No. 90-517
IN THE SUPREME COURT OF THE STATE OF MONTANA
KEESUN PARTNERS,
a Wyoming general partnership,
Plaintiff and Respondent,
-vs-
Ly Sk,LitL
FERDIG OIL COMPANY, INC. a corporation; ~ SIJPI-U'I.~~E
C L E OF ~ COURI
STATE OF pn0rdTANA
and SOMONT OIL CO., INC., a corporation,
Defendants, Counterclaimants and Appellants,
KEESUN PARTNERS, a Wyoming general partnership,
consisting of V.C. KNIGHT, J. KENNETH FINSTAD,
RONALD VANDERHOEF, individually, and as partners;
and JOHN DOES 1, 2, 3, 4, and 5 and DOE COMPANIES
1 and 2, corporations, individually, and as partners
of Keesun partnership,
Counterdefendants.
APPEAL FROM: District Court of the Ninth Judicial District,
In and for the County of Toole,
The Honorable R. D. McPhillips, Judge presiding.
COUNSEL OF RECORD:
For Appellants:
Gregory H. Warner and George R. Crotty, Jr. ;
Graybill, Ostrem, Warner & C r o t t y , Great Falls,
Montana
For Respondent:
Carolyn Ostby; Crowley, Haughey, Hanson, Toole &
Dietrich, Billings, Montana
Submitted on Briefs: May 24, 1991
Decided: August 1, 1991
Filed:
Clerk
Justice Karla M. Gray delivered the Opinion of the Court.
The appellants, Ferdig Oil Company, Inc. and Somont Oil Co.,
Inc. (referred to collectively as Ferdig/Somont) , appeal from an
order of the District Court of the Ninth Judicial District, Toole
County, granting partial summary judgment in favor of the
respondent, Keesun Partners. We affirm.
Ferdig/Somont raises the following issues on appeal:
1. Did the District Court err in determining that there are
no genuine issues of material fact as to the absence of a contract
between the parties?
2. Did the District Court err in holding that even if a
contract did exist between the parties, its enforcement is barred
by the statute of frauds?
3. Did the District Court err in refusing to consider
remedies of rescission or restitution and the return of the parties
to the status quo in granting quiet title relief?
The appellants, Ferdig Oil Company, Inc. and Somont Oil Co.,
Inc., are Montana corporations in oil and gas production and
processing. Both corporations have the same ownership and same
management. Charles Jansky is an officer of both corporations.
Ferdig is involved primarily in the gathering and processing of
natural gas. Somont is involved primarily in the production of oil
and natural gas. The respondent, Keesun Partners, is a Wyoming oil
and gas producing partnership which was formed in October of 1987.
J. Kenneth Finstad is a partner in Keesun and acts as operations
manager.
2
Ferdig/Somont constructed and operates a gas processing plant
located in Section 28 of Township 35 North, Range 4 West, Toole
County, Montana. The original intent of Ferdig/Somont in
constructing the plant was to process both sweet and sour gas from
its own wells located adjacent to the plant. In the summer of
1987, Ferdig/Somont presented its lenders with proposals which
called for extending its gas gathering pipeline system through the
northern part of Township 35 North, Range 4 West into the southern
part of Township 36 North, Range 4 West. Ferdig/Somont determined
that its own well in Section 34 of Township 36 North, Range 4 West,
along with another well in that section, justified the installation
of that pipeline.
Shortly thereafter, Mr. Jansky and Mr. Finstad discussed the
possibility of a market for gas from additional wells drilled in
Section 34. On September 16, 1987, Mr. Jansky sent a letter to Mr.
Finstad and Don Lee, a Shelby attorney who represented both
Ferdig/Somont and Finstad. The stated purpose of the letter was
to llsummarize
the deal we [Ferdig/Somont] are proposing to enter
into with Mr. Finstad, et al.I1 for the purchase of wellhead gas on
a long-term basis. Neither Mr. Finstad nor Keesun, after its
formation in October of 1987, responded in writing to Mr. Janskyls
letter.
Keesun pursued its drilling activities on acreage controlled
by Keesun and on acreage acquired from Ferdig/Somont and others
through farmout agreements or outright assignments. Although no
written gas purchase contract was in place, Ferdig/Somont took
deliveries of gas from Keesun on a month to month basis. The
parties apparently were hopeful that an acceptable gas purchase
contract would eventually be agreed upon and executed.
Contemporaneous with Keesunfsdrilling activities, Mr. Jansky
sent a number of letters to Keesun setting forth his understanding
of the state of the negotiations, summarizing proposals and making
new offers. Keesun did not respond in writing to any of this
correspondence; it does appear from the record that ongoing
negotiations occurred, either directly or through attorney Don Lee.
Eventually, a meeting between Keesun and Ferdig/Somont was
held on March 3, 1988, at Don Lee's office in an attempt to
finalize a wellhead gas purchase contract between the parties.
The following day, Mr. Jansky wrote Keesun another letter in which
he summarized those terms he believed had been agreed upon and, in
addition, listed eighteen proposed terms I1stillpendingagreement."
Mr. Jansky wrote: ItThose things still pending agreement are
summarized in our offer presented below, for you to either accept
or reject.'I Ferdig/Somont thereafter instructed Don Lee to prepare
a draft wellhead gas purchase contract which was then forwarded to
Keesun for review.
On May 18, 1988, Keesun communicated its dissatisfaction with
the draft contract to Don Lee who, in turn, informed Ferdig/Somont
that Keesun did not agree with the proposed gas purchase contract.
That same day, Mr. Jansky wrote Keesun a letter alleging that
Keesun had breached Ititscontractual obligations.Ig He stated that
Ferdig/Somont would release Keesun from those obligations on the
condition that Keesun relinquish title to four producing wells and
the leases upon which those wells were located in Section 27 of
Township 3 6 North, Range 4 West, and Section 19 of Township 3 6
North, Range 3 West. In his letter, Mr. Jansky stated that
Ferdig/Somont had assigned this acreage to Keesun "in reliance on
the fact that Keesun represented it would enter into a long term
gas sales contractIrwith Ferdig/Somont. He also stated that since
all the "acreage . . . was acquired from or via [Ferdig/Somont] in
accordance with the agreement since breached by Keesun,
[Ferdig/Somont] wants all this land back." In another letter dated
May 24, 1988, Mr. Jansky informed Keesun that Ferdig/Somont
intended to proceed as I1equitableowner" of the disputed wells, and
that a ItNotice of Interestvf that effect had been recorded in
to
Toole County.
On June 21, 1988, Keesun filed a complaint in the District
Court of the Ninth Judicial District, Toole County, seeking relief
against Ferdig/Somont on four counts. Count I sought quiet title
relief for the disputed oil and gas leasehold interests held by
Keesun; Count I1 sought declaratory relief that Ferdig/Somont had
no right to operate or control the four producing gas wells drilled
by Keesun on the leases described in Count I; Count I11 sought
declaratory relief that Ferdig/Somont had no rights to leases
acquired by Keesun in the future; and Count IV sought an accounting
and payment for deliveries by Keesun to Ferdig/Somont of gas from
the disputed wells.
Ferdig/Somont filed a motion to dismiss which was briefed by
the parties. Prior to a ruling on the motion to dismiss, Keesun
filed a motion for partial summary judgment as to Counts I, I1 and
IV of its complaint. This motion was briefed by the parties and,
on January 25, 1990, argued to the District Court.
Ferdig/Somontls motion to dismiss was subsequently denied.
Thereafter Ferdig/Somont filed its I1Answer,Affirmative Defenses
and counterclaim^.^^ This pleading set forth numerous affirmative
defenses and counterclaims most of which were premised upon an
alleged contractual relationship between Keesun and Ferdig/Somont
for the purchase of wellhead gas.
The parties then commenced discovery. Shortly before the
discovery deadline, the District Court granted partial summary
judgment to Keesun on July 23, 1.990. The court stated that its
reason for granting partial summary judgment was that:
There is nothing before the Court to suggest there is a
contract between the parties. There is nothing before
the Court that would take the contract between the
parties, if there were one, out of the statute of frauds.
The District Courtls judgment quieted title to the disputed
leases and wells in Keesun and ordered payment to Keesun for all
gas delivered to Ferdig/Somont from the disputed wells. The court
certified its judgment as final pursuant to Rule 54 (b), M.R. Civ.P.
Ferdig/Somont then moved the District Court to alter or amend
its order granting Keesun partial summary judgment. The court did
not rule on this motion within 45 days and, therefore, the motion
was deemed denied pursuant to Rule 59(g), M.R.Civ.P. This appeal
followed.
The first issue on appeal is whether the District Court erred
6
in determining that there are no genuine issues of material fact
as to the absence of a contract between the parties. Summary
judgment is properly granted where the record discloses no genuine
issue of material fact and the moving party is entitled to judgment
as a matter of law. Rule 56(c), M.R.Civ.P. The party seeking
summary judgment has the burden of demonstrating the absence of
genuine factual issues. OtBagy v. First Interstate Bank (1990),
241 Mont. 44, 46, 785 P.2d 190, 191. If the movant has met this
burden, the burden then shifts to the non-moving party to
demonstrate a genuine issue of material fact. OtBasy, 241 Mont.
at 46, 785 P.2d at 191. To meet this burden, the non-moving party
must proffer substantial evidence, not mere speculation and
conclusory statements. Hando v. PPG Indus., Inc. (1989), 236 Mont.
493, 497, 771 P.2d 956, 959; Frigon v. Morrison-Maierle, Inc.
(1981), 233 Mont. 113, 117, 760 P.2d 57, 60.
No evidence exists in the record of a signed written contract
between the parties. Therefore, the initial question with which
we are faced is whether an oral contract existed between the
parties for the purchase of wellhead gas. Ferdig/Somont contends
that a valid oral contract was entered into by the parties or that,
at a minimum, factual issues exist regarding the formation of a
contract. According to Ferdig/Somont, an agreement was reached
between the parties in which Keesun would sell its gas to Ferdig/
Somont for a period of twenty years. Ferdig/Somont contends that
the September 16, 1987 letter from Mr. Jansky to Mr. Finstad and
attorney Don Lee set forth the terms of, and confirmed, that
agreement. Ferdig/Somont further contends that Mr. Janskyls
correspondence with Keesun and Don Lee after the September 16th
letter merely reflected negotiations between the parties regarding
optional additions to and modifications of the basic agreement for
the purchase of wellhead gas.
In support of its contention that a contract was entered into
between the parties, Ferdig/Somont refers to a portion of Mr.
Finstad's deposition and argues that he testified that Keesun had
accepted the proposed wellhead gas purchase contract as set forth
in the September 16, 1987 letter:
Q [By Mr. Crotty] Is there anything in that letter that
you did not agree with?
MS. OSTBY: Objection. The question is too general.
A The essence of the proposed well head purchase
contract we . .
. I agreed to.
Ferdig/Somont also refers to a portion of Don Leelsdeposition
with regard to the meeting he attended with the parties on March
3, 1988 as further support that the parties had reached an
agreement.
What I recall is when everybody left and went out
the door that whatever had been discussed at that meeting
was agreed upon, other than the quantum of overriding
royalty that Somont would be entitled to on various
leases.
All contracts must contain four essential elements. These
elements are: (1) identifiable parties capable of contracting; (2)
their consent; (3) a lawful object; and (4) consideration. Section
28-2-102, MCA. The issue of whether or not there was a contract
in this case relates to the requirement of consent.
There must be mutual assent or a meeting of the minds on all
essential terms to form a binding contract. Chadwick v. Giberson
(1980), 190 Mont. 88, 92, 618 P.2d 1213, 1215. Consent is
established when there has been an offer and an acceptance of that
offer. More specifically, this Court has stated that in order to
effectuate a contract there must be not only a valid offer by one
party, but also an unconditional acceptance, according to its
terms, by the other. Kuchinski v. Security General Ins. Co.
(1963), 141 Mont. 515, 519, 380 P.2d 889, 891. In this case, the
purported contract fails for lack of consent.
The record indicates that, although some of the terms of the
wellhead gas purchase contract may have been agreed upon, the
parties were involved in an ongoing negotiation process regarding
many essential terms of the contract and no finalized agreement was
ever reached. At the January 25, 1990 hearing on partial summary
judgment, Don Lee testified as follows:
Q [By Ms. Ostby] If the parties would have reached an
agreement, you were to be the scribner [sic] of that
agreement, were you not?
A Yes.
Q Were you ever aware an agreement was reached on all
the essential terms of a contract, so you could draft
such an agreement?
MR. WARNER: Objection, leading.
THE COURT: It is somewhat, but 1'11 let him answer.
A On everything?
Q Yes.
A No.
Mr. Lee reaffirmed his belief that there was never any finalized
agreement between the parties in his subsequent deposition.
Q [By Ms. Ostby] This letter [referring to the letter
from Mr. Jansky to Keesun dated March 4, 19881 indicates,
toward the bottom third of the first page, that there
were several things Ifstillpending agreement;Irdo you see
that?
A Yes.
Q That accords with your understanding, doesn't it, that
there were still some things that were pending agreement
at that time?
A Yes.
In addition, Mr. Janskyls own admissions in his letters to
Keesun demonstrate that no finalized contract between the parties
existed. In his March 4, 1988 letter to Keesun, Mr. Jansky, on
behalf of Ferdig/Somont, stated that:
Along with the latest version of the proposed qas
purchase contract attached herewith, I want to confirm
those things Ferdig believes already mutually agreed,
which will be incorporated in a side agreement executed
concurrently with the gas purchase contract, and those
thinss Ferdia acknowledqes as still pendinq asreement.
Those thinss still pendinq aqreement are summarized in
our offer presented below, for you to either accept or
reiect . [Emphasis added. ]
Further, in a letter dated April 25, 1988, to the Montana Power
Company with whom Ferdig/Somont had negotiated a delivered gas
purchase contract, Mr. Jansky stated: I1[W]e do not yet have
contracts finalized with Keesun or Berenergy.I1 The date that
letter was written, April 25, 1988, was more than six months after
the date upon which Ferdig/Somont now claims a contract was formed
between the parties.
Mr. Janskyls own statements in his letters to Keesun and
Montana Power refute Ferdig/Somontls contention that the
correspondence subsequent to the September 16, 1987 letter merely
reflected negotiations regarding optional additions to and
modifications of a basic agreement between the parties. In our
view, they also reflect recognition by Ferdig/Somont that the
parties had not yet agreed upon all essential terms of a contract.
Ferdig/Somont also contends that this Court should find the
existence of a contract between the parties based on the doctrine
of promissory estoppel. The elements of promissory estoppel are:
(1) a promise clear and unambiguous in its terms; (2) reliance on
the promise by the party to whom the promise is made; (3)
reasonableness and foreseeability of the reliance; and (4) the
party asserting the reliance must be injured by the reliance. Tope
v. Taylor (1986), 224 Mont. 131, 136-37, 728 P.2d 789, 793.
With respect to the first element, this Court stated in Keil
v. Glacier Park, Inc. (1980), 188 Mont. 455, 462-63, 614 P.2d 502,
506, that promissory estoppel cannot be based on preliminary
negotiations or an agreement to negotiate the terms of a contract.
In the present case, the evidence before the District Court
established nothing more than that the parties had engaged in
preliminary negotiations and discussions of the terms of a wellhead
gas purchase contract. Mr. Janskyls letters to Keesun reflected
that finalization of the terms of a contract would require further
negotiations between the parties. This evidence does not
constitute the clear and unambiguous promise necessary to satisfy
the first element of promissory estoppel.
Additionally, Ferdig/Somont cannot establish facts sufficient
to show reliance on any alleged promise by Keesun. In making the
business decision to install the northern leg of its gas gathering
pipeline system, Ferdig/Somont had previously determined that its
own well in Section 34 of Township 36 North, Range 4 West, along
with another well in that section, justified installation of the
pipeline. This decision is reflected in Ferdig/Somontls letters
to its lenders during the summer of 1987, prior to the date of the
alleged formation of the wellhead gas purchase contract.
Keesun, as the moving party, met its initial burden of showing
that no evidence existed to prove the formation of a binding
contract between the parties. The burden then shifted to
Ferdig/Somont to show facts sufficient to raise a genuine issue.
Ferdig/Somont has failed to meet this burden. The District Court
correctly determined that the evidence proffered by Ferdig/Somont
was insufficient to raise any genuine issue of material fact as to
the existence of a gas purchase contract between the parties and,
thus, properly granted partial summary judgment on this issue.
Having determined that the record reveals that no valid oral
contract existed between the parties, it is unnecessary for us to
address Ferdig/Somontls second issue on appeal regarding the
applicability of the statute of frauds.
The next issue on appeal is whether the District Court erred
by not awarding Ferdig/Somont the remedies of rescission or
restitution and return of the parties to the status quo when it
granted Keesun quiet title relief. Ferdig/Somont contends that,
as consideration for a long-term gas purchase contract with Keesun,
it assigned various leasehold acreage interests to Keesun. It
argues that to allow Keesun to retain the benefits of the contract
in the form of acreage interests assigned to it, without enforcing
the contract, results in unjust enrichment. Ferdig/Somont argues
that it is entitled to rescission of those assignments,
restitution, and the return of the parties to the status quo based
on the theories of repudiation or breach of contract and fraud.
We disagree.
Mr. Finstad's affidavit and accompanying documents show that
the lease assignments were separately executed written contracts
for which consideration was received by Ferdig/Somont. For
example, with respect to the tlSpencer-Lohof"
lease assignment in
Section 27 of Township 3 6 North, Range 4 West, Ferdig/Somont
retained a 7 % % overriding royalty interest.
Mr. Jansky admitted that he considered the assignments to be
separate land contracts. When questioned during the January 25,
1990 hearing on partial summary judgment about one of the disputed
wells in Section 19 of Township 3 6 North, Range 3 West, Mr. Jansky
testified as follows:
Q [By Ms. Ostby] And, it [the Section 19 acreage] was
not part of that Contract, was it?
A No, ma'am.
Q And, despite the fact that it's not part of the Contract
that you're contending was breached, you're claiming ownership?
A Yes, ma'am.
The record shows that Keesun drilled the well in Section 19
pursuant to a separate, written farmout agreement between Western
Natural Gas Company (WNG) and Ferdig/Somont and, in turn, a
separate, written assignment to Keesun of Ferdig/Somontls rights
under the WNG agreement. Again, Ferdig/Somont retained a 7$%
overriding royalty. Nowhere in these documents is there any
language suggesting the assignments to be dependent upon some other
agreement.
In addition, the record does not reveal any fraud on Keesunls
part. There is nothing to indicate that Keesun intended to mislead
or deceive Ferdig/Somont by concealing material facts, or that
somehow Ferdig/Somont was misled to its detriment. To the
contrary, the record clearly establishes that Mr. Jansky was fully
aware that negotiations were ongoing. We hold that the District
Court did not err in rejecting Ferdig/Somontls claims of rescission
and restitution.
Affirmed.