No. 13118
I N THE SUPREME COURT O THE STATE O MONTANA
F F
1977
PERL SMITH, S. CHARLENE SMITH, and
EVERETT SATTERFIELD,
P l a i n t i f f s and R e s p o n d e n t s ,
WILBUR J . ZEPP, W S E FARNER, C . E .
ELY
KNOWLES, and WOLVERINE M I N I N G , INC.,
a Montana c o r p o r a t i o n ,
D e f e n d a n t s and A p p e l l a n t s .
Appeal from: D i s t r i c t Court of t h e Third J u d i c i a l D i s t r i c t ,
Honorable R o b e r t Boyd, J u d g e p r e s i d i n g .
Counsel of Record:
For A p p e l l a n t :
Crowley, Haughey, Hanson and T o o l e , B i l l i n g s , Montana
S t e p h e n F o s t e r a r g u e d , B i l l i n g s , Montana
Boone, K a r l b e r g and Haddon, M i s s o u l a , Montana
Sam E. Haddon a r g u e d , M i s s o u l a , Montana
For Respondents:
William R. T a y l o r , Deer Lodge, Montana
Radonich, B r o l i n and Reardon, Anaconda, Montana
John N. Radonich a r g u e d , Anaconda, Montana
Submitted: April 20, 1977
Decided :
Filed:
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. "gri U G z Isn
Mr. Chief Justice Paul G. Hatfield delivered the Opinion of the
Court.
This is an appeal by defendants from a district court judg-
ment granting forfeiture of a contract for purchase of mining prop-
erty by defendants and cancellation of a deed to a number of
patented and unpatented mining claims.
In 1964, plaintiff Perl Smith purchased numerous patented
and unpatented mining claims in Granite and Powell Counties known
as the "Master Mine". Plaintiff thereafter obtained a personal bank
loan and mortgaged the Master Mine property as security. When
plaintiff failed to repay the loan, the bank obtained a judgment
of foreclosure. The property was sold at a foreclosure sale on
May 28, 1971, after which plaintiff's sole interest in the property
was a year's statutory right of redemption under section 93-5835,
R.C.M. 1947.
In late April, 1972, plaintiff met with defendants Zepp and
Farner and discussed the sale of the Master Mine. On May 15, 1972,
the parties entered into a contract whereby plaintiff agreed to
sell, and defendants agreed to purchase, the Master Mine properties.
As consideration for plaintiff's granting of his ownership rights
in the property to defendants, defendants agreed to pay approximately
$69,000 for the redemption of the first mortgage on the Master Mine
property, and to pay $31,455 to various creditors of plaintiff.
In addition, defendants agreed to pay plaintiff Perl Smith a monthly
consultation fee of fifteen percent (15%) of the net operating profit
of the Master Mine. The parties contracted that defendants would
pay the 15% consultation fee to plaintiff Perl Smith or to his wife,
plaintiff Charlene Smith, during their lifetimes; if both plaintiffs
predeceased their son, defendants agreed to pay the son a commission
of 7-1/2% of the net profits.
To insure that the income from the mine, and consequently,
the consultation fee or commission, were maximized, defendants
agreed to produce an average of 300 yards of material each working
day. The material would then be taken to the mine's washing plant
where the gravel would be washed from the gold. There was not
sufficient machinery at the gold mine to excavate 300 yards of
material per day, but defendants agreed to purchase the larger
Caterpillar, dragline with three yard bucket, and dump truck neces-
sary to achieve a 300 yard per day production level.
The parties provided in the contract that in lieu of the
consultation fees or commissions to be paid from the net mining
profits, they might at a later date negotiate a fixed monthly pay-
ment. In case of any dispute between the parties as to the provi-
sions of the contract, plaintiff Per1 Smith and defendants agreed
to submit the controversy to arbitration.
The contract also contained a provision which provided for
a reversion of the property to the seller if defendants defaulted
in their "payment of said property", and failed to cure their
default within thirty days from receiving the seller's notice of
default .
After plaintiff and defendants signed the contract, plain-
tiff fully performed his contract obligations. Plaintiff gave to
defendants a quitclaim deed for all his interests in the Master
Mine property and the buildings thereon. The buildings consisted
of a main building with dining room, kitchen, bedrooms, showers,
five furnished cottages, an assay building, and several other shops,
light plants, storage and machinery repair buildings. The land
consisted of approximately 360 acres of patented and 1,680 acres
of unpatented mining claims. According to a local appraiser, the
mining land was also valuable for recreation, timber and livestock
grazing. The appraiser set the value of the land on ~ebruary12,
1968, at approximately $148,000, excluding mineral rights. ~ccording
to the report of a geophysicist who took random samples of the
earth at the mine site, the property contained an estimated $615
million worth of gold and other noble metals.
Defendants paid the approximately $69,000 necessary to
redeem the property from the mortgage foreclosure and paid the
approximately $31,455 of plaintiff Per1 Smith's debts, as they had
agreed to do in the contract. Defendants also successfully prepared
the property for mining, by clearing the mine road of snow, repair-
ing damaged equipment, and building dams and settling ponds so as
to comply with state and federal environmental regulations. Defend-
ants thereafter, however, failed to meet the contract condition
that required them to produce 300 yards of material each day. It
was defendants' failure to satisfy this contractual provision
which gave rise to plaintiff's successful lawsuit in district court,
and defendants' appeal to this Court.
At the time that defendants commenced mining operations on
July 16, 1972, they had not acquired the equipment necessary to
remove 300 yards of material each day. Rather than using the three
yard or bigger dragline that defendants had agreed to obtain,
defendants provided a 3/4 yard dragline for excavation of gravel.
The gravel was then hauled from the excavation pit to the washing
plant in a truck which held five yards of material. Defendants
hauled six to eight truckloads of material per day, so that total
daily mining production averaged between thirty and forty yards.
In August, 1972, defendants twice negotiated without suc-
cess for the purchase of used large draglines. Defendants also
ran advertisements in various Montana newspapers and talked to
heavy equipment dealers regarding the purchase of a Caterpillar.
These efforts likewise were unsuccessful, and defendants continued
to mine only thirty to forty yards per day until late August, 1972.
On August 30, 1972, the man whom defendants had hired to operate
the Master Mine resigned from his job because he felt that the
equipment at the mine was grossly inadequate. At that time, after
little more than one month of mining thirty to forty yards of
material daily, defendants ceased their mining operation.
For the entire month of mining, defendants recovered one
ounce of gold. Because expenses of operation far exceeded mining
income, there was no net profit, and plaintiff received nothing
under the contract provision granting him a 15% commission fee from
net mining profits.
On October 29, 1972, plaintiff Perl Smith and defendant
C. E. Knowles attempted without success to negotiate a monthly
payment to plaintiff to replace the contract's percentage of net
profit commission clause. This matter was not submitted for arbi-
tration under the contract's arbitration clause.
Plaintiff Perl Smith sent defendants notice of default in
a letter dated March 15, 1973. Plaintiff stated in the letter
that defendants were in breach of the contract for failure to mine
300 yards of material per working day. Plaintiff alleged that if
300 yards per day were mined, much gold and silver would be recovered
and a net operating profit would be received from which plaintiff
could receive his monthly percentage commission payment.
Defendants failed to cure the alleged default within the
thirty days allowed in the contract. Plaintiffs on November 13,
1973, filed a complaint in district court, Granite County, alleging
that defendants had breached their contract and asking that defend-
ants forfeit all rights under the contract and all money paid
pursuant to the contract, and that title to the Master Mines
property be quieted in plaintiffs.
On December 9, 1974, the case was tried in district court
before the Honorable Robert J. Boyd, sitting without a jury. he
district judge found that the 300 yard per day production require-
ment was a basic term of the contract which required strict com-
pliance by defendants. Defendant2 failure to produce 300 yards of
material per day was caused, the judge found, by their failure to
obtain adequate equipment. The judge concluded that defendants'
failure to produce more than fifty yards of material per day when
the mine was worked, and their total failure to mine the claims in
1973 and 1974 was a substantial failure of performance. The judge
concluded, as a matter of law, that the contract required that
defendantsf failure to mine 300 yards of material per day would
result in cancellation of the contract, cancellation of the deed
transferring the property from Perl Smith to defendants, and rever-
sion of the title to the mining claims to plaintiffs Perl Smith
and Everett Satterfield.
Defendants assert that the district court erred in ordering
a forfeiture of their rights under the contract, which resulted in
the loss to defendants of both the mining property and $96,000 in
contract payments. Defendants claim that the evidence failed to
show that a significant breach of the agreement occurred. Defend-
ants next assert that, even if they did significantly breach the
contract, forfeiture was an improper remedy.
Defendants' claim that the evidence failed to support a
finding that they significantly breached the contract is without
merit. The evidence at trial clearly showed that defendants failed
to meet the express contract requirement that they produce 300 yards
of material per working day. Defendants do not assert that they
performed their contractual duty; rather, they claim that their
failure to perform was excused due to impossibility of performance
and commercial frustration.
The general rule is that, where a party to a contract
obligates himself to a legal and possible performance, he must
perform in accordance with the contract terms. Brown v. First
Fed. Savings and Loan Assn., 154 Mont. 79, 460 P.2d 97. Defend-
ants, however, would have had no duty to perform their contractual
promise to produce 300 yards of material daily if, due to facts of
which neither plaintiffs nor defendants had reason to know, the
promise was impossible of performance at the time the contract
was made. 2 Rest. Contracts, section 456. Impossibility encom-
passes "not only strict impossibility but impracticability because
of extreme and unreasonable difficulty, expense, injury or loss
involved." 2 Rest. Contracts, section 454.
Defendants assert that it was a basic assumption of all
the parties to the contract that the Master Mine contained substan-
tial gold, and that when their aborted efforts to mine yielded
only about one ounce of gold, their failure to produce 300 yards
of material daily was excused. Defendants contend that even if
they had produced the ,300 yards per day, there would have been no
profit from which plaintiffs could receive a commission, because
there was no gold. Defendants therefore concluded that it was
impossible to operate the mine at a profit. Defendants cite
2 Rest. Contracts, section 460, which says:
"(1)Where the existence of a specific thing * * *
is, either by the terms of a bargain or in the
contemplation of both parties, necessary for the
performance of a promise in the bargain, a duty
to perform the promise
(a) never arises if at the time the
bargain is made the existence of the
thing * * * within the time for
seasonable performance is impossible
* * *."
The flaw in defendants' argument, however, is that they
never proved that the "specific thing", gold, did not exist in the
Master Mine properties in sufficient quantities to make a placer
mining operation profitable. Plaintiffs had no duty to prove that
marketable quantities of gold did exist in the Master Mine. Rather,
the burden of proving impossibility rested on the party asserting
the defense. Hensler v. City of Los Angeles, 124 Cal.App.2d 71,
268 P,2d 12. Defendant Wilbur Zepp testified that only one ounce
of gold was recovered. Yet defendants presented no expert testi-
mony to establish that production of merely 30-40 yards of material
per day for one month was conclusive evidence that substantial
quantities of gold did not exist on the property. Defendants did
not introduce any evidence of geologists' or geophysicists' reports
as to the minerals contained in the land. Furthermore, a geophysi-
cist's report prepared at the request of plaintiff Per1 Smith prior
to the sale of the property indicated that the Master Mine contained
valuable gold and other noble metals.
Defendants, during the one month in which they operated the
mine, were unable to achieve a 300 yard per day production because
their mining equipment was insufficient. "The party pleading im-
possibility must demonstrate that it took virtually every action
within its powers to perform its duties under the contract."
Kama Rippa Music, Inc. v. Schekeryk, 510 F.2d 837. Defendants
explained that they advertised in the state newspapers and con-
tacted two private parties and one dealer concerning larger equip-
ment, but failed to explain why other sources in nearby states
were not contacted.
A final reason why the failure of defendants to satisfy
the contract provision requiring 300 yards of production per day
was not excused due to impossibility is that the possible absence
of gold at the mine was a risk of the bargain. It is uncertain
whether or not an appreciable amount of gold exists at the Master
Mine. In a gold mining venture such as this one, however, where
defendants failed to inspect the mine or geologically test the
soil before purchase, the possibility existed that the rewards
might range from lucrative to nonexistent. Defendants could have
hired geologists to study the mineral content in the Master ~ i n e
prior to signing their contract with plaintiff rather than relying
solely on geological reports prepared several years previously for
Per1 Smith. This they failed to do. 2 Rest. Contracts, section
456,excuses a promisor from performing a contractual promise due
to impossibility only when the promisor and promisee had no reason
to know of the impossibility when they contracted. In this case,
the possibility of an unprofitable mine should have been foreseen
by defendants and specifically provided for in the contract.
It is possible that the Master Mine properties contain so
trifling an amount of gold that further mining would be economically
disastrous. If this is the case, defendants did not prove it at
trial. If such is the case, however, defendants merely made a
bad bargain by not providing for this very foreseeable contingency
in the contract or by themselves inspecting and testing the mining
property before the purchase. This Court may not rewrite the terms
of the contract in this case. Rather, we follow the law as stated
by this Court in Hein v. Fox, 126 Mont. 514, 520-521, 254 P.2d 1076:
"Courts can give no solace where parties
to a contract find themselves minus expected
profit through failure to exercise care in draw-
ing up such contract. What this court said in
Hinerman v. Baldwin, 67 Mont. 417, 433, 215 Pac.
1103, 1108, well applies here, viz: ' * * * The
court has no right to make a contract for the
parties different from that actually entered into
by them. * * *
"'Whether the plaintiff made a good or a
bad bargain is of no concern to the court. * * *
Merely because the terms of the contract now
appear unreasonable or burdensom affords no rea-
son to permit him to avoid his contract. * * *
" I * * * The duty of the court is to enforce
contracts, not to make new ones for the parties,
however unwise the terms may appear.'"
The doctrine of commercial frustration is also inapplicable
to the facts of this case. To relieve a promisor from a duty to
perform under this doctr-ine,the expected value of the performance
must be destroyed by an unforeseeable, intervening event. Lloyd v.
Murphy, 25 Cal.2d 48, 153 P.2d 47. The possibility that there is
negligible gold at the Master Mine was foreseeable at the time
the parties contracted. Furthermore, no intervening event has
reduced the quantity of gold at the mine. Defendants are not
excused from breaching their contractual duty to mine 300 yards of
material daily.
The remaining issue on appeal is the propriety of forfeiture
as a remedy for defendants' breach. The district judge based his
judgment that the defendants should forfeit their payments and
rights under the contract on the contract provision which stated
in pertinent part that "In case of default by purchaser in payment
of said property, it shall immediately revert to the seller, Perl
Smith, provided first seller gives purchaser thirty (30) days'
written notice of any default and purchaser shall then have thirty
(30) days from receipt of said notice to remedy said default * * *."
Plaintiff Perl Smith did give defendants written notice of their
default in failing to produce 300 yards of material per day. De-
fendants did fail to remedy the default within thirty days of
receiving the notice. Defendants' default, however, was not of the
type that would trigger the contract's forfeiture provision.
Montana law does not favor forfeitures. Table Mtn. Farms
v. Burton, 128 Mont. 434, 278 P.2d 213; State ex rel. Green v.
Bird, 62 Mont. 408, 205 P. 241. Section 58-212, R.C.M. 1947,
provides :
"A condition involving a forfeiture must
be strictly interpreted against the party for
whose benefit it is created."
This Court has consistently given section 58-212 and its
predecessor statutes an expansive interpretation, enforcing for-
feiture provisions only in situations where "the strict letter of
the contract requires it" and language of forfeiture is "plainly
expressed". Finley v. School District No. 1, 51 Mont. 411, 416,
153 P. 1010 (1915); Lipsker v. Billings Boot Shop, 129 Mont. 420,
288 P.2d 660; Cedar Creek Oil & Gas Co. v. Archer, 112 Mont. 477,
117 P.2d 265. Interpreting the forfeiture clause against plaintiffs,
the parties for whose benefit the provision was created, it can
hardly be said that the contract requires forfeiture for failure to
produce 300 yards of material each working day. The provision
required reversion of the property to the seller "In case of default
by purchaser in payment of said property * * *." Defendants made
all the'payments for the property" that were required under the
contract. These payments included furnishing the redemption price
for the property, and paying various debts of Per1 Smith. The
production clause on which defendants defaulted, directly related
to a consultation fee or commission to be paid from the net mining
profits. The forfeiture clause, strictly interpreted, did not
relate to this contract provision or to any provision other than
the property payment clauses.
Section 58-212, R.C.M. 1947, is borrowed from Section 1442,
Ca1.Ci.v. Code. The California Court of Appeals refused to declare
that mine buyers' contract rights and purchase moneys were for-
feited in a case in which the buyers failed to perform a contract
obligation to mine for a minimum amount of hours per month. The
court stated that "if an agreement can be reasonably interpreted
so as to avoid forfeiture, it is the duty of the court to avoid
it." Nelson v. Schoettgen, 1 Cal.App.2d 418, 36 P.2d 665.
Plaintiffs claim that the clause is not a forfeiture
clause, but is a reversion clause for which the rules regarding
forfeitures are inapplicable. A forfeiture by any other name is
still a forfeiture. There has been a forfeiture where parties
such as defendants lose all the money they have paid on a contract,
as well as all their rights and interests in the property.
Although plaintiffs and defendants have themselves provided
in their contract for all future contract disputes to be decided
by arbitration, this Court cannot order that the question of
damages be submitted to arbitration, pursuant to this contract
clause. The parties may agree that this specific issue of the
"value" of damages be submitted to binding arbitration, and then
they will be bound by the arbitrators' decision. School District
No. 1 v. Globe & Republic Ins. Co., 146 Mont. 208, 404 P.2d 889.
The arbitration provision as written, however, was nearly identical
to the arbitration clause which this Court held to be unenforce-
able in Green v. Wolff, 140 Mont. 413, 372 P.2d 427. Any contract
provision which states that all future contract disputes shall be
submitted to arbitration is void under section 13-806, R.C.M.
1947, which invalidates any contract provision restricting access
to the courts. Although arbitration may be the most speedy and
economical means available to parties for a binding resolution of
their disputes, this Court cannot enforce as broadly worded an
arbitration clause as exists in this contract until the legislature
amends or repeals section 13-806.
The legislature intended, in section 17-301, R.C.M. 1947,
to insure that one who is injured by another's wrongful breach of
contract has a right to recover such damages as will make him whole
again. Bos v. Dolajak, 167 Mont. 1, 534 P.2d 1258. The contract
in this case provided that plaintiff Perl Smith, his wife, or son
would receive consultation fees or commissions for a limited period
of time, measured by how long they should live. plaintiffs can
never recover those lost years of fees or commissions from net
profits except by way of damages. The proper measure of damages
so as to make the seller in this case "whole again", therefore,
is the amount which the district judge finds that plaintiff Perl
Smith would have received in consultation fee royalties from net
mining profits if defendants had produced 300 yards of material
each working day since the property was made ready to be mined in
1972, plus interest from the date the royalties would have accrued.
See Freeport Sulpher Co. v. American sulph@-r Royalty Co. , 117 Tex.
439, 6 S.W.2d 1039.
Plaintiffs have the burden of proving, by competent
evidence, the amount of damages which they suffered due to defend-
ants failure to produce 300 yards of material during each working
day. Rigney v. Swingley, 112 Mont. 104, 113 P.2d 344. Plaintiffs
will not be denied recovery merely because the damages in this
case are difficult to ascertain, as long as they prove damages
with reasonable certainty. In Brown v. Homestalte Exploration Co.,
98 Mont. 305, 337, 39 P.2d 168, this Court stated plaintiff must
provide the district judge with:
"A reasonable basis for computation and the best
evidence obtainable under the circumstances and
which will enable [the judge] to arrive at a
reasonably close estimate of the loss * * *."
(Bracketed material substituted.)
Such evidence may include, but is not limited to, the testimony of
geologists and geophysicists who test the mine's soil, the past
history of the mine, the cost of mining 300 cubic yards of gravel
per day and the value of gold and other noble metals in the soil
during the time that defendants failed to mine.
Although plaintiffs in their complaint asked solely for
forfeiture as a remedy for defendants' contract breach, the trial
judge must grant such other relief as is proper under the proven
facts of the case. Rule 54(c), M.R.Civ.P., which is identical with
Rule 54 (c), Fed.R.Civ.P., provides:
"* * *Except as to a party against whom a
judgment is entered by default, every final
judgment shall grant the relief to which the
party in whose favor it is rendered is entitled,
even if the party has not demanded such relief
in his pleadings."
In Garland v. Garland, 165 F.2d 131, the plaintiff, in her
complaint, asked soleJyfor recission and cancellation of a contract.
The court held that Rule 54(c), Fed.R.Civ.P., authorized the trial
court to grant the plaintiff damages, as well as specific perfor-
mance, even though the plaintiff did not request that relief in
her pleadings. In the case at bar, plaintiffs have proven that
defendants breached their contract and have made a case for possible
damages, though this was not the relief they requested. Although
they are not entitled to forfeiture, under Rule 54(c), M.R.Civ.P.,
the trial judge has the duty to give plaintiffs a hearing on damages,
the remedy to which they are entitled under the facts proven at
trial. See also: Columbia Nastri & Carta Carbone v. Columbia
Mfg. Co., 3 6 7 F.2d 3 0 8 ; Hutches v. Renfroe, 2 0 0 F.2d 3 3 7 .
The district judge's findings that defendants breached
their contract is affirmed. The judge's ruling that defendants
forfeited all rights and money paid under the contract is reversed.
The cause is remanded, with instructions to proceed in accordance
with this opinion.
vw ,4
. &
Chief Justice
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