F. & M. Drilling Co. v. M. & T. Oil Co.

• Decision Date: 04 May 1943
• Docket Number: 31034.
• Citation: F. & M. Drilling Co. v. M. & T. Oil Co., 137 P.2d 575, 192 Okla. 372, 1943 OK 166 (Okla. 1943)
• Parties: F. & M. DRILLING CO. v. M. & T. OIL CO
• Court: Oklahoma Supreme Court

137 P.2d 575

192 Okla. 372, 1943 OK 166

F. & M. DRILLING CO. v. M. & T. OIL CO

No. 31034.

Supreme Court of Oklahoma

May 4, 1943

Syllabus by the Court.

1."Termination" or "cancellation" of a conditional contract means to abrogate so much of it as remains unperformed, doing away with an existing agreement upon the terms and with the consequences mentioned in the writing, and different from "rescission," which means to restore the parties to their former position.

2.Where A contracts to assign a part of an oil and gas lease to B in consideration of a cash payment and the promise to develop further according to a stated plan and the contract provides that on the failure of B to drill before a certain date the interest assigned shall revert and B pays the money but does not drill as required, held, the interest so assigned reverts to A, and the contract between the parties is terminated.

Appeal from District Court, Osage County; Hugh C. Jones, Judge.

Action by M. & T. Oil Company against F. & M. Drilling Company, a co-partnership for relief in relation to an oil and gas mining lease on real estate wherein defendant filed a cross-petition for moneys expended and on accounting.From a judgment for plaintiff, the defendant appeals.

Affirmed.

Hamilton & Kane, of Pawhuska, for plaintiff in error.

Chas R. Gray, and W. N. Palmer, both of Pawhuska, for defendant in error.

BAYLESS Justice.

M. & T Oil Company, a corporation, instituted an action in the district court of Osage County against F. & M. Drilling Company, a co-partnership, for relief in relation to an oil and gas mining lease on real estate in that county; and the defendant appeals from the judgment rendered in favor of the plaintiff.

The plaintiff was the owner of an oil and gas lease and entered into a contract with the defendant to convey it an interest in said lease in consideration of certain obligations assumed on the part of the defendant.Later it filed an action wherein it alleged, in substance, that the defendant had not performed the obligations assumed and prayed that the court decree that the interest conveyed to the defendant reverted to the plaintiff.The defendant filed an answer and cross-petition, setting up in the answer certain defensive matter and denying that it had failed or breached the obligations assumed, and setting up in the cross-petition a cause of action for certain money expended and an accounting.The plaintiff then filed a reply to the answer and an answer to the cross-petition joining issue with the matters pleaded by the defendant.At the conclusion of the trial to the court without a jury the court rendered judgment for the plaintiff(1) quieting its title to the lease and (2) rendering judgment for the plaintiff for a specified sum of money on the accounting.

We find nothing in the defendant's brief in chief questioning the correctness of the amount of the judgment on the accounting and upon consideration thereof conclude that the only issues presented are those of fact and law relating to the judgment quieting title.

The first proposition urged by defendant is based on the theory that the purpose of plaintiff's action was to rescind the contract entered into by them; and, from this premise, it argues that plaintiff must fail because it failed to restore or to offer to restore to the defendant everything of value which the plaintiff received from the defendant in the transaction.Upon consideration of the plaintiff's petition and reply we are of the opinion that the relief sought by plaintiff was not a rescission of the contract but was a decree that the defendant had breached or failed to perform the expressed obligations of the contract conveying an interest in the oil and gas lease and a judgment that the ownership of the assigned interest terminated and it reverted to plaintiff.It is a generally understood rule of law that the provisions of leases or contracts for the sale of interests in oil and gas leases calling for the performance of certain stated duties within a specified time are to be considered as express covenants, and the failure to perform them brings into operation the power of termination and will justify a forfeiture of the interest conveyed at the suit of the other party.Summers, Oil and Gas, Perm.Ed., Vol. 2, page 400 et seq., § 431 et seq.

The term "rescind a contract" or the word "rescission" are used broadly in many cases and circumstances.See54 C.J. 694.The difference between rescission, which requires a restoration of status quo, and abandonment or termination or cancellation of contract according to the terms of an agreement between the parties defining their rights upon the failure of either to perform is well illustrated in the citation of authorities in Words and Phrases, Perm.Ed., vol. 37, Rescission, p. 117.Sanborn v. Ballanfonte,98 Cal.App. 482, 277 P. 152 155, is a case dealing with a similar problem relating to oil and gas leases.There it was contended by the lessees that the election of the lessor to terminate the lease for the failure to drill amounted to a rescission relating back to the inception of the agreement and annulled all of the obligations assumed by the lessees, whereas the lessor contended it was a forfeiture of the lessees' rights from and after the cancellation or termination that left intact the accrued obligations of the lessees but released the lessees as to those to arise thereafter.In discussing the difference between rescission and forfeiture, the court said:

"Obviously, therefore, the real issue is one of construction and determination of the legal effect of such acts of the parties.An executory contract may be rescinded, abandoned, or terminated, either wholly or in part, by the mutual consent of the respective parties at any stage of their performance.6 Cal.Jur. § 230, p. 382;Tompkins v. Davidow, 27 Cal.App. 327, 149 P. 788."Termination" or "cancellation" of a conditional contract means to abrogate so much of it as remains unperformed, doing away with an existing agreement upon the terms and with the consequences mentioned in the writing, and different from "rescission," which means to restore the parties to their former position.Young v. Flickinger,75 Cal.App. 171, 174, 242 P. 516, Winton v. Spring,18 Cal. 451.A reservation of rights contained in a mutual agreement of termination of future rights and obligations under an executory contract is binding upon the parties to it.[Citing authorities.]What did the parties mean by the transaction consisting of plaintiff's serving of the notice to terminate or cancel the contracts and the

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