Simons v. McDaniel

RILEY, J. On February 20, 1922, Van Meter and wife executed and delivered an oil and gas lease to the 120 acres of land in controversy to Dickinson, and, by mesne assignment, the plaintiff Simons acquired a three-fourths interest and plaintiff Bean Drilling Company acquired a one-fourth interest i-n the lease. The lease is dated February 20, 1922. It was executed March 11, 1922. It was recorded May 23, 1922 .This lease provided that it shall “remain in full force for a term of five years from this date and as long thereafter as oil, gas or either of them is produced from said land.” And also a provision that: ‘ If no well be commenced on said land on or before the 20th day of February, 1923, this lease shall terminate as to both parties, unless the lessee, on or before that date, shall pay or tender to the lessor, or to the lessor’s credit in the Maud State Bank at Maud, Okla., or its successors, which shall continue as the depository regardless of changes in the ownership of said land, the sum of $120, which shall' operate as a rental and cover the privilege of deferring the commencement of a well for 12 months from said date. In like manner and upon like payment or tenders, the commencement of a well may be further deferred for like period of the same number of months successively. And it is understood and agreed that the consideration first recited herein, the down payment, covers not only the privileges granted to the date when said first rental is payable as aforesaid, but also the lessee’s option of extending the period as aforesaid.” The rentals were paid in accord with the terms of this lease. Five years from the date of the lease would be February 20, 1927. Five years from date of execution would be March 11, 1927. Plaintiff made location for a well on said lease January 15, 1927, and the first load of material was placed on the lease January 22, 1927. A rotary rig was completed on the lease February 8, 1927. The lessor Van Meter died February 25, 1925. Oh October 25, 1926, his adult heirs executed and delivered an oil and gas lease to this land to defendant McDaniel. It was recorded January 11, 1927. Its effective date was March 27, 1927. Its term was five years. On November 16, 1926, Ida Van Meter, as guardian of the minor Van Meter heirs, executed a lease to the same property to defendant McDaniel, which lease was recorded January 5, 1927, which lease, by its terms, was to go into effect March 27, 1927. On February 15, 1927, plaintiffs commenced an action to eliminate the. McDaniel leases as a cloud on their title and to quiet title of their lease, and in the meantime to authorize and direct plaintiffs to cease drilling operations on the lease. On February 15, 1927, the court in an ex parte proceeding directed plaintiffs to cease drilling operations pending litigation. McDaniel answered denying generally. The Van Meters so answered. Thereafter all defendants amended their answer, wherein they alleged that plaintiffs had failed to develop the lease and had done no work to that end since February 1, 1927, and therefore had failed to exercise due diligence and good faith in development of the lease, but had forfeited the same; defendants sought affirmative relief in the cancellation of plaintiffs’ lease. Meanwhile the order halting drilling operations aforesaid was outstanding and plaintiffs performed no drilling operations. The cause was heard on December 13, 1927, resulting in judgment entered on April 30, 1928, against plaintiffs and for de *170 fendants, quieting their title in fee and leasehold estate and for costs. Motion for new trial was filed and overruled and plaintiffs below have perfected this appeal and rest the case upon sis propositions. The first contention is that: “Independent of the order of February 15th, these plaintiffs had a right,' on learning of the McDaniel leases, to bring this action to cancel the McDaniel leases to clear their title, and in the meanwhile halt all drilling operations until said cause was finally and definitely determined.” When the McDaniel leases were recorded plaintiffs were in possession of the land In controversy and had commenced drilling operations. The acts of the Van Meter heirs in executing- and delivering “top leases” was an election to declare the first lease at an end. Brooks v. Day Oil Co., 200 Ky. 323, 254 S. W. 912; Thornton, Oil & Gas, vol. 2, sec. 863; Guffey v. Hukill, 34 W. Va. 49, 11 S. E. 764; Wolf v. Guffey (Pa.) 28 Atl. 1117; Chi-Okla. v. Shertzer, 105 Okla. 111, 231 P. 877. These acts obstructed the exercise of the rights of the original lessees under the terms of their lease. .Their title was clouded. Had they produced oil or gas as a result of commenced development, ownership thereof would have been in litigation and the value of production impounded so that a real obstacle was imposed by lessors upon the right of lessee plaintiffs. It is not necessary that we decide whether, after lessee commenced development of the lease in good faith, the right is a mere option or a vested interest in the leasehold estate, for, considering the rights of lessee plaintiffs as those of an optionee, the rule is that when the party granting an option himself prevents its exercise during the time limited therefor he must give a reasonable time for its exercise after any obstruction which he has interposed has been removed. 13 C. J. 688-689. This principle of law is founded on common justice and equity. The drilling clause of lessee plaintiffs’ lease conferred upon them the right to commence a well (by complying with the conditions of the instrument, i. e., exercising the option of paying rentals and thus continuing the lease in force) on the very last day of the term specified in the duration clause. Since lessee had such an agreed right, can we with reason say the parties to the lease contract contemplated that right a barren or worthless privilege? To do so is to convict the parties of an absurdity. To the contrary, “in every private grant there passes by implication that which is reasonably necessary to the enjoyment of the thing granted.” Himrod v. Ft. Pitt M. & M. Co., 220 Fed. 80 (C. C. A. 8th); Dunlap v. Jackson, 92 Okla. 246, 219 P. 314; 19 C. J. 915. See sections 5058, 5059, C. O. S. 1921, dealing with “reasonable stipulations implied” and “necessary incidents implied.” Therefore we hold that the grant to lessee plaintiffs of the right to commence a well at any time within the term fixed by the lease contract, by necessary legal implication, carried with it the right to complete the well after the period fixed for commencement had expired, subject, however, to abandonment of that right by failure to proceed in good faith and with diligence. Lester v. Mid-South Oil Co., 296 Fed. 661 (C. C. A. 6th), so holds: “An oil and gas lease for five years providing in the development clause that the lease should terminate ‘if no well be commenced’ on or before certain semi-annual dates ‘unless’ rentals were paid, held, not to expire, where a well was commenced on the last day of the term of the lease, and was thereafter pushed to completion and production) ; the lease being ambiguous as regarded termination, thus requiring the development clause to be harmonized with the term clause.” The Lester Case was cited and quoted with approval by this court in Dow v. Worley, 126 Okla. 175, 256 P. 56, and it was there held: “* * * That the defendants, having commenced a well upon the 4'0-acre tract within the period for which the rentals had been paid, were entitled to complete the same with reasonable diligence, and, when upon completion, production was found in paying quantities, the said oil and gas mining lease Would continue for as long as oil or gas is produced.” This result is not an equitable extension of the terms of a lease. Curtis v. Harris, 76 Okla. 226, 184 P. 574. (Compare Oldfield v. Gypsy Oil & Gas Co., 123 Okla. 293, 253 P. 298.) But it is a determination, in view of the conflicting clauses contained in the lease, of the term, as intended by the parties. Of interest in this connection are the cases dealing with discovery' of 'oil or gas during *171 the term of the lease in an upper sand and where though discovered they are not produced immediately, but lessee drills deeper seeking production from a lower sand, and wherein it has been held that after the fixed term of the lease has expired the lessee discovered oil or gas in the deeper sand by production from the deeper sand, the lease is continued in force. Roach v. Junction Oil & G. Co., 72 Okla. 217, 179 P. 934; Parks v. Sinai O. & G. Co., 83 Okla. 295, 201 P. 517. These cases are kindred to our present holding that, regardless of nonproduction during the duration clause of a lease, but where a well has been commenced under a drilling clause, the lease by its terms is continued in force pending completion in good faith of the well and thereafter so long as oil or gas is produced in paying quantities. Frequently this court has construed oil and gas mining leases' strictissimi juris as against the lessee and liberally in favor of lessor. But this has always been to the end of promoting development as contemplated by the parties. New State Oil & Gas Co. v. Dunn, 75 Okla. 142, 182 P. 514; Carder v. Blackwell O. & G. Co., 83 Okla. 243, 201 P. 252; Mistletoe O. & G. Co. v. Revelle, 117 Okla. 144, 245 P. 620. Herein the lessee has, by his actions, evidenced a desire to develop, and no court has been more favorable to the interests of a lessee who seeks to perform his convenants. Strange v. Hicks, 78 Okla. 1, 188 P. 347. Our conclusion is favorable to development, for it permits completion of a well rightfully commenced. Under the rule stated in Smith v. Gypsy Oil Co., 130 Okla. 135, 265 P. 647, as applied to the facts in this case, a well was commenced in good faith. In McAlister v. Texas Co. (Tex. Civ. App.) 233 S. W. 859, that court held that by lessors declaring a forfeiture of a lease and denying lessee any further right in the leased premises, “.They thus put themselves in, default, and were thereafter in no position to complain of the failure of the lessee to drill upon their respective tracts,” and quoting from Consumer’s Gas Trust Co. v. Worth, 163 Ind. 141, 71 N. E. 489, said: “As to whether appellant should have commenced operations between March 3, 1902, and the day on which this action was commenced, is, under the circumstances, not a question in the case, for certainly appellee, after notifyiig appellant company that the contract was at an end, was not in a position to insist or expect appellant to expend money in drilling wells and developing the lands under a contract which she had declared to be forfeited.” See, also, Weaver M. Co. v. Guthrie, 189 Mo. App. 108, 175 S. W. 118; Leonard v. Busch-Everett Co., 139 La. 1099, 72 So. 749. In Texas Pac. Coal & Oil Co. v. Patton (Tex. Com. App.) 288 S. W. 202, the lessor refused rentals, denied production existed, and contended the lease had expired by its terms pending litigation begun by lessor. The court held: “We construe the lease to grant to lessee an option at any time within five years from its date to enter upon the lands demised and drill for oil and gas. It has been held that in options time is of the essence of the contract, but it has also been held that, when the party granting an option himself prevents its exercise during the time limited therefor, he must give a reasonable time for its exercise after any obstruction which he has interposed has been removed. 13 C. J. pp. 688-690.” That court held that lessee would have 60 days’ time after termination of the litigation for commencement of operations, which were discontinued by reason of lessor’s action. So holds the Court of Louisiana, Leonard v. Busch-Everett Co., supra, where lessor “repudiated said agreement as naked facts, creating no legal obligation whatever on either party,” saying; “Where the plaintiff notified the defendant that he would not accept any more quarterly payments, and he had elected, to terminate the lease agreements, he put himself in default, and was thereafter in no position to put defendant in default.” In Keen v. Logan, 147 La. 80, 84 So. 501, it was held: “* * * A party who is bound toy contract to perform an obligation for the benefit of another party is not in default for nonperformance of the obligation so long as the other party refuses to permit a performance of the obligation.” And that in a case where the action was brought by the owners of the first lease, which is the exact situation in the case at bar. Observe Gulf Ref. Co. v. Hayne (La.) 86 So. 891, wherein a lessee who was delayed beyond the terms of a lease by lessor recovered for oil produced by lessor, and in Lieber v. Ouachita Nat. Gas & Oil Co. (La.) 95 So. 538, where lessor repudiated the lease contract by refusing to accept rental,- the court- held: *172 “Under suck circumstances, with a prospective suit to- annul that instrument hanging over defendant, plaintiff could not expect the former to make further expenditures to develop either tract, until, at least, a settlement of their differences could be effected.” The Indiana court holds, in LaFayette Gas Co. v. Kelsey, 74 N. E. 7, that: “After notifying lessee that the contract was at an end, the lessor could not insist that the lessee expend money in drilling wells and developing the lands under a contract which he had declared to he forfeited.” In the West Virginia case of Eastern Oil Co. v. Coulehan, 64 S. E. 836, 65 W. Va. 531, it was observed: “That in contracts of this kind time is of the essence thereof, and this proposition, for which authorities are cited by counsel, is not controverted; but the case we have in hand is one where the plaintiff was legally entitled to the full term of five years given for exploration, without let or hindrance of the lessor. Indeed, the lessee by the implied covenants of his deed was entitled to the protection of the lessor therein.” Johnson v. Armstrong (W. Va.) 94 S. E. 753. In Stahl v. Van Vieck (Ohio) 41 N. E. 35, and Ross v. Sheldon (Ky.) 119 S. W. 225, it was. held in effect as stated in the last-cited cause: “We do not think that the lessees should be held accountable for failing or refusing to do anything under the contract after the lessor had brought this suit to have it canceled. ” So holds Missouri in Weaver Mining Co. v. Guthrie, supra. And in Blodgett v. Lanyon Zinc Co., 120 Fed. 893 (C. C. A. 8th), it was held: “The grantor of an option who prevents its exercise within the time specified in his grant may not take advantage of the failure of its timely exercise, but must give a reasonable time therefor after the obstruction he interposed is removed.” See, also, Doddridge Co. Oil & Gas Co. v. Smith, 154 Fed. 970; Goodwin v. Standard Oil Co., 290 Fed. 92; Hamilton v. Empire Gas & Fuel Co., 297 Fed. 422. Our views expressed render it unnecessary to consider other assignments of error. Judgment of the trial court 'is reversed, and the cause is remanded, with directions to render judgment in conformity herewith, canceling the top leases of McDaniel and quieting title in plaintiffs. This is the rule-in two federal district courts of this state. LESTER, C. J., and CULLISON, ANDREWS, and KORNEGAY, JJ., concur. CLARK, V. C. J., and HEFNER, SWINDALL, and McNEILL, JJ., dissent.