Hughes v. El Dorado Union Oil Co.

• Decision Date: 08 October 1923
• Docket Number: 166
• Citation: 254 S.W. 663,160 Ark. 342
• Parties: HUGHES v. EL DORADO UNION OIL COMPANY
• Court: Arkansas Supreme Court

254 S.W. 663

160 Ark. 342

HUGHES v. EL DORADO UNION OIL COMPANY

No. 166

Supreme Court of Arkansas

October 8, 1923

Appeal from Ouachita Chancery Court; J. Y. Stevens, Chancellor reversed.

Decree reversed and cause remanded.

Houston Emery, Smead & Meek, Gaughan & Sifford and Elbert Godwin, for appellants; H. C. Compton, of counsel.

1. The consideration having failed, the leases are forfeited. The demurrer admits that the drilling of a well was not commenced within twelve months after the date of the leases. A contract must be considered as a whole, in construing it, and all its parts must be considered to determine the meaning of any particular part. 94 Ark. 461; 104 Ark. 475; 93 Ark. 497; 60 Ark. 595; 52 Ark. 30; 96 Ark. 320. Leases prepared by the lessee will be construed most strictly against the lessee and favorable to the lessor. 99 F. 606, 48 L. R. A. 320. Since the sole consideration for the execution of the leases was the drilling of a well, the nonperformance of that act destroys the consideration and forfeits leases. 171 U.S. 312; 45 W.Va. 143, 30 S.E. 95; 133 U.S. 156; 2 Dru. & W. 274; 1 Gray 414; 26 Ark. 617; 72 Ark. 310; 86 Ark. 251; 103 Ark 464.

2. It is admitted by the demurrer that appellee failed and refused to drill the well within the twelve months specified in the leases, and for a period of six months after that, when suits were brought; this constituted an abandonment of the appellee's rights or claims under the leases. 45 W.Va 27, 44 L. R. A. 107; 1 C. J. 10, § 14; 1 R. C. L. 4, § 4; 148 Ark. 301.

3. The demurrer also admits the truth of the allegations of the complaint to the effect that the leases were obtained by misrepresentation and fraud, but appellee contends that the legal effect of the construction of the leases is a question of law, and that a mistake of law will not avoid the contracts. This case falls within the exception that is as well recognized as the rule, viz: that where the mistake as to the legal construction of a contract on the part of one of the contracting parties was occasioned by the false and fraudulent representations of the other, equity will relieve against it. 6 R. C. L. 625, § 44; 13 Ark. 129; 49 Ark. 24; 69 Ark. 406.

4. The leases should be held void because unilateral, if they are not forfeited by reason of the failure to drill the well within twelve months. 6 R. C. L. 686-687; 4 Ark. 251; 96 Ark. 184.

Harve L. Melton and J. W. Warren, for appellees.

1. We agree that a contract must be construed as a whole, and that every part must be considered to determine the meaning of any particular part as well as of the whole; but to adopt appellant's construction would do violence to this principle, because it would eliminate clause nine of the leases entirely. In addition to authorities cited by appellants, see 224 F. 74; 187 P. 235; 6 R. C. L. 847; 96 Ark. 320; 186 S.W. 622; 99 Ark. 112; 104 Ark. 573; 149 S.W. 518. Paragraph nine so modifies the effect of paragraph eight as to make time not of the essence of the contract. Page on Contracts, § 1154. There was no allegation that the delay was unreasonable, nor any showing of injury resulting therefrom. 87 P. 724; 74 Kan. 581. Huggins v. Daley, 99 F. 606, 48 L. R. A. 320, relied on by appellants, is not controlling in this case. 145 Ark. 566; 225 S.W. 345; 10 R. C. L. 331; 196 P. 688; 145 Ark. 310; 225 S.W. 340; 237 U.S. 101; 245 S.W. 802.

2. Mere lapse of time without acts showing an intention to abandon does not constitute abandonment. 70 Ark. 525; 69 S.W. 572; Lindsey on Mines, §§ 643, 644; 86 F. 90, 95; 1 Thornton, Oil and Gas, 249.

3. On the question of fraud, appellants failed entirely to bring themselves within any of the exceptions quoted in their brief from 6 R. C. L. p. 265, and the contention as to misrepresentation is wholly without merit. Pomeroy, Equity Jurisprudence, 3rd ed. 891.

OPINION

HUMPHREYS, J.

Appellants instituted suit, on the 24th day of November, 1922, in Ouachita Chancery Court to cancel several oil and gas leases executed on the 7th day of April, 1921, by Mrs. Janet Hughes and others in their own right, and by Mrs. Janet Hughes in her representative capacity, to J. L. Hines, for appellee, El Dorado Union Oil Company. Two grounds are alleged in the substituted, amended complaint in support of the prayer for a cancellation of the leases. The first ground is, that the execution of the leases was procured through fraud by misrepresentations to the effect that, unless J. L. Hines or appellee should drill a test well upon certain lands in said county within twelve months of the date of the leases, same would be forfeited and of no effect. The second ground is that there was a forfeiture of the leases on account of the failure of appellee, to whom the leases were immediately assigned, to drill a test well upon said lands within the twelve-month period provided in section 8 of each lease. Copies of the leases, which are in substance alike, were filed as exhibits to and as parts of the bill asking cancellation thereof.

Appellee filed a demurrer to the substituted, amended bill when perfected, upon the ground that it failed to state facts sufficient to constitute a cause of action when read in connection with the exhibits attached and made a part thereof.

Upon hearing, the court sustained the demurrer to the bill. Appellants stood upon the bill and refused to plead further, whereupon the court dismissed the bill for want of equity. From the decree of dismissal an appeal has been duly prosecuted to this court.

This litigation grew out of the construction the respective parties placed upon the language of the leases. Appellants construed the language of the leases to mean that appellee should drill a test well, in any event, upon the designated lands, within twelve months from the date of the leases, in order to prevent a forfeiture thereof, and if the leases did not have that meaning they were obtained through misrepresentations to that effect, and should be canceled, in either event, on account of a failure of consideration. Appellee construed the language of the contract to mean that it had a reasonable time after the expiration of the year limit provided for in section 8 of the leases to drill a test well upon the designated lands by reason of the depression of oil, as provided for in section 9 of the contract.

The leases are quite lengthy, so, for the sake of brevity, only those parts of the contract necessary to a determination of the differences in construction between the parties will be set out. They are as follows:

"For and in consideration of stock and one dollar, cash in hand paid, receipt of which is hereby acknowledged, and of the covenants and agreements hereinafter contained on the part of the lessee to be paid, kept and performed, has granted, demised, leased and let, and by these presents does grant, demise, lease and let * * * "

"It is agreed that this lease shall remain in force for a term of five years and as long thereafter as oil and gas, or either of them, is produced from said land by the lessee."

"8. It is agreed and understood by the parties to this contract that this oil and gas lease is let for the sole and only purpose of developing for oil and gas, and that the consideration to the lessor for same is not the DOWN PAYMENT, but the contract to drill a well upon certain property hereinafter specified, and the lessee binds himself to cause such well to be drilled within twelve months from this date.

"9. And in the event that the lessee or lessees shall have not been able, by reason of the depression of oil, or other unforeseen hindrances, to drill on one of the tracts in the leases below mentioned within the twelve months set out in this contract then it is agreed and understood by the parties that the South Arkansas Oil Company is not to transfer any of the leases taken under this contract, unless it can be specifically shown that they are making such transfer for the purpose of raising money or equipage with which to develop the leases so taken.

"It is further understood by the parties to this contract that drilling operations of the well above referred to shall be continuous, and that, should the well be abandoned before a test for oil has been made, and no new well commenced within a reasonable time thereafter, this lease shall revert back to the lessor."

The argument is made by appellant...