SOUDERS v MT POWER CO

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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 Judicial gas lease. The D i s t r i c t D i s t r i c t r Carbon County, Court decided of the Thirteenth 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 S o u d e r s and Margaret Souders S o u d e r s were S .M. and S.M. Souders. 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 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 from h i s w i f e Margaret Souders. 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 byp 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 casingh 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, these leases from Ohio Oil Company's successor was a s s i g n e d 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 written Court testimony assignment. at to admitted trial help in into evidence o r a l interpreting the original and 1927 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 plaintiffs had the right to was not produce restrictive, and use from and the gas that 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), extrinsic MCA, evidence 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 . may be 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 v. Co. Schwenk ( 1 9 7 7 ) , 1 7 6 Mont. Court has also determined, of however, 546, 5 6 8 P.2d 145. This t h a t when t h e c i r c u m s t a n c e s 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 terms ticular Fenner & or phrases. Smith, Inc. 39 S t . R e p . (1982), v. Mont 3 0 5 , 3 0 9 ; F i l l b a c h v. Mont. 3 7 4 , 3 7 9 , 584 P.2d Here, Brown Merrill . . - Lynch, par- Pierce, , 6 4 0 P.2d 4 5 3 , 4 5 7 , I n l a n d C o n s t . Corp. ( 1 9 7 8 ) , 178 1274, 1277. t h e r e a l p u r p o s e of the p a r t i e s 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 . in assigning the oil 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 "By-products " clause. 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, " d r y g a s " o r g a s burned i n c l u d i n g t h e use of homes. What "by-products" the parties meant by the use for heat of the in term 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. ( 1 9 7 9 ) , 1 8 3 Mont. 3 5 9 , 6 0 0 P.2d d u c e d b y r e s p o n d e n t s showed 163. Rumph v. Dale E d w a r d s , Inc. Here, t h e e v i d e n c e i n t r o - 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 competent . This evidence amply supports the District 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 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 . Court's s tr i c t i v e .

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