Melton v. Cherokee Oil & Gas Co. , 67 Okla. 247 ( 1917 )

This suit was commenced in the district court of Rogers county by the Cherokee Oil Gas Company, as plaintiff, against Charles L. Melton, Addie M. Melton, G.E. Slaugenhop, C.M. Eichorn, and C.C. Johnson, as defendants, seeking the cancellation of a certain oil and gas drilling contract theretofore entered, into between the defendants, to enjoin them from entering upon the land described in such contract for the purpose of drilling for oil and gas, and from interfering with the plaintiff in its operations upon the premises, under a prior lease, etc. Defendants answered alleging the invalidity of the lease under which plaintiff claimed, and prayed for its cancellation, etc. There was judgment for plaintiff, from which defendants have appealed. The parties are referred to here as they appeared in the trial court. The lands involved are 120 acres situate in the southeast 1/4 of section 28, township 24 north, range 17 east.

On January 7, 1902, the Secretary of the Interior, under authority conferred upon him by act of Congress, entered into an oil and gas mining lease for a term of 15 years with the plaintiff, covering the whole of section 28, by the terms of which plaintiff undertook to sink wells, operate the same, and pay certain advanced royalties, rentals, etc., which instrument is hereafter referred to as the "secretarial lease." The lands described therein were later allotted and patents therefor issued to members of the Cherokee Tribe. By virtue of congressional enactment the portion here involved subsequently became alienable, and was conveyed to the defendant Charles L. Melton.

Thereafter, on July 16, 1913, Charles L. Melton and the Cherokee Oil Gas Company entered into an oil and gas mining lease (hereafter designated as the "commercial lease"), covering the 120 acres in question, and containing the following provisions:

"1439. Oil and Gas Lease. "In consideration of the sum of one and no/100 dollars, and the release from secretarial lease No. 7 and of the covenants and agreements hereinafter contained, Charles L. Melton, first party, hereby grants unto Cherokee Oil Gas Company, a corporation, second party, heirs, successors, and assigns, all of the oil and gas in and under the following described premises, together with the right to enter thereon at all times for the purpose of drilling and operating for oil, gas, or water, to erect, maintain, and remove all buildings, structures, pipes, pipe lines, and machinery necessary for the production and transportation of the oil, gas, or water, provided that the first party shall have the right to use said premises for farming purposes, except such as is actually occupied by second party. * * *

"The above was made on the following terms:

"First. Second party agrees to commence operations on said premises within one year from date of release from secretarial lease or pay $1 per acre per annum until the first well is completed or the property hereby granted is conveyed to the first party.

"Second. Should oil be found in paying quantities upon the premises, second party agrees to deliver to first party, in the pipe line which it may connect the well or wells, the one-eighth part of the oil produced and. saved from premises.

"Third. Should gas be found, second party agrees to pay first party $150 per annum for every well from which and while gas is sold for commercial purposes therefrom off said premises. * * *

"Sixth. Second party may at any time remove all his property and reconvey the premises hereby granted, and thereupon this instrument shall be null and void.

"The second party agrees that a sum of money shall be paid to the first party upon the delivery of this lease, the amount to be determined by the number of acres in the description above multiplied by the pro rata per acre of advanced royalty to the United States Indian superintendent at the time the secretarial lease is canceled, or the foregoing stipulations to be complied with, unavoidable delays excepted."

This lease was placed in a bank with the understanding between the parties that it was to be delivered to the plaintiff upon payment of the accumulated royalties due defendant Melton, under the terms of the secretarial lease and the release of that instrument.

Pursuant to such agreement and the terms of the commercial lease on August 27, 1913, plaintiff executed the following release of the secretarial lease:

"Release. "The undersigned Cherokee Oil Gas Company, lessee in a certain oil and gas mining lease executed by the Secretary of the Interior in favor of the undersigned lessee, date June 7, 1902, covering section 28, township 24 north, range 17 east, 410 acres, more or less, hereby releases, relinquishes, and surrenders all right, title, and interest in and to the foregoing lease, in so far as it pertains to the following described land: * * * Said land being located in Rogers county, state of Oklahoma.

"Effective from date of approval hereof by the Secretary of the Interior."

Such release was approved by the Secretary of the Interior October 13, 1913, although it appears that the superintendent of plaintiff did not have actual notice thereof until January 5, 1915, and the release was not returned to the plaintiff until about February 13, 1915. The royalties due Melton under the provisions of the secretarial lease had been received by him long prior to this time.

Up to February 14, 1915, plaintiff had neither commenced operations on the premises nor offered to pay the $1 per acre per annum delay money. On that day, however, asserting its rights under the commercial lease, it tendered to Melton a check for $120, which he then declined to accept. On the following day the drilling contract between defendants, the cancellation of which is sought by plaintiff, was entered into.

Thereafter plaintiff attempted to move machinery upon the premises for the purpose of drilling a well, but was prevented by defendants, whereupon this action was begun. A temporary retraining order against defendants was issued, which was subsequently dissolved, and defendants commenced the drilling of a well, which was sunk to a depth of about 100 feet, when their operations were interrupted by the appointment of a receiver, who took charge and completed such well.

Beyond question all the rights of the plaintiff to the lands involved by virtue of the secretarial lease were surrendered by the release thereof, and, according to the express terms of such release and of the commercial lease, ceased to exist upon the approval of the release by the Secretary of the Interior. The authority of the Secretary in this regard and the efficacy of his approval of such release need not be considered. By the commercial lease it was stipulated:

"Second party agrees to commence operations on said premises within one year from date of release from secretarial lease or pay $1 per acre per annum until the first well is completed or the property hereby granted is conveyed to the first party."

And by the release it was provided that it should be "effective from date of approval hereof by the Secretary of the Interior."

From the provisions in these instruments it is obvious that the parties intended that the date of the approval of such release should definitely fix the time at which the commercial lease should become effective, and within one year from which the plaintiff should commence operations on the premises or pay to the lessor $1 per acre per annum.

Plaintiff defaulted in the performance of the commercial lease contract by failure to either commence operation or pay the delay money within the period specified therein. Such contract constituting an option to commence operations or pay, the failure to do either rendered the same forfeitable at the choice of the lessor. The lessor exercised his power in this respect by declining to accept the delay money after the expiration of the year and entering into a contract with other parties, and thus all rights of the plaintiff under the provisions of the commercial lease were forfeited.

In Brown v. Wilson, 58 Okla. 392, 160 P. 94, it was held:

"Where an oil and gas lease was made, executed, and delivered for the consideration of $1 in hand paid the lessor, and the covenants and agreements hereinafter contained on the part of the lessee, and leased and let to him a certain tract of land for a term of ten years and as long thereafter as oil and gas or either were produced therefrom by the lessee, he to yield to the lessor certain royalties from the oil and gas produced, and where the lessee agreed to complete a well on the premises within four months from the date thereof or pay at the rate of $80 in advance for each three months such completion was delayed, held, that the $1 supported the four months' period in which the lessee had to complete a well, and supported no other stipulation in the lease; that the prospective royalties were the sole consideration for the execution of the lease on the part of the lessor; that the agreements on the part of the lessee to complete a well on the demised premises within four months or pay for delay conferred an option on the lessee to drill or pay; and that a failure to do either forfeited the lease at the option of the lessor, who thereafter was entitled to have the same judicially declared forfeited and canceled as a cloud upon his title."

By the commercial lease it was also stipulated:

"Second party may at any time remove all his property and reconvey the premises hereby granted, and thereupon this instrument shall be null and void."

In Brown v. Wilson, supra, it was held:

"Where such lease reserves to the lessee and his assigns the right at any time after four months, on the payment of $1 and all payable obligations then due the lessor or his assigns, to surrender the lease, if not tested, for cancellation, held that, as said lease, construed as a whole, confers on the lessee an option to complete a well within four months or pay for delay and a further option to surrender at any time after four months, and thereby avoid doing both, it was voidable at the option of the lessor at any time after four months for lack of mutuality, in that it imposed no legal obligation on the lessee; that, as prospective royalties were the sole consideration for the execution of the lease on the part of the lessor, payment of which could be defeated by a surrender thereof by the lessee, the lease was nudum pactum; and that, as the same reserves to the lessee the right to surrender the lease at any time after four months before development, a corresponding right exists in the lessor to compel a surrender."

It will be observed that by the terms of the commercial lease the lessee had the right to surrender the lease at any time before or after the expiration of the year and thus render the lease null and void.

In, Brown v. Wilson, supra, it is said:

"We are therefore of opinion that, as the lease in question conferred on the lessee the right to surrender the lease at any time after four months before development and thereby terminate the same, a corresponding right existed in the lessor to compel a surrender and terminate the same before development, which he did by making the second lease and yielding possession of the land to the second lessee."

We conclude that by reason of the provisions of the commercial lease under consideration there was no obligation upon the plaintiff either to drill or pay rent, but the doing of either was entirely optional with it, and that as the provisions of the lease gave the lessee the right to surrender it at any time, without further obligation on its part, corresponding right existed en the part of the lessor to compel a surrender.

Again, the relief sought by plaintiff is in the nature of a decree for specific performance of the commercial lease, which contains a surrender clause giving the lessee the option to terminate it at any time, and as we have seen, such lease is not certain, fair, and just in all its parts. The plaintiff had not performed the contract on its part, nor placed itself in a position where it could be compelled to perform.

In Hill Oil Gas Co. v. White et al., 53 Okla. 748,157 P. 710, this court held:

"A surrender clause in an oil and gas lease, which gives to the lessee an option to terminate such lease at any time, deprives the lessee of the right to specific performance, until it has performed the contract or placed itself in such a position that it might be compelled to perform the same on its part."

See, also, Kolachny v. Galbreath, 26 Okla. 772, 110 P. 902, 38 L. R. A. (N. S.) 451; Superior Oil Gas Co. v. Mehlin,25 Okla. 809, 108 P. 545, 138 Am. St. Rep. 942.

In Federal Oil Co. v. Western Oil Co. et al., 121 Fed. 674, 57 C. C. A. 428, United States Circuit Court of Appeals for the Seventh Circuit, it was said:

"The bill alleges compliance by the appellant with the stipulations of the instrument; the payment by it of $8.75 per month in advance; that the tender of $8.75 on October 19, 1901, was refused by the Bradfords, who, ignoring the rights of the appellant, placed the Western Oil Company, appellee, in possession, which company, with knowledge of the rights of the appellant, had placed machinery upon, the land, had made excavations, and were drilling thereon for oil and gas; that subsequently thereto, and on November 14, 1901, the appellant moved material upon the land for the purpose of erecting a rig thereon to be used in drilling for oil and natural gas, which material was removed by the Western Oil Company, with the knowledge and approval of the Bradfords, and cast upon the highway. The bill alleges that the acts complained of constitute a lien and cloud upon the leasehold title of the appellant, removable only in equity, that it has no adequate remedy at law, and prays an injunction suitably restraining the appellees, and a decree to establish the title of the appellant, and to subordinate all rights of the appellees to the title of the appellant. * * * The appellant had the right at any time to remove its property and cease operations without respect to the interests, of Bradford and with respect only to its own interest; and it could cancel and annul the contract, or any part thereof, at any time. There was here an entire want of mutuality — an utter absence of obligation on the part of the appellant. Equity will not specifically enforce a contract against one party when it cannot be specifically enforced against the other. Marble Company v. Ripley, 10 Wall. 339, 359, 19 L.Ed. 955; Karrick v. Hannaman, 168 U.S. 328, 336, 18 Sup. Ct. 135, 42 L.Ed. 484. * * * The only effect of a decree would be to drive the appellees out of possession and put the appellant in possession, allowing it to hold the land indefinitely without action upon its part, and to exploit adjacent lands for natural gas and oil, if it had acquired the right so to do, and thus to defeat any participation by Bradford in the oil which may be beneath the surface of his land. It is no answer to say that the appellant could only do this upon monthly payments to Bradford of $8.75, for that would not compensate him for his share of the oil which it was hoped would be developed, and would permit the appellant, if it had obtained like rights upon adjoining lands, and should, by drilling thereon, develop the presence of oil, to obtain the oli beneath the surface of Bradford's land without any participation therein by him. Nor does the fact that the monthly payments had been made for some months after the contract remove from this agreement the want of mutuality. That payment was not part performance of the contract, but merely the stipulated sum for delay in performance. Contracts unperformed, optional as to one party, are optional as to both. The contract here was determined by the act of Bradford refusing to receive the stipulated sum for further delay, and by placing the Western Oil Company in possession."

The judgment of the trial court should be reversed, and the cause dismissed with prejudice for want of equity.

By the Court: It is so ordered.

On Rehearing.