                            No. 81-234
          IN THE SUPREME COURT OF THE STATE OF MONTANA




EXETER EXPLORATION COMPANY et al.,
                              Plaintiffs and Respondents,
            vs.
J. W. FITZPATRICK, et al.,
                              Defendants and Appellants.


Appeal from:      District Court of the Sixteenth Judicial District,
                  In and for the County of Rosebud
                  Honorable A. B. Martin, Judge presiding.
Counsel of Record:
         For Appellants:
             Moulton, Bellingham, Lonqo and Matther, Billings,
              Montana
             William H. Bellingham argued, Billinqs, Montana
         For Respondents:
             Sandal1 and Cavan, Billings, Montana
             James L. Sandal1 argued, Billings, Montana
             McNamer, Thompson & Cashmore, Billings, Montana
         For Amicus Curiae:
             Walter W. Sanders, Houston, Texas


                                  Submitted:   September 9, 1982
                                    Decided:   January 20, 1983
          J l 2 0 1983
          Av
Filed:
Mr. Justice Daniel J. Shea delivered the Opinion of the Court.


     Defendants, J. W. Fitzpatrick, et al. appeal from a judgment of
the Rosebud County District Court quieting title to the working
interest in an oil and gas lease i favor of plaintiffs, Exeter, et
                                  n
al. and defendant, Younghlccd. The dispute stems from an assignment
m d e in 1969 by J. W. Fitzpatrick of certain portions of his interest
in an oil and gas lease.     The assignment was part of a plan of
Fitzpatrick's to liquidate a family corporation. The assignees were
himself, his wife and four trusts which he had established for his
children.   Exeter brought this quiet title action to determine
whether the four trusts own a working interest or an overriding
royalty interest in the lease.   The workinq interest claimed by the
trusts is more valuable:   the m u n t due the four Fitzpatrick trusts
as working interest owners on production through April 1980 would be
$202,709.86; the amount which would be due them as owners of an
overriding royalty interest for the same period would be $18,084.49.
The trial court ruled that the trusts own only overriding royalty
interests, and also ruled that the trusts were not entitled to
interest on the amounts withheld pending the outcom of litigation.

We reverse and remand for entry of judgment in favor of J. W.
Fitzpatrick, et al.
    Fitzpatrick, et al. raise four issues. First they contend that
the 1969 assignment to the trusts was a gift and that the txial court
erred in ruling that the gift failed for lack of delivery and lack of
acceptance, and because J. W Fitzpatxick retained dominion and
                            .
control over the working interest. Second, they argue that the trial
court erred in ruling that even if the gift was valid, nonetheless,
J. Lee Youngblmd had a right to notice i writing of that assignmeat
                                       n
and that no such notice was given.    They argue that Youngblmd had
constructive notice of the assignment, which was sufficient. Third,
they argue that the trial court erred in ruling that in any evemt
Youngblood had    a   right to   acquire   the working   interest by
specifically eiaforcing a preferential right of purchase against the
Fitzpatrick trusts.    They contend that the preferential purchase
right is not applicable to a gratuitous transfer to a family member
and that J. Lee Youngblood waited too long to exercise the right.
The fourth and final issue does not go to the merits of the lawsuit,
rather the four Fitzpatrick trusts claim that regardless of the
nature of their ownership, they are entitled to interest on any money
owed to them which has been held in suspense pending the outcome of
this suit.
     The oil and gas lease is on land in Rosebud County.    In 1968,
the working interest in the lease was co-omd by four parties:     J.

W Fitzpa-trick,L S Youngblood, Natural Gas and Oil Company, and
 .              . .
Continent.al Oil Company.   The exact percentage owned by each party
has no haring on this appeal.      The interests are subject to the
terms of an operating agreement signed by the parties on April 29,
1954, and recorded.    The agreemt included a clause giving each
party a preferential right to purchase the working interest of any
other party.
     On September 27, 1968, J. W. Fitzpatrick created four tvusts at
the Wyoming National Bank of Casper, one for each of his four
children. He conveyed various assets to the trusts as part of a plan
to liquidate his business holdings for estate planning purposes.
     The disputed assignmmt occurred on June 22, 1969 when J. W.
Fitzpatrick divided his working interest i + h lease and assigned
                                         n _e
approximately one-third to his wife, approximately one-third in equal
shares to the four trusts, and reserved one-third to himself.   This
lease was only one of several items J. W Fitzpatrick included i the
                                        .                     n
1969 a s - .
      sit         The trial court held only that the assignment to
the trusts of the working interest in that particular lease was

invalid.

     In 1967, J. Lee Youngblood acquired a working interest in the

lease from his brother, L. S. Youngblood, w o had been one of the
                                           h

original parties t o the 1954 operating agreement.         J. Lee Youngblood

sought t o acquire the r e s t of the outstanding working interests.         On

My 26,
 a         1972, J. W.       Fitzpatrick, Natural Gas and O i l Company and

Continental O i l Conpany a l l signed a quitclaim assignment of whatever

working interest they had t o J. Lee Youngblood.            After obtaining

these assignmints,      J.    L e e Youngblood believed   that he owned 100

percent of the working interest in the lease.             H then contracted
                                                           e

with meter Exploration Corpany e t a l . t o explore and develop oil. and

gas wells on the land.         Ownership or control of 100 percent of the

working interest i n an o i l and gas lease is necessary as a basis for

exploration and developnent.            Developwnt was successful and the

lands became productive in 1972.

     In t h i s suit, Youngblood contends that by the 1972 assignment,

he acquired a l l of the working interest which J. W. Fitzpatrick had

ever owned in the lease.          The Fitzpatrick trusts on the other hand

contend that they have a superior claim t o the portion of the working

interest which had been assigned t o them i n 1969.              Therefore the

trusts argue that by the 1972 assignment Youngblood acquired only the

one-third working interest which J. W. Fitzpatrick had reserved t o

himself in the 1969 assignment.

     In 1975, Yo~,mgbloodbegan t o doubt whether he had acquired a l l

of J. W.    Fitzpatrick's original working interest.             Therefore, a t

Youngblood's insistence, J. W. Fitzpatrick and his wife both signed

l e t t e r s t o ratify that Youngblood had acquired a l l of their working

interest   in   1972.        However,   the   four Fitzpatrick    children   as

beneficiaries of the trusts which J. W. Fitzpatrick created in 1968,
refused a request from Youngblood t o sign similar letters indicatinq

t h a t they had no claim t o the working interest in the lease.

      The f i r s t question is, of course, whether t h e 1969 assignment t o

the t r u s t s was valid.        I f so, Youngblood argues t h a t he n.onetheless

had a r i g h t t o exercise the preferential purchase r i g h t contained i n

the 1954 operating agreement.                  This agreement gave ea.ch party a

preferential r i g h t t o purchase the working i n t e r e s t of another party

upon m e t i n g the terms offered a purchaser.                    J. W.   Fitzpatrick's

assignroents      to    his     childrens'     trusts    were     gifts.     In     effect,

Youngblood claims that the preferential purchase clause requires t h a t

before J. W. Fitzpatrick could give h i s working i n t e r e s t a s a g i f t t o

his   children,        he     first   should   have     offered     it a s a       gift   to

Youngblood.

      The t r i a l court concluded t h a t the 1969 assignment was inva.lid

f o r the f a i l u r e of delivery, f a i l u r e of acceptance and f o r retention

of    dominion     and      control    over    the    working     interest   by     J.    W.

Fitzpatrick.        W e hold. t h a t the 1969 a.ssignment t o the trusts was

valid; t h a t delivery was s u f f i c i e n t , t h a t the t r u s t s accepted the

assignment and t h a t J. W. Fitzpatrick's involvement with. the lorking

i n t e r e s t did not constitute an exercise of dominion and control over

the working i n t e r e s t .

DELIVERY AND ACCEPTANCE

       In 1929, we held t h a t actual o r symbolic delivery is not

necessary t o complete a g i f t effectuated by an instrument i n writing.

Sylvain, e t a l . v.           Page (1929), 84 Mont. 424, 276 P.            16.     J. W.

Fitzpatrick executed and recorded t h e 1969 assignmnt.                        The t r i a l

court found t h a t J. W. Fitzpatrick's i n t e n t i n making the assignment

was t o transfer income from o i l and gas production t o h i s wife and t o

the four t r u s t s f o r h i s children.              We   therefore conclude t h a t

delivery was complete.
      W have no doubt, furthermore, t h a t the trusts accepted the 1969
       e

assignment.       Acceptance i s presumed i f a gratuitous a s s i p ~ z t s
                                                                         i

beneficial t o the assignee.        6 Arn.Jur.2d Assignments S 93.        The t r i a l

court noted t h a t there was no production on the land in 1969 and the

assigmwnt of the lease was therefore not beneficial t o the tmsts.

Howver,     the 1969 assignment included other property, most of which

generated inc-.          In f a c t , the record shms t h a t this lease was the

only nonproducing lease included in the assignment, and the only one

which did not generate income.            I t cannot be doubted t h a t the n e t

e f f e c t of t h e e n t i r e assignment was beneficial t o the t r u s t s .    As

such, acceptance of the trusts is p r e s m d .

TXXilINION AND C N R L
                OTO

      The t r i a l court concluded tha.t J. W. Fitzpatrick continued t o

exercise dominion and control over the working i n t e r e s t .          The t r i a l

court r e l i e d on two factors i n reaching t h i s conclusion.        First, for

the years 1970-71 and 1971-72,            J. W.    Fitzpatrick paid the lease

r e n t a l s on the subject lease.          Second, i n Novemlr 1969, J. FJ.

Fitzpatrick executed documents circulated by Continental O i l Company

which showed him t o be the owner of the working i n t e r e s t i n va-rious

1-eases which had been included i n the 1969 assignments t o t h e trusts.

This evidence is insufficient t o support a conclusion t h a t J. W.

Fitzpatrick retained dcaninion and control over the working i n t e r e s t s

assigned t o the t r u s t s .

      The t o t a l amount J. W.    Fitzpatrick paid f o r the lease r e n t a l s

f o r both years was l e s s than $50, y e t the value of the disputed

working interest was over $200,000.           When conpared with the value of

the working i n t e r e s t , the lease r e n t a l p a p e n t is inconsequentia.1.

Although J. W. Fitzpatrick was not reimbursed, the evidence suggests

t h a t the paymmts might have been inadvertent.           J. W. Fitzpatrick had

extensive o i l and gas holdings and i n 1969 had retained a p r t i o n of

the working i n t e r e s t i n the lease.     H i s signature on the documer~ts
circulated by Continental Oil Company came onlv a few mnths after
the 1969 assignment. These two isolated incidents, are insufficient
to show the exercise of dominion and control, particularly in view of
the fact that although expl.orationand developnent of the oil and gas
was taking place, nothing in the record suggests that J. W.
Fitzpatrick played any role i the developrent or production under
                            n
the lease.   We therefore hold that there is not sufficient evidence
that J. W. Fitzpatrick retained dcaninion and control over the working
interests which he had assigned to the trusts.
PREFERENTIAL PURCHASE
    We turn next to Youngblood's al-ternativeclaim that even if the
1-969assignment was valid, he is entitled to enforce the preferential
purchase clause in the 1954 operating agreement.         That clause
provides:
    "In the event any party hereto desires to - - sell or
    assign any of its or his interest     ...  such party
    shall promptly c m i c a t e by notice in writing to
    the other ~arties   ... the terms and conditions upon
    which it or he is willing to transfer - assign the
                                           and
    interests involved and the other parties, or any of
    them, shall, for a period of ten (10) days after
    receipt of such notice, have an option to purchase
    such interest on the terms and conditionFcontained
    .in such notice .   ..
                        " (Fkphasis added.)
     The Fitzpatrick trusts argue that Youngblocd's right to notice

was satisfied by constructive notice when J. W. Fitzpatrick recorded
the 1969 a.ssignment. But Youngbld urges a literal interpretation
of the preferential purchase clause and contends that he was
entitled to notice in writing.      We agree with Youngblood that
constructj-ve notice does not satisfy the requirement of notice in
writing. However, Youngblood had actual knowledge of the assicpwnt
at least 15 mnths before he notified J. W Fitzpatrick and the four
                                         .
Fitzpatrick trusts that he intended to exercise his preferential
purchase right. The trial court found, and it is not disputed, that
Youngblood had actual knowledge of the 1969 assignment in December
1975 when he was shown a copy of the assignment by his employee,
Lloyd Terry.     WE? note that the disputed 1969 assignment to the

trusts was drafted by the same J~lovdTerry, who was also at that
t h an employee of J. Iee Youngblood.
     The preferential purchase clause is not open-ended; rather, a
party desiring to exercise the right must give notice of his intent
within ten days.     Nonetheless, Youngblood waited until March 14,
1977, some 15 mnths later, to notify J. W Fitzpatrick and the four
                                         .
Fitzpatrick trusts of his intent to exercise his preferential right.
Youngblood has sham no excuse for waiting 15 months to exercise the
preferential purchase right.
    Nor are we satisfied that the parties clearly intended the
preferential purchase clause to apply t ? a transfer without
                                       c
consideration between family &s
                              r.        The Fitzpatrick trusts argued
at the trial level and argue here that the clause does not clearly
spxify the events which will trigger the preferential right.     The
trial court failed to address this issue.      The words used in the
clause include "sell or assign," "transfer and assign," or simply
"assign." Interchangeable use of the words creates ambiguity as to
the parties' intent.
     Section 28-3-501, PIICA, provides that unless the parties intend
otherwise, words of a contract are to be understood in their
ordinary and popular sense rather than according to their technical
legal meaning.    Because the words setting forth the events which
trigger the preferential purchase riqht are used interchangeably, we
do not believe the parties intended the words to be understood in
the technical legal sense. The preferential right is referred to as
a preferential purchase right; the right gives a party      ". . . an
option to purchase     . . ."   (Emphasis added.)   The word purchase
leads us to believe that the parties intended the preferential
purchase clause to apply only to a transfer for consideration. The
clause was not intended to prevent a party frcm transferring his
interest to members of his family as a gift unless he first offered
it as a gift to other parties to the 1954 operating agreement.
       Other evidence indicates an intent to exclude transfers to
family wnbers.      J. Iee Youngblood acquired his interest in the
basic oil and gas lease by assignment from his brother's estate in
1967.    Neither the estate nor J. Iee Youngblood notified the other
working interest owners of that transaction so that they might
exercise their preferential purchase riqht as Youngblood seeks to
exercise his in this case.     Strong policy reasons exist in favor of
a rule that purchase options should be strictly construed against
the holder of the option.      11 Rocky Mtn. PG-neral Law Institute 35
(1966), Preferential Purchase Rights.
       We conclude that Youngblood has no valid claim to the working
interest held by the trusts.         The fact that in 1975, J. W.
Fitzpatrick and     his wife    ratified that the 1972 assignment
transferred their working interest to Youngblood does not adversely
affect the interests of the four Fitzpatrick trusts.           J. W.

Fitzpatrick and his wife had both retained portions of the working
interest in the 1969 assignment, which they were free to transfer.
The 1-972 assignment to Youngblood did not transfer a specific
interest but merely quitclahd whatever interest J. W Fitzpatrick
                                                    .
had.     J. W. Fitzpatrick made no representation in the 1972

assignment to Youngblood which would make it incompa.tible with the
1969 assignment to his childrens' trusts.
       Neither J. W. Fitzpatrick nor his wife received consideration
from Youngblood for the 1972 assignment or for the ratifications in
1975. As a result of the ratifications, Youngblood owns the working
interests of J. W. Fitzpatrick and of Fitzpatrick's wife for which
Youngblood paid nothing.     But we cannot agree that Youngblood also
has a r i g h t t o the working interests of the four Fitzpatri-ck t r u s t s

and t o pay nothing f o r them.

INTEREST

      The     trusts    have      not   received     my    of    the    proceeds     from

production under the lease.                Payment has been suspended pending

outcome of t h i s s u i t .    The t r i a l court held t h a t no i n t e r e s t i s due

on amounts payable t o t h e four Fitzpatrick t r u s t s .                 W find no
                                                                             e

evidence of       a written        agreement     among the p a r t i e s disallowjng

interest on suspended p a p a t s .         W hold t h a t i n t e r e s t is payable a t
                                             e

the leqal r a t e on a l l amounts due the four Fitzpatrick t r u s t s a s

working i n t e r e s t awners.    The suspended payrents never d i d and could

not   have    belonged. t o       any other      than the tuusts.             Equitable

principles
-              require the payment of i n t e r e s t on those m u n t s .           See:

Sterl-ing v. Marathon O i l Co.           (Kan. 1978), 576 P.2d 635; P h i l l i p s

Petroleum Co. v. Stah1 Petroleum Co.                (Tex. 1978), 569 S.W.2d 480;

Shutts v.      Phillips        Petroleum Co.       (Kan.   1977), 567 P.2d          1292;

P h i l l i p s Petroleum Co. v. Adams (5th C i r .           1975), 513 F.2d        355.

      W reverse and d i r e c t the D i s t r i c t Court t o e m t e r judgment f o r
      e

the appellants i n accordance with this opinion.




W e Concur:
Frank I. Haswell
