Union Oil Co. v. Union Sugar Co.

anesthetics, who person, other such a manufacturer accident, as well conceivably might responsible rule brought Such a would it about. forces nature that hospital upon doctors, nurses, and members of staffs impose liability cannot ex- absolute for unusual accidents operations. plain might discourage attending per-A their undergo generally operation son about an aware that may dangers incident thereto. He is there unforeseeable explanation persons entitled to an at- the conduct tending operation, reasonably expect he cannot them safety. to be insurers of his

Edmonds, J., J., Spence, concurred. petition rehearing January Respondents’ for a was denied 26, Edmonds, J., and J., Traynor, Spence, J., 1948. voted rehearing. for a In Bank. Jan. A. No. 19660. 1948.]

[L. CALIFORNIA, Appellant, v. OF COMPANY UNION OIL Respon (a Corporation), COMPANY UNION SUGAR dent. Gibbons, Jerry

L. Powell, Douglas A. H. Gregg, Brobeck, C. Phleger Harrison, & Lasby Maurice E. Harrison and Moses for Appellant. Respondent.

Cross & Brandt and Arthur H. Brandt for TRAYNOR, J. brought for declara Plaintiff action obligations drilling tory determination to obtain a relief its agree gas by supplemental as modified under an oil lease judgment Plaintiff from a parties. appeals ment between Company. defendant, Sugar in favor of Union entered defendant, original was executed in The lease 1936 between Corpora- Sugar lessor, Sovereign Oil Company, as Union corpo- one-man tion, Moore, B. Incorporated, as lessee. H. Moore, ration, hereinafter referred tó as succeeded acquired rights Subsequently, plaintiff the lease of the lessee. right to gave The lease lessee the from Moore. containing approxi- gas extract oil from a tract of land mately 6,700 long thereafter as acres for and for as land. hydrocarbon produced substances were from one-eighth agreed pay royalty lessee the lessor Paragraph oil 7 of proceeds gas. the sale gas in provided discovery that after the oil and quantities, additional paying lessee would continue to drill held wells until it had well for each acres under drilled one required It specified the lease. also the rate of lessee: discovery gas the paying quantities

"After of oil or in agrees continuously operate premises, the demised Lessee year string diligence one of first after tools due for the discovery, year strings such of tools for after the second discovery, strings year third three of tools the after such for discovery, strings four for after such of tools fourth the discovery, strings until and five of thereafter the such tools drilling requirements complied specified herein with. may Lessee defer commencement next well to the of the be string hereunder operated commenced with each of tools to be comple- period the for not to exceed three after months preceding of the well next drilled with tion well string particular The lessee entitled to drill of tools. be shall many premises additional wells on said as it land and ’’ desires. original suspending lease contains three clauses drilling requirements paragraph Paragraph 7, 7. addi- provisions, provides: tion to other its "Drilling may producing operations hereunder also produced suspended quality while the value of oil of the Sixty land, is from said hereof paragraph as defined One per well, there is no avail- Cents or less barrel or when price. able market for at the well at the same such ’ ’

303 majeure clause Paragraph 10 of the lease contains force suspended drilling requirements shall providing that complying with prevented from the lessee is whenever elements, acci- strikes, lockouts, actions of the lease because any federal, state, municipal regulations dents, rules and or governmental agency, other matters or or because of other beyond the lessee’s control. conditions drilling may suspend Paragraph provides that the lessee operations obligated production if it to curtail reason of is order, rule, regulation any federal, valid state law governmental or other subdivision and such curtailment makes impossible produce profit. lessee to oil at a provisions pertinent. original Two other of the lease are Paragraph original provides lease the lessee agrees adjoining drill prop- offset whenever a well on erty within 250 feet within of the limits of the land contained producing gas quantities. lease in paying is oil or Para- graph may 25 of the provides the lessee surrender part acreage all or and thus reduce number of wells to drill.

Soon after the lease executed, Pacific Rail- Coast way Company, which strip owned a extending land across part premises, of the leased party became a the lease. This company was named as a present action, defendant permitted its default party to be entered and not a to this appeal. September, 1939, produced

In of oil at the wells premises dropped on the leased barrel, below 60 cents Moore, lessee, suspended drilling who was operations then the provisions By time, accord with the paragraph 7. had spent wells, lessee over a million dollars dry, two of which wholly unprofitable, three and the production. rest of moderate In October, price of oil quality produced these wells was from 45 to 46 cents a barrel at the wells. In that Sugar month. Moore and the Union Company negotiations commenced for a modification of the In 1940, Sugar Company lease. the defendant Union entered agreement agreement into a formal with Moore. The was en- “Supplemental titled Contract” and executed was as of February 1, 1940, defendant, Railway Corpo- Pacific Coast ration, By and agreement Moore. the terms of this the agreed hereby, the same is lease “be following respects, modified in the wit: 304

“ (1) obligations All wells, to drill except additional off-set hereby suspended period for a two from of wells^ February 1, 1940. " (2) At the period, Moore of said obligated shall year. be complete per three wells “(3) 8, of paragraph (9) April Numerical of the 1936, respect shall modified strik- to off-set be [with wells] ing therein, out ‘250 appears feet’ in- wherever the same ‘ ’ serting in lieu thereof 330 feet. “ supplemental of con- Commencing from the date this (4) royalty $25,000.00 of tract, agrees pay a minimum Moore royalty monthly advance, and shall per said year, payable during the of against reserves course charged the total oil say, Moore shall entitled to lease; that is to life of lease, proceeds or the gas all oil produced from and/or one-eighth fully until it reimbursed lessors’ thereof, is royalty paid. royalty interest the minimum so “ April the lease of (5) Except provisions as the insofar 8, remain full herewith, are in conflict same shall ’’ force and effect. rights of Moore as On acquired the lessee. 1940, plaintiff In notice of default plaintiff on defendant served 22,1942, June strings tools operating two was not plaintiff reciting that complying with therefore not and was property on the leased original lease, paragraph 7 of the conditions terms 60 cents a barrel. The notice then over of was oil since days after the continued for that if this failure also recited terminate and lessee’s notice, the lease would date A be forfeited. contro- wells would rights to drill additional sup- concerning the extent to which the versy having arisen drilling obligations para- contract modified the plemental brought. action Plain- original lease, this was graph of the “Supplemental 2 of Contract”' alleged tiff that clause February 1, lessee after 7 so paragraph modified year regardless obligated drill three oil. came for trial the court sustained When the case first objection evi defendant’s to the introduction of extrinsic -negotiations and circumstances sur dence with reference to supplemental agreement. The rounding execution complaint amended, came on for trial was when case objection time the second defendant’s to the introduction evidence was overruled and evidence admitted. court, however, drilling obligations found that the trial

305 " by Supplemental the Contract paragraph 7 were not modified only complete three wells each obligate plaintiff to so as to specified num year operation the continuous of lieu of strings Accordingly, the trial court concluded ber of of tools.” February 1942, during the re plaintiff, 1, after and that the lease, bound the mainder of the terms of said is original lease, and con requirements paragraph of 7 of the binding plaintiff, the “after the modification clause as strued February complete 1942 ... to event at least three year premises described in said lease.” wells each (Italics added.) subject requirement, however, provi- to the

This held paragraph original “plaintiff of is sions and required perform plaintiff pre- not while to the same complying in part vented from therewith whole or rea- strikes, lockouts, elements, accidents, sons of action of the rules regulations any Federal, State, gov- Municipal of or other agency beyond ernmental or other matters or conditions ’’ plaintiff. control of the judgment From a for defendant entered in accord with this conclusion, plaintiff appeals, ground on the that the trial erroneously court construed “Supplemental Contract” as modifying drilling requirements paragraph 7 of the original question presented by lease. The first ap peal is whether properly the trial court acted in admitting negotiations evidence of parties between the as an aid interpretation supplemental contract. Both con tend apart negotiations from these the contract is sus ceptible only They interpretation. one disagree, however, as what interpretation should be. Defendant contends that the trial interpretation court’s must be sustained because supplemental contract provides on its face that “All obli gations drill hereby additional . . . are suspended for period February of two 1,1940. ... At expi year ration of said two period, Moore obligated shall be ’’ complete- any event at per year. three wells [In Plain least] tiff provision question contends that the is clear on its face reasonably susceptible only one construction, namely “At period, said two Moore shall be obligated complete [only] year.” per three wells The basis plaintiff’s contention provision is that since the contains the “obligated,” word it was intended obligation to measure the replaces the lessee and thus drilling requirements para graph 7 of lease. An examination of both the lease- “Supplemental Contract” makes clear reading together words into

cannot be construed without instrument. clause of latter read into contract to make it something has to Once susceptible to be one inter- hardly clear, it can trial error court to read have been would It pretation. by straining find clear “to mean- the contract something into document, having done so the exclude ambiguous in an ing as no ground the that so construed am- on extrinsic evidence Products, v. Flotill 63 (Body-Steffner Co. biguity exists.” 84].) Moreover, 555, P.2d the construc- 562 Cal.App.2d [147 support not the decision by defendant would the advanced tion “in Merely reading the words event” trial court. of the clarify was not sufficient to the question the clause in into modified, the trial held for court meaning the lease of obligated to drill wells in event. Para- not plaintiff was original only of the lease provision pro- 7 not the graph was requirements. The trial viding suspension of for obligation subject to drill was plaintiff’s held that court strikes, event of accidents other condi- suspension the paragraph original of 10 of specified provisions in the the tions obligation by drill would not be suspended such specified paragraph of the conditions 33. This con- reason wording on of 2 struction, express based the clause of ‘‘ ’’ Contract, Supplemental unreasonable, would be the provided read clause if it require would the court to the obligated per year “Moore shall three drill [under except provided paragraph all circumstances 10 of those the original including provisions lease but not the of paragraphs 33 7 and thereof].” face, is clear that the contract not on its apparent thus

It is theory parol evidence rule that has been under the court,1 negotia majority this evidence of the by the accepted surrounding parties and of circumstances was of the tions determining meaning of purpose of for the admissible expressed requirement ambiguity has been 1The view “simply admission of extrinsic evidence means that in the involved the susceptible meaning language by parties must be to the used ’’ (Dissenting opinion in parties. intended have been claimed Rule, 1, 1003, 1319].) 25 22 155 A.L.R. Cal.2d P.2d Under Estate this [152 generally admissible to show the sense theory, extrinsic evidence language contract, parties used embodied whether in which the (See opinion ambiguous concurring appear reader. the words to the Mfg. Co., Corp. 751, v. 20 etc. Cal.2d 776 in Universal Sales California Theory a; 242, Holmes, The 665]; Contracts, comment § P.2d Best. [128 Wigmore Evidence, Legal Interpretation, 417, 420; 12 Harv.L.Rev.

307 “Supplemental 2 Contract.” clause of lease as modified Corp. v. Cali (Code Proc., 1856, I860; Universal Sales Civ. §§ 751, ; 20 761 P.2d Wachs Mfg. Co., etc. Cal.2d 665] [128 fornia ; 322, P.2d Fresno Wachs, v. 11 Cal.2d 326 v. [79 1085] Balfour 876]; 223 Wein Irrigation Co., 221, Canal & 109 Cal. P. [41 ; McNeny stein 540 v. Moers, 534, v. 207 Cal. P. [279 444] Body-Steffner Touchstone, ; 7 Cal.2d P.2d 986] [60 Products, supra, Cal.App.2d 555, 561; Co. v. Flotill Mc Baine, Manual, 408, 409.) California Evidence §§ provision

This conclusion does not run counter to the “Supplemental “Except provi- Contract” that insofar as the April 8, 1936, herewith, sions of the lease of conflict same shall remain in full force and effect.” It is clear general before provision meaning can applied, specific provisions agreement must first be ascer- tained in order to determine the extent to which conflict with the lease. question remains whether the trial court’s con

clusion as meaning to the supplemental of clause of the con tract can be affirmed on the basis of extrinsic evidence. This evidence consisted of various repre letters between the sentatives agreement to the modification testimony with conference, reference during cour.se negotiations, between representative Moore’s presi and the dent and two directors of defendant corporation. The evidence with reference to the letters is not in The conflict. trial court made specific findings as to what occurred at the conference and found that the letters properly mailed and received. In October, 1939, Martin, Mr. Villard attorney, en- Moore’s negotiations tered into with Twitchell, attorney Mr. T. A. defendant, for purpose modifying of lease. The regarding evidence negotiations these and the tentative plan agreed upon by the representatives two is contained in a letter written 14,1939, October Mr. Twitchell addressed to Mr. Lyman, Edmunds president then corpo- of defendant ration, purpose for the having Lyman pro- submit the posed plan to defendant’s board of directors. The letter stated that “Mr. Moore desires to topping construct a plant to handle the oil from the lease, but does not desire spend money to required to build plant this if he comply has to with the exist- (3d ed.) 2458-2478; McBaine, Against §§ Disturbing The Rule Plain Meaning Writings, 145.) 31 Cal.L.Rev. In view the fact instrument involved this ease is not ambiguity, free from it is unnec essary to applicability consider the interpretation this of the extrinsic (See Body-Steffner evidence rule. Products, supra 562.) Co. v. Flotill at ’’ tentatively plan The

ing requirements of the lease. drilling attorneys in the upon by the is outlined letter agreed two follows: suspend Sugar Company agree to all

“1. The Union shall obligations period years, except of two the obli- drilling for a may gation glance, appear first this to drill offset wells. At concession, hand, much at the be too of a but on other price oil, obligated present Moore is not to drill. Based my upon operators field, I do not conversations grade going believe that the of this of oil is above 60$ per years. course, next can barrel within the two Of no one conditions, go foresee the future market and if oil should or per barrel, Company royalty more would lose the 60$ production on the allowable from the wells which Moore would required be to drill if the lease was not modified. To offset this, Company begin royalty from the would to receive immediately if the lease is modified and Moore constructs topping plant. area, acres, existing comprising some proven

“2. The zone, years, and in that after Moore would zoned would be per year, provided wells that the required drill 3 be well, excepting per barrel when oil or more is 60$ point ... the letter following circumstances existed: [at requirement limitations on the contains further year which are not material to case since three wells not covered contract.] " per year calling for three inserted provision wells was per year be three wells would be all that Moore would because assuming required drill, operating that he was with one string might Martin he drill three of tools. desire to days than all at one time under contract to allow rather elapse wells, provided in the lease. between obligated any additional to drill

“3. Moore should proven outside of the property leased part wells on adja- property discovered oil should area, unless appear probable that it would locations at such property cent produced portion discovered could be oil area.” unproven rejected by defendant’s board of directors. plan This for leading important, however, it are negotiations The in build- was interested at that time Moore they indicate drilling obliga- be relieved of wished to refinery; that he ing a drill that thereafter he was to years; and for two tions 60 cents. of oil was over year when per three between the connection to show relevant letter is also The paragraph 7 requirement of re- strings tools and the number operate a certain lessee one drill three wells since lessee 2 that the quirement of clause In a month. view well ordinarily drill one string of tools will of one well completion 90-day interval between original lease, in the for provided beginning of another three wells drill about apparently string would one of tools year. each with Mr. foregoing negotiations entering into

After Tulsa, attorney Oklahoma. returned Twitchell, Moore’s again that, “in December found Martin] trial court [Mr. California he had a upon his return to California; went to L. Tognazzini, Francis Cross Eoland E. conference with Original of said respecting possible a modification Fred Cooke Tognazzini was then President Lease; E. that said Roland then Fred Cooke were directors and said said Francis L. Cross during ; That Company Sugar of the defendant Union Tog- to said Roland E. Villard Martin stated conference said drilling E. H. In'c. considered the nazzini that said Moore, 1936, prohibitive and requirements April 8, of said lease of said E. H. desired relief therefrom and that some Moore, Inc. drilling requirements have said modified so as to desired to drilling operations provide complete suspension for for years. Tognazzini true that E. stated to “That said Roland ‘had a Sugar Company Villard Martin that defendant Union posted Company situation where of a of oil because figure in being particular less than which was the this many years great lease stood not to receive revenue for upon come’ and that said E. H. In'c. desired relief Moore, requirements necessary drilling Lease it would be of said adequate them it. pay an consideration for ‘‘ Tulsa, That it is true that said Martin returned to Villard Oklahoma, January 11, and on 1940 wrote and sent to said Tognazzini Tognazzini Roland E. and said Roland E. in due January 11, course received the letter dated 1940. . . .” This repeated substantially plan that had letter been submitted By 14, to defendant in Twitchell’s letter of October 1939.2 respect requirements 2With to the modification of the lease January 11, following pro Martin’s letter of contained the posal : ‘ ‘ hereby obligation wells, wells, All except drill additional offset suspended period for of two contract. the date year period, obligated to “At of said two Moore shall be 310 January 1940,

a to Martin, letter dated and addressed president, Tognazzini, again rejected pro- defendant’s this posal letter and made a counteroffer. This reads as follows: yours response 11th, may

“In the I to of first that advise unsatisfactory. and contained therein terms conditions are the my you impression past “It was from conversations had my predecessor, recently, Cooke, with more and with Messrs. Cross, Moore, it desire E. me that was the of H. Inc. to a present gas existing obtain modification of the oil and Moore, Inc., Sugar between E. and the H. Union Company. In I to connection, you meeting at our expressed recent Sugar Company cooperating that Union was desirous of with E. Moore, Inc., H. to extent that the both mutually by were to benefit said modification. gathered definitely

“I that main a the desire for modifica- your you tion on part was to eliminate what consider an drilling onerous clause. In this connection I stated that we willing would be modify drilling said clause due and after proper given consideration were therefor. very it resolves down a problem, the I see “As itself present to be released your desire one, simple to-wit: of year two permitted to drill a sus- be clause and after year. three wells We per drilling requirements, pension all of royalty through- minimum to obtain a hand, desire the other of fact In view the that lease. duration out the of further, 6,700 in view acres up some lease ties present arbitrarily has Moore, Inc., determined H.E. fact that spite of fact that in proven, are 400 acres considerably acreage more is oil opinion consensus determine a minimum necessarily that to follows bearing, it you plan unit have indicated upon the based royalty logically follow. 11th, cannot yours any consisting approximately 400 area per drill three premises proven which is considered leased being part acres, A, provided hereto as Exhibit plat attached territory and identified sixty barrel, more, except per well, or at the price of oil is cents during to drill the existence of obligated either shall not that Moore following conditions: produced market oil to be from “(a) said If Moore is unable property; “ barrels, are 100 (b) operators field unable market or If day producing barrels, more, per or capable per from wells more, more, day barrels, per to market 100' Moore would unable day, and property; it on drilled from well to be “ (c) quantity market oil in If unable to addition to the Moore is already by Moore from wells drilled while said produced of oil w.ells ’ ’ compliance good practice. field oil being operated obtaining modification, desire to you I, in “Both suggest I and to this extent simplest reduce it to its form following, to-wit: obligation “(1) suspension to drill additional all

wells, except wells, period date offset modification, of “ (2) modifying 9, by striking out paragraph inserting feet, feet thereof 330 and in addi- lieu thereto, appropriate language tion provide that when offset being produced less, range, within said more or Moore, E. H. Inc. likewise produce, “ (3) Moore, period, E. R. of obligated Inc. shall be per year. to drill three wells “The consideration for paying the above will be the of a royalty minimum $25,000 per year, royalty payable said monthly (Italics in advance.” added.) It is notable that wording (1) proposal of clause of this is almost identical with paragraph (1) of the modification agreement and that there is no substantial difference between wording of clause 3 of proposal paragraph (2) and agreement. (See McNeny Touchstone, 429, v. 7 Cal.2d P.2d 986].) [60 proposal foregoing contained in the letter was even- tually accepted Moore negotiations. but not without further replied Tognazzini’s January Moore to 25, 1940, letter on stating (1) (2) that clauses acceptable “there should some conditions (3)] attached clause [to provide exemption would for an drilling obligations from possible under certain market conditions oil.” Moore also stated that by Tog- the consideration asked nazzini was not satisfactory, and pay $1,000 Moore offered to a month minimum royalty beginning February advance 1, 1940.

In January a letter dated 27, 1940, Tognazzini rejected this again counteroffer and offered the terms contained his January letter of 16, 1940. January He stated in his 27th letter: company cooperate

“It policy has been the of this to to lessees, whomsoever, fullest with its it shall continue that policy particular you in the future. In this case have asked analysis exclusively for operate concessions which the final unilaterally your behalf. your past performance prop-

“Because of financial on our erty anticipated and the performances future in the same a to entertain such unilateral willing been

connection, we have cooperative. desire In solely of our to be because arrangement modification, a we have ashed entertaining such payable per year, monthly in $25,000 advance. nominal sum really merely consideration, but not a consideration Said royalty advance, of a minimum monthly in payment, charged reserves; to be royalty known oil presently during the reserves course the life the total oil against operates modification of So effect the lease. your and new benefit and without added strictly added to us. benefit might the modification commence as of infer that

“You may I monthly connection that the February 1st. In this advise Wednesday, is to held of Directors meeting the Board you I p. m. If desire obtain from 31st at 1:30 January meeting proposed a ratification modi- at such the Board January 16th, please notify in mine of fication, as contained your desire, it date. that be will be a before said me on or If up a out- simple matter draw modification heretofore pertaining satisfactory thereto language to be lined, the (Italics added.) parties.” both January accepted Moore dated letter offer This wrote: Moore 1940. inst., I your beg favor of the 27th to ad- “Replying your accept proposition pay I have decided vise that equalling $25,000.00 royalty per year, pay- advance you an advance, beginning in with the month Feb- monthly of able enclosing herewith $2,083.33 therefore check for ruary. I am monthly payment proposed on the first modification being the your to Board of you will submit Directors on the 31st.” that perti- letter continued reference to matters The Moore concluded the letter as to this case. follows: nent request prepare “I Mr. Martin to will modification of embodying principles in the lease contained our corre- spondence, you and forward it day to within the next writing, two. it at this I would do but Mr. Martin is occu- pied may trial of a now lawsuit that cause a little your delay, Board authorized the I modification, think ’’ required. that is all that will be Tognazzini aelmowledged reported check and the proposal accepted by had been the board of of directors respondent in a February letter dated 1st, 1940, with the following language: yours ad- January 29th, pleased

“In I to reply to of am yesterday meeting vise that at the of the Board of Directors by be- proposed afternoon the Lease and modification Oil Sugar Inc., tween con- Company Moore, Union and B. H. you my you by tained in accepted letter to of the 16th yours January 29th, ratified. embody will able to “I sure that Mr. Martin and I am parties, of all agreed upon, principles to the satisfaction I hear nothing I further this connection until and shall do from Mr. Martin.” trial court found that “thereafter and as the date

The Company Sugar February 1, 1940, defendant Union agreement the said E. H. into a entered written Moore, In'c., ‘Supplemental entitled Contract’. ...” The Pacific Coast Railway Corporation signed “Supplemental Contract,” making thus binding it a modification of the lease. quoted spe- correspondence above and the Considering the negoti- court with reference to the findings of the trial cific that, inescapable except ations, the conclusion for regard wells, parties to offset intended provision obligation to drill more than three relieve the lessee year two-year period wells a after the suspension drilling. findings These letters show two-year suspension lessee wanted a all drilling be- contemplating building cause he was refinery of a willing agree the defendant was suspension because there was little likelihood that the lessee would be obligated under the during lease to drill period event. The lessee also desired a modification of the to, requirements subject clause limitations, based market conditions and the of oil. hand, On the other the lessor wanted an assurance of annual income from the lease and insisted that Moore, after two-year the end of the suspension, required drill regardless three wells of market conditions and of oil. parties finally agreed to suggested terms president, defendant’s were proposed aas concession to the lessee without sub- except stantial benefit the lessor royal- the advance explanation ties. Given the of these terms defendant’s president, is clear that agreed that the lessee obligated would be to drill three wells a regardless of of oil or other market conditions, and that this obligation was in drilling lieu requirements of para- 314 con- for this In consideration

graph original lease. 7 of the royalties and to agreed pay advance cession, the lessee regard wells. to offset drilling obligations increase his only concluded The trial court nevertheless the lessee parties grant any concession to did not intend to presi- two-year the lessor’s suspension, other than the unnecessary virtually provision, had dent admitted to be an obligations drilling but that agreed the lessee had to assume lease, original in addition paragraph to those under 7 of pay obligations advance with royalties, and to increase his respect to offset wells. erroneously interpreted court that the trial

It is contended The regard extrinsic evidence. to the without the contract de it is that the claims of “That untrue court found trial Company Sugae ambiguity have created an fendant Union Orig upon face said any ambiguity apparent or that If by Supplemental Contract.” inal Lease as modified finding “finding” that extrinsic evi was intended as inadmissible, conclu it is of an erroneous dence was course 128, (Brant Dairies, Inc., 4 Cal.2d sion of law. v. California Wachs, 322, 11 325 13]; P.2d Cal.2d Wachs v. [79 [48 1085].) court, however, P.2d The trial admitted evidence negotiations reference to the between the findings made as extensive thereon. It must therefore finding sumed that the trial court merely means contract, concluded that the to the considered with reference evidence of negotiations, susceptible these was none less interpretation, namely interpretation one relied (Eastman Co., defendant. Corp. Oil Lane-Wells etc. v. 872, Cal.2d 564].) question remains, P.2d [136 therefore, whether there was evidence which a rea inference could support sonable be drawn to this conclusion. (Eastman Corp. Oil Co., supra; Platt, v. Lane-Wells Estate of 21 Cal.2d 343, 352 ; Rule, P.2d 25 Cal. Estate [131 825] 2d P.2d 1003, 155 1319].) A.L.R. [152 the evidence with reference to contends

Defendant Martin, Francisco between as Moore’s the conference San corporation of defendant representative, and three directors and that a reasonable inference can be drawn is in conflict favor, supporting defendant’s the con- from the evidence requirements that the contract means clusion 7 of the paragraph were not modified agreement. supplemental to California came Martin when testified that Tognazzini Twitchell in the outlined plan the the submission after that him informed witness 14th, the

letter of October direc- board rejected by defendant’s had been proposal the conference he at the that stated also testified tors. The witness original defendant, under the oil, price that because of the many years great a to revenue for lease, stood not receive come; two-year agree willing defendant was that drilling were un- requirements; “they that suspension of all ’’ obligation anyway; thereafter there der no to drill but that requirement drill three wells should be a the lessee price cents, when as well as some the of oil was below provision royalties. Tognazzini for advance testified further original such, that “Clause 7 the other [of lease] paragraph nothing numerical was never mentioned” and that require- at the drilling conference as to what the two-year ments would be after suspension the whenever price of oil cents; should above 60 bnt cross-examina- tion, the witness admitted that Martin had stated drilling requirements original under the lease “were bur- prohibitory” densome and and that Martin “in substance again . . . the proposition submitted that had been turned down which called for the drilling of expir- three wells at the years ation of the two sixty cents. ...” According witness, to the the answer to this request was “that at of two I would require that though even of oil be under sixty cents, there would have be three wells drilled.” The director who testified at the trial, Cross, L. Francis

testified that at the conference “Mr. Tognazzini and Mr. Mar- tin did all talking, Mr. Cooke merely and I sat and lis- tened to the conversation.” His recollection of the discussion between Martin Tognazzini was substantially the same Tognazzini. that of This witness also testified that Martin brought up question of a drilling modification re- quirement after the end of two-year suspension period in the form the plan outlined letter, Twitchell Tognazzini “Mr. told him unequivocally that that was ’ ’ out. deposition The director, the third Cooke, F. O. who did testify trial, at the remains for consideration. He stated paragraph 7 of lease was not mentioned at the conference; that Martin did not state that the lessee

wanted, two-year suspension, addition to a “a modification required the lease so that would [thereafter] complete year.” three wells a asked on cross-exami- When suggested along nation whether Martin a modification lines of the “I don’t recol- plan, Twitchell Cooke stated that I lect. think I will stand on that.” foregoing evidence shows that there support either for the conclusion that question of modification of the drilling requirements after two-year suspension was not raised at the San Francisco conference or for conclusion suggested that Martin at the conference that the original lease should along be modified in the lines outlined previous understanding tentative Martin between and Twitchell suggestion and that this rejected. was

In points event the to be covered in a supplemental agreement not upon decided San Francisco. negotiation by thereafter, continued letters and those letters comprehensively points finally agreed by cover all the upon parties. The evidence is parties without conflict that the agree question drilling requirements were unable to on until meeting. some time after the San Francisco plan

The Twitchell should not be confused with the modi- drilling requirements fication of proposed by Tognazzini in his January letters of 16, 1940, January 25, 1940, ac- cepted by Moore in his letter January 29, 1940. The plan Twitchell drilling reduced the requirements to three year wells a when price of oil was over 60 cents a barrel suspended all drilling requirements except respect to offset wells when of oil was below cents a bar- rel and when other market prevailed. conditions This is plan rejected by defendant. The proposal by Tog- counter essentially nazzini was different from the plan Twitchell that drilling obligation Moore’s (except for wells) offset was reduced drilling to the three wells a after two and Moore was to drill these three regardless of oil and other market plan conditions. This im- was not mediately by accepted Moore, for he wanted more concessions.

(Moore’s January letter 25, 1940.) The concessions were refused, January and in his letter 25, 1940, Tognazzini repeated January 16, the offer of 1940. This offer ac- was cepted by January 29, Moore his letter of 1940. general finding

Defendant contends that a that all allegations plaintiff’s complaint not found to be true untrue, finding is effect a that the San Francisco con- drilling requirements ference modification of the lease two-year suspension after plain- was not because discussed alleged tiff rely that it discussed. cannot was Defendant specific findings of the trial court with reference to this conference, findings however, nothing there in those parties agreed indicate that the that clause was not modified, nothing therein from reasonable could inference be drawn in conflict with the letters. The evidence to what occurred at the San Francisco conference conflict, may was in the findings ef- construed fect that there was no discussion at that time of modifica- requirements drilling tion of the two-year of the lease after a suspension. It follow, however, does is reasonable an draw inference that drilling the modification of the requirements was never discussed or their representatives. The dispute evidence is without modification of the lease was discussed Martin and Twitch- conference, ell plan before for modification rejected. was dispute The evidence is without that on Mar- tin’s return negotiations, to California to continue he was by Tognazzini question informed before the conference plan rejected. days conference, was A few after the he wrote a letter again proposing a para- modification of graph proposal again 7. The rejected, but the modifi- requirements cation the of paragraph 7 was con- virtually every sidered in representatives letter between the parties. the All this evidence is without conflict. Only disregarded the letters could an be inference testimony drawn from respect the to the San Francisco conference, parties that the never considered the modification paragraph 7 consequently did 2 not clause intend supplemental the contract to the be measure the lessee’s drilling obligations. The disregarded, letters cannot be for the they trial court found that were mailed received. authority There is no an for the that such proposition inference must judgment. be drawn to the sustain The de majority fendant relies on 25 opinion Rule, the in Estate of 1, Cal.2d 10-11 P.2d 1319], 155 A.L.R. but that 1003, [152 authority case not for is such a conclusion. The doctrine of that, findings the Rule case is “in the absence of fact every law, judg conclusions intendment is favor of the every ment order it appealed presumed from and is that 318 order and support

fact or inference essential to the by by the evidence found the court. . . . The warranted was ‘ the appellate accept rule is that an court will or adhere to adopted by trial interpretation the court—and contract] [of parol not another of own—. . . where evidence substitute its interpretation, introduced in aid of its and such evidence was may be drawn there conflicting . . . is such that inferences ” (Italics added.) It is clear that this doctrine is from.’ trial ex present case, the for the court made inapplicable to the findings respect conclusions of law with tensive intervening including letters and the con negotiations, the it that the letters were not ference, and cannot be assumed virtually incorporated into the find considered, for were ings. apply the of the Rule case it would be To doctrine there no necessary infer that because was discussion Francisco conference such a modifica at the modification San by parties, the and then to infer never considered tion was intend a modification. parties that the did not such further letters, the show that the consid Since by trial modification, found court to be ered such a reasonably suscepti evidence is not received, mailed and support judgment. (See an inference that would ble of 343, 825]; 352 Eastman Platt, 21 Cal.2d P.2d Estate [131 Co., P.2d Corp. etc. v. Lane-Wells Cal.2d Oil [136 564].) judgment also contends .

The defendant by the rule of construction em supported is the trial court “In of uncer cases Code, in Civil section bodied [including by preceding rules section tainty removed not may explained reference to 1647 that a contract made], language of a under which was circumstances strongly against interpreted most should be contract uncertainty promisor exist. The caused party who rule on face can ...” This its party. presumed to be such Clearly it present in the case. judgment support promisor, as the for against the lessee applied cannot be can it promisor. Nor was the in the ease is who issue basic uncertainty exist, caused that the lessee modification was precise conflict evidence is without language president suggested defendant’s formal document.3 into copied almost verbatim proposed was Martin modification suggested this 3It has been letter, how of that January An examination 11, 1940. in a letter dated might Defendant also contends that a reasonable inference in support drawn of the trial court’s conclusion from fact that up by the formal document at- was drawn Moore’s torney. The basis for this that Mar- contention seems to be tin competent attorney as a should have known that the lease interpreted would be defendant, that, favor of there- fore, interpretation, unless he intended that have he would any inserted certain words that would have removed uncer- tainty. however, an inference, Such assumes that Martin was ambiguity. question aware of the taken provision The was Tognazzini’s January letter 16th. That letter seems clear and unambiguous, and when considered the context thereof, provision appears clear un- itself likewise ambiguous. There is no reason to that Martin assume was any ambiguity possibility Tog- more aware of the of this than nazzini, suggested signed who and who the modification formal document without suggesting any changes in the dis- puted provision. There is no reason to Tognaz- assume that any zini is competent less than Martin, and it is difficult to comprehend why he did not insert his proposal into or into the formal document the words that defendant now claims must be read into the certainly instrument. It is not reason- support able to judgment of the trial court on the basis appraisal some competence relative of these two men.

The determination of the trial court that the lease as modi- fied is capable one construction parties and that the intended that drilling requirement of paragraph 7 would not be modified clause 2 “Supplemental Contract” support without the evidence or reasonable infer- ence from the evidence. The specific findings nego- as to the tiations, and the evidence, which is without conflict in essential element and reasonably susceptible not conflicting inferences, clearly show that the modify intended to paragraph 7 of the It lease. follows that trial court’s construction of the lease is erroneous. judgment is reversed.

Gibson, J.,C. Edmonds, J., Spence, J., concurred. SCHAUER, J. I dissent. In the briefs of the parties, opinion of the District Appeal Court of (173 700) P.2d majority opinion court, we aggre- find an evef, supra, see footnote reveals that suggested, modification there based on the of oil and other conditions, clearly market " ’’ incorporated modification into Supplemental Contract.

gate of pages legal hundreds of discussion. And, unfortu- nately, together all of it is of little benefit parties to the to the analysis law because in the final the sole determinative question, majority the view of the court, of this least, sufficiency relates of the support findings evidence to of the trial court and agreement. its construction of a written Apologetically I add to the discussion, impelled fruitless by unrelenting thereto the conviction any that the loser in appeal adequate lawsuit on an is entitled to and fair factual by reviewing statement the court and to a decision which it reckons with the record as is.

Reading of reality the entire record convinces me that in majority reach court their result not because matter evidence as a of law is insufficient to sustain finding essential of fact or the trial court’s construction of agreement because, weighing sharply after substantially conflicting evidence, they that, have concluded weight it, greater view of the evidence favors plaintiff and, hence, justice the cause demands a judgment. I am judg- reversal of the unable to concur in a ment of which on fair of the reversal statement evidence supported theory. can be on no other adequate an understanding The facts essential to of the controversy simple. plaintiff The company are few and oil by assignment an is lessee under oil lease executed defend- augmented by modified owner-lessor; ant the lease was agreement affecting drilling obligations supplemental a dispute subsequently as to lessee; arose whether lease the number of provisions of the relative to continuously strings operated tools to be abrogated replaced by provision supplemental agreement minimum number of wells to be com- relative to a year. dispute pleted each To determine that this action for declaratory brought. relief was indicated, the in this case are either

Since, as above issues majority actually opinion, made factual or are so are, recognize those important at what issues becomes once in haec and, particular, to set out is, the evidence what and which is the language used verba the which subject of construction. hearing heart declares that “The petition

Plaintiff in its for fixing original controversy clause of the is the discovery of oil and drilling obligations after the the lessee’s clause, 7, specified (1) No. That gas quantities. in paying the total number of wells that the lessee was to drill—one (2) well to ten acre each acres lease]—and [of namely: number, rate at lessee to drill this agrees continuously string operate ‘Lessee one of tools diligence year discovery, with due for the first after such strings year after discov- of tools for the second such year ery, strings the third after such three of tools for year strings the fourth after discovery, four of tools for discovery, strings thereafter until the such and five of tools ’ ” drilling requirements complied specified herein with. requirement one foregoing operating, progressively, strings “imposed to five on the lessee the burden tools fifth spending $180,000 $900,000 the first year.” subsequent lease, previously and each The indi- and, hence, cated, 6,700 covers some acres of land unless drilling part, in entail the of surrendered whole or will conditionally required plus, possibly, some offset 670 wells original appear on its face to be wells. Such lease does reciprocal rights and respect; up unfair in it various sets drilling above obligations detail; schedule considerable it quoted obligation lessee; can be is not an absolute of surrendering lease and by time relieved therefrom at temporary for rights thereunder; provision there is also its specified certain suspension drilling obligations under of its conditions. controversy

The actual nub of this lies in present les- that the “Supplemental see’s claim Contract” eliminates com- pletely permanently quoted original the above contract provisions relative to the number strings of tools to be operated developing property. language The of the “Supplemental upon by Contract” so relied plaintiff- lessee, majority court, and now is as follows: agreed Sugar Company “It is between Union . . . and E. H. Moore, Inc., gas 8, . April 1936, . . oil and lease dated Sugar Company, lessor, Sovereign from Corpo- Union Oil ration, be, hereby, lessee ... and same is modified in the following respects, to-wit: “ (1) obligations All to drill additional wells, off- except wells, hereby suspended period set are for a years from two February 1, 1940.

“(2) At the of said two period, Moore obligated complete per year. shall be three wells

“(3) Paragraph (9) Numerical Nine of the lease [relat- ing April 8, 1936, to offset shall be modified wells] striking appears out ‘250 feet’ therein, wherever the same ‘ ’ inserting thereof 330 feet. lieu

“(4) Commencing supplemental from the date of this contract, agrees pay royalty $25,000.00 Moore a minimum per monthly year, payable advance, royalty and said shall the, charged against during total oil reserves the course lease; say, of the life of the that is to Moore shall be entitled gas produced lease, to all oil from said proceeds or the and/or thereof, fully one-eighth until it is reimbursed from lessors’ royalty royalty paid. for the minimum so .interest “(5) Except provisions insofar as the the lease April 8, 1936, herewith, are in conflict same shall remain ’’ in full force and effect.

Particularly above-quoted it supple- is to be noted agreement utterly strings mental silent as to the number of holiday. operated provides of tools after the It to be “(1) obligations wells, All except to drill additional hereby wells, suspended period offset February (Italics added.) holiday, 1940.” ac- cording terms, temporary suspension is a or morato- to its abrogation remaining term rium, not an for the entire majority holding effect lease. But the is not to enforce any two-year suspension original lease; of the terms of abrogate, insofar permanently is rather to as the terms of concerned, obligations “All drill ad- lease are ’ except ’; say, by the ma- wells, ditional offset wells that is to (other jority holding drilling obligations than for offset original wells) completely declared in lease are elimi- the wells) drilling obligation (except for offset nated and the Contract,” “Supplemental in the operative now is that stated “complete year.” (Whether in per is to three wells which majority any completed during the of the offset wells view year “complete-three-wells” pro- be credited on the should clearly supplemental agreement gram appear.) does not “ year (2) "expiration period, At of two language is: said complete year.” wells obligated per to three Moore shall be context, in its (Italics added.) language, viewed would This two-year expiration” of the to mean that “at the seem me to wells, ex- drill additional suspension obligations of “All to regardless obligated, wells,”' was to be cept offset the lessee strings of.oil, of of tools otherwise price of the number required, of depth of hole required operated, to be least, or, etc., to, at the encountered, character of formation (The “complete per paragraph three same year.” wells (No. 7) provides strings for the number of the lease continuously discovery operated after of oil tools to be provides also that “The Lessee shall be entitled to drill as many premises additional land and de- .it sires.”)

Certainly successfully lan- it cannot be contended guage supplemental precludes meaning contract suggested. meaning above If that such precluded is language by the accept we are bound to it for it’was found meaning language trial court to be the true and the ' agreement finding true amply sup- arid such ported by both direct and circumstantial evidence. As re- counted hereinafter in more detail record shows that Mr. Cooke, a director participated of defendant-lessor who in the negotiations leading up agreement, to the modification testi- respect fied in agreed upon to the that “if terms we were going give them drilling a release on of wells for two they . . . that had to start and drill at least—I want to make particular emphasis on that word ‘at least’—three wells a year. price . . . oil was more than 60 cents [And] if expected ... go we them to lease, ahead on the under that Clause . . . Seven. wells were [Italics added.] [T]hree [per year] to be drilled Regardless . . . of whether the of oil was 60 Likewise, cents or less.” as hereinafter shown particularity, more the witness Cross testified as to the terms agreed upon of modification given that “if year suspension, agree drill and com- would.have plete at least per three wells if the of oil was under sixty absolutely cents. . . . There was no discussion of Para- graph Any lease. seven ...” failure para- to discuss graph 7 at this time would seem to me to indicate that the repeated earlier modify refusals defendant’s directors to beyond two-year covenants moratorium were accepted by final; Mr. Martin as may insofar as Martin again have attempted bring subject up positive refusal give defendant’s directors to it further considera- (as suggested by tion quoted) evidence hereinafter is like- suggestive agreement wise supplemental that the means what says majority rather than interpolate what the into it. now I supplemental agreement look vain to the provi- for a saying suspension obligations sion that “the of ‘All drill hereby wells, except perma- offset made

additional wells’ is original requir- nent”; provisions or that “the of the lease ing operation diligence strings the continuous with due of five drilling requirements specified ‘until of tools the herein [one ’ ” with, are complied suspended well to each acres] inoperative only and not but for the entire I in remainder of the term of the lease. look vain for the “ find, (5) Except provisions I insofar as the of the above but April 8, 1936, herewith, lease of are in conflict the same shall ’’ remain in full force and effect. inspection original and It is obvious from an lease face, supplemental agreement the latter on its avowedly it construed as it must be with the document which theory of, supplements, purport support or does majority in, opinion; ap- it does not the result reached ambiguous pear to be or uncertain or to admit of the con- by urged plaintiff; effect now on its face it does struction or fully given by it the trial appear to sustain the construction Nevertheless, says plaintiff, the extrinsic evidence court. conclusion can be considered,1 reasonable which really agreed to from it is that the to the lease drawn modify in element at supplement one least which is anything language drastically different from which the used fact, plaintiff urges, In seems calculated to delineate. major object argues, that the majority opinion now consenting any change sought to plaintiff2 obtain permanent release, original was a rather than a two-year suspension, drilling obligations provided of its as two-year The vast difference between a lease. agreed drilling obligations complete suspension of yearly of a mere therefrom with substitution three-well release anyone apparent completion schedule will at once be who acquaintance production any intimate with the oil busi- has pauses to consider the facts this case. ness who obligated, 6,700 have a acre lease with lessee Here we executed, originally develop the terms of the lease expedition operation continuous land reasonable with subsequent years discovery after of oil during the fifth and admissibility such extrinsic purposes 1For the of this dissent holding imply does not accord evidence is assumed but properly it was admitted. denoting interchangeably either plaintiff is used herein 2The word present plaintiff predecessor or its interest the lease under defendant. “with, gas paying quantities, strings of five of tools due diligence.” many might How completed year each operation strings course, of five is, of tools a vari- able. Whether one completed weeks, hole can be in three years three depends only months or three diligence on the and skill of the workers but type equipment also on the used,- the geological character of the formations encountered depth of the oil production, any, sand from if which eventually is obtained. There is evidence opera- here that the tion strings might of five produce many as 15 year; as wells a it could, course, complete than 15 less At wells a three. fully develop (without the lease allowance for unusual delays) require would approximately years. plaintiff If prevails and can maintain completing only three year—if wells a is saying tantamount it need drill only year—it three require holes a will put de- fendant’s land production! on full seemingly With such a absurd result, from standpoint, defendant’s possi- to be made ble interpretation from the urged by plaintiff, and with that interpretation to be read language into not, by which does itself, remotely even suggest it, one expect should requiring evidence (if, such a indeed, construction there be theory known permits it) law which must indeed be overwhelming and without conflict. But in truth the most that can be said for plaintiff is that the sharp evidence is in conflict. majority opinion very on its face recites evidence

which, fairly analyzed, according to all accepted heretofore require standards would findings that the of the trial court and its construction of the contracts be sustained. dis- Such cussion of the appears evidence majority in the opinion, insofar as it objective, obviously is argumentative as to differing may inferences which be drawn from the evidence. In other words majority the thesis of the opinion constitutes argument mere weight evidence, the resolu- tion of conflicts, its and the selection of inferences to be drawn therefrom, matters which are no reviewing concern court. my greatest quarrel But majority opinion with the comes not from evidence which it but, rather, discusses from evidence unquoted. which it leaves

The record negotiations discloses that at the time of following modifications to the lease circumstances Moore, existed: The then lessee, Incorporated, E. H. a one- corporation, marketing was conditions dissatisfied man. largely at the be- defendant’s field. Moore was dissatisfied present (plaintiff here) cause crude lessee was arbitrarily purchaser oil and, such, an available had fixed accept if low had no alternative but to Moore By way produce he was to and market oil that field. plan of remedying .that situation- Moore conceived the building refinery field so that could handle his he production. two-year own mora- According to the record a “holiday” drilling requirements torium or enable would refinery him building of a devote toward the some. $1,800,000 expended might in cash which otherwise have to be Although com- new wells. at that time oil pany being offering less than 60 cents a barrel for the oil produced by although field, Moore from defendant’s obligation strings operate of the lessee to the five n cents, suspended tools was while below 60 the was, course, nothing company there prevent to the oil raising any it the to 60 cents or more at time fit ¡so securing saw to do. To the end of some modification security in drilling program—-at against having to least two-year during period drill but wells for a offset refinery might negotiations be built—Moore commenced representatives with negotia- of defendant. In most of these by represented Martin, tions Moore was Mr. Villard an attorney negotiations at In Martin law. the initial Mr. Lyman, broached the matter to Edmunds who was then Mr. president Lyman lessor; of the defendant Mr. referred Mr. Twitehell, attorney Martin Mr. an Mr. Mar- law; to T. A. thereupon tin conferred with Mr. Twitehell and stated the prepared Company; desires of the Moore Mr. Twitehell then proposition suggested a memorandum of the Martin forwarded it to the offices of the lessor at San Francisco. proposition is to in the record and sometimes referred This proposal, herein as the “Twitehell deal” or and because repeated to it of the witnesses at references some in importance its bear mind in the trial substance is of to sufficiency weight of appraisal or the evidence supporting failing support judgment. relative to to (under Twitehell, report in date of Mr. his to the lessor plaintiff’s Exhibit 14, 1939, received evidence as October Moore, Martin, attorney for Mr. 5), No. “Mr. Villard said: modifying Thursday discussing possibility was here lessor, company and Mr. gas the oil and lease between topping Mr. Moore as lessee. Moore desires to construct plant lease, not desire to handle oil from the does money spend required plant to build he has to this comply existing drilling requirements to topping plant lease. If be to the Moore constructs a will advantage Sugar Company the Union because it create will oil, an outlet for and this in turn will mean reve- immediate company nue for lessor. ... proposal

“I Mr. Martin informed that I would submit the you you, to and that turn submit it the Board would of Directors. originally modify proposed

“Mr. Martin requirements required so that Mr. would Moore be develop good practice. the lease accordance with oil field Many any express drilling old did oil leases not contain re- quirements, uniformly those leases Courts held implied there was an obligation to drill when conditions drilling. warranted further .. .

“I informed Martin that I could not recommend that the lease way. discussion, be modified After we ar- following rived at plan: tentative “1. Sugar Company agree suspend The Union shall obligations all drilling period except for a of two years, obligation to drill offset wells. ... existing proven

“2. area, comprising acres, some would zone, be zoned and in years, after two Moore required would per to drill 3 year, provided wells per of oil 60c or more barrel at the . . . well. provision calling “The per three wells was in- per year serted three because would be all that Moore required would drill, assuming operating that he was of string might one tools. Martin he to drill desire at contract, three wells all one time under than rather days elapse wells, provided allow as between in the lease. “3. would obligated Moore not be drill additional wells . proven area, . . outside of the unless oil should be adjacent property discovered on the property or or at such appear probable locations it would that that oil could be dis- produced portion unproven covered and from a of the area. . .. provide “I that it also believe would be advisable to that agreement assigned would null void if Moore person. some third transferred the ...” above-quoted perusal It is from mere of the re- obvious deal,” although definitely port even the “Twitchell it that five-strings-of-tools develop- called for a modification of the program, certainly contemplated ment more extensive obligations three-wells-a-year by major- than now held ity agreed upon. appear to have been But as will from evi- quoted rejected dence the “Twitchell deal” was hereinafter by they grant the defendant’s directors because would not drilling obligations such an from the de- extensive release Following report in clared lease. the Twitched Lyman by Tognazzini president was succeeded Mr. as arranged Sugar Company, and Mr. Martin for a Union directly Tognazzini. conference with Mr. The latter called Cross, com- Mr. Cooke and Mr. directors of the defendant pany, Exchange was held at the and the conference Stock 20, 1939. Francisco, Club in San on December Tognazzini’s testimony Mr. Martin According to Mr. modification, what action had been “asked me about by proposal been submitted to us Mr. taken on that had proposition I told him that the had been Twitched. . . . And by . . . Mr. Martin turned down the Board of Directors. cold again modification and opened up subject about a he money that had length large amount of elaborated Moore, Incorporated, and the dif- expended E. H. been oil, disposing they that had encountered ficulties they arrangements that existed the Santa stating being that outlet Maria Field virtue unsatisfactory. He ... Company, had made Union Oil one method they obtain an outlet and stated needed to refinery institution or some similar would to establish a discussing expense they gone to the own; that had of their Angeles; engineers firm Los the same with a that, but view go ahead with prepared expended for money have to be large that would sum of pos- thought there was a refinery, that he erection of that he wished going up again, sibility oil complete would be so that there to have the lease modified years. I told ... suspension drilling operations Valley Field Maria in the Santa him that most of the leases that which the Union lessor than were more favorable to the recall, I further, Company I him Sugar had. ... told I in- field, that was Company controlled the Union Oil Company who the Union Oil dignant the attitude of over posted price had had seventy cents in field; that . . . any analysis that twenty-three disclosed that there were or twenty-four throughout oil fields the State of California price comparable on which oil of gravity was within a few seventy cents this cent range; that the Union Oil Company, for reasons themselves, arbitrarily best known to price reduced the of oil in particular they this field which controlled to fifty below cents; that in no other field in the State of you California comparable would find a reduction price or comparable I oil. ... told him further that he might be opinion price up, go that of oil would which would necessitate resumption drilling, but I was going protect Company the interests Sugar of the Union price the event go up. of oil I it did not So made very clear concerned, to him that so far as we were we would permit, agree upon if all could the terms condi- year tions of this two obli- suspension. They were under no gation anyway. only to drill It was basis of an antici- pated price they might increase in the drill oil that have to particular at this stage that in the game. I told him whereby event agree provision we could that there must be a there per year would be the of three wells when the price sixty of oil was that below We did not at cents. arriv.e particular meeting monetary paid at the consideration to be theory proven produc- to us. I advanced the that there was monetary tion and given whatever would be consideration really to us was not a consideration for the reason only money pro- would be an us on own advance our proven against charged or oil those duction reserves to be time came reserves as went on. That statement about plan plan this unit been answer to or some such had again in the letter and had been dis- discussed Twitehell meeting. cussed almost verbatim at this ...” continued, is in the The witness “Since Twitehell’s letter testimony, guess In let- I we can refer it. the Twitehell be permitted, ter there was a statement made suspension drilling requirements that there be a for two years time, expiration if and at the of that of oil sixty more, cents or that three wells be drilled.

“Q. meeting just opposite posi- At I took Yes? A. this cold, tion we turned proposition because down that years completed of two three wells must be sixty talking all oil below cents. That’s we were talking about, about. That’s all that I and that there be coming in, during minimum revenue suspension for for the a two was a condition of oil period give price order to relief in the event in refinery, contemplated of a up, went in erection view price period if the that at the of that'two I sixty cents, then wanted three wells of oil still below per year. . property to be drilled on that . . during as to

“Q. anything discussion Was said price if oil drilling requirements would be was what year period sixty expiration of the ? above cents after the prop- We had turned down No, nothing A. whatsoever. price if the were be three wells drilled osition that there price provisions prevailed if the sixty over cents. being respite a sixty was asked was were cents. What over oil was the fear that the for two because of require up drilling then would going go again which to producing field. Now that’s what the whole of that and and, meeting particular was about at discussion made, play sympathies on our proposition was or showing money had made, expended, how much been how they to an outlet because of the activities were unable have Company particular in field and Oil how Union refinery a necessary for them erect it was therefore" their And outlet of own. while were obtain an order to that, going expense, to all that further erecting all Mr. Mar- definitely anticipated an he increase in the stated tin correct, respect he was because In that there was an of oil. early part 1941. increase fact, refinery? a matter “Q. they, Did as erect A. Ño.” testimony Tognazzini of Mr. we

In corroboration testimony of Mr. Cooke: find the downstairs, and Mr. Martin say, gathered “As I we the instance Mr. Moore to see here at had come he out something help situation, be' done to could not if time. getting rather critical which was respect explain in what the situation was “Q. Did he Yes, oil situation critical, you recall? A. had do getting relief, way he needed he found one an- changed there and drilling he ; relief from some oil wells should had to have other point contract, quite he his and stressed have drill under making like us to consider some that he would that; change that, probably put and that he would have to refinery. thing That was that struck me. There were was, things two or three Martin on his mind. One he had figured, get us, he tried to it over to all of that Mr. Moore money spend refinery, would have a lot of for this he did that he he relief felt should have some on the of the wells.

“Q. explain why Did thought he he he would have to refinery Yes, have a way getting ? A. there was no his marketing oil out at time; conditions bothered him. Tognazzini did most of him talking at that time. really We sat listened, except got back and when it near end we things, went on a few suggestions made some 'worked out, you them far I remember—do want try dig up me some of the statements 1 : As far as the sum and substance “Mr. Brandt goes. (Continuing:) A. The sum and substance was: You must realize we had nothing business, had under this oil adjustment we felt that we should have an made that there was fair us people. to and fair to the Moore I If remember rightly, they approximately, they started to and drilled when meeting, asked for this wells, I think it was twelve and out wells, of these 12 I 10 operating think dry, were and were good or not in I condition. don’t know the technical condi- tion, they production, say that, were not on let’s he, Martin, Mr. give seemed to feel that we should them 2-year they whereby any extension They didn’t drill wells. Well, any wanted relief. give we didn’t them definite answer time, at that because things there were other he going was up—Mr. bring Tognazzini going to bring- to up—and getting that was the money royalty matter us some on a that, basis. feltWe we should have and also we felt we going give to drilling were them a release on of wells for two years, that under no were going circumstances we to allow up agree- them at end that time not to live to their ment, that-they positively had up agreement, to live to their fact, they inwas, that to had start and drill at least— particular emphasis I want to make on that word ‘at least’— year. three

“Q. years? At the end of two A. At the end years. . . . - - Tognazzini “Q. Did Mr. in the conversation refer acreage Yes, I think he men- extent of the leased? A.

tioned Mr. that we had Moore some acres. leased

“Q. That included in the lease? A. Included in the lease.

“Q. you anything was concern- Do recall whether very ing price A. the then of oil? He was insistent point, because, that I remember, he made the statement that price was, no matter what oil that the Moore Company obligated were still three least drill wells—at year, three irrespective price wells—a . . oil. . “Q. Martin, you recall, pos- And did Mr. mention sibility might building their that oil increase while refinery Yes, ? A. he did.

“Q. say What did in that He said he connection? A. that would like have two and be he released up—I drilling, might go that but he said oil think don’t up any particular price might go as to oil he said what the irre- right thing, tó—but we came back to same spective say you still will drill of oil we have to year. at three wells a least

“Q. anything Now, during the conversation was there you recall, Cooke, Mr. num- concerning mentioned rigs any No, time ? A. no. ber you “Q. there mention that can now recall con- Was I Paragraph of the lease as such? A. think cerning Seven clause—Seven, was it? awas no, Seven; mention “Q. Seven? A. Clause no Clause at all. rigs the number of

“Q. there discussion about Was 2-year period ? be used after the that were to A. No sir. you you people, directors

“Q. Mr. Martin state Did suspension Tognazzini, he wanted there and years, top of wanted and on that drilling operations for . . . A. No. respect operations to future ? new agreement suspension, that to “Q. Mr. ask in addition Did Martin strings to the number of reduce lease be modified that to be number of wells required to be used of tools A. No. drilled? ‘ ‘ pur- his say at that time that was Q. Mr. Martin Did years, suspension for two pose complete to secure they lease, so a modification of secure thereafter A. No. a year? required complete only be to three wells would “Q. say, say, get Did Martin he he did Mr. wanted to they required keep the lease would not modified so that to busy strings provided the number of tools in as Para- graph Seven of A. No.” the lease? by plaintiff’s counsel,

On of Mr. cross-examination Cooke copy testimony given he was shown a of Mr. Martin’s as deposition and an made to down his testi- effort was break mony. following: The record reflects “Q. I again deposition will refer to Mr. Martin’s stated; page I up 70. Mr. ‘I told was Martin them there to get a modification of that lease. “ ‘Q. you What you kind of a modification tell them did after were ? “ ‘A. I get told I wanted them that lease modified so required that we would keep strings not be number of busy tools provided Paragraph that are Seven of ’ the lease. My “A. answer to that is ‘no.’

“Q. That No, he didn’t make that statement? A. he did not make that . . statement. .

“Q. you, you I ask then, recall, And will also if or if you prepared state, are he didn’t at state the confer- ‘ ence follows: . . . discussion was that there after the expiration 2-year period proposal under this that we made there and supplemental agreement we had submit- ted, we going to have to drill year, three each regardless. “ ‘Q. your It was proposition, then, you to them that a limit expiration have as to the number of wells after the years?’ of the two ‘ ‘The No, : no. Witness just reading,

“Mr. Powell I I : am have not come to the yet point question deposition. asked Mr. Martin his “ ‘A. That right, is three wells a after ’ drilling requirements. of the two the limit of our ‘ ‘ no, : Oh no. The Witness Q. say definitely? “Mr. You prepared Powell: A. He confused on that.

“Q. you prepared say Are Martin did not that Mr. make statement? A. Yes. . . .

“Q. I you, Cooke, Then will ask this conference Mr. Martin stated change the lease suspension drilling? was A. wanted a two Two years ? ’ “Q. drilling obligations A A. I years suspension in ? two correct, yes. think that is

“Q. seeking he ? A. At He that was .that was stated all time, yes. nothing “Q. drilling, A else? years’ suspension A. No. . . . than 60 price more

“Q. happen if the was What was to them expected at all. referred to We cents? A. That wasn’t Seven original lease, under that Clause go ahead Clause Seven. you speak of, but Moore never mentioned drilled to be “Q. just You now that three wells were stated lan- your precise that is oil, I think regardless price was regardless of whether guage. you Do mean Regardless A. of whether more 60 cents a barrel ? less or than cents less.” of oil was 60 quoted foregoing testimony from the matters fairly part, Cooke are a a part, witness illustrative testimony positive majority of his and material which the opinion as insufficient to create con- dismisses a' substantial surrounding flict the evidence of which circumstances from opinion interprets “Supplemental circumstances such mean what Martin he asked Contract” to the witness asserts the contract not state and for but which does which wit- Cooke, Martin Tognazzini, ness as well as witness testified part did ask for and in asked for but was part refused. testimony Tognazzini of the witnesses gist And witness, another Mr. Francis L. and Cooke is corroborated a Cross, a Bar and director of de- member of State among present at the Mr. Cross was those fendant-lessor. noon conference, lasted “from around San Francisco quarter four, there.” The sometime three-thirty, you give substance, “Q. us, in transcript Now can shows: did Cross, 'your that discussion ? What recollection of Mr. Tognazzini, what did Mr. Martin, say, in substance say in substance ? n sir, question “A. Well Mr. Martin discussed the oil he had us and that at time it very onerous; was they spent money had a substantial amount on very happy regard. lease and in that That weren’t say. had the-sum of what he substance “Q. say he anything refinery! Tes, Did about A. he spoke building refinery positive terms, rather had engineering an going architect who was ahead with this re- finery.

“Q. Yes, well, any did he suggestions make as to what he spoke wanted! A. Mr. Martin of these matters first and they stated that year wanted a suspension drilling of a clause.

“Q. They A. years Yes! wanted relief for two from hav- ing to drill. That was the sum and substance of his entire conversation, the crux of it.

“Q. What, if anything, Tognazzini say! did Mr. Well, A. Tognazzini Mr. quite did talking a bit of and told Mr. Moore that he was new in Sugar the Union Company, which was fact, looking and was after Sugar the interests of the Union Company great and he went lengths into to show what had happened Ridge in the Gato cousin, Tognazzini, to his Lario going he was not Sugar to allow the Union Company to get in that position; same that he wanted some payment. No payment mentioned,'—no was specific payment was mentioned but that payment he wanted some any and that in event the Company, Oil B. H. Moore, Inc., they if given a two year suspension, would agree have to to drill complete at year least per three wells sixty oil was under cents.

“Q. any And was there discussion as to drilling what required would be period,' the two during period when sixty was above cents! A. There absolutely no discussion of that at all. It wasn’t mentioned.

“Q. any Was there you discussion that recall concerning Paragraph Seven of the lease! A. absolutely There was no Paragraph discussion of Seven of the lease.

“Q. Was there anything you said that recall at that con- concerning ference the number drilling rigs to be used! A. INo, any don’t recall mention of rigs or anything like that.”

It significant is also to note that on cross-examination of Mr. Cross the following appears: “Now, Cross, Mr. I under- you stand from Mr. Martin that all wanted awas two year suspension in drilling; nothing else! getting years.

“A. Mr. Martin talked about relief for two during brought up It is true that this conversation he deal, trying put through had Twitchell been with Tognazzini unequivocally told him that that Twitchell. ’ ‘‘ ’ unequivocal refusal consider the Twitched was out. The to. imports deal” a refusal defendant-lessor to consider the three-well-a-year specific a substitute for the more proposal as provided drilling operations for in lease. asked,

Again cross-examination Mr. Cross was “Now drilling require- reduction did Mr. Martin ask ’’ answered, expiration of the two 1 And he ments at the bring “He . . . tried to “No,” explanation with the up again, the deal he wanted to Twitched deal] [the Sugar Company that was turned the Union put over with again again brought up and was turned He down. down. ...” argument weight directed at the essentially an In what ‘‘Only if Traynor declares, conflicting evidence Justice be drawn from disregarded could an inference

letters are conference, respect to the Francisco testimony San para the modification of never considered parties that intend of the consequently did not clause graph 7 and drill measure of lessee’s to be the Contract Supplemental disregarded, for the cannot be The letters ing obligations. received. There they mailed and found trial court an that such authority proposition for the inference is no above-quoted judgment.” The to sustain drawn must be in the The evidence completely. point misses argument quoted part to and referred I have above record which for an in “support judge, as by trial relied on was not ’’ modification. such a never considered that the ference positive contrary The evidence is true. Exactly the Moore, requested Mr. Martin, representing Mr. point repeatedly and that originally and modification” “such by the directors rejected and request was such refused absolutely they Only in the sense corporation. defendant " they to cons decline by Martin did proposal such refused sense, and it, refuse to consider They did so it. ider” including down to and so they refuse continued apparently executed. agreement was modification time when the of the the terms directors show testimonies The oral tentatively accepted; and which were discussed agreement was not what refused and was what show such testimonies refused; corresponds with their version of the conference actually “Supplemental terms of the was Contract” as it finally plaintiff executed, drafted and not would now have as interpolate Obviously us “construe” or it. the inferences limits, evidence, to be drawn from such reasonable within all court, court, determine; were for the and trial surely it is within reasonable draw inference that limits to proposed requested by Mr. Martin modification was absolutely positively rejected by and and and refused three corporation principal directors of defendant con- gratuitously ference held would not be or otherwise revived granted by those same directors when came to actually authorizing amending And, further- contract. more, if Tognazzini, acting alone, did talk about the matter further, by otherwise, letters or judge was trial for the (if determine from all the evidence was admissible under circumstances) what finally agreed upon. terms were The contract is evidence of its terms and of what the itself parties intended; by its final form Martin; it was drafted the language large part was previously the same had as he proposed; language previously which he proposed had secure more extensive modifications, abrogation, an or drilling requirements paragraph significantly, was omitted from the final draft. weight of the contract itself as completely evidence is ignored majority opin- significance ion but its evidence is corroborated the testi- monies of Cooke and Tognazzini Cross circum- stantial evidence.

The fact that the court found that certain letters “were mailed and received” appear does not to me anything to add significance to the of those letters evidence. Their weight significance depends here not on the fact of having their been mailed and received but on what the trial court be- lieved, supported by the evidence in believing, the was. writer of the letters and their recipient understood being agreed upon by way of modification of supplement the why lease. Just by statements in Tog- letters Mr. nazzini should be overwhelming in weight while the oral testimonies of Mr. Tognazzini, Mr. Cooke and Mr. Cross as to what tentatively agreed was upon and positively what was rejected should be weight entitled beyond to no at all is me. The fact is that the testimonies Mr. Cross Mr. Cooke support strongly (and amply regards duty as appel- the of an agreement as stated affirm) the terms of the court to

late by found the executed and as language of the contract as which was exe- are not the contract trial court. The letters testimony, simply They evidence, like are in the oral cuted. The letters surrounding circumstances. them- parts as ambiguities and con- not free from self-contained selves are greater weight the trial They than flicts. are entitled to no including his view of the judge, light all the evidence in the contract, Surely formally gave executed parties, to them. witnesses, by supported the oral testimonies of the several by meant competent be evidence of what was should by are of what was meant the contract. as the letters letters Surely, ques- was such also, persuasiveness evidence testimony en- court, us. The oral is tion for the trial not for concerned, just weight, far as as. titled to as much we strongly indicates that testimony The oral written letters. writing actually is that which was reduced contract true by judicial interpolated fiat which is now rather than that therein. opinion is majority example weakness in the A further away section 1654 explain application of in its effort to

found ‘‘ uncertainty not In providing that cases of of the Civil Code [including section 1647 by preceding rules that removed by the circumstances may explained reference to a contract be should made], language of a contract it was under which caused the who strongly against party interpreted be most to be such uncertainty promissor presumed is to exist. Tray- above, quoting Justice the section as party. ...” After sup- cannot its face opinion that “This rule on asserts nor’s Clearly it cannot judgment present in the case. .pprt basic issue promissor, for against lessee as the .applied it promissor. Nor can who was the the case is .in uncertainty exist, the evidence is the lessee caused the suggested precise without by modification conflict copied almost language president in that was defendant’s added.) It (Italics document.*” verbatim into the formal in'the to be found language “almost verbatim” is true requires But president.” “defendant’s written letter to ascertain examining the record very diligence little more language letter written is a an same earlier source Tognazzini. Mr. Mr. Martin to defendant’s plaintiff’s writing Delay Tognazzini: says: “Dear Mr. Martin there Tulsa. to Mr. my absence you been due Moore’s has 339 reported him my ... I to the substance of conversation with you Cross, and Cook and and I Messrs. he asked that write you briefly outlining supplemental the terms of a contract along my you. the line of conversation with proposed embody following supplemental

“We in said obligations wells, except contract: . . . All to drill additional hereby' wells, suspended period years offset are for a of two from the of this contract. date year

“At .the period, of said two Moore shall obligated consisting to drill three per area approximately acres, being part of the leased premises territory proven except is considered . . . obligated during Moore shall not be to drill the existence of either of enumerated . .. [certain conditions]. obligation

“There shall no to drill additional wells part property of the leased proven outside of the area . .. unless oil is discovered property. on said ...

“Except provisions insofar as April 8, of the lease of 1936, are in herewith, conflict remain in full same shall and force effect.” Tognazzini replied yours response as follows: “In 11th, may I first advise that the and terms conditions

contained therein unsatisfactory. my impression

“It was past you from conversations had my predecessor, with recently, Cooke, more with Messrs. Cross, and me that was the desire of E. H. Moore Inc. obtain a modification present gas oil existing between E. H. Moore Inc. and Sugar Company. Union connection, expressed In this I you meeting at our recent Sugar Company that Union cooperating desirous of Inc., only E. H. Moore to the extent that both ” mutually were to benefit said modification. It is after above-quoted introductory statements, light and in the preceding all negotiations parties, that Mr. Tognazzini went on to summarize what he understood to be Mr. Martin’s “desire” and what he understood was the “de- sire” of the lessor, defendant and after such statement obviously what largely had opposing been “desires,” he con- cluded following suggestion: with the you “Both I, obtaining modification, desire simples to reduce it to its form and suggest to this I extent the following, [sic] to-wit: “(1) The suspension obligation of all to drill additional date wells, period

wells, except offset of two modification, “ by striking out (2) modifying paragraph 9, and in addi- inserting feet, thereof, in lieu 250 feet when offset language thereto, appropriate provide tion less, more or being range, within produced wells are produce, likewise E. H. Moore Inc. “ Moore year period, E. H. (3) At of the two per year. obligated to drill three wells Inc. shall be paying be the for the above will “The consideration royalty per year, payable royalty $25,000. minimum monthly in advance.” language originated form used

Regardless of who Martin, acting “Supplemental Contract” it was Mr. in the finally drafted the con- predecessor, who plaintiff’s for the acting in same tract; Martin, and it was the same Mr. pressing moving party all times the and capacity, who was at Martin, seeking Concerning Mr. a lease modification. which finding prerogatives those in the exercise of fact than court, the trial rather of this properly a function of opinion, court, judge, trial his memorandum the learned it intimated, inconceivable says: “As is the Court has counsel would experienced Inc. able and that E. H. Moore’s unambiguous terms, present provide, plain fail to now herein, been those plaintiff had contentions Certainly quoted observation contended for.” suggested error, judge trial indicates not misconduct proper appre- majority but, rather, entirely an opinion, direct circumstantial as well as significance ciation of Tognazzini truth, And, in the letter Mr. evidence. Traynor overwhelm- Martin, upon seizes which Justice Mr. record, is but a substantially all other evidence in the ing fact finders part, a lesser as various part—a greater part or discloses it—of a record which might respectively view thing: a reviewing court, only one certainty, to a absolute conflict in the evidence. substantial every detail by any means, related herein, I not have supports which circumstantial, evidence, direct or either set what has been findings and construction but court’s trial which rules of law ample, pertinent under is forth above state, in this have been followed heretofore ever the lower court sustain, that we support, to demand findings and conclusions. its adequate points treatment of briefed

For those necessary I discuss in a dis- have not found it or desirable to opinion senting opinion prepared reference made Appeal, Wilson for Justice the District Court of Second Appellate District, Two, reported Division 700. 173 P.2d judgment should be affirmed. J.,

Shenk, Carter, J., concurred. Respondent’s petition February rehearing for a was denied 9, Shenk, 1948. J., Carter, J., Schauer, J., voted rehearing. A. No. 20289. In Bank.

[L. Jan. 1948.] RUBY CARTER et al., Appellants, v. CITY OF LOS al., Respondents. et

ANGELES

Case Details

Case Name: Union Oil Co. v. Union Sugar Co.

Court Name: California Supreme Court

Date Published: Jan 16, 1948

Citation: 188 P.2d 470

Docket Number: L. A. 19660

Court Abbreviation: Cal.