Skip to main content

The BUSKLAW December Newsletter: A "Condition" Does Not a "Promise" Make

It has been called black gold and Texas tea. It can make hillbillies rich enough to move to a Beverly Hills mansion. If you own some acreage, you might have it and not know it. In the early 1900s, speculators (colorfully called "wildcatters") would look for it and if found, they often became today's equivalent of Job and Gates. And Michigan had it in abundance. 

We are talking about crude oil. Even with market fluctuations and oil's effect on global warming, you can still make some money having it extracted from your land. Just ask the Allens of Pennsylvania, who had high hopes when the SWEPI company came calling to look for oil on their property. So the Allens signed SWEPI's mineral rights lease that stated in part:

[This Agreement] is made on the condition that within 60 days from the Effective Date of this lease, [SWEPI] shall pay to [Allens] the sum of $2,000 per acre for the first year.

The 60 days came and went and SWEPI didn't pay a dime to the Allens. Allens sued. SWEPI defended with the argument that they weren't required to pay Allens because the agreement was nothing but an option contract; it only gave SWEPI the right to rent the land for oil and gas exploration if SWEPI paid Allens the required sum, which SWEPI wasn't obligated to do. The Pennsylvania court agreed and dismissed Allens' suit (Allen v. SWEPI, L.P., No. 4:18-CV-01179).

The Allens failed to consider the word "condition." Had they done so (or retained an experienced lawyer for that purpose), they would have concluded that there was no agreement to explore for oil unless SWEPI paid them, and nothing in the agreement required that payment. There was no promise that SWEPI would pay Allens anything.  

The difference between a contractual promise and a condition can be tricky. According to John Trentacosta in his Michigan Contract Law (2d ed.) treatise, Michigan courts generally define a "condition" as a fact or event which the parties intend to exist or take place before there is a right to performance. And as the Allens discovered, if that fact or event doesn't take place, you have your "lump of coal." (Hat tip to Professor Stacey Lantagne for bringing this case to my attention in her excellent ContractsProf Blog.) 

Have you searched your contracts for "red flag" words such as "option" or "condition"? These words may be fine when used in certain ways but ruin your expectations when used in other ways. Best hire a good lawyer to parse out what these words mean in your contracts! 
____________________________________
If you find this post worthwhile, please consider sharing it with your colleagues. The link to this blog is www.busklaw.blogspot.com and my website is www.busklaw.com. And my email address is busklaw@charter.net. Thanks!

Comments

Popular posts from this blog

The BUSKLAW May Newsletter: Is There a Moral Imperative to Plain English? Part 1 - Examples

"The man in black fled across the desert, and the gunslinger followed." 

Thus begins Stephen King's epic story of the gunslinger, Roland Deschain, and the popular Dark Tower series of novels describing his adventures. But King didn't have to write this sentence that way; he could have consulted with the typical lawyer, politician, or company PR department first. Had he done so, the sentence may have appeared so:

"The bad hombre who was dressed mostly in dark clothing and running fast across an arid land was pursued by a multi-armed, extremely dangerous, and notorious vigilante."
The difference in these two sentences is clear. King's concise short sentence creates an image that grabs the reader's attention and raises provocative questions. Who is the man in black? Who is the gunslinger? Why is he after the man in black? But the Bizarro World Stephen King sentence - with its ethnic slur, passive voice, ambiguity, suppositions, and superfluous adjectives …

The BUSKLAW July Newsletter: Horsing Around with Non-Compete Clauses

Non-compete provisions are part and parcel of many employment agreements. But these provisions must be carefully drafted to be enforceable. There are three sure-fire ways to have a court invalidate your non-compete clause without much judicial cogitation:
Failure to provide a reasonable duration for the clause;Failure to restrict the operation of the clause to a reasonable geographic area; andFailure to establish a protectable business interest as the subject of the clause.The first point is easy to grasp. In Michigan, you are on solid legal ground if the duration of your non-compete clause doesn't exceed one year. And you are probably okay if you add a year to that. But you're walking on quicksand if your non-compete provision lasts longer than two years. 
The second point is a bit more complicated. Courts don't like to enforce a non-compete clause if its geographical scope is too wide. For example, if I'm in the packaged ice business and sell my product mostly to retai…

The BUSKLAW September Newsletter: Lawyers and Their Goofy Words - and What to Do About It

Growing up, I was told that lawyers were smart cookies. After all, getting a law degree isn't an easy task. You first go to college and find a subject that is best suited to how your brain works so that you can maintain a high GPA. In my case, I quickly discovered that I wasn't a good fit for the "hard sciences." So I took a lot of Political Science and English courses, learned how to write fairly well, suffered through the tedious law school aptitude test on October 20, 1973, graduated with a B.A. degree in 1974 and then went on to law school. There, I endured a legal education infused with the Socratic method (here's an example), suffered occasional migraines (because some of my law professors were truly smart but couldn't teach) and graduated with my law degree on Mother's Day, 1977. Passed the Michigan bar exam and by God, became an honest-to-goodness lawyer in November of 1977!

So having gone through undergraduate studies, law school, and the bar exam…