## Facts

- The parties were lessors and lessees under several producing oil and gas leases.
- The leases required the lessees to pay the lessors a one-eighth (1/8) royalty on gas sold, payable quarterly.
- The leases did not contain an express forfeiture or cancellation clause for failure to pay royalties.
- From August 1971 through July 1972, gas was produced from the leased premises and sold to Cities Service Oil Company.
- For that 11-month period, the lessees failed to account for and remit royalties to the lessors totaling $1,693.62.
- The lessors sued in the District Court of Kay County, Oklahoma, seeking cancellation of the leases and to quiet title, alleging (1) breach of the express royalty-payment clause and (2) breach of implied covenants, including an implied covenant to market.
- The case was submitted on stipulated facts. The trial court denied cancellation, ruling that cancellation for nonpayment of royalties is not available unless the lease expressly provides that remedy.
- The Oklahoma Court of Appeals reversed and ordered cancellation.
- The Oklahoma Supreme Court granted certiorari to review the Court of Appeals’ decision.

## Issues

1. Whether a producing oil and gas lease may be cancelled for the lessees’ failure to pay accrued royalties when the lease requires royalty payments but does not expressly provide cancellation or forfeiture as a remedy for nonpayment.
2. Whether the lessees’ nonpayment of royalties can be treated as a breach of the implied covenant to market that justifies cancellation.

## Decision

- The Oklahoma Supreme Court granted certiorari, vacated the Court of Appeals’ opinion, and affirmed the district court’s judgment denying cancellation.
- The court held that, absent an express lease provision authorizing forfeiture or cancellation for nonpayment of royalties, a producing lease will not be cancelled for failure to pay accrued royalties.
- The court ruled that the lessors had a sufficient remedy at law: a money judgment for the unpaid royalties.
- The court rejected the lessors’ implied-covenant-to-market theory as a basis for cancellation where the gas was in fact produced and sold; the asserted wrong was nonpayment of money owed, not failure to market production.

## Legal Principles

- Forfeiture and cancellation are disfavored remedies; courts will not impose cancellation for nonpayment of royalties unless the lease clearly provides that remedy.
- When unpaid royalties are readily measured and recoverable, damages provide a sufficient remedy, and equity will not order cancellation of a producing lease.
- Nonpayment of royalties, by itself, does not become a cancellation case simply by labeling it a breach of an implied covenant when production was marketed and the dispute concerns payment and accounting.

## Conclusion

*Cannon v. Cassidy* holds that a producing oil and gas lease lacking an express forfeiture or cancellation clause cannot be cancelled solely because the lessees failed to pay accrued royalties; the lessors’ remedy is to recover the unpaid royalty amount as damages, and nonpayment does not justify cancellation under an implied covenant to market when the gas was produced and sold.


Cannon v. Cassidy, 542 P.2d 514 (1975)