Simons v. Mcdaniel

• Citation: 1932 OK 34,7 P.2d 419,154 Okla. 168
• Decision Date: 19 January 1932
• Docket Number: Case Number: 19875
• Parties: SIMONS et al. v. McDANIEL et al.
• Court: Supreme Court of Oklahoma

1932 OK 34

7 P.2d 419

154 Okla. 168

SIMONS et al. v. McDANIEL et al.

Case Number: 19875

Supreme Court of Oklahoma

Decided: January 19, 1932

Syllabus

¶0 1. Oil and Gas--Lease Held not to Expire Where Lessee Commenced Well in Good Faith Within Five-Year Term.

An oil and gas lease for a term of five years, but providing in the development clause that the lease should terminate "if no well be commenced" on or before the 20th day of February, 1923, unless the lessee shall pay or tender to the lessor, rentals, where rentals are paid in accord with the terms, held, not to expire, where a well was commenced within the five-year term, and in good faith lessee seeks completion and production.

2. Same--Grant of "Top Leases" as Obstruction to Development Under Existing Leases.

The act of lessors in granting what is known as top leases is an election to declare existing lease at an end and obstructs the exercise of rights under existing leases.

3. Same--Right of Lessee to Suspend Operations Pending Legal Proceedings to Remove Obstructions Established by Lessor.

A lessee having commenced a well and being bound to continue in good faith until completion and production is reached in order to maintain the lease in force is none the less in good faith where physical operations are suspended pending commencement and prosecution of legal proceedings to remove obstructions established by lessors.

Appeal from District Court, Seminole County; Geo. C. Crump, Judge.

Action by George A. Simons and another against George M. McDaniel et al. Judgment for defendants, and plaintiffs appeal. Reversed and remanded.

Chas. A. Dickson, for plaintiff in error.

R. J. Roberts, for defendant in error.

Hogan & Gavin, amici curiae.

RILEY, J.

¶1 On February 20, 1922, Van Meter and wife executed and delivered an oil and gas lease to the 120 acres of land in controversy to Dickinson, and, by mesne assignment, the plaintiff Simons acquired a three-fourths interest and plaintiff Bean Drilling Company acquired a one-fourth interest in the lease.

¶2 The lease is dated February 20, 1922. It was executed March 11, 1922. It was recorded May 23, 1922. This lease provided that it shall "remain in full force for a term of five years from this date and as long thereafter as oil, gas or either of them is produced from said land." And also a provision that:

"If no well be commenced on said land on or before the 20th day of February, 1923, this lease shall terminate as to both parties, unless the lessee, on or before that date, shall pay or tender to the lessor, or to the lessor's credit in the Maud State Bank at Maud, Okla., or its successors, which shall continue as the depository regardless of changes in the ownership of said land, the sum of $ 120, which shall operate as a rental and cover the privilege of deferring the commencement of a well for 12 months from said date. In like manner and upon like payment or tenders, the commencement of a well may be further deferred for like period of the same number of months successively. And it is understood and agreed that the consideration first recited herein, the down payment, covers not only the privileges granted to the date when said first rental is payable as aforesaid, but also the lessee's option of extending the period as aforesaid."

¶3 The rentals were paid in accord with the terms of this lease. Five years from the date of the lease would be February 20, 1927. Five years from date of execution would be March 11, 1927.

¶4 Plaintiff made location for a well on said lease January 15, 1927, and the first load of material was placed on the lease January 22, 1927. A rotary rig was completed on the lease February 8, 1927.

¶5 The lessor Van Meter died February 25, 1925. On October 25, 1926, his adult heirs executed and delivered an oil and gas lease to this land to defendant McDaniel. It was recorded January 11, 1927. Its effective date was March 27, 1927. Its term was five years.

¶6 On November 16, 1926, Ida Van Meter, as guardian of the minor Van Meter heirs, executed a lease to the same property to defendant McDaniel, which lease was recorded January 5, 1927, which lease, by its terms, was to go into effect March 27, 1927.

¶7 On February 15, 1927, plaintiffs commenced an action to eliminate the McDaniel leases as a cloud on their title and to quiet title of their lease, and in the meantime to authorize and direct plaintiffs to cease drilling operations on the lease. On February 15, 1927, the court in an ex parte proceeding directed plaintiffs to cease drilling operations pending litigation.

¶8 McDaniel answered denying generally. The Van Meters so answered. Thereafter all defendants amended their answer, wherein they alleged that plaintiffs had failed to develop the lease and had done no work to that end since February 1, 1927, and therefore had failed to exercise due diligence and good faith in development of the lease, but had forfeited the same; defendants sought affirmative relief in the cancellation of plaintiffs' lease. Meanwhile the order halting drilling operations aforesaid was outstanding and plaintiffs performed no drilling operations. The cause was heard on December 13, 1927, resulting in judgment entered on April 30, 1928, against plaintiffs and for defendants, quieting their title in fee and leasehold estate and for costs.

¶9 Motion for new trial was filed and overruled and plaintiffs below have perfected this appeal and rest the case upon six propositions.

¶10 The first contention is that:

"Independent of the order of February 15th, these plaintiffs had a right, on learning of the McDaniel leases, to bring this action to cancel the McDaniel leases to clear their title, and in the meanwhile halt all drilling operations until said cause was finally and definitely determined."

¶11 When the McDaniel leases were recorded plaintiffs were in possession of the land in controversy and had commenced drilling operations.

¶12 The acts of the Van Meter heirs in executing and delivering "top leases" was an election to declare the first lease at an end. Brooks v. Day Oil Co., 200 Ky. 323, 254 S.W. 912; Thornton, Oil & Gas, vol. 2, sec. 863; Guffey v. Hukill, 34 W. Va. 49, 11 S.E. 754; Wolf v. Guffey (Pa.) 28 A. 1117; Chi-Okla. v. Shertzer, 105 Okla. 111, 231 P. 877.

¶13 These acts obstructed the exercise of the rights of the original lessees under the terms of their lease. Their title was clouded. Had they produced oil or gas as a result of commenced development, ownership thereof would have been in litigation and the value of production impounded so that a real obstacle was imposed by lessors upon the right of lessee plaintiffs.

¶14 It is not necessary that we decide whether, after lessee commenced development of the lease in good faith, the right is a mere option or a vested interest in the leasehold estate, for, considering the rights of lessee plaintiffs as those of an optionee, the rule is that when the party granting an option himself prevents its exercise during the time limited therefor he must give a reasonable time for its exercise after any obstruction which he has interposed has been removed. 13 C. J. 688-689.

¶15 This principle of law is founded on common justice and equity.

¶16 The drilling clause of lessee plaintiffs' lease conferred upon them the right to commence a well (by complying with the conditions of the instrument, i. e., exercising the option of paying rentals and thus continuing the lease in force) on the very last day of the term specified in the duration clause. Since lessee had such an agreed right, can we with reason say the parties to the lease contract contemplated that right a barren or worthless privilege? To do so is to convict the parties of an absurdity. To the contrary, "in every private grant there passes by implication that which is reasonably necessary to the enjoyment of the thing granted." Himrod v. Ft. Pitt M. & M. Co., 220 F. 80 (C. C. A. 8th); Dunlap v. Jackson, 92 Okla. 246, 219 P. 314; 19 C. J. 915. See sections 5058, 5059, C. O. S. 1921, dealing with "reasonable stipulations implied" and "necessary incidents implied."

¶17 Therefore we hold that the grant to lessee plaintiffs of the right to commence a well at any time within the term fixed by the lease contract, by necessary legal implication, carried with it the right to complete the well after the period fixed for commencement had expired, subject, however, to abandonment of that right by failure to proceed in good faith and with diligence.

¶18 Lester v. Mid-South Oil Co., 296 F. 661 (C. C. A. 6th), so holds:

"An oil and gas lease for five years providing in the development clause that the lease should terminate 'if no well be commenced' on or before certain semi-annual dates 'unless' rentals were paid, held, not to expire, where a well was commenced on the last day of the term of the lease, and was thereafter pushed to completion and production; the lease being ambiguous as regarded termination, thus requiring the development clause to be harmonized with the term clause."

¶19 The Lester Case was cited and quoted with approval by this court in Dow v. Worley, 126 Okla. 175, 256 P. 56, and it was there held:

"* * * That the defendants, having commenced a well upon the 40-acre tract within the period for which the rentals had been paid, were entitled to complete the same with reasonable diligence, and, when upon completion, production was found in paying quantities, the said oil and gas mining lease would continue for as long as oil or gas is produced."

¶20 This result is not an equitable extension of the terms of a lease. Curtis v. Harris, 76 Okla. 226, 184 P. 574.

(Compare Oldfield v. Gypsy Oil & Gas Co., 123 Okla. 293, 253 P. 298.)

¶21 But it is a determination, in view of the conflicting clauses contained in the lease, of the term, as intended by the parties.

¶22 Of interest in this connection are the cases dealing with discovery of oil or gas during the term of the lease in an upper sand and where...