M3 Producing, Inc. v. Tuggle
2017 Ohio 9123
| Ohio Ct. App. | 2017Background
- Sisters each owned 50% of KMFAD; disputes led to litigation and a written settlement that transferred KMFAD ownership in exchange for certain wells (NATCO and Medina) being transferred to appellants (SSS Oil/Tuggle).
- Settlement ¶2.01 conditioned the Purchase and Sale on SSS Oil securing ODNR permits/licenses and industry security/bonding at SSS’s expense by a Transition Period no later than November 30, 2016.
- ¶2.09 provided that if those conditions were not met by December 1, 2016 the Purchase and Sale would be null and KMFAD would retain the wells.
- Appellants contend they obtained liability insurance and had bond funds by late October/early November and requested appellees (M3/KMFAD) complete their portion of ODNR Form 7; appellees did not return that form or otherwise cooperate.
- The trial court found appellees did not fail to tender necessary documentation, ruled the Purchase and Sale void, ordered appellants to pay $24,385.20, and awarded November 2016 net proceeds to appellants; appellants appealed.
Issues
| Issue | Plaintiff's Argument (Appellants) | Defendant's Argument (Appellees) | Held |
|---|---|---|---|
| Whether SSS satisfied the condition precedent (bond, insurance, filings) by Nov 30 | SSS had bond funds and insurance and requested appellees fill out Form 7; thus condition was satisfied or prevented by appellees' failure to cooperate | Condition was not satisfied because necessary ODNR filings (Form 9/Form 7) were not completed by Nov 30 | Court held appellants satisfied bond and insurance; appellees had duty to timely tender their portion of Form 7 and failed to do so, so condition was not excused by appellants' inaction |
| Whether appellees had a duty under the settlement to tender their portion of ODNR Form 7 when requested | Appellees were required to timely tender documentation requested by SSS per settlement ¶2.01 | Appellees argued they were not required to act until appellants completed and filed Form 9 | Court held settlement required KMFAD to tender requested documentation; appellees’ refusal/delay breached that duty given ambiguity about filing order |
| Proper legal effect of missing filings by Nov 30 (does failure render the Purchase and Sale null under ¶2.09) | Failure to obtain permits by Nov 30 was caused/affected by appellees’ refusal to cooperate, so ¶2.09 should not be triggered | ¶2.09 clearly states the Purchase and Sale becomes null if conditions unmet by Dec 1 | Court held date provision was frustrated by appellees’ failure to tender Form 7; Purchase and Sale was not automatically nullified and transfer must be effectuated |
| Remedies on remand (money offsets and transfer mechanics) | Appellants seek transfer of wells and offset against $24,385.20 judgment for any overpayments or operator damages | Appellees sought enforcement of money judgment and retention of wells | Court reversed and remanded: trial court to effectuate transfer within a reasonable time and determine any offsets to the $24,385.20 judgment |
Key Cases Cited
- Rulli v. Fan Co., 79 Ohio St.3d 374 (Ohio 1997) (settlement agreements are contracts; contract principles govern interpretation)
- Skivolocki v. East Ohio Gas Co., 38 Ohio St.2d 244 (Ohio 1974) (contract should be interpreted to carry out parties’ intent as evidenced by language)
- Continental West Condominium Unit Owners Assn. v. Howard E. Ferguson, Inc., 74 Ohio St.3d 501 (Ohio 1996) (de novo review applies where legal questions of contract interpretation exist)
- Kern v. Clear Creek Oil Co., 149 Ohio App.3d 560 (Ohio Ct. App.) (definition and effect of condition precedent in contract)
- Troha v. Troha, 105 Ohio App.3d 327 (Ohio Ct. App.) (condition precedent excusing performance if not fulfilled)