A case that has been decided in the MontanaState Supreme Court illustrates how important it is for even fledgling businesses to have clear, measurable terms in contracts, especially when the contracts are centered on oil wells that later could become very profitable.
Two wells commonly known as the Anderson wells in Daniels County have been the measuring stick for oil development in Daniels. Years ago they were operated by Miocene Oil and Gas. Loosely put, operation was handed over to Summer Night Oil Company in 2005 and the agreement was finalized in July 2007. The agreement, if followed, would have released Miocene from involvement with the wells. The ongoing dispute that put the companies in court was the phrase “best efforts” that peppered a contract between the two. By August of 2009, both sides had taken various legal actions asserting that the other had not followed through with the terms of the contract, in particular “best efforts” to meet those obligations. Those ranged from unpaided EPA fines to delivering title to unpaid equipment rental to incomplete buyout payments. The two companies could not define the plain language meaning of “best effort” so the court was put in a position of determining what actions met the obligations and which did not.
The District court in the end declined to enforce a settlement agreement between Miocene and Summer Nights. The Supreme Court order said that was because “The court concluded that he Settlement Agreement lacks ambiguity, despite the fact that ‘some grammar appears repugnant.’” Accordingly, the court enforced the plain meaning of the contract as interpreted by the court and exchange funds and documents in a traditional manner. The court also held Summer Nights to the same standard they requested Miocene be held to in terms of defining a length of time for “best efforts” to meet contractual obligations.
The case was heard in District Court by Judge Katherine Irigoin. Her order complelled Miocene to release liens and documents and Summer night to pay as they obligated themselves in 2005. Judge Irigoin determined that the two years that had already passed was more than ample time for each to make a best effort and to comply with their contract in a reasonable time period. Summer Night’s funds were ordered into an escrow account until Miocene submitted to the court order. Finally, Judge Irigoin did not allow allow re-litigation of the original contract, instead the judge opted to impose standards for meeting the already agreed upon obligations as she not the parties interpreted them, set timelines, and each party assume their own attorney fees.
The state supreme court affirmed each of Judge Irigoin’s rulings related to this case.