Pittsburg Vitrified Paving & Building Brick Co. v. Bailey

The opinion of the court was delivered by Smith, J.:

Written contracts of this character are commonly called oil-and-gas leases, but, as was said in Dickey v. Brick Co., 69 Kan. 106 , 76 Pac. 398 , “they are not strictly ‘leases,’ as defined and treated in the law of landlord and tenant; they are in the nature of a written license, with a grant conveying the grant- or’s interest in the gas- or oil-well, conditioned that gas or oil be found in paying quantities.” (Page 110.)

The contract in this case first licensed the brick company, in consideration of one dollar and of the agreements therein contained on the part of the company, to bore wells for oil and gas on the premises described, and, if either were found in paying quantities, conveyed the same to the company. It also authorized the company to occupy the premises so far as necessary for operating wells, laying pipes, etc. The term of this license is ten years, and so much longer as oil or gas shall be found in paying quantities or the rental paid thereon. By a subsequent provision the company agreed to complete a well within two years from the date of the contract, reasonable, unavoidable delays and accidents excepted, or in default thereof to pay a yearly rental of twenty-five cents per acre from the expiration of the two years until a well should be completed. A failure either to complete the well or make the payment renders the contract void after the lapse of two years.

It is further provided that the “rental shall be,paid direct to first party on the first day of the seventh month after the date of this lease.” This seems ambiguous, to say the least, when compared with the expressed purpose for which rent was to be paid and from what time it was to be paid. Were we required to reconcile these provisions and arrive at the intent of the parties we should probably conclude that rent be *46 gan to accrue two years from the date of the lease, viz., September 4, 1904, and the first annual instalment thereof was payable April 1, 1905, and that annually thereafter until the company completed a well or surrendered the lease another instalment would become due and payable. We are not, however, required to solve the ambiguity, as it appears by the agreed statement of facts the parties mutually placed a construction upon it and acted upon that construction. It is agreed that on the 24th day of October, 1902, fifty days after the execution of the lease, the company paid the lessors forty dollars as oil-and-gas rentals to September 4, 1903, on the land in question, and the lessors gave a written receipt therefor; that on September 2, 1903, another payment of forty dollars, as rent to September 4, 1904, was made and receipted for. By so doing the parties, in effect, said that by the terms of the lease the rent began to accrue immediately upon the execution thereof.

On the 4th day of September, 1904, the company tendered to the lessors forty dollars in payment of rent to September 4, 1905, but the lessors refused to accept the same for the reason that “said pretended lease by the terms thereof is merely an option which can be revoked at any time at the election of either party thereto, and that upon such election the same ceases to be of any validity and is no longer binding upon either party thereto.” To this contention we cannot assent. It may be conceded that it is an option contract, yet it does not follow that it can be revoked ' at pleasure by either party thereto.

It is of the very essence of an option contract that one party has the choice of concluding or not concluding the proposed transaction, while the other party has no choice. He undertakes for a certain consideration to do a certain thing or to permit the other party to do a certain thing within a certain time on the demand of the other. This right of choice is what the other pays for. (21 A. & E. Encycl. of L. 928. See, *47 also, Bradford v. Foster, 87 Tenn. 4 , 9 S. W. 195 ; Clark v. Gordon, 35 W. Va. 735 , 14 S. E. 255 ; Sayward v. Houghton, 119 Cal. 545 , 51 Pac. 853 , 52 Pac. 44 .)

It is urged that there is no mutuality in this contract — that it is unilateral. It is well said in volume 9 of the Cyclopedia of Law and Procedure, at page 334:

“When there is an agreement founded on a consideration, it is not invalid for want of mutuality because one party has an option while the other has not, or in other words because it is obligatory on one and optional with the other. ... So want of mutuality cannot be set up as a defense by the party who has received the benefit, simply because it was left optional with the other party, as to whether he would enforce his right.” (See, also, Pennsylvania Co. v. Dolan, 6 Ind. App. 109 , 32 N. E. 802 , 51 Am. St. Rep. 289 .)

Under the conditions of the contract, as construed and acted upon by the parties thereto, the company paid one dollar and became obligated to pay forty dollars per annum rental from the day of its execution until such time as it should complete a well or surrender the lease. It exercised its option by paying the rent for two successive years, and the lessors acquiesced in the part performance of the contract by accepting. The lessors will not therefore be heard to say, when the third .year’s rent is tendered, that the contract is unilateral and revocable by them because the company might have then exercised its option to surrender the lease.

The consideration is not only valuable; it is adequate. Although this decision is not based thereon, the writer is of the opinion that the one dollar consideration, admitted to have been received, is, in the absence, of fraud or bad faith, sufficient to sustain this contract. Supporting a contract almost identical in this respect with the one here it was held, in Allegheny Oil Co. v. Snyder, 106 Fed. 746 , 45 C. C. A. 604 , that the lease constituted an entire contract, and that the *48 consideration recited, being one dollar, supported not only the grant of the two-year term but as well the privilege of extending the time for drilling by paying the stipulated price therefor. (To much the same effect see Brown et al. v. Fowler et al., 65 Ohio St. 507 , 63 N. E. 76 ; Gas Co. v. Eckert, 70 Ohio St. 127 , 71 N. E. 281 . See, also, 1 Bouv. Law Dic. 406; 6 A. & E. Encycl. of L. 694-696.)

There is no provision in this lease which is not a legal subject of contract, and there is no suggestion of fraud or bad faith in the transaction. Considered as an option, it was bought and sold for a valuable consideration, and the purchaser is entitled to what it bought. Assuming, as they allege, that it would be of considerable advantage' to the sellers to annul their contract, this constitutes no legal justification for so doing. Were this recognized as a sufficient ground for avoiding contracts it would revolutionize the business world.

The petition did not state facts sufficient to constitute a cause of action, and the agreed facts did not justify the judgment, which is reversed, and the case is remanded, with instructions to render judgment for the defendant.

Johnston, C. J., Greene, Mason, Porter, Graves, JJ., concurring.