Lawrence v. Mahoney

Hart, J. (after stating the facts). The contract under consideration in this case is commonly called an oil and gas lease. For a consideration of $1 in hand paid to the lessor by the lessee as recited in the contract between the parties, the lessor grants to the lessee all of the oil and gas in and under 120 acres of land, together with the rights of ingress and egress, for the purpose of drilling and operating for oil and gas and to lay all pipe lines necessary for the transportation of it, reserving to the lessor one-eighth royalty or share of all oil produced upon the premises; to have and to hold said lands unto the lessee upon the following conditions: In case operations for the drilling of a well for oil are not commenced and prosecuted with due diligence within one year from date, the grant shall immediately become null and void, provided, however, that the lessee may prevent such forfeiture from year to year, for five additional years, by paying the sum of ten cents per acre dollars in advance until the operations for the drilling of a well are commenced. Counsel for appellants seek to reverse the decree on the ground that the contract is void for want of mutuality. They insist that the $1 recited as a consideration is a purely nominal sum which will not support the contract, inasmuch as it is optional with the lessee to drill an oil well. Again, they contend that the lease is unilateral and void for the reason that the lessee can surrender the same at any time without the consent of the lessors and without paying them a consideration for so doing. Cases are cited from the courts of last resort of several other States, which directly support their contention. Counsel also cite the case of Dunaway v. Galbraith, 139 Ark. 580, in support of their contention. We can not agree with counsel in this respect. The language of an opinion must be read and considered with reference to the issue involved in the appeal. In that case the contract contained a clause allowing the lessee the privilege of surrendering the lease for cancellation at any time upon the payment of $25. The court held that this was a substantial sum and not a mere nominal consideration, and that, when construed with the other covenants, it sustained the entire lease. Therefore, the question now at issue wa.s not decided by the court in that case, and was not necessary to a decision of the case. It is worthy of note, however, that the court disapproved in that case the majority opinion in Brown v. Wilson (Okla.), L. R. A. 1917 B, p. 11(84, which is the' leading case cited by counsel for appellants in favor of their position. For a like reason, the opinions in the cases of Mansfield Gas Co. v. Alexander, 97 Ark. 167; Mansfield Gas Co. v. Parkhill, 114 Ark. 419, and Sullivent v. Clear Creek Oil & Gas Co., 138 Ark. 367, are not authorities for the position taken by counsel for the appellees. It is true that in each of these cases the considération recited in the deed was $1, but the question now at issue was not argued or considered by the court in those cases. The decision in each case turned upon other points, and the question now presented was not decided. The courts of last resort of several States have sustained leases essentially the same in terms as the ones now under consideration. The reason for so doing is well expressed by the Supreme Court of the United States in Guffey v. Smith, 237 U. S. 101. That case was appealed to the Supreme Court of the United States from the Supreme Court of the State of Illinois. We quote at length from that opinion, because it contains the • substance of the reasoning of the courts of last resort which have sustained leases of essentially the same terms as the ones in the case at bar. In discussing the question, the court said: “Another contention of the defendants is that the lease is so unfair and inequitable in its terms that relief in equity should be withheld and the complainants left to seek remedy at law, which is tantamount to saying that they must submit to the practical destruction of their leasehold and accept such reparation as may be obtained through recurring actions for damages. Whether the lease is unfair and inequitable must be determined in view of the circumstances in which it was given. Willard v. Tayloe, 8 Wall. 557, 570, 571; Marble Co. v. Ripley, 10 Wall. 339, 357; Franklin Telegraph Co. v. Harrison, 145 U. S. 459, 473. They were these: Whether the leased tract contained oil or gas was not known. It was in an undeveloped district in which there was no oil or gas well and no pipe line leading to a market. Drilling wells was attended with large expense, the • cost of each well being upward of one thousand dollars, according to the testimony of one of the defendants. No fraud, deception or overreaching was practiced in procuring the lease. The parties were competent to contract with each other and entered into the lease becausé in the circumstances its provisions were satisfactory to them. Under its terms the cost of the drilling was to' be borne by the lessee. If the undertaking was unsuccessful, he alone was to stand the loss; and if it was successful, the lessor was to share in the results by receiving substantial royalties, the reasonableness of which is not questioned. The consideration for the lease, viz., one dollar paid to the lessor and the covenants and agreements of the lessee, can not be pronounced unreasonable. Similar leases resting upon a like consideration often have been sustained in cases not distinguishable from this. The lease was to- remain in force five years and as much longer as oil or gas was being produced from the premises; in other words, it was to expire in five years unless oil or gas was produced within that time. The lessee expressly covenanted to drill a well within nine months or to pay a rental of twenty-five cents per acre per year quarterly, in advance, for such time as the completion of the well was delayed beyond that period, the delay, of course, not to extend tíeyond the primary term of five years. The terms of the covenant doubtless were suggested by the undeveloped condition of the district and by the expense and risk incident to exploring for oil and gas. They evidently were satisfactory to the lessor at the time, and the record discloses no reason for holding that in the circumstances they were unreasonably liberal to the lessee. Some criticism is directed against the reserved option to surrender, but it is difficult to perceive how it could be declared inequitable. If it was not exercised, the lessee would be bound by his covenants, and if exercised the lessor would be free to deal with the premises as he chose. A surrender ■was not to affect any existing liability, but only to avoid those ‘thereafter to accrue.’ A like clause is in the subsequent lease, and, according to the evidence and several reported decisions, is of. frequent occurrence in suph instruments. We conclude that there is nothing in the terms of the lease which requires that equitable relief be withheld.” See also Rich v. Donaghey, 3 L. R. A. 352, and-case note commencing at p. 378. Nothing can be added to the reasoning of the opinion quoted from above. We deem it sufficient to adopt it as the reasoning of this court in the present case, for neither the land in question, nor any of the surrounding country had been explored for oil and gas. The business of drilling or boring wells for oil and gas is risky and uncertain as well as very expensive. The lessor does not share any of the risks and expense of boring the wells. He does share, however, in the profits in.case the drilling is successful. Therefore all these matters, together with all the other attendant circumstances, are proper to consider in determining whether the consideration recited in the lease contract is adequate. The complaint alleges that the lessee agreed with the lessor to commence drilling for oil and gas within sixty days from thedate of the lease contract, and that he has failed to do so. Counsel for appellants earnestly insist that this renders the contract void, and that the chancery court therefore erred in sustaining a demurrer to the complaint. It will be noted that counsel for appellant did not seek to amend the lease contract in this respect. They seek no reformation of the contract, but only contend that the contract is void because the lessee did not carry out his promise to the lessors in the respect named. It is well settled that parties can not add to or vary the terms of a written contract by parol evidence. It is manifest that, if the lessors should be allowed to go to trial and prove this allegation of the complaint, they would impose obligations in the contract which are not now recited in the written instrument. The written instrument is complete in itself and embodies the last expression of the parties with regard to the matters contained in it. It is also earnestly insisted that the contract should be avoided on the ground of fraud. There are no allegations in the complaint to support this contention. It is not alleged that appellee procured appellants to sign the contract by any false representations made as a matter of inducement to its execution. The parties were dealing at arm’s length with each other and were fully capable of entering into any kind of a contract they saw fit to make. They understood all of the attendant circumstances. That they did so is shown by the language of the contract itself. In the contract we find the following: “It is further expressly agreed and understood that the consideration, paid in cash, as recited in the first paragraph of this contract, and the other obligations of the grantee shall be held to support and sustain, not only the privileges granted to the date stipulated, namely, the date when this lease is to terminate unless drilling operations are commenced, or additional payments are made, but also lessee’s option of extending that period from time to time and keeping this lease in force, as aforesaid, as well as any and all other rights and privileges conferred on the lessee by this contract.’’ This shows that the lessors fully understood all the circumstances surrounding the execution of the contract and the uncertainty and risk attending the drilling of oil and gas wells. Finally, it is insisted that the contract is void because the lessee at his option might assign his lease contract to another without attempting to drill for oil or gas. The lease does not contain any covenant against subletting, and, in the absence thereof, the lessee has the right to assign his lease. It follows that the decree in each case must be affirmed.