Opinion ID: 2064102
Heading Depth: 1
Heading Rank: 3

Heading: Lease Cancellation

Text: The Wests also assert that the district court erred in refusing to cancel the lease under Section 47-16-39.1, N.D.C.C., based upon Alpar's failure to make royalty payments to the Wests prior to commencement of their lawsuit. Section 47-16-39.1, N.D.C.C., provides: 47-16-39.1. Obligation to pay royaltiesBreach. The obligation arising under an oil and gas lease to pay oil or gas royalties to the mineral owner or his assignee, or to deliver oil or gas to a purchaser to the credit of such mineral owner or his assignee, or to pay the market value thereof is of the essence in the lease contract, and breach of such obligation may constitute grounds for the cancellation of such lease in such cases where it is determined by the court that the equities of the case require cancellation. This section shall not apply when mineral owners or their assignees elect to take their proportionate share of production in kind, or in the event of a dispute of title existing which would effect distribution of royalty payments. In its order for judgment, the district court stated that equity would not permit a cancellation of the lease in this case under Section 47-16-39.1, N.D.C.C., because the royalty payments were legitimately disputed by the parties. In addition to the legitimate dispute between the parties as to the amount of royalty payments to be made, there is an additional circumstance which is pertinent to this issue. Subsequent to the commencement of the lawsuit, Alpar tendered, and the Wests accepted, royalty payments calculated on the basis of Alpar's interpretation of the lease. The Wests received such royalty payments subject to their claim for additional royalty payments based upon their interpretation of the lease, and, therefore, their acceptance of such royalty payments did not constitute a waiver of their claim. However, their acceptance of such royalty payments was inconsistent with their intent to and request for a cancellation of the lease under Section 47-16-39.1, N.D.C.C. Under such circumstances, we do not believe that the district court abused its discretion in determining that equity would not require a cancellation of the lease under Section 47-16-39.1, N.D. C.C. The district court's dismissal of count I of the Wests' complaint is reversed and remanded with instructions to enter judgment for the Wests on that count consistent with the views expressed in this opinion. The district court's dismissal of count II is affirmed. The case is also remanded for further proceedings on the issues raised in count III of the Wests' complaint which were not determined by the district court's partial summary judgment nor considered by this Court on appeal. SAND, VANDE WALLE and PAULSON, JJ., concur.