Hill Oil & Gas Co. v. White

On September 11, 1911, J.M. White entered into a contract with the Hill Oil Gas Company, wherein he agreed to make and enter into an oil and gas mining lease on the S.W. 1/4 of section 24, township 17 N., range 7 east of the Indian Meridian, such lease to be executed on or before January 1, 1913, and to contain, among other provisions, a surrender clause that for and in consideration of the sum of $1 J.M. White would grant unto the Hill Oil Gas Company the exclusive option and right to terminate the lease or any portion thereof at any time, and all liability of the Hill Oil Gas Company as to the portion released would immediately cease and terminate. On October 9, 1912, the Hill Oil Gas Company instituted this action against J.M. White and others for the specific performance of this contract, and it is alleged in the petition that the consideration for the contract was, in fact, $160, and was at the time a fair and adequate consideration, being as much as the market value of the lease for oil and gas mining purposes upon said land at the time the contract was entered into. The petition further alleged that defendant White had, before the time of the execution of the contract declared upon, purchased from the Creek Nation the lands in question, under the laws of the United States and rules and regulations of the Department of the Interior governing the sale of the unallotted lands of the Five Civilized Tribes; that White had paid under the regulations of the Department of the Interior a part of the consideration for the purchase of said land, and engaged to pay the balance of said consideration at a later period, when his contract of purchase entitled him to receive the title in fee to said lands; that by the terms of said contract White agreed, among other things, to complete the performance of his contract of purchase according to its terms, and that in default on his part so to do the plaintiff would have the right to complete said payments on behalf of White, and that when White should receive his patent, or full and complete title to the lands in question, he would immediately, and on or before January 1, 1913, execute an oil and gas mining lease covering said lands to the plaintiff, which form of oil and gas lease was attached to the contract; that before the commencement of this action White had completed the payment of the purchase money for said land, and received a deed from the Creek Nation conveying to him the title in fee; that plaintiff had before the commencement of this action tendered White and his codefendants, Emma M. White and C.J. Wrightsman, a form of lease in accordance with the terms of the contract, and demanded execution, which was refused. It is further alleged that plaintiff had gone into possession of said land under said contract for the purpose of performing the same on its part, and the prayer is for the specific performance of the contract and general and equitable relief. A demurrer was filed to the petition, and the court sustained the same on the ground that the surrender clause as hereinbefore set out rendered the lease such a contract as a court of equity would refuse to decree specific performance thereof. The plaintiff stood on its petition, and the court rendered judgment dismissing the same, and the cause is brought here for review.

This court held in Kolachny v. Galbreath, 26 Okla. 772,110 P. 902, 38 L. R. A. (N. S.) 451, that a surrender clause which gave to the lessee the right at any time to surrender and terminate the lease, after which all payments or liability should cease and terminate, deprived the lessee of the right of specific performance, directly or indirectly, until he had performed the contract or placed himself in such a position that he might be compelled to perform it on his part.

In the case of Superior Oil Gas Co. v. Mehlin,25 Okla. 809, 108 P. 545, 138 Am. St. Rep. 942, a contract was entered into whereby it was stipulated that James G. Mehlin had filed on certain lands as a citizen of the Cherokee Nation, and that, inasmuch as the legal right to receive the land was not settled, as soon as the rights of said Mehlin were settled in his favor, he would execute an oil and gas lease to the Superior Oil Gas Company in accordance with the terms and conditions required by the Secretary of the Interior; but, if such requirements were not made, a regular oil and gas lease, as used in the State of Kansas, should be executed. Under the evidence it was shown that the lease was to run for 15 years, or as long thereafter as oil and gas, or either of the same, should be produced; but, in case the operations were not commenced in the 15 years, the company was to pay an indefinite sum for each additional year such commencement of operations was delayed. The court held, under the terms of the proposed lease, that it was left entirely to the action of the lessee to either drill or not drill for oil and gas, and that the general rule applied that contracts unperformed, which are optional as to one of the parties, are optional as to both, and refused to order a specific performance requiring the owner to enter into the lease, on the ground that the lease contract sought to be enforced presented terms which precluded its favorable consideration at the hands of the court.

The question raised in the instant case comes within the rules laid down in the foregoing cases. Here White entered into a contract with the Hill Oil Gas Company that White should execute a lease to the lands in controversy, which lease should provide that White should grant unto the Hill Oil Gas Company the exclusive option and right to release and terminate the grant given by the oil and gas lease or any portion thereof at any time, and that all liability of the Hill Oil Gas Company as to the portion released should cease and terminate. This was the condition of the lease under consideration in Kolachny v.Galbreath, supra, and in which the court held that a specific performance would not be enforced. In that case, however, an attempt was made to enforce the terms of the lease. In the instant case, the relief asked is that White be required to execute a lease containing a surrender clause. In the case of the Superior Oil Gas Company v.Mehlin, supra, the plaintiff endeavored to require Mehlin to execute an oil and gas lease, and under the facts in that case the court held that specific performance would not lie, unless the agreement was certain, fair, and just in all its parts, and that, in such an action, any elements showing that the contract was unfair, unjust, and against good conscience would justify the court in refusing a decree, although the contract, had it been executed, might offer no sufficient grounds for cancellation, and the court thereupon refused to order a specific performance of the contract.

It is insisted that, because of the allegation in the petition that the Hill Oil Gas Company was already in possession of the premises, the company did not need the interposition of a court of equity to enforce the performance of the terms of the lease, but that it was entitled to the execution of the lease, because it had paid a full, fair, and adequate consideration. If we should take these views as conclusive, and order a decree to be entered requiring the execution of the oil and gas lease containing a surrender clause, which, at the option of the lessee, he could terminate at will, we should be doing a vain and useless thing, by rendering a decree settling the rights of parties which one of them at will could set aside. We do not think that the agreement in this case is fair and just in all its parts, as it would give the Hill Oil Gas Company an unfair and unjust advantage over the defendants.

Considerable argument has been devoted to the case ofGuffey et al. v. Smith et al., 237 U.S. 101, 35 Sup. Ct. 526, 59 L. Ed. 856. That case deals with the subject of an oil and gas lease as construed by the Supreme Court of Illinois, and has no application to the case at bar. It specifically holds that the construction placed upon an option in an oil and gas lease by the Supreme Court of the State of Illinois constituted rules of property, and must be accepted and applied in passing on the rights of the parties, clearly holding that they construed such lease under the decisions of the State of Illinois, which decisions are in direct conflict with the decisions of this state. The case turns upon a question of federal procedure; the court holding it must follow the Supreme Court of Illinois in the construction of the contract when it is to determine the substantive rights of the parties, but in the matters of procedure in equity the federal court is not bound by the state practice.

We therefore conclude that all the questions raised by this proceeding have been determined by this court in the cases of0Kolachny v. Galbreath and Superior Oil Gas Co. v. Mehlin,supra. The demurrer was therefore properly sustained, and the cause should be affirmed; but owing to the fact that the record discloses that money was paid, and possibly improvements made, the cause is remanded to the district court of Creek county, with instructions to take evidence upon the claim of the Hill Oil Gas Company for money advanced and improvements made, making any judgment rendered a lien on the land involved.

ON PETITION FOR REHEARING.