t i e s . The
agreement c o v e r e d t h e l a n d i n v o l v e d i n t h i s a c t i o n a s w e l l
a s other lands. The agreement p o i n t s o u t t h a t t h e County
e x e c u t e d c o n t r a c t s f o r deed c o n t a i n i n g m i n e r a l r e s e r v a t i o n s ,
n o t o n l y c o v e r i n g t h e S h i e l d s l a n d b u t a l s o o t h e r County
lands. A l l of such c o n t r a c t s f o r deed were f o l l o w e d by
d e e d s c o n t a i n i n g r o y a l t y r e s e r v a t i o n s s i m i l a r i n form t o t h e
deed t o S h i e l d s . The agreement f u r t h e r s t a t e d :
"The p a r t i e s h e r e t o a r e d e s i r o u s of s e t t l i n g
t h e s e d i f f e r e n c e s and s e t t l i n g t h e C o u n t y ' s i n t e r e s t
i n t h e above d e s c r i b e d p r o p e r t y , and t h e p a r t i e s
h e r e t o m u t u a l l y a g r e e t h a t where t h e d e e d s from t h e
County t o t h e v a r i o u s P u r c h a s e r s show t h a t t h e r e
was a 2 1/2% r o y a l t y , t h a t s a i d r o y a l t y i n t e r e s t
be c o n s i d e r e d t o be a 2% i n t e r e s t , and wherever
t h e County r e s e r v e d a 6 1 / 4 % r o y a l t y i n t h e above
described property, t h a t s a i d i n t e r e s t be considered
t o be a 4% r o y a l t y i n t e r e s t . F u r t h e r m o r e , t h e County
makes no c l a i m t o any m i n e r a l i n t e r e s t i n t h e above
d e s c r i b e d p r o p e r t y , and makes c l a i m t o o n l y r o y a l t y
i n t e r e s t a s s e t f o r t h above."
The agreement f u r t h e r conveys t o t h e County t h e 2 p e r c e n t
royalty i n t e r e s t i n the land described i n t h i s case.
The D i s t r i c t C o u r t h e l d t h a t t h e c o n t r a c t f o r deed con-
t a i n e d a r e s e r v a t i o n of m i n e r a l i n t e r e s t and t h e i s s u a n c e of
t h e deed a t a l a t e r d a t e gave S h i e l d s more t h a n he had b a r -
gained f o r . The c o u r t found t h a t a m i n e r a l i n t e r e s t i s more
v a l u a b l e t h a n a r o y a l t y i n t e r e s t and t h a t t h e deed by t h e
County t o S h i e l d s was a n u n c o n s t i t u t i o n a l d o n a t i o n o r g i f t
by t h e County. The c o u r t f u r t h e r found t h a t t h e 1943 judgment
i n t h e q u i e t t i t l e a c t i o n c a n n o t be a t t a c k e d and t h a t s u c h
d e c r e e commanded t h e County t o i s s u e a m i n e r a l i n t e r e s t deed
which t h e County f a i l e d t o do. The c o u r t f u r t h e r found t h a t
t h e 1943 d e c r e e i s res j u d i c a t a i n t h i s p r o c e e d i n g . The
c o u r t found no e l e m e n t of e s t o p p e l o r l a c h e s and h e l d t h a t
t h e w a i v e r argument f a i l s i n t h a t i t p r e s u p p o s e s t h a t t h e
County c o u l d g i v e away i t s m i n e r a l i n t e r e s t w i t h o u t compensa-
tion. The D i s t r i c t C o u r t found t h e McSweyn l e a s e s t o be
valid.
The law of o i l and g a s i n Montana p a s s e d t h r o u g h p e r i o d s
of growth and change d u r i n g t h e 1 9 3 0 ' s and 1 9 4 0 ' s . Judge
Jameson r e f e r s t o t h e s t a t u t o r y h i s t o r y i n S u p e r i o r O i l Co.
v . Vanderhoof ( 1 9 6 9 ) , 307 F.Supp. 84. H e points out that
s e c t i o n 4481.2, R.C.M., 1935, d e s c r i b e d t h e r e s e r v a t i o n
which a c o u n t y c o u l d make d u r i n g t h e 1 9 3 0 ' s . T h a t code
s e c t i o n i s confusing. I t r e f e r s t o mineral r i g h t reservations
and t h e n u s e s t e r m i n o l o g y which i s more c o n s i s t e n t w i t h
royalty reservations. The s t a t u t e was s o c o n f u s i n g t h a t i t
would have been d i f f i c u l t f o r any c o u n t y o f f i c i a l t o d e t e r m i n e
the correct application. S u p e r i o r -l-
O i Co. p o i n t s o u t t h a t
t h e code s e c t i o n was r e p e a l e d by Chapter 1 7 1 of t h e s e s s i o n
l a w s of 1941, which a l s o p r o v i d e d t h a t on sales of r e a l
p r o p e r t y " t h e county may r e s e r v e n o t t o exceed s i x and one
q u a r t e r p e r c e n t (6 1 / 4 % ) r o y a l t y i n t e r e s t i n t h e o i l , g a s
and m i n e r a l s produced and saved from s a i d l a n d . "
I n t h i s c a s e , t h e 1933 c o n t r a c t between t h e County and
S h i e l d s a t t e m p t e d t o f o l l o w t h e o l d code s e c t i o n and c o n t a i n e d
a r e s e r v a t i o n of a 2 1 / 2 p e r c e n t m i n e r a l i n t e r e s t . The 1943
d e c r e e q u i e t i n g t i t l e c o n t a i n e d t h e same r e s e r v a t i o n . That
q u i e t t i t l e decree i s not p a r t i c u l a r l y s i g n i f i c a n t . I t was
b r o u g h t by t h e t h e n c o u n t y a t t o r n e y f o r M u s s e l s h e l l County.
Our f a c t s i t u a t i o n i s s i m i l a r t o t h a t d e s c r i b e d by Judge
Jameson i n S u p e r i o r -l-
O i Co.:
"Nor i s t h e d e c r e e q u i e t i n g t i t l e p a r t i c u l a r l y
significant. I t simply s e t s f o r t h t h e r e s e r v a -
t i o n a s i t appeared i n t h e deeds [ i n our c a s e t h e
c o n t r a c t f o r d e e d ] . Obviously no i s s u e was r a i s e d
i n t h a t a c t i o n a s t o whether t h e r e s e r v a t i o n w a s a
mineral o r r o y a l t y i n t e r e s t . A s noted supra,
apparently t h e county a t t o r n e y represented t h e
Vanderhoofs i n t h e a c t i o n . [ T h i s was a l s o t r u e a s
t o M u s s e l s h e l l County and t h e c o u n t y a t t o r n e y . ]
No a p p e a r a n c e was made by t h e county. . ." 307
F.Supp. 91.
Next i n t h i s c a s e i s t h e 1944 deed i n which t h e County
r e s e r v e s an undivided 2 1 / 2 percent r o y a l t y i n t e r e s t . This
i s t h e f i r s t time t h e County d i r e c t l y p a r t i c i p a t e d a f t e r t h e
1933 c o n t r a c t . I n 1944 t h e County was o p e r a t i n g under t h e
1941 s e s s i o n laws. While t h e r e i s no e v i d e n c e i n t h e a g r e e d
s t a t e m e n t of f a c t s , t h e s t a t u t o r y h i s t o r y g i v e s a n o b v i o u s
e x p l a n a t i o n f o r t h e change i n t h e p r o v i s i o n s of t h e deed by
t h e County. The deed was a c c e p t e d by t h e g r a n t e e , S h i e l d s ,
and r e c o r d e d . No q u e s t i o n w a s r a i s e d by e i t h e r p a r t y f o r
more t h a n 30 y e a r s .
Merger - -
By Deed
McSweyn r e q u e s t s t h a t h i s o i l and g a s l e a s e s be found
v a l i d , and t h e D i s t r i c t C o u r t s o d e t e r m i n e d . I t i s important
t h a t we keep i n mind t h a t t h i s r e q u e s t h a s t h e e f f e c t of
a s k i n g t h e c o u r t t o r e f o r m t h e 1944 deed. W must, t h e r e f o r e ,
e
c o n s i d e r t h e r u l e s r e g a r d i n g r e f o r m a t i o n of d e e d s and merger.
I n s u b s t a n c e McSweyn c o n t e n d s t h a t t h e 1944 deed s h o u l d
b e reformed b e c a u s e of t h e mutual m i s t a k e of t h e County and
Shields. The e l e m e n t s f o r such r e f o r m a t i o n a r e s e t o u t i n
Voyta v . C l o n t s ( 1 9 5 8 ) , 134 Mont. 156, 328 P.2d 655, as
follows:
" ' A sequence s t a t e m e n t of r e f o r m a t i o n i s t h i s : There
i s a p r i o r u n d e r s t a n d i n g of t h e p a r t i e s ; t h e p a r t i e s
e x e c u t e a w r i t t e n c o n t r a c t ; somewhere and sometime
between t h e u n d e r s t a n d i n g r e a c h e d and t h e a c t u a l
c r e a t i o n of t h e w r i t t e n i n s t r u m e n t , a m i s t a k e o c c u r s .
I t o c c u r s i n r e d u c i n g t o w r i t i n g t h e agreement which
t h e p a r t i e s have i n t e n d e d . Obviously t h e a l l e g e d
m i s t a k e must r e l a t e t o something t h e n i n t h e contem-
p l a t i o n of t h e p a r t i e s . - f a u l t s o u g h t - be
The to -
c o r r e c t e d - -a t t h e e x e c u t e d w r i t t e n i n s t r u m e n t
is th -
--t r e f l e c t t h e a c t u a l -- u n d e r s t a n d i n g of
does n o and t r u e
the p a r t i e s . This i s a cardinal p r i n c i p l e i n the f i e l d
o f r e f o r m a t i o n f o r mutual m i s t a k e . Then, and o n l y
- --
t h e n , - - powers o f e q u i t y be invoked t o c o r r e c t
- can t h e
t h e mistake. ' " ( ~ m ~ h a s added.)
is 134 ~ o n 166, 328
c
P.2d 661.
McSweyn c o n t e n d s t h a t t h e f a u l t s o u g h t t o be c o r r e c t e d
i s t h a t t h e 1944 deed d o e s n o t r e f l e c t t h e a c t u a l and t r u e
u n d e r s t a n d i n g o f t h e p a r t i e s a s c o n t a i n e d i n t h e 1933 c o n t r a c t .
However, a s s t a t e d i n Voyta, i n o r d e r t o r e f o r m t h e deed on
t h e ground of mutual m i s t a k e , t h e e v i d e n c e of m i s t a k e must
be c l e a r , c o n v i n c i n g and s a t i s f a c t o r y . The c o u r t i n Voyta
further states:
" ' The presumption --- t h e w r i t i n g c o n t a i n s
is that
t h e f i n a l agreement - - p a r t i e s - e x p r e s s e s
of t h e and
t h e i r r e a l p u r p o s e and i n t e n t . - - -and o v e r -
To meet -
--p r e s u m p t i o n p l a i n t i f f w a s r e q u i r e d t o
come t h a t
p r e s e n t c l e a r , c o n v i n c i n g and s a t i s f a c t o r y p r G f .
... 1 II
134 Mont. 167, 328 P.2d 661.
Other t h a n t h e i n s t r u m e n t s , t h e r e i s no e v i d e n c e i n t h e
r e c o r d c o n c e r n i n g t h e i n t e n t of t h e County and S h i e l d s a t
t h e time of t h e 1944 deed. In addition there i s absolutely
no e v i d e n c e of mutual m i s t a k e u n l e s s w e s h o u l d f i n d t h a t t h e
i n s t r u m e n t s themselves show such mutual m i s t a k e .
A s s t a t e d above, w e b e g i n w i t h t h e presumption t h a t t h e
1944 deed c o n t a i n e d t h e f i n a l agreement of t h e County and
S h i e l d s and e x p r e s s e d t h e i r r e a l p u r p o s e and i n t e n t . The
D i s t r i c t C o u r t found t h a t t h e 1943 q u i e t t i t l e d e c r e e was
res j u d i c a t a a s t o t h e i n t e r e s t s of t h e p a r t y and d e f i n e d
t h e County's r e s e r v a t i o n a s a 2 1 / 2 percent mineral i n t e r e s t
R e s judicata i s discussed l a t e r i n t h i s opinion. While i t
i s t r u e t h a t t h e d e c r e e s p e c i f i e d t h e i n t e r e s t s of t h e
p a r t i e s i n 1943, t h a t d o e s n o t p r e v e n t t h e p a r t i e s from
making a s u b s e q u e n t change i n t h e i r r e s p e c t i v e i n t e r e s t s .
The 1944 deed shows t h a t t h e County made a change i n i t s
reservation. A s w e pointed o u t i n our b r i e f h i s t o r y , the
1941 s t a t u t e a f f o r d e d a r e a s o n a b l e e x p l a n a t i o n f o r t h e
change on t h e p a r t o f t h e County. The e x e c u t i o n of a deed
by t h e County i n 1944 c o n t a i n i n g a r o y a l t y r e s e r v a t i o n d o e s
n o t on i t s f a c e i n d i c a t e mutual m i s t a k e a s between t h e
p a r t i e s when compared t o t h e 1933 c o n t r a c t f o r deed. As
s t a t e d i n Voyta:
" ' I t c a n n o t be s a i d t h a t t h e e v i d e n c e i n t h i s c a s e
i s e i t h e r c l e a r , convincing, o r s a t i s f a c t o r y , a s
t o t h e a l l e g e d mistake. ..I II 134 Mont. 167, 328
P.2d 662.
I n a d d i t i o n , t h e County and a l l o t h e r p a r t i e s a g r e e d i n
1977 t h a t t h e 1944 deed r e s e r v e d a r o y a l t y . Not one of t h e
i n t e r e s t e d p a r t i e s a r e c l a i m i n g mutual m i s t a k e . The o n l y
c l a i m of mutual m i s t a k e i s made by McSweyn, who s e e k s t o
a p p l y a t e c h n i c a l r u l e which d i r e c t l y c o n t r a d i c t s t h e d e s i r e s
of t h e p a r t i e s who own t h e m i n e r a l and r o y a l t y i n t e r e s t s .
E q u i t a b l e p r i n c i p l e s do n o t a l l o w t h i s C o u r t t o r e f o r m t h e
deed i n d i r e c t d i s r e g a r d of t h e mutual u n d e r s t a n d i n g of a l l
o f t h e p a r t i e s owning a n i n t e r e s t i n t h e p r o p e r t y . Equity
a l s o r e q u i r e s t h a t we c o n s i d e r t h e e f f e c t on t h e County.
There a r e a number of o p e r a t i n g w e l l s on t h e l a n d i n q u e s t i o n .
I f t h e C o u n t y ' s i n t e r e s t i s a r o y a l t y , t h e County w i l l be
e n t i t l e d t o r e c e i v e 2 p e r c e n t of p r o d u c t i o n under i t s a g r e e -
ment w i t h t h e b a l a n c e of t h e p a r t i e s . I f t h e McSweyn c o n t e n -
t i o n s a r e u p h e l d , t h e County w i l l l o s e more t h a n 80 p e r c e n t
of s u c h 2 p e r c e n t of p r o d u c t i o n . The b e n e f i t of t h e d i f f e r e n c e
f l o w s p r i m a r i l y t o McSweyn.
McSweyn h a s a g r e e d t h a t t h e e x e c u t i o n of h i s l e a s e s
w i t h t h e County s h a l l i n no way p r e j u d i c e t h e r i g h t of t h e
County t o c l a i m i t s i n t e r e s t i s a r o y a l t y i n t e r e s t r a t h e r
than a mineral i n t e r e s t . The County d o e s c l a i m t h a t i t s
i n t e r e s t is a royalty interest. I t would be i n e q u i t a b l e t o
disregard t h i s provision.
W e f i n d t h a t t h e p l a i n t i f f h a s f a i l e d t o overcome t h e
presumption t h a t t h e 1944 deed c o n t a i n s t h e f i n a l agreement
between t h e p a r t i e s and t h a t t h e d o c t r i n e of merger d o e s
a p p l y , s o t h a t t h e 1944 deed e f f e c t i v e l y r e s e r v e d t o t h e
County t h e 2 1 / 2 p e r c e n t r o y a l t y i n t e r e s t d e s c r i b e d i n t h e
deed.
Unconstitutional G i f t
Although t h e i s s u e had n o t been p r e s e n t e d by e i t h e r
p a r t y , t h e D i s t r i c t C o u r t concluded t h a t a l l t h i n g s b e i n g
e q u a l , a m i n e r a l i n t e r e s t i n r e a l p r o p e r t y i s more v a l u a b l e
than a royalty i n t e r e s t . Reasoning from t h a t p o s i t i o n , the
c o u r t concluded t h a t t h e deed r e s u l t e d i n a n u n c o n s t i t u t i o n a l
g i f t o r d o n a t i o n by t h e County t o S h i e l d s .
R i s t v. Toole County ( 1 9 4 5 ) , 117 Mont. 426, 159 P.2d
340, p o i n t s o u t t h a t t h e h o l d e r of a m i n e r a l i n t e r e s t h a s a n
i n t e r e s t i n t h e l a n d and h a s t h e r i g h t t o go on t h e p r o p e r t y ,
t o e x p l o r e and d r i l l f o r o i l and g a s and t h e o b l i g a t i o n t o
pay f o r a p r o p o r t i o n a t e s h a r e of development c o s t s . A
h o l d e r of a r o y a l t y i n t e r e s t d o e s n o t have t h e r i g h t t o go
on t h e p r o p e r t y t o e x p l o r e f o r undeveloped o i l and g a s , b u t
t h e r o y a l t y h o l d e r i s n o t o b l i g a t e d t o pay t h e c o s t s of
development. The h o l d e r of t h e r o y a l t y i n t e r e s t s i m p l y
s h a r e s i n t h e p r o f i t from p r o d u c t i o n . The D i s t r i c t C o u r t
a p p a r e n t l y concluded t h a t because t h e m i n e r a l i n t e r e s t
holder has g r e a t e r r i g h t s with r e s p e c t t o r e a l property
i t s e l f t h a n t h e r o y a l t y i n t e r e s t h o l d e r , such a m i n e r a l
r i g h t has a g r e a t e r value. There i s n o t h i n g i n t h e a g r e e d
s t a t e m e n t of f a c t s t o show t h e c o m p a r a t i v e v a l u e s of r o y a l t y
and m i n e r a l i n t e r e s t s i n t h i s p a r t i c u l a r l a n d . The a g r e e d
s t a t e m e n t of f a c t s d o e s show t h a t t h e r o y a l t y i n t e r e s t which
we f i n d i s owned by t h e County w i l l have a much l a r g e r
p r e s e n t s h a r e i n p r o d u c t i o n t h a n would be t r u e of a m i n e r a l
interest. A s a r e s u l t , w e conclude t h a t t h e record does n o t
show a 1944 g i f t , o r t h e e q u i v a l e n t , by t h e County t o
Shields.
Q u i e t T i t l e Decree A s - J u d i c a t a
- Res
The D i s t r i c t C o u r t h e l d t h a t t h e 1943 q u i e t t i t l e
a c t i o n which was completed p r i o r t o t h e i s s u a n c e of t h e 1944
deed was r e s j u d i c a t a a s t o t h e p r e s e n t a c t i o n . The D i s t r i c t
C o u r t r e l i e d on Smith v . County of M u s s e l s h e l l ( 1 9 7 0 ) , 155
Mont. 376, 472 P.2d 878. W e do n o t f i n d Smith t o be a u t h o r i t y
f o r t h e p o s i t i o n t a k e n by t h e D i s t r i c t C o u r t . There a r e
major d i f f e r e n c e s between t h e Smith c a s e and t h e p r e s e n t
case.
I n t h e Smith c a s e , on June 4 , 1941, M u s s e l s h e l l County
( t h e same c o u n t y a s i n v o l v e d i n t h e p r e s e n t c a s e ) e n t e r e d
i n t o a c o n t r a c t f o r deed i n which i t r e s e r v e d a n u n d i v i d e d 6
1 / 4 p e r c e n t of a l l o i l , g a s and o t h e r m i n e r a l s l y i n g i n ,
under and b e n e a t h t h e p r e m i s e s . Next by deed d a t e d A p r i l 5 ,
1944, t h e County conveyed t h e l a n d by a deed i n which i t
r e s e r v e d a n u n d i v i d e d 6 p e r c e n t r o y a l t y of a l l o i l , g a s and
o t h e r m i n e r a l s l y i n g i n , and t h a t may be produced from t h e
p r e m i s e s h e r e i n b e f o r e d e s c r i b e d , d e l i v e r e d f r e e of c o s t . In
1945, t h e buyer from t h e County b r o u g h t a n a c t i o n t o q u i e t
t i t l e t o t h e l a n d , i n which t h e C o u n t y ' s r e s e r v a t i o n was
d e c r e e d t o be 6 1 / 4 p e r c e n t of a l l o i l , g a s and o t h e r m i n e r a l s
l y i n g i n and t h a t may be produced from t h e s a i d p r e m i s e s .
The County a t t e m p t e d t o a r g u e t h a t under t h e 1941 s t a t u t e ,
t h e County c o u l d r e s e r v e o n l y a 6 1 / 4 p e r c e n t r o y a l t y i n t e r e s t
and e x c l u d e d t h e r i g h t of t h e County t o r e s e r v e a m i n e r a l
interest. I n t h e Smith c a s e t h i s C o u r t found t h a t t h e 1945
d e c r e e was res j u d i c a t a of t h e p a r t i c u l a r i s s u e s i n v o l v e d .
The r e s u l t i s t h a t i n Smith t h e q u i e t t i t l e d e c r e e was t h e
l a s t c o n c l u s i v e s t a t e m e n t c o n c e r n i n g t h e i n t e r e s t s of t h e
p a r t i e s , having been e n t e r e d a f t e r t h e deed from t h e County.
In contrast, i n the present case, the q u i e t t i t l e action
o c c u r r e d b e f o r e t h e deed was e x e c u t e d , d e l i v e r e d and a c c e p t e d .
T h e r e f o r e , t h e q u i e t t i t l e i s n o t r e s j u d i c a t a of t h e i n t e r e s t s
of t h e p a r t i e s here involved. See Brannon v . Lewis and C l a r k
County ( 1 9 6 3 ) , 143 Mont. 200, 387 P.2d 706.
A s previously discussed, t h e 1943 d e c r e e was n o t t h e
r e s u l t of l i t i g a t i o n between S h i e l d s and t h e County. The
County d e f a u l t e d . The a t t o r n e y f o r S h i e l d s was a l s o t h e
county a t t o r n e y . Our f a c t s i t u a t i o n i s comparable t o t h a t
i n S u p e r i o r -l-
O i Co. Because t h e i s s u e s i n v o l v e d i n t h e 1943
q u i e t t i t l e a c t i o n a r e n o t o f n e c e s s i t y t h e same i s s u e s i n -
volved i n t h e 1944 d e e d , because t h e m i n e r a l i n t e r e s t q u e s t i o n
was n o t l i t i g a t e d i n t h e q u i e t t i t l e a c t i o n , and b e c a u s e t h e
deed was e x e c u t e d , d e l i v e r e d and a c c e p t e d t h e y e a r f o l l o w i n g
t h e i s s u a n c e of t h e q u i e t t i t l e d e c r e e , t h e q u i e t t i t l e
d e c r e e i s n o t res j u d i c a t a .
E s t o p p e l , Laches and Waiver
The a g r e e d s t a t e m e n t of f a c t s s u g g e s t s t h a t t h e r e may be
a p r o p e r b a s i s f o r t h e a p p l i c a t i o n of t h e d o c t r i n e s of
e s t o p p e l , l a c h e s and w a i v e r . However, i n view of o u r o p i n i o n
on t h e o t h e r i s s u e s , i t i s u n n e c e s s a r y f o r u s t o r e a c h
d e c i s i o n s on t h e s e t h e o r i e s .
W e a l s o n o t e t h e approach of t h e Montana l e g i s l a t u r e t o
t h e q u e s t i o n of l o n g - s t a n d i n g conveyances and r e s e r v a t i o n s
i n v o l v i n g m i n e r a l and r o y a l t y i n t e r e s t s . I n "validation"
s t a t u t e s s u c h a s s e c t i o n s 16-1122 and 16-1122.1, R.C.M.,
1 9 4 7 , t h e l e g i s l a t u r e c o n f i r m e d and v a l i d a t e d m i n e r a l a n d
r o y a l t y r e s e r v a t i o n s made by c o u n t i e s . While w e d o n o t f i n d
i t n e c e s s a r y t o d e t e r m i n e if s u c h v a l i d a t i o n s e c t i o n s a r e
applicable i n the present case, we take note t h a t the legis-
l a t u r e deemed i t w o r t h w h i l e t o e r a d i c a t e d o u b t s a s t o l o n g -
s t a n d i n g c o n v e y a n c e s and r e s e r v a t i o n s , some o f which may
h a v e c o n t a i n e d p r o v i s i o n s which a r e q u e s t i o n a b l e u n d e r i t s
own " u n c e r t a i n o r ambiguous" s t a t u t e s .
W e f i n d t h a t M u s s e l s h e l l County owned a 2 1 / 2 p e r c e n t
r o y a l t y i n t e r e s t i n t h e l a n d s i n v o l v e d i n t h i s c a s e and n o t
a m i n e r a l i n t e r e s t and c o n c l u d e t h a t t h e o i l and g a s l e a s e s
from M u s s e l s h e l l County t o McSweyn d i d n o t g r a n t a n e f f e c t i v e
l e a s e upon a m i n e r a l i n t e r e s t . The judgment o f t h e ~ i s t r i c t
C o u r t i s r e v e r s e d , and t h e D i s t r i c t C o u r t i s i n s t r u c t e d t o
e n t e r a p p r o p r i a t e judgment i n c o n f o r m i t y w i t h t h i s o p i n i o n .
,
'
*
,
;',
--
,'
Justices
Mr. Justice John C. Sheehy dissenting:
I disagree with the holding in this case.
The majority opinion goes against its own statement of
facts. It translates a purported ambiguity in a statute
authorizing counties to reserve oil and gas interests into a
contract between the County and Shields in 1933 that is
unambiguous as to a mineral reservation. To repeat the
reservation in the 1933 contract:
". . . vendor [County] reserves to itself and
its successors an undivided two and one-half
percent of all oil, gas and other minerals
lying in, under - - beneath the premises
and
hereinbefore described.. . ."(Emphasis added.)
As the majority sets out in its statement of facts
"[all] parties agree that the above language created a
mineral reservation."
The major force upon which the majority relies in changing
an outright, plain mineral reservation into a royalty
reservation is the holding in Superior Oil Co. v. Vanderhoof
(1969), 307 F.Supp. 84. The majority relies upon Superior
- Co. due to inadequate legal research into that case, and
Oil -
the majority hopes, perhaps, to tilt the legal balance in
favor of their opinion by associating the name of Judge
Jameson in their behalf. (This method is called "tilt-by-
association".) The trouble is the majority did not read
-- -
Judge Jameson far enough as to what Superior Oil Co. held,
nor look at the applicable statutes.
There was no contract for deed shown in the Superior
Oil - case.
- Co. The decision turns upon the language in a
deed from Richland County to a transferee, in which the
following reservation was set out:
"Further reserving unto said grantor
[County] six and one-fourth (6 1/4%)
percent of all minerals contained in and
hereafter mined, produced, extracted or
otherwise taken from the above described
property." 3 0 7 F.Supp. at 8 5 .
The quiet title action in the Superior - - case
Oil Co.
resulted in a decree recognizing the following interest:
"All of the above described property being
subject to a reservation in and to Richland
County, Montana, of six and one-fourth (6 1/4%)
percent of all minerals contained in, mined,
produced, extracted or otherwise taken from
said lands;. . ."3 0 7 F.Supp. at 85.
Contrast, if you will, the language contained in the
deed and quiet title decree in the Superior - Co. case
Oil -
with the language contained in the 1933 contract for deed
above quoted, and also with the language in the quiet title
decree in this case which stated:
". .. A. D. Shields, is the owner, seized
in fee and entitled to the possession of the
following described real property ... [lands
described] excepting and reserving to the said
defendant Musselshell County, Montana, 2 1/2%
of all oil, gas or other minerals lying in, under
and beneath [the described land] . . ."
". . . That the defendants ... have no right,
title or interest whatsoever in said premises
... save and except the reservation of the
mineral rights to the said Musselshell County,
Montana ...
". . . That upon the payment of the said balance
by the plaintiff, the said defendant, Musselshell
County, Montana execute and deliver a deed to the
plaintiff, conveying the entire legal title, as well
as the equitable title to the said lands, and that
the defendant, Musselshell County, Montana be
thereafter perpetually enjoined from any manner
interfering with the plaintiff's title to or possession
of the said premises or any part thereof except
as to the reservation - - - gas and other minerals
of oil; -
hereinbefore set forth." (Emphasis added.)
Oil -
The federal judge in Superior -- Co. considered many
factors in determining that the deed and quiet title action
with which he was faced constituted a royalty interest and
not a mineral interest. He did not say in that opinion that
the ambiguity in a statute constituted an ambiguity in a
contract between the parties. He gave critical emphasis
to the absence of the language "in, under or upon" in the
Superior - - deed and quiet title action reservation.
Oil Co.
He said:
"Many factors may be considered in determining
whether a mineral or royalty reservation is
intended. -- primary importance is the use of
Of
the term 'in, under or upon' as indicatinq a
-
mineral interest and 'produced and saved' as
indicating a royalty interest. The Montana
court is consistent with a majority of the
jurisdictions in holding that these phrases are
the most significant guides to the parties'
intentions . . ." 307 F.Supp. at 90. (Emphasis
added. )
The critical term "in, under or upon" is contained in
the reservation of minerals in the 1933 contract for deed
between Musselshell County and Shields and in the quiet
title action in 1943, determining the effect of that contract.
There can be no ambiguity as to what was reserved. It was
purely and simply a mineral interest.
The deductive process upon which the majority opinion
depends therefore is that the contract between the County
and Shields was not ambiguous; a statute was ambiguous;
therefore, the County-Shields contract was ambiguous. By
the same kind of deductive reasoning, we can prove that any
cat has ten tails: No cat has nine tails; any cat has one
more tail than no cat; therefore any cat has ten tails.
It is significant to me and I think the majority has
not considered that in 1933 when the Musselshell County-
Shields contract was executed, there was- statute authorizing
- no
- - authorizing counties - reserve minerals - royalties
or not to or
in transfers of unredeemed tax title lands. The first such
authorization for counties came with the adoption in 1935 of
Ch. 154, Laws of 1935. Section 2 of that Act became section
4481.2, R.C.M. 1947, which Superior - - found to be
Oil Co.
ambiguous. The whole of that Act refers to mineral reservations,
and in no place mentions royalties. Of particular significance,
however, to this case are the provisions of section 4 of the
1935 Act which provided:
"Section 4. All mineral reservations heretofore
--
made by counties in this state, whether the same
are of a greater percentage than is herein fixed,
or not, and all agreements in connection with
such reservations, heretofore made, whether in
conformity with this act or not, are hereby ratified
confirmed and validated." Section 4, Ch. 154, Laws
of 1935. (Emphasis added.)
The 1933 executory agreement for an unambiguous mineral
reservation between Musselshell County and Shields was
validated by the Montana legislature in 1935 or my cat has
ten tails. Again, this validation statute was not before
the federal court in Superior - Co., supra, because the
Oil -
deed in that case was executed in 1940.
The 1935 validation statute brings us to the res judicata
issue and the quiet title decree, which the majority dismisses
as "not particularly significant." On the contrary, the
quiet title decree is of decisive significance. It determined
in a judgment which became final that the interest of Musselshell
County was a 2 1/2 percent mineral reservation and it directed
the County when the purchase price had been paid, to deliver
a deed to Shields with such a mineral reservation in it.
The County has unexplainedly failed to carry out the direction
of the District Court when it issued the deed in this case,
possibly because in 1944, Roland V. Colgrove was the Musselshell
county attorney and not A. G. McNaught, who was the county
attorney at the time of the quiet title action.
The effect of the quiet title decree can not be avoided
on the ground that whether the County reserved a royalty
interest instead of a mineral interest was not litigated,
because there - - - - such issue.
could be no The language of the
contract was unambiguously a mineral reservation; the contract
had been given legislative blessing through a validation
statute. Any attempt by the Musselshell county attorney in
1943 to raise an issue as to whether the 1933 contract stated
a royalty reservation rather than a mineral reservation
would have been frivolous. It is plain that such an issue
could not have been litigated because no such issue existed.
The 1943 quiet title decree is therefore res judicata
as to the purport and meaning of the mineral reservation,
and as to the duty of the County to deliver a deed with a
mineral reservation. If that be not true, there is no such
rule of law as res judicata.
Where does all this leave the majority, whose opinion
is premised upon the supposition that the 1933 contract
between the County and Shields attempted to follow a code
section before its enactment and that Ch. 171, Laws of 1941
(which has no application to the Shields contract) affords a
"reasonable explanation" for the change to a royalty reservation
in the Shields deed from the mineral reservation provided in
the contract? They are in the position of an oil driller
pumping a hole drilled in granite--there is no oil there.
Clearly and convincingly, this record establishes that
Musselshell County and Shields contracted for a mineral
reservation, and that the District Court decreed a mineral
reservation be delivered to Shields. When the deed was
delivered to Shields in 1944, it contained a royalty reservation.
On the agreed statement of facts before us, there is nothing
that gives any clue that the parties changed their intention,
contracted otherwise, or knew that the deed did not reflect
their intention expressed in the contract and the quiet
title decree. Any statement that they did change their
intention, or their contract, would be sheer speculation on
our part since we have only the agreed statement of facts to
go on. It is only if merger by deed applies that there could
be any justification for holding in favor of the County on
the royalty reservation. The majority opinion glides by
merger by deed, as though it rigidly applies here. This is
not my view of the law.
Merger by deed, denominated a doctrine by some, is a
broad statement that the grantor in a deed has completed the
contract for deed even though he may not have fully performed.
By finding a merger in the deed of all prior agreements
between the parties, written or unwritten, courts have
exonerated grantors from all legal responsibility for unperformed
promises in the contract for sale. Through merger, in its
purest form, the grantee in a breached contract, by accepting
the deed, loses all right of rescission or cancdlation or
suit for damages occasioned by the breach. This is the
result apparently accepted by the majority in reversing the
District Court.
Merger by deed, as a legal concept, is so drastic that
exceptions to it have grown up which are as old as the
concept itself. Merger does not apply to agreements collateral
to or independent of the contract for sale. Bull v. Willard
(N.Y. 1850), 9 Barb. 641, 645. It does not apply where the
omission in the deed is the result of mistake, accident or
fraud. See, Union Producing Co. v. Sanborn (E.D. Texas
1961), 194 F.Supp. 121, 126; Stevens v. Vail Associate,
Inc. (1970), 28 Colo.App. 344, 472 P.2d 729.
Professor Allison Dunham insists, in Merger - -
By Deed, 10
Ga.L.Rev. 419, 420, 421 (Winter 1976), that the "doctrine"
appears in the Restatement of Law of Contracts, § 413 (19351,
through the pervasive influence of Professor Williston; but
that Professor Corbin suggests that there never was such a
"doctrine" (Dunham, citing 3A Corbin, Contracts, 5 5 586,
587, 604.) Professor Dunham also points to the provisions
of the Uniform Land Transactions Act (UTLA 1975), which
repeal the doctrine of merger by deed ((UTLA) has not
been adopted in Montana), and to the provisions of the
Uniform Commercial Code (UCC) which expressly rule out
merger in contracts to sell goods. Section 30-2-607(2), MCA:
". . . acceptance does not of itself impair
any other remedy provided by this chapter for
nonconformity."
Bull, supra, the 1850 case, attempts to establish
merger by deed as to promises concerning "title, possession,
quantity, and emblements," holding these areas to be foreclosed
by the grantee's acceptance of the deed. Again, Professor
Dunham, op cit., supra, at 443, notes the many exceptions.
See also, Comment, Merger - -
of Land Contract - -
in Deed, 25
Albany L.Rev. 122 (1924).
Montana has not heretofore expressly adopted merger by
deed, though it has been noted in dictum. See, Schillinger
v. Huber (1957), 133 Mont. 80, 87, 320 P.2d 346, 348, (discovery
of error and acquiescence preventing reformation of a deed);
Sullivan v. Marsh (1950), 124 Mont. 415, 425, 225 P.2d 868,
872, (reformation denied, mutual mistake not supported in
absence of a prior contrary agreement); Voyta v. Clonts
(1958), 134 Mont. 156, 328 P.2d 655 (reformation denied,
where evidence failed to show the instrument did not reflect
the actual agreement of the parties). If merger by deed
does apply in Montana, it is not as broad and as absolute as
some abbreviated statements make it out to be. Its statutory
embodiment seems to be section 28-2-905, MCA, which provides
that "when the terms of an agreement have been reduced to
writing, it is to be considered as containing all of those
terms, . ." Yet the same statute sets forth exceptions,
including "mistake or imperfection of the writing put in
issue by the pleadings." See, section 28-2-905(1)(a), MCA.
Land contracts enjoy no special statutory exception and are
to be interpreted as any other contract so as to give effect
to the mutual intention of the parties as it existed at the
time of contracting, so far as the same is ascertainable and
lawful. Section 28-3-301, MCA.
Even if merger by deed applies, therefore, the court
should search for the intention of the parties in determining
rights under a deed. The burden of the parties seeking to
set aside plain and unambiguous terms in the deed as contra
to the actual intention of the parties is by clear, convincing
and satisfactory proof. Sullivan v. Marsh, supra; Voyta v.
Clonts, supra. Once that burden is met, the duty of the
court is to enforce the true contract and not to make a new
contract nor to perpetuate or make final a contract only
partially or imperfectly performed. In so doing, the court
would merely be reenforcing the reasons for the many exceptions
to the concept of merger by deed.
In determining the true intention of the parties, the
Court must place itself as nearly as possible in the position
of the contracting parties, and their intent will be ascertained
in the same manner as with any other contract. See, Szabo
v. Superior Court (1978), 84 Cal.App.3d 839, 148 Cal.Rptr.
837; section 28-3-301, MCA. If we are going to adopt the
rule of merger by deed in Montana, we should at least restate
the rule to say that the concept will control except where
the intentionsof the parties are otherwise or where the
stipulations of the contracts sought to be enforced are
collateral to the functions performed by the deed. Carsek
Corp. v. Stephen SchXifter, Inc. (1968), 431 Pa. 550, 246
8-
A.2d 365.
The intention of the parties here should be determined
from the instruments presented in the agreed statement of
facts. The District Court had before it, as we do now, (in
equity cases, we review all questions of fact arising upon
the evidence presented in the record, section 3-2-204(5),
MCA), a contract for deed providing for a mineral reservation,
and a deed providing for a royalty interest. If these two
instruments were all we had, we might consider the evidence
evenly balanced. The overbalancing factor, however, is the
quiet title decree which not only determined that the parties
had contracted for a mineral reservation, but ordered the
County to deliver a deed with the mineral reservation in it.
The quiet title decree is a determination by an outside
agency with full authority to act that the true intention of
the parties to the 1933 contract for deed was for a mineral
interest reservation. The language of the contract for deed
and the determination of the rights of the parties in the
quiet title action, taken together, are clear, convincing
and satisfactory proof that the executed deed does not speak
the true intention of the parties. Moreover, to hold that
the executed deed controls, we would have to assume something
that does not appear in the agreed statement of facts: that
sometime between the date of the quiet title decree and the
execution of the deed, the intention of the parties changed
and the new agreement was made. Absent direct evidence, it
is as easy to assume that the executed deed is the result of
accident or of a scriveners mistake as it is to assume that
the intention of the parties had changed. It is merely
a resort to speculation.
The defendants contend that since the deed was executed
and delivered after the quiet title decree that the deed is
not subject to the res judicata application of the quiet
title decree, citing Brannon v. Lewis and Clark County
(19631, 143 Mont. 200, 387 P.2d 706. In Brannon, the plaintiff
brought a quiet title action to certain lands in Lewis and
Clark County and obtained a quiet title decree in 1950.
Unknown to the plaintiff and the County, the lands to which
the title was quieted were occupied in part by a highway
which passed diagonally through the lots in issue. The
plaintiff discovered the problem when she sought to sell the
real property in 1960 and was advised that the real property
had no real value because of the location of the paved
highway. She commenced action in 1961 against Lewis and
Clark County for trespass for the maintenance of a highway
across her land. Summary judgment was granted against her,
adjudging that the County had obtained a prescriptive right
to the land as a highway and easement following the quiet
title decree. This Court upheld the summary judgment.
Under the ruling in Brannon, it might be possible here
to assume that following the quiet title decree new circum-
stances arose, or new agreements were made, which led to
the execution of the deed providing the royalty interest to
the County. There is evidence of prescriptive rights accruing
after the quiet title decree in Brannon. Under that possibility,
however, defendants run against the same barrier of proof
that faces them in connection with merger by deed. Unless
we guess, speculate or assume that some such change did
occur, we have no evidence under the agreed statement of
facts which can justify any ruling except that the order
quieting title, issued by the District Court, remains in
full force and effect.
That the County allowed a default judgment against it
in the quiet title action is not a sufficient legal excuse
later to avoid the conclusive effect of the default judgment.
Friedrichsen v. Cobb (1929), 84 Mont. 238, 275 P. 267.
I come now to the agreement of February 28, 1977,
executed some 34 years after the deed from the County to
Shields, and entered into between Musselshell County and the
present landowners of the deeded lands. McSweyn is not a
party to the agreement of February 28, 1977, which was
executed 5 months after McSweyn acquired the oil and gas
leases from Musselshell County, and 25 days after McSweyn
filed this lawsuit for a declaration as to the validity of
his leases. The agreement of February 28, 1977 should have
no effect therefore as to McSweyn.
The majority opinion places great store upon the February
28, 1977 agreement, contending that by the agreement, the
"[dlounty and all other parties in 1977 agreed that the
1944 deed reserved a royalty." Of course they did. There
is no dispute in the record or between these parties that
the 1944 deed was a royalty reservation, and not a mineral
reservation. What is important is that the agreement of
February 28, 1977, between the County and the present landowners,
was an arms-length agreement wherein the parties settled
their conflicting differences as to whether the County was
entitled to a mineral reservation or a royalty reservation
under the Shields deed or other deeds held by the present
landowners.
The pertinent parts of the February 28, 1977 agreement
are these:
-23-
". . . WHEREAS, at one time the County
acquired all of the above described real
property for delinquent taxes and subsequently
conveyed the Tract I property to one A. D.
Shields and the Tract I1 property to John
P. McCleary. Said transfers were made by
virtue of contracts for deed to the purchasers
set forth above.
"WHEREAS, when the County entered into contracts
on the above described real property, certain
reservations were made whereby the County made
mineral reservations - - forth below. When
as set
the deeds were placed of record after complete
performance by the purchasers under the contracts
for deed, the County of Musselshell made royalty
reservations in the deeds. The various royalty
reservations are set forth below.
". . . WHEREAS, the parties hereto - - -
are in dis-
agreement as to the interest -- - County in
7 - -
of the
the above described property. The parties hereto
are desirous of settling such difference and
settling the County's interest in the above
described property; and the parties hereto mutually
agree that where the deeds from the County to
the various purchasers show that there was a
2 1/2 percent royalty, that said royalty interest
be considered to be a 2 percent interest, and
whenever the County reserved a 6 1/4 percent
royalty in the above described property that
said interest be considered to be a 4 percent
royalty interest. Furthermore, the County makes
no claim to any mineral interest in the above
described property, and makes claim only to
royalty interest as above set forth.
"NOW THEREFORE, for and in consideration of the
sum of ten and no/100 ($10.00) dollars and other
good and valuable consideration, and in full and
complete settlement of the County's interest in
and to the above described property, the parties
hereto by these presents grant, bargain, sell,
convey and confirm so much of their interest in
and to the above described property that the
County's sole and only interest is the following
described royalty interest:
" [ 2 percent royalty interest in the lands concerned
with the case at bar]
"This indenture is made for the purpose of conveying
unto the County the . .. [royalty] free and clear
of all costs of all oil, gas and hydrocarbons and
other minerals produced and delivered in pipelines or
otherwise produced and marketed from the above
described premises, and this indenture is further
made for the purpose of the County renouncing and
transferring to all of the other parties to
-
this instrument any and all other claim they
may have to any of the above described property
... I1
It is clear from the terms of the agreement that instead
of that agreement being a declaration of the parties as to
what their intentions were in 1944, it is instead an arms-
length agreement settling conflicting claims between the
parties, but without the presence or assent of McSweyn.
The present landowners stand to gain, under the majority
opinion of this case, by virtue of the agreement of February
28, 1977. Under the decision of the District Court, if we
were to uphold it, the royalties under the McSweyn leases
would be divided as follows:
Percentage distribution of oil
Assuming 2.5% County Mineral Reservation
Lessee-producers
Landowners
McSweyn
County
Under the majority opinion, the distribution of oil
proceeds will be as follows:
Percentage of distribution of oil
Assuming 2.5% Royalty Reservation and the Agreement
of 2/28/77
~essee-producers
Landowners
McSweyn
County
The agreement of February 28, 1977, should have no
bearing under considerations of equity or otherwise as to
the disposition of this case.
I should have no difficulty, if the majority otherwise
agreed with me, in showing that estoppel, laches and waiver
constituted no bar to the validity of the McSweyn leases.
Because the majority do not reach those issues, I reserve a
discussion, I trust to a future time. I would uphold the
judgment of the District Court determining that the McSweyn
oil and gas leases of Musselshell County were valid and
subsisting.
- \
Justice
k ,
'