230 P. 656 | Cal. | 1924
[EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] *770
[EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] *771 W.W. Taylor and Lottie L. Taylor, plaintiffs, brought an action against Franklin H. Hamilton, Franklin H. Hamilton, trustee, G.L. Graul, and G.L. Graul, trustee, to cancel an oil lease upon the ground that it expired by reason of the limitation of time provided by the lease. The amended complaint, which was filed on January 13, 1922, alleged that the plaintiffs were the owners in fee simple of the east one-half of farm lot 42, American Colony tract, situated in what is known as the Signal Hill oil field, about three-quarters of a mile from the limits of the city of Long Beach, county of Los Angeles, containing ten acres, more or less, and that on the ninth day of June, 1921, the plaintiffs and the defendant Franklin H. Hamilton entered into a certain agreement of lease; that no monetary consideration was paid for the execution of said agreement; that said agreement provided that operations for the drilling of a well upon said premises should begin on or before the ninth day of October, 1921; that operations were not so commenced and on the eleventh day of October, 1921, the plaintiffs gave notice in writing to the lessee that they would "terminate and forfeit" said agreement unless operations for the drilling of a well for oil and gas should be commenced by said lessee within sixty days from the date of the service of said notice; that on December 10, 1921, defendant G.L. Graul, through a messenger, tendered to plaintiffs a check bearing the date "Dec. 9, 1921," for the sum of $100 and another on December 17, 1921, bearing the date of that day, for the sum of $50, each payable to the plaintiff W.W. Taylor, as rental for said premises "for a period running from October 9 to December 9, 1921," and from "December 9, 1921, to January 7, 1922," respectively; that by the terms of the lease said monthly rental became payable in advance and was *772 due and payable on October 9, 1921, November 9, 1921, and December 9, 1921, respectively; that each of said checks was returned to said defendant, G.L. Graul, and postal receipts therefor received by plaintiffs; that said plaintiffs have elected to declare said agreement of lease to be forfeited by reason of the failure of the lessee to comply with the terms thereof; that the defendant G.L. Graul claims to hold an interest in said agreement of lease by assignment from the said lessee; wherefore the plaintiffs pray that said agreement of lease be ordered to be delivered up and canceled. The amended answer of defendants alleged that the first check returned was received by defendant G.L. Graul on December 15, 1921, and the second on December 22, 1921; it also alleged that the lease was prepared after numerous conferences between plaintiffs and defendant Franklin H. Hamilton concerning the substance and form thereof and was presented to and examined and read by plaintiffs and thoroughly understood by them; that defendant G.L. Graul since September 29, 1921, "has owned and held an interest in, to and under" the agreement of lease; that due to the geological surveys and examinations made by defendant Franklin H. Hamilton and the operations of said defendant in expending more than $20,000 in developing the land surrounding the ten acres embraced in the lease the said lease has acquired a substantial value and a present market value in excess of $50,000; that said defendants are now and were at the time of the service of the notice of default on October 11, 1921, ready, able, and willing to commence drilling operations on said premises under said lease "within the time limited thereby, to wit, prior to January 8th, 1922"; and that they tender and offer to pay to plaintiffs the sum of $150 and interest as rental in accordance with the lease. There is no dispute over the facts and it was stipulated that all the material allegations in the amended complaint and amended answer are true and that the stipulation shall be taken and considered as evidence of those facts.
The material provisions of the lease are as follows: (2) "That for and in consideration of the sum of $10.00 (ten) and the covenants herein contained, the parties of the first part do hereby let and lease unto the party of the second part, his heirs and assigns, the exclusive right of having, taking, drilling for . . . , operating for, and developing and *773 removing, petroleum, oil, naphtha, natural gas, asphaltum and other kindred substances in the following described lands: . ..
(4) "On or before the 9th day of October, 1921, the second party shall commence operations for the drilling or sinking of a well upon said premises and shall continue said operations diligently and continuously until a well has been sunk to the depth of two thousand (2000) feet, . . . or until oil has been found in paying quantities at a greater or lesser depth. . . .
(5) "Should the second party fail for sixty days (60) after notice in writing, to comply with his obligations to continuously drill as herein provided, then such failure shall operate as a forfeiture and cancellation of all of second parties rights and interest in this lease, except as hereinafter provided. . . .
(7) "It is hereby agreed that if said second party shall fail to commence and prosecute operations for drilling as hereinbefore provided, then the said party of the second part agrees that he will quitclaim and cancel and surrender this lease unto said parties of the first part, or in lieu of such surrender will pay to said parties of the first part, a monthly rental, in advance, amounting to $5.00 (five) per acre, per month, until such time as said drilling is actually commenced, but such extensions shall not exceed in all the term of ninety (90) days. . . .
(16) "Upon the failure of said second party to fully and fairly comply with each of the conditions herein set forth, for sixty (60) days after notice in writing so to do, by the parties of the first part, then this lease shall terminate and be forfeited, except as hereinbefore otherwise expressly provided. . . ."
The notice served on the lessee was dated October 11, 1921, and is as follows:
"To Franklin H. Hamilton, personally, and as trustee:
"You will please take notice that we will terminate and forfeit that certain lease for oil and gas, of date June 9th, 1921, now held by you from us, unless, within 60 days from the date of service of this notice, you shall commence operations for the drilling of a well for oil and gas upon the premises described in said lease. You having failed to commence the drilling of a well upon said premises on or before *774 October 9th, 1921, as provided by the terms of said lease, we hereby demand that you now commence the drilling a well upon said premises within the time aforesaid, and we further notify you that we shall insist upon a strict performance of the terms of said lease."
It was found that the notice of October 11, 1921, was premature, and held as a conclusion of law that no notice of forfeiture or of the termination of the lease having been given within the time or in the manner provided by the lease, the lease is not terminated and is in full force and effect, and that although the defendants are in default the performance of the agreement in the lease to pay rent, yet they are entitled to equitable relief and to be restored to their estate, right, title, and interest under the indenture of lease upon the payment of the rent due. The trial court seems to have reached the conclusion that although respondents are in default the delay in the payment of rental can be excused, that the damages due to delay are compensable and that, therefore, a tender by respondents of the rental due entitles them to be restored to their right, title, and interest in the lease under section
The appeal from the judgment for respondents is based upon three grounds: 1. The findings of fact do not support the conclusions of law. 2. Insufficiency of the evidence to justify the decision. 3. The judgment is contrary to law.
Appellants contend that prior to the discovery and production of oil the lease carried only a naked and exclusive privilege to enter upon the premises for that purpose, that is to say, the "lease" was a mere option to enter the demised premises for the purpose of exploring for oil and is not the lease of an interest in property, but a license. Respondents argue that although the rule in other jurisdictions is that a lease of oil land is a mere license, in California the interest of the lessee under an oil lease is an estate for years and a present interest and estate in land (Jameson v. Chanslor-Canfield M.Oil Co.,
[1] These authorities support this contention and render it clear that the lease in question is more than a mere license revocable at the will of the licensor. It is to be considered as a lease of the premises for the purpose of drilling *775 for oil and gas, at least until October 9, 1921, or, in default thereof, the option is given to the lessee to extend the time of commencing said operations for ninety days from that date upon the payment of rental in advance. The lessor did not commence drilling operations on or before October 9, 1921, nor did he ever do so; neither has he paid rent in advance.
[2] Respondents being in default in not commencing operations on or before October 9, 1921, and in not tendering, until December 10, 1921, the rental due on October 9, 1921, the conditions of the lease were therefore breached. The first question, then, is whether notice of the default was necessary before the lessors could declare the lease forfeited, and, if necessary, what was the legal effect of the notice actually given? In the first place, it is provided that the lessee shall on or before October 9, 1921, commence operations for the drilling of a well, and, in the second place, it is agreed that if said lessee shall fail to commence and prosecute operations for drilling he will quitclaim and surrender the lease or in lieu of such surrender pay monthly rental in advance. His failure to commence operations within the time fixed in the lease, or in the alternative to pay rent in advance, operated to lay the foundation for a forfeiture.
There are provisions in the lease providing for its forfeiture upon notice. The provision for notice in paragraph 5 thereof is as follows: "Should the second party fail for sixty (60) days after notice in writing, to comply with his obligations to continuously drill as herein provided, then such failure shall operate as a forfeiture and cancellation of all of second party's rights and interest in this lease, except as hereinafter provided." In paragraph 16 thereof the provision reads as follows: "Upon the failure of said second party to fully and fairly comply with each of the conditions herein set forth, for sixty (60) days after notice in writing so to do, by the parties of the first part, then this lease shall terminate and be forfeited, except as hereinbefore otherwise expressly provided." These provisions might appear at first glance to be somewhat inconsistent with the provisions of paragraph 7 for the cancellation of the lease for failure to commence operations on or before October 9, 1921, or to pay rental in advance, but when they are read together it would seem clear that it was the intent of the parties (1) that the *776 lessee should commence drilling operations on or before October 9, 1921, and that if he did not do so he would either cancel and surrender the lease or (2) pay in advance a monthly rental of $5 per acre until such time, not to exceed the term of 90 days, as said drilling was actually commenced. [3] The notice which is provided for in paragraph 5 of the lease did not extend the lessee's time to begin making his payments of rent pursuant to the said alternative. It was evidently intended to fix the period at which the failure of the lessee to commence and continue drilling operations should constitute a forfeiture of his lease. Since he failed to exercise the alternative by the payment of the stipulated rental in advance, which would have extended for an additional ninety days, the period during which he would not have been subject to such forfeiture, the lease is forfeited. In other words, these provisions, in effect, state a condition subsequent upon the happening of which the estate of the lessee shall become forfeited.
[4] The construction of provisions in a lease providing for forfeitures is governed by the rule laid down in section
[6] Respondents argue that the notice was required "(1) to point out definitely and precisely each of the conditions of which there was a breach, and (2) to demand their performance," and that the "only obligation resting on the lessee . . . was to 'quitclaim and cancel and surrender this lease' or in lieu of such surrender to pay rent"; and the notice as given was therefore not sufficient. The terms of the notice are clear and unambiguous and fully advised the lessee in what respect he was in default, the terms upon which it might be avoided, and that a strict performance of the terms of the lease would be insisted upon. We think the notice was sufficient. *777
In claiming that the notice was premature, respondents argue that the time within which they were required to choose whether they would surrender the lease, or secure, by the payment of rent, an extension of time for the commencement of drilling operations, did not begin until the original time in which the operations should have been commenced had expired, that the period for the exercise of such option continued at least one day, and that October 9, 1921, being a Sunday and a holiday, the lessee's right of election did not expire until midnight of October 11, 1921; and that no act of the lessors during that day or prior thereto could take away or modify such right. [7] This position ignores the established facts in the case that the notice was dated October 11, 1921, and that respondents were in default on midnight of October 10, 1921. The consideration for the lease was that the lessee begin operations on or before October 9, 1921, which means the actual development of the property, and the option clause in the agreement merely provides that if the lessee pay rent in advance the default arising from a failure of such consideration may be postponed for ninety days. [8] In options of this character such payments must be made at the time agreed upon. (Mitchell v. Probst,
Respondents cite the case of Consumers Gas Trust Co. v. Ink,
It having been held that the lease was forfeited we will now consider whether the notice by implication amounted to a waiver of the forfeiture. Respondents contend that "although the notice and demand was a worthless piece of paper, in any view of it, as a basis of any right in the plaintiffs in this action, it is nevertheless effective and conclusive upon them in the following respect, . . . it implied a demand for and an offer to accept the rent for the term of the extension preceding actual drilling operations. And as long as the demand continued and was not withdrawn, it was a waiver of the payment of rent 'in advance.' " [11] Under section
Respondents make the contention that because forfeitures are abhorred a waiver of forfeiture is favored; that appellants in rejecting the tender of rental made no specific objection as provided by sections
It follows from the foregoing that this is not a case in which it is necessary to determine whether the rule that forfeitures are abhorred in law and equity, and must be strictly interpreted against the party for whose benefit made, is abrogated in this jurisdiction as far as oil leases are concerned. In one of the cases cited by appellants,Risch v. Burch,
Respondents claim that under section
Judgment reversed.
Richards, J., Lennon, J., Seawell, J., Shenk, J., Waste, J., and Myers, C. J., concurred.
Rehearing denied.