Court Opinion

ID: 8245489
Source: CourtListenerOpinion
Date Created: 2022-10-16 09:31:17.042532+00
Date Added: 2024-06-11T16:42:42.059946
License: Public Domain

VANDE WALLE, Chief Justice,
concurring and dissenting.
[¶ 54] I agree with Part II A of the majority opinion concluding the district court correctly interpreted the lease. I respectfully dissent to Part II B, concluding there was no failure of consideration as a matter of law, and to Part II C, concluding an action in deceit lies to defeat the statute of frauds. I would affirm the judgment of the trial court dismissing Irish Oil and Gas, Inc.’s action against the Riemers and Johnson.
I.
[¶ 55] I conclude Irish’s failure to make a timely bonus payment was a total failure of consideration. “Failure of consideration arises when a valid contract has been formed, but the performance bargained for has not been rendered.” Check Control, Inc. v. Shepherd, 462 N.W.2d 644, 646 (N.D.1990) (citing First Nat’l Bank of Belfield v. Burich, 367 N.W.2d 148, 152 (N.D.1985)). We explained further in Shepherd: *730Id. at 647. Generally, determination of whether there has been a failure of consideration is a question of fact. Id. at 646-47 (citing Bunch, 367 N.W.2d at 153). “Only when the evidence is such that reasoning minds could draw but one conclusion does the fact question become a question of law for which summary judgment may be appropriate.” Long v. Jaszczak, 2004 ND 194, ¶ 17, 688 N.W.2d 173 (quoting Schmidt v. First Nat’l Bank and Trust Co., 453 N.W.2d 602, 605 (N.D.1990)). Here the district court concluded “[r]ea-soning minds would not differ” and Irish’s failure to timely make the bonus payment was a total failure of consideration, as a matter of law.
*729A failure of consideration may be either partial or total. Burich, 367 N.W.2d at 152; Schaff v. Kennelly, 61 N.W.2d 538, 544 (N.D.1953). A total failure of consideration will occur where a party has failed to perform a substantial part of its obligation, so as to defeat the very object of the agreement. Burich, 367 N.W.2d at 153; Lawrence v. Lawrence, 217 N.W.2d 792, 796 (N.D.1974); Schaff, 61 N.W.2d at 544. The remedy for a total failure of consideration is to excuse the non-breaching party from performance of its obligations under the agreement. Burich, 367 N.W.2d at 153. A partial failure of consideration occurs when there has been an insubstantial breach that leaves sufficient consideration for sustaining the contract. Id. (citing Empire Gas Corp. v. Small’s LP Gas Co., 637 S.W.2d 239 (Mo.App.1982)). Where a partial failure of consideration has occurred the proper remedy is to grant appropriate damages to the non-breaching party. Id. (citing Ralston Purina Co. v. Jungers, 86 S.D. 583, 199 N.W.2d 600 (1972)).
*730[¶ 56] Irish argues sufficient consideration supported the lease, even without the bonus payment. In particular, Irish argues the primary consideration was the promise of “a l/6th royalty in the event of production.” In addition, each lessor received a ten dollar payment as consideration.
[¶ 57] A “bonus,” as used in oil and gas leases, is defined as follows:
The cash bonus, which represents the market value of a lease apart from any royalties to be paid on production and any other considerations of the lease, is a sum of money paid to the lessor on the execution of the lease, or agreed to be paid at some later date, traditionally out of the lessee’s share of the first oil produced from the land. A cash bonus is often based on a dollar amount per acre leased.
3A Nancy Saint-Paul, ed., Summers Oil and Gas § 30:1 (3d ed.2008). The Court of Appeals of Texas has described a bonus as “the amount the lessees were willing to pay for the lease, in the way of a lump sum, over and above the usual nominal amount where the land is not in proximity to a proven field.” Andrews v. Brown, 283 S.W. 288, 292 (Tex.Civ.App.1926).
[¶ 58] In Andrews, the court considered whether the bonus belonged to the owner of a life estate in the mineral interest, or the owners of the remainder. Id. at 293. The court held:
We are unable to resist the conclusion that the bonus constituted a part, and a very substantial part, of the consideration for the entire title to the minerals conveyed by the lease; that it constituted a part of the proceeds of the corpus of the estate; and that its ownership was in the life tenant and remaindermen in the same respective interests as their ownership in the minerals before the lease was executed.
Id. at 293. The California Court of Appeal’s opinion in Elsinore Oil Co. v. Signal Oil & Gas Co. shows the importance of the bonus to the lessor, “It was the evident intention of the parties that the real inducement to respondent to permit appellant to have the property under the lease was not the nominal sum of ten dollars recited as consideration in the lease, but the other more substantial ‘bonus’ for which judgment was recovered.” Elsinore Oil Co. v. Signal Oil & Gas Co., 3 Cal.App.2d 570, 40 P.2d 523, 523-24 (1935); but see Stockton v. Weeks, 51 Cal.App.2d 447, 125 P.2d 110, 112 (1942) (explaining a similar intention that the bonus was the real inducement was not evident in the lease).
[¶ 59] Here, the $160 per acre bonus and the $10 payment were the only consideration the Riemers were guaranteed to receive under the leases. The l/6th royalty, cited by Irish as the primary consideration for the leases, was speculative. It would only materialize if Irish chose to drill, which it was not required to do according to the lease, and then only if the *731wells produced. Paragraph 2 of each of the leases states:
This is a PAID-UP LEASE. In consideration of the cash payment, (which payment is accepted by Lessor as good and sufficient consideration for the rights granted to Lessee in this Lease), Lessor agrees that Lessee shall not be obligated, except as otherwise provided, to commence or continue any operations during the Primary Term. Lessee may at any time or times during or after the Primary Term surrender this Lease as to all or any portion of the land and as to any strata or stratum by delivering to Lessor or by filing for record a release or releases, and be relieved of all obligation accruing as to the acreage surrendered.
(Emphasis added).
[¶ 60] It cannot be said that the failure to timely make the bonus payment was an insubstantial breach when the royalty was merely speculative. The bonus was part of the “other valuable consideration” described in the lease and was also “a very substantial part” of the consideration for the leases. Andrews, 283 S.W. at 293. When Irish failed to timely make the bonus payments it failed to perform a substantial part of its obligation, defeating the very purpose of the agreements. The district court was correct when it asserted reasoning minds would not differ. Thus, the district court did not err when it held that, as a matter of law, there was a total failure of consideration. Shepherd, 462 N.W.2d at 647 (citing Burich, 367 N.W.2d at 153; Lawrence, 217 N.W.2d at 796; Schaff, 61 N.W.2d at 544).
[¶ 61] I have grave concern that the majority opinion will allow speculators to secure a lease with a promise to pay a bonus, attempt to sell the lease to an operator and, if that doesn’t succeed, perhaps because development on surrounding property has devalued the speculative worth of the minerals, simply refuse to pay within the prescribed time contending that the real consideration is the oil royalty promised in the lease if a well on the lease is productive. Of course, the lessor may pursue the procedure in N.D.C.C. § 47-16-36 to have the lease terminated or forfeited, or hire an attorney to file suit to determine whether or not the failure to pay the bonus at the onset as required by the lease constitutes a total failure of consideration, or pursue the remedies in N.D.C.C. § 47-16-37, including the munificent sum of $100 in damages and “any additional damages that the evidence in the case will warrant.” It remains to be determined whether the latter provision will allow the recovery of the destruction of the value of the mineral estate proven worthless while the lessee holds a lease for which the lessee has not paid the agreed-upon bonus.
[¶ 62] I am concerned the majority opinion could even open the door to allow a lessee to actually drill a well without paying the bonus and, if a producing well is drilled, pay the bonus or, in the case of a dry hole, refuse to pay the bonus, leaving the lessor to pursue the statutory remedies while holding a property proven worthless for production and thus no speculative value to market.
[¶ 63] Perhaps it is recent success of oil exploration in North Dakota that has dimmed the memory of those years when the number of dry holes drilled significantly outpaced the number of successful wells. Nevertheless, I doubt that all wells drilled today are successful and result in oil royalties paid to the lessor. The majority opinion is a disservice to those lessors who may have their mineral estate found worthless and receive no bonus.
[¶ 64] But, in light of N.D.C.C. § 47-16-39.1, the majority may be justified in its position that the failure to pay the *732substantial bonus is not a total failure of consideration. Section 47-16-39.1 makes the obligation in a lease to pay oil and gas royalties to the mineral owner “the essence in the lease contract.” I have found no such statutory provision regarding the payment of the bonus, perhaps because it is the bonus which is the lure, the consideration for the lessor to enter into the lease, and the Legislature assumed that would necessarily be paid or the lease would be ineffective. If so, the majority opinion clearly negates that assumption.
II.
[¶ 65] The majority opinion discusses the split in authority on the issue of whether the statute of frauds preventing a breach of contract claim also bars a deceit claim. While the majority opinion finds the most persuasive authority that which concludes the deceit claim is not barred by the statute of frauds, I am particularly concerned about the use of a deceit claim to defeat the statute of frauds with regard to written instruments involving the title to real property. I would not import that cause of action into our jurisprudence without further legislative consideration.
[¶ 66] I would affirm the judgment of the district court.
[¶ 67] DALE V. SANDSTROM, J., concurs.