Souders v. Montana Power Co.

NO. 82-231
IN THE SUPREME COURT OF THE STATE OF MONTANA

1983

HELEN J. SOUDERS and KENNETH D.
LUFF,
Plaintiffs and Respondents,

THE MONTA2JA POWER COMPANY, a Mont. corp.,
Defendant and Appellant.

Apgeal from: Dlstrict Court of the Thirteenth Judicial District,
In and for the County of Carbon, The Ilonorable
William J. Speare, Judge presiding.

Counsel of Record;
For Appellant:
Jardine, Stephenson, Blewett & Weaver; John 2 .
Weaver, P.O. Box 2269, Great Palls, l\lontana

For Respondent :

Raymond K. Peete, Billings, Montana

- - -

Submitted: March 3, 1983
Decided: April 26, 1983
Mr. J u s t i c e L . C. G u l b r a n d s o n d e l i v e r e d t h e O p i n i o n o f t h e C o u r t .

Plaintiffs initiated t h i s a c t i o n f o r a d e c l a r a t o r y judgment

t o d e t e r m i n e t h e i r r i g h t s u n d e r a r e s e r v a t i o n i n a n a s s i g n m e n t of
an oil and gas lease. The D i s t r i c t Court of the Thirteenth
Judicial D i s t r i c t r Carbon County, decided t h a t the reservation

was n o t r e s t r i c t i v e and t h a t t h e g a s had b e e n r e s e r v e d for all
purposes, not j u s t those specified i n the reservation.
P l a i n t i f f , H e l e n J . S o u d e r s , i s t h e d a u g h t e r and s u c c e s s o r i n

interest of her parents, Margaret Souders and S.M. Souders.
Margaret S o u d e r s and S .M. S o u d e r s were secre t a r y - t r e a s u r e r and

p r e s i d e n t o f Montana I n d u s t r i a l Company.
I n A u g u s t 1 9 2 6 , S.M. S o u d e r s became t h e l e s s e e of two o i l and
g a s l e a s e s ; o n e from t h e Montana I n d u s t r i a l Company, the other
from h i s w i f e Margaret Souders. S o u d e r s a s s i g n e d t h e s e l e a s e s to
t h e O h i o O i l Company on A p r i l 4 , 1 9 2 7 . The a s s i g n m e n t c o n t a i n e d

the following clause:
"EXCEPTING AND RESERVING, h o w e v e r , u n t o t h e
p a r t y of t h e f i r s t part [Souders I , t h e r i g h t
t o p r o d u c e , t a k e and u s e g a s from t h e E a g l e
S a n d s t o n e and a b o v e on t h e a b o v e d e s c r i b e d
l a n d s , f o r t h e p u r p o s e of e x t r a c t i n g , m a k i n g ,
o r m a n u f a c t u r i n g c a s i n g - h e a d g a s o l i n e o r by-
p r o d u c t s or c a r b o n b l a c k , t o g e t h e r w i t h t h e
r i g h t o f i n g r e s s and e g r e s s and t h e r i g h t of
i n s t a l l i n g m a c h i n e r y and e q u i p m e n t f o r t h e
p u r p o s e o f d r i l l i n g f o r and p r o d u c i n g g a s from
t h e e a g l e s a n d s t o n e and s t r a t a s a b o v e , p r o -
v i d e d t h a t t h e p a r t y of t h e f i r s t p a r t s h a l l
so l o c a t e h i s o p e r a t i o n s and e q u i p m e n t s o as
t o i n t e r f e r e as l i t t l e as p r a c t i c a l w i t h t h e
o p e r a t i o n s of t h e p a r t y of t h e second p a r t . "
The dispute here c e n t e r s upon t h e i n t e r p r e t a t i o n of t h e words
" f o r t h e purpose of e x t r a c t i n g , making, o r manufacturing casing-
h e a d g a s 0 1 i n e or b y - p r o d u c t s or c a r b o n b l a c k . "
I n 1 9 6 4 , t h e a p p e l l a n t , Montana Power Company, was a s s i g n e d
these leases from Ohio Oil Company's successor in interest,

M a r a t h o n O i l Company.

I n 1975, Helen S o u d e r s a s s i g n e d h e r i n t e r e s t s under t h e above
r e s e r v a t i o n t o Kenneth L u f f .

H e l e n S o u d e r s and L u f f b r o u g h t t h i s a c t i o n t o d e t e r m i n e t h e i r

rights under the reservation in the a s s i g n m e n t of the leases.
The D i s t r i c t Court at trial admitted into evidence o r a l and
written testimony to help in interpreting the original 1927
assignment. Based on t h i s e x t r i n s i c e v i d e n c e , t h e D i s t r i c t C o u r t
concluded that the reservation was not restrictive, and that
plaintiffs had the right to produce and use the gas from the
E a g l e S a n d s t o n e f o r m a t i o n and a b o v e f o r a n y p u r p o s e w h a t s o e v e r .
The f i v e i s s u e s r a i s e d b y a p p e l l a n t , Montana Power Company,

may be summarized i n t h e f o l l o w i n g t w o i s s u e s :
1. W h e t h e r t h e r e s e r v a t i o n is a m b i g u o u s ; and

2. Whether t h e D i s t r i c t Court e r r e d i n a d m i t t i n g t h e e x t r i n -

s i c e v i d e n c e t o show t h e i n t e n t of t h e p a r t i e s .

Under section 28-2-905(2), MCA, extrinsic evidence may be

used t o e x p l a i n an ambiguity i n a w r i t t e n c o n t r a c t . An a m b i g u i t y
a r i s e s when a c o n t r a c t , t a k e n as a w h o l e i n i t s w o r d i n g o r p h r a s -
eology, is r e a s o n a b l y s u b j e c t t o two d i f f e r e n t i n t e r p r e t a t i o n s .

S-W Co. v. Schwenk ( 1 9 7 7 ) , 1 7 6 Mont. 546, 5 6 8 P.2d 145. This

Court has also determined, however, t h a t when t h e c i r c u m s t a n c e s

of t h e p a r t i e s and t h e i r r e a l p u r p o s e i n e x e c u t i n g and r e c e i v i n g
the i n s t r u m e n t s are s u b j e c t t o i n t e r p r e t a t i o n , par01 testimony
may be u s e d t o d e t e r m i n e w h a t t h e p a r t i e s m e a n t by u s e of par-
ticular terms or phrases. Brown v. Merrill Lynch, Pierce,
Fenner & Smith, Inc. (1982), Mont . . - , 6 4 0 P.2d 4 5 3 , 4 5 7 ,
39 S t . R e p . 3 0 5 , 3 0 9 ; F i l l b a c h v. I n l a n d C o n s t . Corp. ( 1 9 7 8 ) , 178

Mont. 3 7 4 , 3 7 9 , 584 P.2d 1274, 1277.
Here, t h e r e a l p u r p o s e of the p a r t i e s in assigning the oil
and g a s l e a s e s is o p e n t o q u e s t i o n . The f i r s t h a l f o f t h e reser-
v a t i o n seems r e s t r i c t i v e , w h i l e no r e s t r i c t i o n was p l a c e d i n t h e
egress and ingress clause. "By-products " according to the
expert testimony at t r i a l , c o u l d mean n e a r l y a n y u s e of n a t u r a l
gas, i n c l u d i n g t h e use of " d r y g a s " o r g a s burned for heat in
homes. What the parties meant by the use of the term

"by-products" is t h e r e f o r e s u b j e c t t o i n t e r p r e t a t i o n .

Where t h e l a n g u a g e o f a contract is d o u b t f u l and a m b i g u o u s ,

t h e c o n d u c t o f t h e p a r t i e s u n d e r t h e c o n t r a c t is o n e of t h e b e s t
i n d i c a t i o n s of their true intent. Rumph v. Dale E d w a r d s , Inc.
( 1 9 7 9 ) , 1 8 3 Mont. 3 5 9 , 6 0 0 P.2d 163. Here, t h e e v i d e n c e i n t r o -

d u c e d b y r e s p o n d e n t s showed t h e c o u r s e of c o n d u c t b e t w e e n S.M.
S o u d e r s and O h i o O i l Company, and was t h e r e f o r e r e l e v a n t and com-

petent . This evidence amply supports the District Court's

c o n c l u s i o n t h a t t h e r e s e r v a t i o n was n o t m e a n t to s tr i c t i v e .
The D i s t r i c t C o u r t ' s judgment is a f f i r m e d .

W e concur:

Chief J u s t i c e \

Judge, s i t t w i n p l a c e of M r .
J u s t i c e J o h n C. S h e e h y