December 21, 2011
Good Business: An "Unless" Clause Means What It Says
The North Dakota Supreme Court recently determined in Beaudoin v. JB Mineral Services, LLC, that an "unless" clause in an oil & gas lease means what it says. That is, unless the lessee makes the a specified payment by a specified date, the lease terminates. The provision at issue required:
1. Notwithstanding anything to the contrary contained in said lease, it is agreed that said lease shall terminate as of120 business days from date of notarized signature (hereinafter referred to as the Termination Date) unless Lessee, on or before said Termination Date, shall pay or tender to the Lessor(s), or any successor bank, as a Supplemental Bonus Payment, the sum of Forty Five Dollars ($45.00) per net mineral acre owned by Lessor(s) and covered by said Lease. The payment or tender of said sum may be made by cash, check, or draft, mailed or delivered to the Lessor(s) or to said bank on or before said Termination Date.
2. If said supplemental bonus payment is timely paid or tendered, then said lease shall be and continue in full force and effect according to its terms. If such sum is not timely paid or tendered, then said lease shall terminate and be of no further force or effect as of the Termination Date. It is understood and agreed that Lessee has the right to, but is not obligated to, make said supplemental bonus payment. In the event said supplemental bonus payment is not made as set forth above and said lease has been filed in the records of said County and State, it is agreed that Lessee shall promptly execute and file of record a release of said lease.
As the Court notes, the clause doesn't require to lessee to make a payment. It simply provides that the lease will end unless the lessee acts. The Court also explained that "the 'unless' clause was developed for the benefit of the lessee, and is strictly construed against the lessee even though harsh results may occur."
I like this -- it is a contract with a clause for a specific purpose, and the court is enforcing it with gusto. I would note, too, that this is not a case where a mistake was claimed or where the lessee tried to comply, but somehow erred. This was a case where the lessee made an argument that if, "[c]arried to its logical extreme . . .[would mean] the lessee would be allowed to effectively extend the termination date indefinitely [without actually making the requirement payment]."
In a time where where many landowners and others are expressing concern about how oil and gas companies are treating those with whom they do business, here's at least one example where the lessor is likely to get what he or she bargained for.