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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! 
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