Pegg v. Mid-State v. Dev. Corp.

No. 12723

I N T E SUPREME COURT O THE STATE O M N A A H F F OTN

D N L E. P G and KAY A. PEGG, O AD EG husband and w i f e , P l a i n t i f f s and Respondent, -vs - MID-STATE DEVELOPMENT CORPORATION, a Montana Corporation, Defendant and A p p e l l a n t , and

GAIL W. BURLEIGH and ZITA E. BURLEIGH, Defendants, and

MARGARET (HARVEY) BARBER, Defendant and Respondent.

Appeal from: D i s t r i c t Court of t h e Tenth J u d i c i a l D i s t r i c t , Honorable LeRoy L. McKinnon, Judge p r e s i d i n g .

Counsel of Record:

F o r Appellant :

Kurth, Davidson & Calton, B i l l i n g s , Montana David A. Veeder argued, B i l l i n g s , Montana

For Respondents :

Theodore P. Cowan argued, Lewistown, Montana Donald E. Ronish, Lewistown, Montana

Submitted: June 14, 1974

Decided : J'Ji 4 1974 2 Filed : JUL 2 4 1974

Mr. Justice Wesley Castles delivered the Opinion of the Court,

This is an appeal from a judgment for plaintiffs permanently enjoining defendant Mid-State Development Corporation from entry onto lands under a timber purchase contract and from other orders and judgments in regards thereto. The matter was tried to the district court in Fergus County, sitting without a jury. Plaintiffs, respondents here, are husband and wife and will be referred to as Peggs. Defendant and appellant Mid-State Develop- ment Corporation will be referred to as Mid-State, On April 16, 1969, Don and Margaret Harvey, owners of certain real property, entered into a "Timber Purchase Contract" with Silver City Lumber, Inc. The contract was for cutting and removing timber on certain lands owned by the Harveys. The contract ran until April 30, 1974. The contract was assigned by Silver City to Mid-State on October 12, 1972. On April 3, 1970, Margaret Harvey, after on's death, sold the land which was the subject of the timber purchase contract to Gail and Zita Burleigh under a contract for deed. The Burleighs were informed of the timber purchase contract. The contract for deed was for a term of twenty years. On June 1, 1973, the land which was subject to the timber purchase contract was again sold on a c~ntractfor deed by Burleighs to Peggs. Peggs were informed and had actual notice of the timber purchase contract. This contract for deed was for a term of ten years, and required the consent of Burleighs before the purchasers, Peggs, could contract for the sale of timber, which consent was given for the subject timber purchase contract, In mid-September 1973, Peggs received notification from Mid- State by telephone and by letter that Mid-State would go upon the land to harvest the timber. On September 24, 1973, Mid-State was restrained by a temporary

restraining order from such entry; and subsequently the restraining order was made permanent. A motion to quash the temporary restraining

o r d e r was denied. Motions f o r summary judgment were made by each party. The t r i a l judge granted summary judgnent t o Peggs. Appeal i s taken from the order denying t h e motion t o quash and t h e judgment entered on t h e motion f o r summary judgment. The c o u r t made f i n d i n g s of f a c t and conclusions of law i n which t h e t r i a l judge determined t h a t t h e timber purchase c o n t r a c t amounted only t o a revocable l i c e n s e t o e n t e r Peggs' land which l i c e n s e was revoked by Peggs. The judge f u r t h e r determined t h e timber purchase c o n t r a c t was ambiguous by reason of i t s e s c a l a t o r c l a u s e , and t h e r e f o r e i t was impossible t o determine t h e c o n s i d e r a t i o n of t h e c o n t r a c t . The i s s u e s here go, i n t h e main, t o the foregoing determinations. Two b a s i c questions a r e : (1) Is t h e timber purchase c o n t r a c t a valid contract? (2) I f v a l i d , may such a c o n t r a c t be revoked u n i l a t e r a l l y by t h e purchaser under an executory c o n t r a c t f o r deed where t h e purchaser had a c t u a l knowledge of t h e c o n t r a c t ? The timber purchase c o n t r a c t provided: "TIMBER PURCHASE C N R C OTAT "This Contract Made and entered i n t o t h i s 16 day of A p r i l , 1969, by and between SILVER C I T Y LUMBER, I N C . , A Montana Corporation, t h e p a r t y of t h e f i r s t p a r t , herein- a f t e r r e f e r r e d t o a s t h e BUYER, and Don E and Margaret A Harvey, of Lewistown, t h e p a r t y of t h e second p a r t , herein- a f t e r r e f e r r e d t o a s t h e SELLER,

"THAT WHEREAS, t h e SELLER i s t h e owner of t h e following described property s i t u a t e d i n Fergus County, and more p a r t i c u l a r l y described a s follows: "T 15 R 19 I1 sec. 24 S 112 of SE 114 sec. 25 N 112 of NW 114 S 114 of SW 114 E S 114 of NW 114 W W 1 1 2 of NE 1 / 4 "AND WHEREAS, t h e BUYER i s d e s i r o u s of buying t h e merchantable timber on s a i d land and t h e SELLER i s de- s i r o u s of s e l l i n g s a i d timber; "NOW THEREFORE, i n c o n s i d e r a t i o n of t h e premises and and mutual covenants and agreement h e r e i n a f t e r set f o r t h , i t i s agreed by and between t h e p a r t i e s a s follows:

"TIMBER TO BE S L OD "1. The SELLER w i l l s e l l t o t h e BUYER a l l of t h e merchantable timber on t h e above described lands. The SELLER warrants t o BUYER t h a t he has l e g a l t i t l e t o s a i d timber t h a t i t i s f r e e and c l e a r of a l l encumbrances and t h a t he does hereby forever warrant and w i l l forever defend t h e t i t l e t o t h e BUYER a g a i n s t any and a l l claims of a l l persons whomsoever. "PURCHASE PRICE "1. The BUYER agrees t o pay t h e SELLER t h e sum of n i n e d o l l a r s ($9.00) per thousand f e e t f o r a l l species.

"1. A l l logs s h a l l be scaled by t h e BUYER'S s c a l e r when d e l i v e r e d t o BUYER'S s c a l i n g point. A l l logs s h a l l be scaled with t h e Scribner Decimal C l o g r u l e . Saw logs s h a l l n o t be considered merchantable u n l e s s they have a n e t sound s c a l e of a t l e a s t 50% of t h e i r gross s c a l e . I f t h e SELLER i s a t any time d i s s a t i s f i e d with t h e log s c a l i n g , t h e SELLER may a t h i s own expense h i r e h i s own l o g s c a l e r . I n t h e event t h e BUYER and t h e SELLER'S log s c a l e r cannot agree on t h e log s c a l i n g , t h e two s c a l e r s s h a l l h i r e a t h i r d and independent s c a l e r who s h a l l be paid e q u a l l y by t h e BUYER and SELLER. The d e c i s i o n of two out of t h r e e of t h e s c a l e r s s h a l l i n such event be binding upon t h e p a r t i e s . Timber w i l l be crused before c u t . M.H. D.E.H.

"1. The BUYER w i l l pay t o t h e SELT.P& upon t h e signing of t h i s agreement, t h e sum of $75.00 r e c e i p t of which i s hereby acknowledged by t h e SELLER. This s m i s t o beu t r e a t e d a s an advance payment on t h e i n i t i a l stumpage. The BUYER w i l l pay t h e SELLER f o r a l l timber s o c u t and removed between t h e f i r s t and f i f t e e n of t h e month by twentieth of t h e month, and f o r a l l timber so c u t and removed between t h e f i f t e e n t h and t h e end of t h e month by t h e f i f t h of t h e following month. $500.00 d e p o s i t paid before timber i s c u t . M.H. D.E.H. "SLASH DISPOSAL " . The BUYER w i l l pay t h e S t a t e F o r e s t e r $1 per 1 thousand f o r s l a s h d i s p o s a l . "TERM O AGREEMENT F "1. It i s hereby agreed and understood by t h e p a r t i e s h e r e i n t h a t t h i s c o n t r a c t s h a l l continue i n e f f e c t u n t i l A p r i l 30 1974.

"INGRESS AND EGRESS "1. The BUYER s h a l l have t h e r i g h t over s a i d property t o b u i l d a l l roads necessary f o r t h e removal of s a i d timber, t o g e t h e r with t h e r i g h t s of i n g r e s s and egress over and along s a i d roads and elsewhere over s a i d premises necessary f o r c u t t i n g and removal of s a i d timber.

"BUYER TO HOLD SELLER HARMLESS " . In all logging operations hereunder conducted 1 by the BUYER, the BUYER will at all times protect and save harmless the SELLER and his property against claims for labor, materials or supplies furnished and against and from any and all liens and claims of liens therefore. SELLER shall be reimbursed by the BUYER for any damage done to the fences, gates, cattle guards or livestock of the SELLER'S that is attributable to the acts of the BUYER, his agents, servants, or employees. Timber price will be esculated each year. M.H. D.E.H.

"1. In the event of any default under the terms of this contract by the BUYER, the SELLER shall give written notice stating the manner in which the BUYER is in default on said contract. Upon the receipt of such written notice of default all logging operations on said land shall cease at once until the said default has been corrected; and unless the BUYER can and does correct said default within 30 days of the time of re- ceipt of said notice, the SELLER may cancel and ter- mintate this agreement. "TIME OF ESSENCE "1. Lastly, it is agreed that time is of the essence of this contract and that all of the covenants and agreements herein contained shall extend to and be obligatory upon heirs, executors, successors and assigns of the parties herein. "IN WITNESS WHEREOF, the parties have hereunto set their hands the date hereinabove first written. "SELLER : S/ Don E. Harvey Margaret A. Harvey

SILVER .CITY LUMBER,INC. S/ By: Michael A. ~olmes" Is the sale of standing timber under such a written contract of sale a sale of goods subject to the Montana Uniform Commercial Code or is it simply a sale of an interest in land, hence subject to the laws of real property? Peggs rely on Gullicksen v. Shadoan, 124 Mont. 56, 218 P.2d 714, for the proposition that an executory contract for sale and removal of growing timber is a mere license revocable at the will of the owner. This Court there held that title to the trees severed passed until the license was revoked. In Gullicksen the purchaser by deed was an innocent purchaser for value, unlike the instant case.

Mid-State urges the effect of the Montana Uniform Commercial Code. This code was enacted by the Montana legislature in 1963 to become effective at midnight on January 1, 1965, and therefore it applied to transactions entered into and events occurring after that date and was the law in Montana at the time of the execution of this timber purchase contract. Under the code, Title 87A, goods are defined at section 87A-2- 105(1), R.C.M. 1947, as: "* * * '~oods'also includes the unborn young of animals and growing crops and other identified things attached to realty as described in the section on goods to be severed from realty (section 87A-2-107). I I Mid-State dwells on the application of the Uniform Commercial Code to such a contract. However, we believe the same result is reached under the general contract law as it applies to realty. No problem concerned with the statutesof fraud appears. No problem with lack of knowledge appears. From the findings of the trial court, the contract was found to be ambiguous because of the esca- lator clause, "Timber price will be esculated each year. I I It is evident from a reading of the contract that money was to be paid in a minimum amount, $9.00 per M for the timber removed with an additional amount to be paid as an escalator. As Montana statutory law indicates in sections 13-506 through 13-509, R.C.M. 1947, the amount of such additional consideration may be determined other than specifically in the contract. The additional considera- tion amount here could be determined by the use of ~rescott's testimony presented at a hearing on February 20, 1974. Prescott testified that the Silver City Lumber, Inc. escalator clause dated November 8, 1968, only a few months before this contract, would have been intended by the parties. The only difference between that clause and this was the minimum price was $8.00 per M, rather than $ . 0 per M 90 . The validity of escalator clauses is annotated in 63 ALR2d 1339. There was testimony undisputed, that the term escalator has a posi- tive and definite meaning in the Lewistown area.

The f a c t s show t h e c o n t r a c t t o have been i n w r i t i n g with a good and v a l i d c o n s i d e r a t i o n and no ambiguity appears. W r e t u r n now t o t h e Gullicksen case. e I n 18 ALR2d 1152, t h i s statement i s made: "* * * one who purchases land with n o t i c e , a c t u a l o r c o n s t r u c t i v e , of a p r i o r s a l e of t h e timber thereon, o r a g r a n t of r i g h t s i n such timber, t o a t h i r d person, i s g e n e r a l l y held t o take s u b j e c t t o such r i g h t s i n r e s p c t of such timber a s might have been a s s e r t e d by t h e l a t t e r a g a i n s t t h e vendor o r g r a n t o r . 'I The annotation c i t e s Gullicksen i n support and a t page 1153 of t h e annotation i n 18 ALR2d, i t i s s a i d : "* * * a c o n t r a c t f o r t h e s a l e of timber i s enforceable a g a i n s t a subsequent vendee of t h e land t o t h e e x t e n t , b u t only t o t h e e x t e n t , t h a t he has, o r i s chargeable w i t h , n o t i c e thereof. " W f i n d t h i s t o be t h e c o r r e c t view. e In the i n s t a n t case the t r i a l c o u r t found "there has been no proof of custom o r usage i n t h e a r e a t h a t would give meaning t o t h e so-called ' e s c a l a t o r ' c l a u s e ; t h a t i n f a c t t h e c o n t r a c t put i n evidence f o r t h a t purpose s e t out a method of a r r i v i n g a t t h e p r i c e i n t h a t c o n t r a c t a t any 11 given time, q u i t e c o n t r a r y t o t h e c l a u s e i n t h i s case. The evi- dence does n o t bear t h i s out. This c a s e was determined on a motion f o r summary judgment. A t most, i t can be s a i d t h a t t h e evidence may have been c o n f l i c t i n g a s t o t h e i n t e n t of t h e p a r t i e s ; and by t h a t statement i t i s evident t h a t t h e c a s e was n o t r i p e f o r summary judgment. However, a s we read t h e testimony, i t was n o t c o n t r a d i c t e d t h a t t h e e s c a l a t o r c l a u s e had a d e f i n i t e and fixed meaning i n t h e a r e a and a s intended by t h e p a r t i e s . I n Gullicksen statements of t h i s Court could be taken t o mean t h a t n o t i c e of t h e timber c o n t r a c t i s n o t m a t e r i a l and would n o t prevent a u n i l a t e r a l revocation of a l i c e n s e . However t h e f a c t was t h e r e t h a t no n o t i c e was had and such an i n t e r p r e t a t i o n i s n o t reasonable. To t h e e x t e n t t h a t t h e o b i t e r dictum appears i n Gullicksen, c o n t r a r y t o what we hold h e r e , i t i s overruled. Sorensen v. Jacobson, 125 Mont. 148, 232 P.2d 332, i s a l s o c i t e d by Peggs. I n t h a t c a s e an o r a l c o n t r a c t f o r s a l e of growing

timber was found to be executory in nature and that title to severed logs passed to the purchaser. It does not conflict with anything we hold here. The findings of the district court were not supported by the evidence and we find that Mid-State had a valid contract. No valid revocation of the timber purchase contract was shown. Because the contract by its terms expired on April 30, 1974, and because the Peggs caused the delay in harvesting the timber while Mid-State was under the restraining order, Mid-State is entitled to an ex- tension of an equal amount of time to complete the contract. Accordingly, the order refusing to quash the temporary re- straining order and the judgment granted to Peggs are reversed. The cause is remanded to the district court for further proceedings not inconsistent herewith.

We Concur:

Justices "-

H g n , Thomas ~ i & n , District sitting for Chief Justice -1 T. Harrison.