841 F.

2d 1031

APC OPERATING PARTNERSHIP, Plaintiff/Appellee.

v.
Dale G. MACKEY and Evelyn C. Mackey; and Darrell E.
Mackey
and Lovell H. Mackey, Defendants/Appellants.
No. 85-2507.

United States Court of Appeals,

Tenth Circuit.
March 11, 1988.

Philip D. Hart (Gary W. Catron, with him on the brief), McAfee & Taft,
Oklahoma City, Okl., for plaintiff/appellee.
Charles B. Lutz, Jr. (Arnold T. Fleig, with him on the briefs), Speck,
Philbin, Fleig, Trudgeon & Lutz, Oklahoma City, Okl., for
defendants/appellants.
Before LOGAN and ANDERSON, Circuit Judges, and CONWAY,*
District Judge.
STEPHEN H. ANDERSON, Circuit Judge.

Dale and Evelyn Mackey, and Darrell and Lovell Mackey, landowners and
lessors, appeal from an order of the United States District Court for the
Western District of Oklahoma quieting title in certain oil and gas leases in APC
Operating Partnership. We affirm.

I.
2

We substantially adopt the following statement of facts, from the district court's
order. On February 1, 1976, defendants Dale and Evelyn Mackey, husband and
wife, as lessors, granted to G.B. Nathan, as lessee, mineral rights to three tracts
of land in Beckham County, Oklahoma. A separate lease was executed for each
tract. On February 2, 1976, defendants Darrell and Lovell Mackey, husband

and wife, as lessors, granted to G.B. Nathan, as lessee, an oil and gas lease
concerning certain lands in Beckham County, Oklahoma. The initial primary
term of the leases was for five years, expiring on February 1 and February 2,
1981, respectively. The leases were properly recorded and through various
assignments came to be owned by APC Operating Partnership (APC), the
plaintiff below.
3

The substantive terms of all four leases are identical. They provide for a
primary term of five years with an option to renew the lease for an additional
five year term. The renewal option reads as follows:

"In the event this lease is not continued beyond the primary term by the
provisions herein contained, Lessee has the option to renew this lease for an
additional term of 5 years from the 1st day of February, 1981, and as long
thereafter as oil and gas or either of them is produced from said land by Lessee,
said renewal to be under the same terms and conditions as contained in this
lease. Lessee may exercise this option to renew by tendering to Lessor or to
Lessor's credit in the above named depository bank the sum of $75.00 Dollars
per net mineral acre covered by this lease, on or before the expiration date of
the first primary term of this lease."1

R. Vol. I. tab 5, at 5.

In September, 1980, defendants mailed to APC letters purporting to change the

depository for payments of delay rentals2 and the option payments from the
stated banks to Darrell and Dale Mackey "in person" at their home addresses in
Sayre, Oklahoma. In January 1981, prior to the expiration date of the initial
primary term, agents for APC's predecessor in interest attempted to personally
deliver the renewal option payments by making eight trips to the home of
Darrell Mackey and eight trips to the home of Dale Mackey on January 26, 27
and 28, 1981. On January 29, 1981, these agents mailed checks for the renewal
of the leases at the U.S. Post Office in Sayre, Oklahoma by registered mail,
postage paid, return receipt requested, to the Mackeys at their respective
addresses in Sayre. Postal records show that the Post Office delivered notice to
the lessors of the registered mail on January 30, 1981, but the Mackeys failed to
claim the mail and it was subsequently returned.

In 1985, APC initiated this diversity action against the Mackeys seeking to
quiet title in the oil and gas leases and asking for an order compelling the
Mackeys to accept the renewal payments and delay rentals. Subsequently, APC
moved for summary judgment, arguing that the mailing of the renewal checks

was an effective exercise of the option provisions of the leases. The district
court granted the motion.
II.
8

"When reviewing a grant of summary judgment, this court must examine the
record to determine whether any genuine issue of material fact pertinent to the
ruling remains and, if not, whether the substantive law was correctly applied."
Franks v. Nimmo, 796 F.2d 1230, 1235 (10th Cir.1986) (citations omitted). The
material facts here are not in dispute, so we are left to determine if the district
court correctly applied the substantive law. "In reviewing the trial court's
construction of the contract, it should be noted that ordinarily the construction
of a contract is a question of law for the court." Resort Car Rental Sys., Inc. v.
Chuck Ruwart Chevrolet, Inc., 519 F.2d 317, 320 (10th Cir.1975); see also
Worms v. Burgess, 620 P.2d 455, 456 (Okla.Ct.App.1980) ("the construction of
an unambiguous contract is an issue of law for the courts"). In reviewing
questions of law, we are not bound by the district court's conclusions. See also
Energy Oils, Inc. v. Montana Power Co., 626 F.2d 731, 734 (9th Cir.1980); 9
C. Wright and A. Miller, Federal Practice and Procedure, Civil Sec. 2588, at
750 (1971) ("it is frequently held ... that the interpretation and the construction
of written contracts are matters of law and freely reviewable as such").

Oklahoma law interpreting renewal option clauses in definite term oil and gas
leases is scarce, thus the district court reached its decision by reference to the
law governing the payment of delay rentals. The district court's decision can be
affirmed on that ground, or by a straightforward interpretation of the language
in the lease provision. We turn first to an interpretation of the lease contract.

10

Under the terms of the lease, the lessee had the power to exercise the "option to
renew by tendering to Lessor or to Lessor's credit in the above named
depository bank the sum of $75.00 Dollars per net mineral acre covered by this
lease, on or before the expiration date of the first primary term." At issue is
whether APC's predecessor in interest effectively exercised the renewal option
in 1981. The Mackeys argue that mailing of the payment by the Lessee does not
constitute "tendering to Lessor" as required by the renewal clause. Because the
lease did not explicitly authorize tender by mail, the Mackeys would have us
read the lease to require personal delivery of the payments to them or the
depository bank to effectively exercise the option. We believe that such a
narrow reading of the clause is unreasonable and conflicts with Oklahoma law.
The Oklahoma Supreme Court has held that "oil and gas leases, ... are to be
construed and interpreted as other contracts." Cronkhite v. Falkenstein, 352
P.2d 396, 398 (Okla.1960).3 The language in a contract is given its plain and

ordinary meaning unless some technical term is used in a manner meant to

convey a specific technical concept. Mercury Inv. Co. v. F.W. Woolworth Co.,
706 P.2d 523, 529 (Okla.1985) (citing Okla.Stat.Ann. tit. 15, Sec. 160 (West
1983)).
11

In these circumstances, "tender" should be read to include an offer by mail for

three reasons. First, the common usage of "tender" implies no requirement of
personal delivery. See Black's Law Dictionary, 1315 (5th ed. 1979) ("Tender" is
defined as "[a]n offer of money"; "a readiness and willingness to perform"). See
also Davidson v. Rogers, 471 P.2d 455, 458 (Okla.1970) ("At common law, a
tender of money is an unconditional offer by a debtor or obligor to pay another,
in current coin of the realm, a sum not less than the amount then due on a
specified debt or obligation.") (emphasis omitted). Second, an interpretation
requiring personal delivery of the rental payments would effectively give the
lessor the power to revoke the option--a power inconsistent with the very nature
of an option contract. See Ollie v. Rainbolt, 669 P.2d 275, 279 (Okla.1983)
("An option is essentially a continuing and irrevocable offer by the optioner,
which cannot be withdrawn by him during the stated period.") If the option to
renew the lease could be exercised only by personal delivery, the lessor could
simply designate a remote depository bank and then disappear, frustrating
attempts at personal delivery of the payments.4

12

Finally, Oklahoma statutes direct us to this conclusion.5 Okla.Stat.Ann., tit. 15,

Sec. 68 (West 1983) provides: "If a proposal prescribes any conditions
concerning the communication of its acceptance, the proposer is not bound
unless they are conformed to; but in other cases any reasonable and usual mode
may be adopted." In this case, no means of acceptance were prescribed, and we
hold that acceptance of the option to renew by registered mail was "reasonable
and usual" under the circumstances. See Farmers' Produce Co. v. McAlester
Storage and Comm'n Co., 48 Okl. 488, 150 P. 483, 485 (1915) ("a fair and
reasonable construction of [predecessor statute to Sec. 68] is conclusive of the
question in hand, and ... a reasonable and usual mode of acceptance was
adopted by use of the mail.") The following section governs when that
acceptance is effective: "Consent is deemed to be fully communicated between
the parties as soon as the party accepting a proposal has put his acceptance in
the course of transmission to the proposer, in conformity to the last section."
Okla.Stat.Ann. tit. 15, Sec. 69 (West 1983). In this section, Oklahoma has
codified the "mailbox" rule, that acceptance of an offer is effective when it is
mailed. Furthermore, Oklahoma has chosen to extend the "mailbox" rule to
option contracts.6 In Worms v. Burgess, 620 P.2d 455, 458-59
(Okla.Ct.App.1980) the Oklahoma court relied on a decision of the California
Supreme Court, Palo Alto Town and Country Village, Inc. v. BBTC Co., 11

Cal.3d 494, 521 P.2d 1097, 113 Cal.Rptr. 705 (1974)7 to hold that an option
was properly exercised where the acceptance was mailed, even though it was
never received. In any event, this provision is not strictly necessary to
determine the outcome here, because the payments were mailed in sufficient
time to be delivered to the Mackeys before the primary term of the lease
expired. In either case, whether acceptance is effective at mailing or delivery, it
is effective on these facts and the lease was properly renewed.
13

The district court focused on the Oklahoma law applicable to the payment of
delay rentals under an "unless" oil and gas lease to find an effective extension
of the lease. This analysis was appropriate for the Oklahoma Supreme Court
has frequently compared a delay rental provision to an option to extend an oil
and gas lease:

14 [delay] rental provision granted an option to the lessee; that is, that by the
"The
payment of the rentals the time for completing the well would be extended another
six months. It is immaterial whether that provision be regarded as an option to renew
the lease or extend the terms, or to continue the lease in force, or defer completion of
a well, or to extend the time for performance of the condition to complete a well.... It
has been held by a long line of decisions of this court that an 'unless' lease, such as is
here involved, is a unilateral option."
15

Ellison v. Skelly Oil Co., 206 Okl. 496, 244 P.2d 832, 836 (1952) (quoting
Garfield Oil Co. v. Champlin, 78 Okl. 91, 189 P. 514, 520 (1920)).

16

Ellison also expresses the standard to be applied to the lessee's efforts to

exercise the option presented by a delay rental clause:

17
"[T]he
lessee must not only in good faith intend to make timely payment, but ... he
must take such steps, without error or fault on his part, as would accomplish timely
payment in due and orderly course but for the intervention of something beyond his
control ..."
18

Ellison, 244 P.2d at 838; see also Phillips Petroleum Co. v. Curtis, 182 F.2d
122, 126-27 (10th Cir.1950) (applying Oklahoma law). The actions of APC's
predecessor in interest fall within this standard. First, the actions show a good
faith intent to make timely payment. Agents of the lessor sought out the
Mackeys to make personal delivery. When those attempts failed, the payment
was attempted by registered mail in sufficient time for delivery to the Mackeys
before the primary term expired.8 There was no error or fault on the part of the
lessee, and payment would have been made but for the failure of the Mackeys
to collect their mail, an intervening factor beyond the control of the lessee.

19

Finally, the district court held that tender by mail was both possible and timely
under the delay rental analogy. The court cited Professor Kuntz' treatise on oil
and gas law:

20

"If the delay rental provisions of the drilling clause make no reference to the
payment or tender of delay rentals by mail, the requirement of a tender or
payment of delay rentals is not satisfied by depositing such delay rentals in the
mails on or before the due date. Actual receipt of the delay rental by the lessor
or the depository bank on or before the due date is required. If, however, the
delay rental was deposited in the mails in a correctly addressed and stamped
envelope sufficiently in advance of the due date to permit delivery in the
regular course of the mails to the lessor or to the designated depository bank,
the delay rentals will be deemed to be paid although they do not reach the
lessor in time because of a holiday in the lessor's office. Further, if the delay
rental does not reach the lessor or the depository bank on or before the due date
because of delay of the mails, then the court may or may not declare that the
lease has terminated or has been forfeited. The result reached will depend upon
the attitude of the court toward the consideration of equitable factors in
connection with the payment of delay rentals generally and specifically in
connection with the payment of delay rentals by mail."

21

3 E. Kuntz, Oil and Gas Sec. 34.4(c), at 121-22 (1967) (footnotes omitted).9
The district court weighed the equities and found that the lease should be
extended. Based on our reading of the Oklahoma cases applying delay rental
clauses in similar circumstances, Harvey v. Benmo Oil Co., 272 F. 475
(E.D.Okla.1921); Brazell v. Soucek, 130 Okl. 204, 266 P. 442 (1928); Oldfield
v. Gypsy Oil Co., 123 Okl. 293, 253 P. 298 (1926), that conclusion was correct.

22

On appeal, the Mackeys argue that the district court incorrectly weighed the
equities, focusing on the district court's conclusion "that the Defendants
intended to avoid receipt of the payment by personal delivery and by mail." R.
Vol. I. tab 14, at 4. The Mackeys argue that no evidence supports this statement
by the district court. We agree that there is no evidence that the Mackeys
intentionally avoided the agents of the lessee, but we do not rely on this
conclusion for our holding that the equities weigh in favor of APC. As in
Harvey,

"23'within the fixed option time the lessee showed itself "ready, desirous, prompt, and
eager," and elected and bound itself, to comply with its contract by making its check
payable to the proper party and properly mailing it to such party according to the
custom and rules prevailing in the transaction of such business in ample and
reasonable time for the money to be' received by the lessor."

24

Harvey, 272 F. at 477. This finding, under the standards announced by the
Oklahoma Court in Oldfield and Brazell, is sufficient to support an equitable
ruling in favor of the lessee. Whether the Mackeys avoided the agents of the
lessor is immaterial; the lessee's actions were sufficient to extend the lease and
the failure of the ultimate delivery of the checks was not the result of any
mistake or negligence on the part of the lessee.10

25

Finally, the Mackeys argue that APC failed to prove that the option renewal
clause was assignable. The Oklahoma Supreme Court dispensed with this
argument in Castle v. Double Time, Inc., 737 P.2d 900, 903 (Okla.1986),
holding "[a]bsent explicit contrary contractual provisions, an option to renew or
to extend a lease given to a lessee by the lessor is freely assignable by the
lessee."

26

In summary, the district court's order quieting title in the leases in APC is
correct applying either general contract law or analogous oil and gas law. That
order is therefore AFFIRMED.

Hon. John E. Conway, District Judge, United States District Court for New
Mexico, sitting by designation

The lease granted by defendants Darrell and Lovell Mackey was identical
except that the expiration date was February 2, 1981

Delay rentals are payments made by the lessee pursuant to a delay rental clause
in a standard oil and gas lease. The lessee pays yearly rentals to delay the
obligation to drill during the primary term. A provision for delay rentals is a
common component of an "unless" oil and gas lease. The "unless" lease is
structured so that the lease automatically terminates unless a well is
commenced or delay rentals are paid prior to the date specified. The lease at
issue here is a typical "unless" lease with the requirement for annual delay
rentals during the primary term

Oklahoma adds one notable exception to this general rule: "An oil and gas lease
is governed by different rules of construction from those applicable to other
contracts, being construed most strongly against the lessee and in favor of the
lessor." Beatty v. Baxter, 208 Okl. 686, 258 P.2d 626, 628 (1953). See also
Simon v. Foster, 373 P.2d 28, 30 (Okla.1962); Probst v. Ingram, 373 P.2d 58,
62 (Okla.1962); Lewis v. Grininger, 198 Okl. 419, 179 P.2d 463, 464 (1947);
Eastern Oil Co. v. Smith, 80 Okl. 207, 195 P. 773, 778 (1920). However, an
examination of the Oklahoma cases applying this rule demonstrates that it is to

be applied when the terms of the oil and gas lease are uncertain or ambiguous,
not, as here, where the lessor urges an unreasonable interpretation of the
contract language simply because that interpretation favors the lessor. See
Eastern Oil, 195 P. at 779 ("where the terms are unambiguous there should be
no interpretation placed upon the lease contract that could not be placed upon
the same language used in any other contract"); cf. Champlin Petroleum v.
Ingram, 560 F.2d 994, 998 (10th Cir.1977) ("Ambiguity under a Texas oil and
gas lease should be resolved in favor of the lessor when there are two or more
equally reasonable constructions."), cert. denied, 436 U.S. 958, 98 S.Ct. 3072,
57 L.Ed.2d 1123 (1978). See also 2 W. Summers, Oil and Gas Sec. 372 (1959)
4

Or, as happened here, the lessor could attempt to eliminate the depository bank
and then fail to be home or collect mail prior to the expiration of the primary
term. Because we find that the tender was sufficient, there is no need to decide
whether the Mackeys' attempt to eliminate the depository bank (rather than
change it as the lease provided) was successful. However, we see no basis for
this unilateral modification to the contract
We also note that the "change in depository" submitted by the Mackeys
included their mailing address and zip code. This is a point of minor
significance, but does provide some evidence that the parties contemplated
dealing by mail.

That the provisions of the Oklahoma code governing the interpretation of

contracts apply equally to oil and gas leases is demonstrated by the frequent
references of the Oklahoma courts to the statutory provisions. See Davenport v.
Doyle Petroleum Corp., 190 Okl. 548, 126 P.2d 57, 59 (1942) (applied
Okla.Stat.Ann. tit. 15, Secs. 68 to 70 to oil and gas lease); see also Mobil Oil
Corp. v. Flag-Redfern Oil Co., 522 P.2d 651, 655 (Okla.Ct.App.1973) (applied
Okla.Stat.Ann. tit. 15, Sec. 63 to oil and gas lease); Panhandle Coop. Royalty
Co. v. Cunningham, 495 P.2d 108, 113 (Okla.1971) (applied Okla.Stat.Ann. tit.
15, Sec. 157 to oil and gas lease)

The Restatement and scholarly authority is generally to the contrary. See

Restatement (Second) of Contracts Sec. 63(b) (1979) ("an acceptance under an
option contract is not operative until received by the offeror"). The alternative
positions and the Oklahoma court's rationale for rejecting the Restatement are
explained in Worms v. Burgess, 620 P.2d 455 (Okla.Ct.App.1980)

In Palo Alto Town, the California court applied an identical statute to hold that
a lessee properly exercised the extension provision in a lease of real property
when notice was mailed before the end of the initial term, even though the
notice was never received by the lessor. We believe that the Oklahoma

Supreme Court would adopt the reasoning of the California Court:

"In California, ... the 'effective upon posting' rule has received legislative
sanction and is the declared policy of this state. We must effectuate this policy
in all cases reasonably included within the scope and language of the statute
promoting this policy. As previously explained, when the notice of exercise of
the option is viewed as an acceptance of an irrevocable offer, such notice is
clearly covered by [the statute]."
Palo Alto Town, 113 Cal.Rptr. at 711, 521 P.2d at 1103.
8

The Mackeys argue that the payment was not mailed in sufficient time for valid
tender. In view of the fact that postal records show that notice of delivery was
given before the primary term of the lease expired, this argument has no merit

Other commentators are generally in agreement. For example, Professor

Summers notes that:
"In a number of cases in Kansas and in Oklahoma federal and state cases, the
courts have held that where the failure of an unless lessee to make delay rental
payments on the due date is attributable to non-delivery or miscarriages of
properly mailed remittances equity will not enforce a cancellation of the lease
at the suit of the lessor."

W. Summers, Oil and Gas Sec. 344, at 435-38 (1959) (footnotes omitted)

10

The Mackeys also argue that, in weighing the equities, the lessee should be
penalized for (1) attempting in person delivery of the option payments; and (2)
not tendering the payments to the depository bank. Neither of these factors is
significant. First, the Mackeys had already expressed a preference for personal
delivery through the purported "change of depository." Even though the lessee
had stated that it would not recognize this modification to the lease, it should
not be punished for attempting to accommodate that request. Second, the plain
language of the lease allows payment to the lessor or the depository bank. We
see no reason to penalize the lessee for choosing one over the other