Keechi Oil & Gas Co. v. Smith
| Decision Date | 10 May 1921 |
| Docket Number | Case Number: 10698 |
| Citation | 81 Okla. 266,1921 OK 168,198 P. 588 |
| Parties | KEECHI OIL & GAS CO. et al. v. SMITH et al. |
| Court | Oklahoma Supreme Court |
¶0 1. Appeal and Error -- Review -- Equity Cases. In an equitable action this court will weigh the evidence, and, if the judgment of the trial court is clearly against the weight thereof, will render, or cause to be rendered, such judgment as said court should have rendered.
2. Oil and Gas -- Construction of Lease--"Oil and Gas in Paying Quantities." The phrase, "oil or gas is found in paying quantities," means in sufficient quantities to pay a reasonable profit on the necessary sum required to be expended, including the cost of drilling, equipment, and operation of well.
3. Same--Compliance by Drilling--Action to Forfeit. It is error to declare an oil and gas lease forfeited which contained the following provision, to wit: "That second party agrees to commence operations of drilling within 90 days from the date hereof somewhere within the vicinity of Cement and drill to a depth of 3,000 feet unless oil or gas is found in paying quantities at a lesser depth, and continue drilling with due diligence to completion," when the evidence disclosed the lessee commenced the vicinity well and had continued to drill with due diligence to the date of filing suit to cancel the lease, although the partes had not found oil and gas in paying quantities nor completed said well to a depth of 3,000 feet. The continued drilling with due diligence was a compliance with the express covenant contained in the lease.
4. Appeal and Error -- Findings -- Insufficiency of Evidence -- Cancellation of Oil Lease. On an appeal from the judgment of the trial court canceling an oil and gas lease for violation of certain express covenants contained in the lease, where the court made a general finding in favor of the lessor canceling said lease, and from an examination of the entire record the evidence is insufficient to support a finding that the lessees have failed to comply with any of the express covenants in the lease, the judgment of the court will be set aside as clearly against the weight of the evidence. Elting, J., dissenting in part.
Bond, Melton & Melton, for plaintiffs in error.
Morris & Jameson, for defendants in error.
¶1 This action was commenced in the district court of Caddo county by I. M. Duncan and another against the Keechi Oil & Gas Company and others. J. D. Smith and Dora A. Smith intervened asking cancellation of a certain oil and gas lease executed by J. D. Smith and Dora A. Smith to I. M. Duncan, which lease is now owned by the defendants. The Smiths having assumed the affirmative of the issues, for convenience they will herein be referred to as plaintiffs. The amended petition, for grounds for cancellation, alleged the land was the homestead of the Smiths and the lease was executed on the 19th day of January, 1916, by J. D. Smith without any consideration, and that about the 15th day of December, 1916, Dora A. Smith executed said lease without any consideration whatever, except the lessee agreed to immediately resume drilling on what is known as the Kunzmiller well, and to continue actual drilling to a depth of 3,000 feet, unless oil and gas were found in paying quantities; that said representations were false and untrue, and made with the fraudulent intent to deceive Mrs. Smith and with no intent to continue drilling, and made to obtain Mrs. Smith's signature to said lease, and she relied upon the said representations, and that said lease was obtained by fraud and void. The second ground for cancellation alleged that the lease contained the following provision:
"Second party agrees to commence operations of drilling within ninety days of date hereof somewhere within the vicinity of Cement, Oklahoma, and to drill to a depth of three thousand feet unless oil and gas are found in paying quantities at a lesser depth and continue drilling until said well is completed."
¶2 It is contended that the defendants breached this provision of the lease and had forfeited their rights in said lease. The third ground for cancellation was that the lease provided that if no well was completed on the premises within one year from the date thereof, the lessee agreed to pay at the rate of $ 1 per acre, payable in advance, until a well was completed. It is alleged that no well was completed and no money paid according to the terms of the lease. The fourth contention was that the lease was unilateral and void. The defendants answered, and upon trial of the case the court found the issues in favor of the plaintiffs and against the defendants and canceled said lease. From said judgment the defendants appealed. The grounds alleged for cancellation of the lease depend upon questions of fact, and the court having made a general finding in favor of the plaintiffs, in order to reverse the judgment it wil be necessary to find that the finding of the court is clearly against the weight of the evidence on each proposition. The first allegation of the petition was that there was no consideration for said lease. The lease recites one dollar consideration and the further consideration that the well should be drilled within the vicinity of Cement to the depth of 3,000 feet unless oil or gas was found in paying quantities at a lesser depth. Mr. Smith, one of the plaintiffs, testified that he did not receive the dollar, nor did he contend that the lease should be canceled for that reason, but that the consideration for the lease was the drilling of a test well in the vicinity of Cement and the lease should be canceled for failure to comply with that provision in the lease. We think this is the material question in the case, and the judgment of the trial, court depends upon whether the lessee had failed to comply with this express covenant in the lease at the time of the institution of the suit. The first requirement under this express covenant of the lease was the commencement of operations of drilling within 90 days from the 19th day of January, 1916. Whether there was a strict compliance with this 90-day provision, we think is immaterial, for the lease in this case was not executed by Mrs. Smith until the 15th day of December, 1916, and the lease was of no force and effect until that day, the land being the homestead of Mr. and Mrs. Smith, and the lessee or his assignees had drilled a well within the vicinity of Cement to a depth of about 1,500 feet at the time of signing the lease. This would be a waiver of the right to forfeiture for failure to strictly comply with this provision to commence operations of drilling within 90 days. The second requirement was to drill to a depth of 3,000 feet, unless oil or gas was found at a lesser depth in paying quantities. The term "paying quantities" in an oil and gas lease has been defined by this court to mean:
"The phrase 'oil or gas is found in paying quantities,' means in sufficient quantities to pay a reasonable profit on the necessary sum required to be expended, including the cost of drilling, equipment, and operation of well." Ardizonne v. Archer, 72 Okla. 70, 178 P. 263; Pelham Petroleum Co. v. North, 78 Okla. 39, 188 P. 1069.
¶3 The evidence disclosed that oil was not found in paying quantities as measured by the above decisions, although it was believed by all of the people familiar with the well from the First of December, 1916, until long after the commencement of this suit that the Kunzmiller well was a paying well, but it later developed not to be a paying well. The next requirement was that a well was to be drilled to a depth of 3,000 feet. It is admitted that no well was drilled to a depth of 3,000 feet. The lease does not provide when said well shall be completed to a depth of 3,000 feet, but provides the lessee shall continue work with due diligence. The evidence is conclusive that the parties worked with due diligence, taking into consideration that this was a "wild cat field," and in December, 1916, found oil and gas. They then worked diligently in their attempt to make the well produce oil and gas in paying quantities. They worked at the well for some eight or nine months trying to produce oil and gas in paying quantities. There is no contention that this work was not done in good faith. This action was commenced on the 14th day of March, 1917, and if the plaintiffs are entitled to have said lease canceled, it is by virtue of the violation of some express provision of the lease that existed on or prior to said date. No supplemental petition was filed asking for cancellation of the instrument for failure to comply with any of the express covenants of the lease that accrued after the filing of the petition. On the 14th day of March, the date of instituting this suit, the lessee had not found oil and gas in paying quantities in the vicinity well, nor had they drilled to a depth of more than 3,000 feet, but they had commenced the work, and since the execution of this lease had worked continuously, diligently, and in good faith and complying with this provision of the lease. The evidence is conclusive that there was no violation of this express covenant in the lease at the time of the commencement of this action. We will now consider the other grounds for cancellation of the lease as alleged in the petition. In regard to the allegation that at the time Mrs. Smith executed the lease certain false and fraudulent representations were made to her in regard to continuing drilling on the Kunzmiller well, it is sufficient to say that no evidence was introduced to support this allegation of the petition. The third allegation for cancellation of the lease was that the lessee had not paid the dollar per acre for the second year's rental. This rental became due on January 19, 1917, and the evidence is conclusive that the lessee had tendered the plaintiff said amount, which was refused and on said date the rental was deposited in the bank...
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