Pacific-Wyoming Oil Co. v. Carter Oil Co.

Blume, Justice. This is an action by Glenn Jordan and by the Pacific-Wyoming Oil Company, successor in interest to A. H. Crow and L. D. McCall, plaintiffs and appellants, against The Carter Oil Company, defendant and respondent, for the recovery of $31,200. A demurrer was filed to the petition for the alleged reason that the petition fails to state facts sufficient to constitute a cause of action. The court sustained' the demurrer, and the plaintiffs refusing to plead further,judgment was entered dismissing the petition, and the plaintiffs bring this case here by direct appeal. The petition, together with the exhibits attached thereto, shows substantially the following facts: Prior to March 12, 1919, three citizens of the state of Wyoming, Marks, Marshall and Van Treek, each made a homestead entry of 320 acres of land in Niobrara County, Wyoming, under the laws of the United States. The oil and gas deposits under lying the land were at. that time reserved to the United States. Thereafter, but prior to March 12, 1919, one A. H. Crow entered into a written contract with the homesteader — 320 — Marks, whereby Crow acquired the right to develop the laud of Marks for oil and gas, should the homesteader, by subsequent legislation of Congress, be vested with that privilege. About the same time Glenn Jordan, one of the appellants herein, obtained similar contracts with the homesteaders Marshall and Van Treek. Thereupon Jordan and Crow assigned an undivided1 one-third interest in the three contracts above mentioned to one L. D. McCall, and hence Jordan, Crow and McCall' were, on March 12, 1919, joint owners of the three contracts above mentioned, which gave them the right to develop the lands described in the said contracts and in controversy here, for oil and gas, should Congress, by subsequent legislation, confer that privilege upon the homesteaders. On said last mentioned date, viz: March 12, 1919, said McCall, Jordan and Crow, as parties of the first part, entered into a written contract with the defendant, Carter Oil Company, as party of the s'econd part, which said con-tractj is attached to the petition as Exhibit “ D ”, in which said McCall, Crow and Jordan agreed to secure the cancellation of the three contracts above mentioned and in place thereof secure oil and gas contracts executed by the three homesteaders above mentioned direct to the defendant the Carter Oil Company. The latter agreed to determine, immediately after said contracts with said homesteaders were obtained, whether or not there were any valid placer petroleum claims upon said lands prior to the filing of said homesteaders, if not, then, upon the delivery to it of such contracts executed by said homesteaders, to pay to said first parties a cash bonus of $7.50 per acre covering all of said land. The defendant made such examination, which satisfied the defendant that there were no prior petroleum claims covering said lands. Said contracts, with said homesteaders, duly executed, were delivered by said McCall, Crow and Jordan to said defendant on or about March 20, 1919, and defendant thereupon paid said cash bonus of $7.50 per acre as above provided. Copies of said contracts, — 321 — so executed, ape attached to the petition, marked exhibits B, F, and G. Said contract of March 12, 1919, set forth in exhibit D, further provides in section 3 thereof: ‘ ‘ If, under said contracts procured from said homesteaders as aforesaid, the second party obtains a valid right to develop and operate said lands, or any part thereof, for oil and gas mining purposes, or if the second party, under appropriate legislation, has an opportunity to obtain such right to develop and operate said lands, or part thereof, for oil and gas mining purposes, then the second party shall pqy the first party an additional bonus of $32.50 per acre when it is vested with a valid right to develop said lands for oil and gas mining purposes, or when, by appropriate legislation of Congress, it has an opportunity to secure said right. The intention and meaning of this paragraph being that the first parties are entitled to such additional bonus upon one of two contingencies; (a) when the second party is actually vested with the right to develop and operate said lands for oil and gas mining purposes for a period as long as oil and gas shall be found in paying quantities; (b) or when the second party, under appropriate legislation, has an opportunity to secure such right.” It will be noted from the foregoing that the extra bonus of $32.50 per acre amounting to the total sum of $31,200 for the 960 acres involved in this ease and sued for herein, is made payable under certain contingencies or conditions. The appellant claims that the petition in this case does not show the happening of these contingencies, or fulfillment of these conditions. The petition has, as stated, the contracts with the homesteaders attached to it as exhibits, and it states that these contracts provide: “If, at any time within ten years from the 20th day of March, 1919, the Congress of the United States should enact a law whereby said homestead entrymen should be vested — 322 — with the riglit to obtain from the United States or from the Secretary of the Interior or otherwise, a permit, lease or other contract or instrument granting said homestead en-trymen or either of them, the right to develop and operate said homestead lands, or a part thereof, for oil and gas mining purposes, then and in such case, said defendant should have the opportunity to secure to itself such rights under the terms and conditions under said contracts with said defendant set forth." And Paragraph 9 of the petition is as follows: “Plaintiffs allege that under the provisions of the act of Congress of February 25, 1920, entitled “An Act to permit the mining of coal, phosphate, oil, oil shale, gas and sodium on the public domain" (C. 85, 41 Stat. 437) each and all of said homestead entrymen, from and after the 25th day of February, 1920, were vested witb the right to obtain from the Secretary of the Interior, a permit to develop and operate all of the lands embraced in their said respective homestead entries, aggregating 960 acres, for oil and gas mining purposes, in full conformity with the provisions of paragraph number 4 of each of said contracts with said homestead entrymen as set forth in exhibits E, F and G hereto attached, and that by reason of the enactment of the Congress of the United States of said legislation and under the terms of said contracts secured by said McCall, Crow and Jordan from said homestead entrymen to said defendant, said defendant has, ever since said 25th day of February, 1920, had an opportunity to secure to itself the right to operate said homestead lands and all of them, amounting to 960 acres, for oil and gas mining purposes, in full conformity with the provisions of said, contract set forth m said exhibit D, all of which said facts said defendant well knew.'' Counsel for respondent seem to claim — although that is not altogether clear — that the foregoing pleading, in at — 323 — tempting to set forth the happening of the event upon which the money sought to be recovered was payable, is nothing but a conclusion of law. No contention is directed against that part of the pleading which sets forth the provisions of the contracts with the homesteaders and the enactment of the act of Congress and the rights of the homesteaders thereunder, but seems to be directed against the statements of the opportunity which the respondent had to obtain a proper right under and by virtue of the contracts with said homesteaders and said Act of Congress. It is frequently difficult to determine whether a statement is a conclusion of law or an ultimate fact. The opportunity for respondent to obtain the right for which it contracted depended on the following ultimate facts: (1) the existence of a valid homestead claim and preference right of the homesteaders to an oil and gas lease; (2) the contract of respondent with said homesteaders, giving the respondent the right to demand of the homesteaders to make an application for such lease; these facts, we think appear sufficiently, particularly in connection with the exhibits attached to the petition; (3) the willingness of the homesteaders to make such application; inasmuch as their contracts áre set forth, in which they agreed to dor so upon demand, this fact has, we think, been sufficiently pleaded; (4) the passage and contents of the law of Congress. We have here a situation, where the existence of law — both the passage thereof and what it contains — is one of the ultimate facts in the case, and the ordinary rule as to pleading conclusions of law, cannot be applied. This court takes judicial notice of the Acts of Congress. 23 C. J. 128. Strictly speaking, therefore, it would have been unnecessary for the petition to make any reference thereto, although we think that it was good form to do so in this case. It is clear, however, that it is not important that the petition states that respondent had the opportunity to secure the right under said law “in conformity with the provisions of said contract, ’1 instead of pleading that the respondent had the op — 324 — portunity to “develop and operate tbe homesteaders’ lands for a period as long as oil and gas should be found. ’ ’ Had the latter clause been pleaded instead of the former, as defendant contends should have been done, in order to make the petition invulnerable to demurrer, it would not have had any controlling effect on the pleading, for it still would have to be construed in the light of the Act of Congress, and could be held to be true only in so fafi as sustained by that Act and no further. In other words; aside from the first three ultimate facts above mentioned, it depends, after all, on the Act of Congress, — which is a matter of law — as to whether the opportunity mentioned in the contract of March 12, 1919 actually existed. Hence we should not want to hold the pleading in this ease insufficient simply by reason of the form thereof. '"We come then to thej controlling question in this case, upon the present hearing, namely, as to whether or not the defendant had the opportunity under the Act of Congress above mentioned to secure the right for which it contracted by the provisions of section 3 of said contract of March 12, 1919 above quoted. It will be noticed that under the first part ofl these provisions the defendant agrees to pay the extra bonus of $32.50 per acre in case the defendant obtains a right or the opportunity for a right to develop the said lands for oil and gas without specifying the duration of that right. But these provisions are made definite by the clause immediately following and which, for purposes of clarity, we quote again: “The intention and meaning of this paragraph being that the first parties are entitled to such additional bonus upon one of two contingencies; (a) that the second party is actually vested with the right to develop and operate said lands for oil and gas mining purposes for a period as long as oil and gas shall be found in paying quantities; (b) when the second party, under appropriate legislation, has an opportunity to secure such right.” — 325 — No claim is made that the defendant is actually vested with the right to develop and operate said lands for oil and gas. It is only claimed that defendant had the opportunity to do so under the contracts with said homesteaders and the act of Congress. That fact is not disputed, but it is contended that the opportunity under the act of Congress was not co-extensive with that called for by the contract; that is to say, that defendant never had the opportunity to secure a right to develop and operate said lands for oil and gas for a period as long as oil and gas should be found in paying quantities; and that the passage of an act of Congress giving such opportunity is a condition precedent which must be strictly fulfilled before defendant can be held liable for the payment of the extra bonus of $32.50 per acre above mentioned. The Act of Congress referred to is that of February 25, 1920, mentioned above, (41 Stat. at L. 437-451,) providing among other things for the leasing of oil and gas lands. Section 20 provides for preference rights in favor of homesteaders. Section 17 provides that “leases shall be for a period of twenty years, with the preferential right in the lessee to renew the same for successive periods of ten years upon such reasonable terms and conditions as may be prescribed by the Secretary of the Interior, unless otherwise provided by law at the time of the expiration of such periods.” Counsel for defendant contend, in the first place, that while successive renewals are provided for, the terms of the lease are to be readjusted at the end of twenty years and each successive period of ten years thereafter; that á grant as long as oil and gas should be found presupposes the same burdens and benefits during .the producing life of the property, and that hence the provisions of the Act of Congress do not give the opportunity provided for in the contract. We do not see the force of this contention. The contract — 326 — in question, aside from mentioning the duration of the leases, does not otherwise provide upon what terms and conditions they shall be obtainable under the Act of Congress. Even though these terms and conditions should be changed at the end of twenty years and each successive period of ten years thereafter, the lessee has a preference right, and has, therefore, the opportunity to continue the original leases, and that opportunity, because of such preference right, becomes fixed from the time of the original leases. We cannot assume that the requirements as to the terms and conditions of renewals will be unreasonable. The act of Congress itself provides that the renewals shall be on reasonable terms, and it is much more likely that they would be upon better terms, than the original leases rather than the reverse. Many leases are constantly made for long periods of years with provisions for adjustment of terms and conditions at certain times. Yet no one would contend that such leases would not be taken to extend throughout the longest period provided therein. That is, substantially, the kind of leases provided for by the Act of Congress in question. In other words we feel clear that in the case at bar, an opportunity to obtain an oil and gas lease for twenty years with preference right of renewals, upo:n reasonable terms and conditions, is in all respects the equivalent of an opportunity to obtain an oil and gas lease to last as long as. oil and gas is found upon the land in paying quantities. The statute, however, further provides that the preference right to renewals exists “unless otherwise provided by law oi the time of the expiration of sueh periods.” Does the possibility that the law may be changed alter the situation and deprive the plaintiffs of their right to the payment of the extra bonus provided for in the contract? Could that have been the intention of the parties? Counsel for defendant argue, as stated, that the opportunity to obtain the right contracted for is a condition precedent which must be strictly performed. A contract will not be presumed to have imposed an absurd or impossible condition — 327 — on one of the parties, but will be interpreted as the parties must be supposed to have understood the condition at the time. 6 R. C. L. 904. It must be considered as an entirety. The separated parts thereof, even though clear and free from ambiguity, do not control when compared with the contract taken as a whole. Page, Contracts, See. 2038. As is the case with other provisions of a contract, conditions precedent are to be construed in accordance with the true intent of the parties. 13 C. J. 67. The situation of the parties when the contract was made, its subject matter, and the purpose of its execution are material to determine the intention of the parties and the meaning of the terms they used, and when these are ascertained, they must prevail over the dry words of the stipulation. Kauffman v. Roeder, 108 Fed. 171, 47, C. C. A. 278, 54 L. R. A. 247. It is apparent that the parties to the contract in this ease considered the lands mentioned as valuable oil lands. McCall, Crow and Jordan evidently demanded a bonus of $40.00 per acre for the grant to defendant of the simple opportunity to secure a lease to the land. The defendant evidently considered this opportunity of great value, and agreed to pay a small portion of it, namely $7.50 per acre when it secured the proper contracts with the homesteaders, and the larger portion of $32.50 per acre, when the opportunity should become complete through the passage of an act of Congress. Thus, when the contracts with the homesteaders were delivered to defendant, McCall, Crow and Jordan had a valuable expectancy, the payment of which was contingent only upon one thing — the act of Congress, which the parties then had evidently reasons to believe would pass. Whatever was to be done by the former had been done; so far as they could perform the contract, it had been performed. It is clear, however, from the contracts before us, that the payment of $7.50 per acre was not considered as full payment to them, should the opportunity above mentioned become complete; that it was in fact but a small part thereof, and hence, if the contract is construed as entitling — 328 — them, or their successors in interest, to nothing more, even though the substantial part of the opportunity contracted for existed, the situation is clearly similar to one involving a forfeiture of their right, and such forfeitures are not favored by the courts. All the parties no doubt had hopes that as favorable a law as possible would be enacted. But oil leases of only five years’ duration are frequently eon; sidered of immense value in this state, and it is not unreasable to assume that the parties made the contract herein with knowledge of that fact. Is it reasonable then to say, that the parties intended that just because the hoped-for leases might fall short of the literal right mentioned in the contract, the additional bonus should not be paid? The right to drill for oil and gas on the lands mentioned was expected to be obtained, as heretofore stated, through a future act of Congress. The right which was expected to be thus' granted was unknown and indefinite, particularly as to homestead-lands, as is clearly shown by alternate provisions embodied in the contracts with the homesteaders. A right expected to be obtained from individuals may be one thing; a right expected through an Act of Congress, not yet in existence and purely speculative, another. When the contract in question was entered into, no person could possibly know the exact terms of the expected, law, and it would seem that Jordan, McCall and Crow must either be charged with the absurdity, of knowingly -undertaking to guaranty the exact law that would be passed or we must suppose that they considerd the payment of the bonus of $32.50 per acre as a bare possibility, and hardly that. But nothing of- that sort is apparent from the contract, and it would seem that if such was the intention of the parties, language more apt would have been used. See Williston, Contracts, Sec. 675. In view of the fact's, then perfectly well known to all the parties, it is much more reasonable to think that they expected that the defendant should, through the act of Congress, have an opportunity to receive a right, perhaps substantially, but hot literally that provided for — 329 — m the contract; m other words, a fair and reasonable performance or fulfillment of the condition precedent in this case is all that can be said to have been intended. It is true that it is often said that a condition precédent must be exactly performed or fulfilled before a promise, dependent thereon, can be enforced. 13 C. J. 630. Frank v. Stratford-Handcock, 13 Wyo. 37, 77 Pac. 134, 67 L. R. A. 571, 10 Am. St. Rep. 963. That has been held, for instance, as to conditions upon which depends the payment to be made a guarantor. Ederton v. Taylor (S. C.) 115 S. E. 156. It has also been held that a condition in an oil lease must be strictly performed in order to vest an estate in the lessee. Paraffine Oil Co. v. Cruce, 63 Okl. 95, 162 Pac. 716, 14 A. L. R. 952. On the other hand in insurance policies conditions or other provisions employed for the purpose of creating exceptions to, or limitations upon, the liability of the company, are strictly construed against the insurance company. 32 C. J. 1157. So too, if possible, as already indicated, conditions are construed, so as not to operate as a forfeiture of the rights of parties. Page, Contracts, Sec. 2589; Gazley v. Williams, 210 U. S. 41, 28 Sup. Ct. 687, 52 L. ed. 950. In R. C. L. 944, Sec. 325, the rule is thus expressed : “In regard to conditions precedent, it is an elementary rule of law that there must be at least a substantial performance thereof, in order to authorize a recovery as for performance of the contract.” In Elliott on Contracts, Sec. 1878, it is said: “Under the old common law rule, a strict performance is usually required as a condition precedent for recovery, but the modem rule is more liberal and it may now be stated as a general rale that a substantial performance in all respects in good faith is sufficient to satisfy the law. ’ ’ — 330 — The phrase “Substantial performance” is sometimes used in two senses. In some cases it means something distinctly short of full of performance, in which case at least recoupment may be had for the part which is not performed. Drew v. Godhue 74 Vt. 437, 52 Atl. 971; Viles v. Traction & Power Co., 79 Vt. 311, 316, 65 Atl. 104. Judging from the cases cited by Elliott, on Contracts, supra, the author, perhaps, had this meaning in mind in writing the foregoing statement, although in Madden v. Oestrich, 46 Minn. 538, 49 N. W. 301, one of the cases cited, it is said that the rule of substantial performance “is applicable to contracts generally.” In any event, it is clear from what we have heretofore said, that a condition precedent does not always, at least, have to be literally performed. In other cases, the term “substantial performance” means full performance according to the fair intent of the contract and permits recovery on the contract without recoupment. 13 C. J. 691; Viles v. Traction & Power Co., supra; Drew v. Godhue, supra; Bailey v. Wayman, 201 Pa. St. 249, 50 Atl. 767. “Nowhere,” says Prof. Williston in his work on Contracts, Sec. 805, “would a departure from full performance of a condition be regarded as important, if the departure were an inconsiderable trifle having no pecuniary importance.” In Worsley v. Wood, 6 T. R. 710, 101 Eng. Rep. 785, Lawrence, J., said: “In some cases in the books respecting conditions precedent, where the thing agreed to be done was in effect performed, though not in the exact manner, nor with all the circumstances mentioned, it was deemed a substantial performance, as where the condition was to enfeoff, a conveyance by lease and release has been deemed a compliance. So if the condition be to deliver the will of the testator, and he delivers letters testamentary. ’ ’ In Oakley v. Morton, 11 N. Y. 25, 62 Am. Dec. 49, the court in one breath states that a condition must be performed strictly, and in the other that a substantial com — 331 — pliance meets the requirements of the law. In Vandermuler v. Vandermuler, 108 N. Y. 195, 15 N. E. 383, a condition for the sale of the premises was held fulfilled when the property was condemned for railroad purposes. In Missouri Pac. Ry. Co. v. Tygard, 84 Mo. 263, 54 Am. Rep. 97, it was said: “There must be a fair and substantial compliance with the conditions of the contract, and this is all that is required.” In Hovey v. Pitcher, 13 Mo. 192, the court said: “In the construction of agreements, courts must look to the objects which the parties had in view, and a substantial compliance with the obligations assumed is all that is required. ’ ’ See also Line v. Mason, 67 Mo. App. 279; Meincks v. Falk, 61 Wis. 623, 21 N. W. 785, 50 Am. Rep. 157. These cases illustrate the proposition that in the absence of a specific provision in the contract showing a contrary intention, the law considers a condition fully performed when the purpose evinced by the contract can be said to have been fairly carried out. In the case at bar the condition upon which the payment demanded in the petition depends, has been fairly, nay even literally5 and strictly, fulfilled, unless the possibility that the law might be changed and deprive the lessee of the preference right of renewal, after a period of twenty years, changes the situation in a substantial manner. We think that it does not. Counsel for defendant have eloquently pointed out how the practical conduct of parties in connection with oil leases has changed from the early days when oil and gas were first found in Pennsylvania, and that such leases have more and more been made for a period as long as oil and gas should be found on the premises in paying quantities, for the reason that such leases have been found — 332 — to be mutually advantageous to.tbe parties. Counsel have further pointed out how legislation both by state legislatures and by Congress has also changed along the same-finés and for the same reason, and they have accordingly convinced us that the possibility that Congress might take a contrary course in the future and deprive original lessees, under the Act heretofore mentioned, of the preference right to continue the leases, is exceedingly remote, and not of sufficient pecuniary importance to be considered as a material factor in determining whether the condition precedent herein has or has not been fulfilled. Even such preference right of renewal might not be of any value, since the oil and gas in the lands covered by such leases might be exhausted at the end of twenty years. And we are safe in saying, we think, that at least the most valuable and profitable deposits of oil and gas in any tract of land are, in any event, gone after a continued removal during such period of time. It is difficult, therefore, to believe, that a remote possibility of a change in the act of Congress as above mentioned, was either intended by the parties, or should be construed, to be an essential factor* and of sufficient pecuniary importance so as to forfeit the rights of the plaintiffs to the extra bonus under the contract in suit. We think, from the facts as they now appear, that the condition precedent herein has been fulfilled according to the fair intent of the contract, and we are constrained to hold that the petition in this case states a cause of action. The judgment of the lower court should, accordingly, be reversed and the case remanded with directions to the trial court to overrule the demurrer to the petition, and for further proceedings in accordance with law. It is so ordered. Potter, Ch. J., and Kimball, J., concur. NOTE — See (1) 27 Cyc p. 624 (1926 Anno); (2) 31 Cyc p. 52; (3) 23 C. J. p. 128; (4) 27 Cyc p. 624 (1926 Anno); (5) 27 Cyc p. 624 (1926 Anno); (6) 13 C. J. pp. 540, 541; (7) 13 C. J. p. 527 (8) 13 C. J. p. 565; (9) 13 C. J. pp. 523, 543; (10) 13 C. J. p. 541; (11) 13 C. J. p. 630; (12) 13 C. J. p. 691; (13) 13 C. J. p. 691.