Lanz v. Naddy

• Decision Date: 01 May 1957
• Docket Number: No. 7611,7611
• Citation: 82 N.W.2d 809
• Parties: Wm. LANZ and Nora J. Lanz, Plaintiffs and Respondents, v. Martin T. NADDY, a single man, personally, and Martin T. Naddy, doing business under the fictitious firm name and style of Ohio Oil Syndicate, Defendant and Appellant.
• Court: North Dakota Supreme Court

Page 809

82 N.W.2d 809

Wm. LANZ and Nora J. Lanz, Plaintiffs and Respondents, v. Martin T. NADDY, a single man, personally, and Martin T.

Naddy, doing business under the fictitious firm

name and style of Ohio Oil Syndicate,

Defendant and Appellant.

No. 7611.

Supreme Court of North Dakota.

May 1, 1957.

Syllabus by the Court.

1. The specific relief of rescission of a written contract may be adjudged if the consent of the party rescinding was obtained through fraud provided that he acts promptly upon discovering the facts which entitle him to rescind, if he is free from duress, menace, undue influence, or disability and is aware of his right to rescind.

2. A promise made without any intention of performing it if made with the intent to induce and does induce another party to enter into a contract is actual fraud.

3. Where a party has been induced to execute a written instrument through fraudulent representations as to its contents and where the circumstances are such that the defrauded party has reason to rely upon the representations made to him by the other party, his negligence in failing to read the instrument will not preclude him from asserting the fraud.

4. Where the plaintiffs had been induced by fraudulent representations to execute an oil and gas lease, for reasons stated in the opinion it is held that a lapse of approximately nineteen months between the execution of the lease and the bringing of an action to cancel it did not result in a waiver of plaintiffs' right to rescind.

Rausch & Chapman, Bismarck, for defendant and appellant.

W. J. Austin, Bismarck, and John O. Garaas, Watford City, for plaintiffs and respondents.

MORRIS, Judge.

This is an appeal from a judgment of the District Court of McKenzie County determining that an oil and gas lease was procured from the plaintiffs by the defendant by fraud and decreeing that the lease is null and void and that it be canceled of record.

The lease in question is dated April 21, 1950, between Wm. Lanz and Nora J. Lanz, as lessors, and Martin T. Naddy, as lessee. It recites a consideration of one dollar and describes certain lands in McKenzie County containing 320 acres, more or less. The term is ten years from the date of the lease or as long thereafter as oil or gas or either of them is produced.

The particular clauses in controversy are these: The lessee agrees

'To pay the lessor One Hundred and Fifty (150.00) Dollars, each year or 1/8 of gas at the well in advance, for the gas from each well where gas only is found, * * *.

'Unless operations for the drilling of a test well be commenced and prosecuted with due diligence upon the above described land or within a radius of 10 miles therefrom on or before the 25th day of September, 1953, this shall terminate as to both parties, unless the lessee on or before the date shall pay or tender to the lessor, or to the lessor's credit in the American State Bank at Williston, N. D. or its successors, which shall continue as the depository regardless of changes in the ownership of said land, the sum of 10cents per acre per year * * *.'

It is also provided that:

'If no well be commenced on said land within twelve months after the completion or abandonment of said test well hereinafter mentioned, this lease shall terminate as to both parties, unless the lessee on or before the date shall pay or tender to the lessor, or to lessor's credit in the American State (Bank), at Williston, N. D. or its successors, which shall continue as the depository regardless of changes in the ownership of said land, the sum of 10cents per acre per year Dollars, which shall operate as a rental and cover the privilege of deferring the commencement of a well for 18 months from said date.'

The first italicization is interlined in ink and the other italicizations are entered in ink in lined blanks contained in the printed form. The lease was signed at the plaintiffs' farm and later the same day was acknowledged before a notary public in the neighboring town of Alexander.

The specifications of fraud pleaded in the complaint are that the defendant at the time of procuring the execution of the lease falsely represented to the plaintiffs that he would make immediate payment of ten cents per acre as consideration for signing the lease; that he further stated that he would pay the plaintiffs the sum of ten cents per acre per year as delay rental but contrary to this agreement he left a blank in the lease form for the date upon which the delayed payments were to start and later fraudulently inserted therein the year 1953 without the consent, authority, or knowledge of the plaintiffs. It is further alleged that at the time of the execution of the lease the defendant fraudulently represented that he would commence the drilling of an oil well on the premises within three months after the execution of the lease and that unless he did so he would cancel the lease, and that no well was ever drilled nor was the lease canceled. It is also alleged that the defendant falsely stated that the form of the lease was a standard form generally used by the oil industry.

As a second cause of action the plaintiffs allege that the defendant fraudulently and without the knowledge, consent, approval, or authority of the plaintiffs altered the lease by inserting therein the statement above italicized with the exception of the name and address of the depository.

According to Mr. Lanz' testimony the lease was signed at his home. His wife and Mr. Naddy were present. He had never met Naddy before. Naddy said he was doing business for the 'Billings Oil Company' and was interested in leasing land for ten cents an acre. Naddy 'wrote up' the lease and the plaintiff and his wife signed it. All three of the parties then drove into Alexander where the acknowledgment was completed before a notary public. Naddy took the lease with him but promised to give Lanz a copy. No copy was ever furnished and he never saw the lease again or became aware of its contents until after it was recorded over a year later.

There is direct conflict in the testimony as to what was in the lease at the time it was signed, as well as what the actual agreement was between the parties before the lease was signed. Lanz says that the only parts of the blank that had been filled out at the time of signing were the date, the description of the land, and the name of the depository. The other data in the blank spaces had not yet been filled in. Lanz testified that there was no talk with Naddy about deferring the commencement of a well for eighteen months nor was there any reference made to gas that might be recovered or to drilling a test well within ten miles of the premises and there was no talk about filling in blanks after the lease was signed. The words '10cents per acre per year' might have been in the lease at the time it was signed. According to Lanz he was to receive ten cents per acre as soon as the title had been checked. This appears to have been in the nature of a bonus. If a well was not drilled on the premises within a year he was to receive ten cents per acre per year until the well was drilled. Lanz signed the lease and handed it to Naddy. He did not read it but relied upon Naddy to fill it out in accordance with the agreement arrived at during negotiations. Mrs. Lanz testified and corroborated her husband's testimony in all major particulars.

According to testimony of the defendant he obtained sixteen or seventeen leases in McKenzie County during a period of about ten days that included the week of April 13, 1950. The procedure used in obtaining these leases was the same and he made the same statements of fact to each of the lessors. He doesn't remember the details surrounding the signing of the Lanz lease. He thinks it was signed in the store operated by the notary public who took the acknowledgment. However, the notary testifies that the lease had already been signed when Naddy brought it in to be acknowledged. Naddy does not remember anything about the execution, the discussion, or the signing with reference to the Lanz lease. Most of the seventeen leases were filled out in the homes of the lessors. The blanks were filled in at that time and they all provided for the deferment of rental payments until September 25, 1953.

In addition to the plaintiffs three other lessors testified as to the procedure and the agreement that preceded or accompanied the signing of their leases with Naddy. Their testimony in this respect is similar to that of the plaintiffs in this action in all major particulars. The preponderance of the evidence supports the version of the transaction given by the plaintiffs. It now becomes necessary to determine its legal effect.

The lease is on a printed form in which the defendant's name is printed as party of the second part. In the upper left hand corner appears '88 Standard Oil and Gas Lease.' It is a form that the defendant obtained and had printed in Montana known as 'Montana 88'. It is established that the lease was not a standard or the usual form in use in North Dakota at the time it was signed and that there is no requirement in the North Dakota law that oil and gas leases be of certain form or in certain wordage.

This is a proceeding in equity to rescind and cancel an oil and gas lease for fraud claimed to have been perpetrated on the lessors by which they were induced to execute the lease. The specific relief of rescission of a written contract may be adjudged if the consent of the party rescinding was obtained through fraud. Section 32-0421 and Section 9-0902, NDRC 1943.

'Fraud in equity includes all willful or intentional acts, omissions, and concealments which involve a breach of either legal or equitable duty, trust, or confidence, and are injurious to another, or by which an undue or unconscientious advantage over another is obtained.' Pomeroy's Equity Jurisprudence, Fifth Edition, Section 873.

Section 9-0308, NDRC 1943, provides...