Court Opinion

ID: 3808629
Source: CourtListenerOpinion
Date Created: 2016-07-06 07:48:11.694023+00
Date Added: 2024-06-11T07:38:07.372128
License: Public Domain

I concur in the conclusion reached in the majority opinion, but desire to express an objection to the general application to cases of this character of the rule announced relating to the statute of limitations.
It is held in the majority opinion that the implied covenants injected by the courts into oil and gas mining leases are a part thereof as though expressly contained therein, thus treating such covenants as written contracts within the meaning of subd. 1, sec. 101, O. S. 1931, 12 Okla. Stat. Ann. § 95.
I am unable to agree to the general application of this rule. In my opinion these covenants arise, not as implications of fact and thus within the reasonable contemplation and intention of the parties, but as implications of law injected by the courts wholly as a *Page 53 
matter of equity and justice and not as a matter of conscious contractual understanding. They should be treated strictly as contracts implied in law, not in writing, and within the three-year statute, subd. 2, of the section, supra.
Here the action is for damages for failure of the lessee to protect the leased premises against drainage by offset wells. The majority opinion holds that the implied covenant to so protect the premises is a continuing obligation, and permits recovery of damages accruing during the five years next preceding the commencement of the action. In view of the fact that the defendant insisted on applying the five-year statute instead of the three, it is presumed to have waived the statute as a defense for the first two years of the five-year period. The majority opinion therefore correctly applies the five-year statute, and defendant cannot complain. Hartman Ranch Co. v. Associated Oil Co., 10 Cal. 2d 232, 73 P.2d 1163. But I think the rule should be specifically limited to this particular case.
I have said above that this covenant is not a part of a written contract within the meaning of the statute, supra. Implied covenants, in order to be a part of the written contract, must arise by implication of fact. Such implication must spring wholly from the intention of the parties as gathered from the language employed in the contract; and such covenants must be necessary to the fulfillment of the purposes of the contract. These covenants are not injected by the courts merely to supply to the parties a measure of wisdom wherein the parties themselves were lacking. Neither will justice nor common fairness alone create an implication of fact upon which to base an implied covenant. 15 C. J. 1212, § 6. As there defined, "an implied covenant is one which is inferred or imputed in law from the words used." In speaking of implied covenants in Belle-Mead Lbr. Co. v. Turnbull, 77 W. Va. 349, 87 S.E. 382, 384, the court said:
"Implied covenants can be justified only on the ground of legal necessity. It is not enough merely to say fairness, prudence, or wisdom demanded it under the circumstances. It must be necessary to the operation of the contract, or of words found in it, or effectuation of the intention of the parties, made manifest by their words."
There the court was apparently considering covenants that are implied as a necessary part of the written contract.
And in Wright v. Fidelity  Deposit Co., 176 Okla. 274,54 P.2d 1084, we held:
"A contract consists not only of the agreement of the parties expressed in words, but also such covenants as are reasonably implied; and covenants are implied in a contract, first, when so clearly a part of the contract that the court can say the parties considered them so without the necessity of writing them into the contract; or second, where implying such covenants is necessary to carry out the expressed agreements."
It can hardly be said that the parties to the present lease considered the duty to protect boundaries from drainage as so clear and well understood that there was no necessity of mentioning it in the contract. Neither can it be said that the covenant is necessary to carry out the expressed agreement.
The nature of these covenants is discussed in Merrill's Covenants Implied in Oil and Gas Leases (2d Ed.) § 220, as follows:
"The suggestion has been made by an able and incisive student of the subject that the implied covenants are implied in fact rather than in law, that is, that the parties to the lease actually intend that these obligations shall attach to their relationship. While some judicial language may be cited in favor of the proposition, other language and the actual course of decision seem to be against this view. Thus in Sauder v. Mid-Continent Petroleum Corporation, the Supreme Court of the United States said that 'a covenant on respondent's part to continue the work of exploration, development and production is to be implied from the relation of the parties *Page 54 and the object of the lease; . . .' The emphasized words stress the factors upon which the law seizes to impose the obligation. They say nothing about the intent of the parties, actual or apparent. They stress, instead, the relationship and the object of the lease."
If the law implies these covenants "from the words used" in the lease, they are implications in fact and are necessary to carry out the express agreement and are to be considered as within the written contract. If they arise wholly as a matter of equity and justice in order to protect the lessor against some unforeseen circumstance or condition not within his contemplation and against which he failed, for lack of wisdom, to protect himself, they are agreements wholly implied in law, and therefore cannot be said to be a part of the written contract as fully as though set out therein. They are created by operation of law to relieve an unfair situation created by the terms of a written contract which in law is binding on the parties as an expression of their full intentions relating to the subject matter.
In Indiana Oil, Gas  Development Co. v. McCrory,42 Okla. 136, 140 P. 610, it was held that an oil and gas lease which failed to expressly define the measure of diligence to be exercised by the lessee in developing the lease "contains a covenant by the lessee, arising by necessary implication from the nature of the lease and the other stipulations therein contained, that, if during the term of the lease oil and gas, one or both, are found in paying quantities, the work of development and production shall be continued with reasonable diligence. . . ." But in my opinion the statement that the lease contained the implied covenant was inaccurate, and was unnecessary to the rule adopted, in that the ensuing circumstances, and not the language of the lease, had brought about an unforeseen condition which the law, even in the face of the legal contractual rights of the parties, would cure in the interest of right and justice by raising an implied promise on the part of the lessee to take suitable action to relieve against the condition.
Otherwise, the lessor would find himself in an unfortunate situation, unable in law to obtain relief against improper operations under a valid lease which fully expressed the intentions of the parties. To say that the implied covenant was contained in the lease would hardly be accurate.
If such covenant is to be implied, not from the expressed intention of the parties, but by law alone, then the lessee against whose interest the covenant wholly operates should be accorded full protection of the statute of limitations applying to actions on implied contracts.