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 April Newsletter: Pulling Apart the Purchase Agreement for the ICON A5: "The Jet Ski with Wings"

The ICON A5 is an amphibious "light-sport aircraft" that is marketed primarily to adventurous amateur pilots with deep pockets (and spacious home garages in which to store their ICONs). The plane has a recreational focus; it can seat only two, has limited load capacity, and isn't intended to go very far. The cost of the plane was $139K when first introduced in 2006 but is now $389K for a "fully-loaded version."

YouTube is full of videos showing how much fun you can have with an ICON A5 (especially with water landings and take-offs), bringing to mind the "jet ski with wings" analogy. So the ICON A5 is perhaps the ultimate high-tech, outdoor adult toy (unless you're afraid of heights). There have been several fatalities with the A5, but these apparently resulted from pilot error in one case and reckless flying in another rather than from mechanical defects or design flaws. 

The ICON A5 Purchase Agreement (including the Operating Agreement as Exhibit B…

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…

A BUSKLAW Newsletter Aside: We Speak Information Technology Law

When I describe my legal specialty as information technology ("IT"), the common response (along with a puzzled look) is, "what does that mean?"

Short answer: "It means a lot." 

Because there isn't a business in existence that isn't affected by something IT related. Does your firm have a website that collects personal information? Then you should have terms of use (and a cookie policy) that comply with state and federal laws, regulations, and the GDPR. Do you sell things on your website and accept credit cards as payment? Then you must institute payment card industry data security standards to protect that credit card data from hackers. And you also must have credit card agreements with your card companies and processing bank that contain indemnity and other "bet your business" obligations. In my experience, credit card agreements are notoriously one-sided and chock full of legal jargon. Have you read yours?  

Apart from those considerations…