Taylor v. Hamilton

W. W. Taylor and Lottie L. Taylor, plaintiffs, brought an action against Franklin IT. 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 Emits 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 weU 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

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

(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 quit-claim 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 be

fore 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 1492 of the Civil Code.

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., 176 Cal. 1 [ 167 Pac. 369 ] ; Chandler v. Hart, 161 Cal. 405 [Ann. Cas. 1913B, 1094, 119 Pac. 516 ].)

[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

[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

[4] The construction of provisions in a lease providing for forfeitures is governed by the rule laid down in section 1442 of the Civil Code: “A condition involving a forfeiture must be strictly interpreted against the party for whose benefit it is created. ” [5] The purpose of the notice is to insure to the lessors a strict and faithful performance of the terms of the lease or, in case of default, to retake the property. Therefore the provision for notice is for the benefit of the lessors and is to be strictly interpreted against them. (1 Underhill on Landlord and Tenant, p. 625, sec. 391.)

[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.

Respondents cite the case of Consumers Gas Trust Co. v. Ink, 163 Ind. 174 [ 71 N. E. 477 ], as holding “that a premature declaration of a forfeiture is not equivalent to an intention to declare a forfeiture.” In that case the lease of oil land contained a similar provision to relieve by the payment of rent a default due to a failure to commence operations. The lessor accepted rent in advance for several years and before the last year had expired she claimed a forfeiture. It was held that the lessor was not entitled to a forfeiture before the agreed term of postponement had expired and “a demand of forfeiture at a time when she was not entitled to it was without legal significance.” The lessors in the case at bar did not accept the rental tendered. They were entitled to give notice of forfeiture on October 11, 1921, the day the notice was given. The option had expired at midnight of the preceding day. Jameson v. Chanslor-Canfield M. Oil Co., 176 Cal. 1 [ 167 Pac. 369 ], is cited to the proposition that the giving of notice under the forfeiture clause must be predicated upon a breach of some condition of the lease. In that case the notice required by the lease was given by only three of four joint lessors. The court said: “It is not necessary to resort to strict construction, however, to reach the conclusion that the forfeiture here provided for can be brought about only by the joint action of all the lessors. The event which causes the forfeiture is the failure of the lessee to perform any of the conditions embodied in the lease for a period of thirty days after a notification. ... It is only upon the giving of this notice and the failure to perform the conditions mentioned therein that the forfeiture can be declared. This is the condition which must happen in order to give a right to declare the forfeiture. The condition cannot be said to have happened upon notification given by some of the parties of the first part or any number of them less than all. After the notification has been given by all the parties, a forfeiture may be brought about only ‘if said first parties shall so elect.’ Here again the action of all said first parties is necessary to the happening of the condition. It is argued that the

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 1442 of the Civil Code courts will interpret forfeiture clauses strictly against the party for whose benefit made and if there is anything in the notice given or any conduct on the part of the lessor showing a waiver of the default, it will be held that the default is waived and the forfeiture avoided. Less evidence is necessary to establish the waiver of a forfeiture than to establish the forfeiture itself. (Knarston v. Manhattan L. Ins., 124 Cal. 74 [ 56 Pac. 773 ]; Young v. Mutual L. Ins. Co., 2 Sawy. 325 [Fed. Cas. No. 18,168]; 12 Cal. Jur. 641, 642.) [12] It cannot be held that the notice waived the default of October 9, 1921, and operated to extend the time the rental was due from October 9th to December 9, 1921. The check which was tendered on December 10, 1921, purported to have been drawn for the payment of the monthly rental for said premises “for a period running from October 9th, to December 9, 1921.” This tends to show that the respondents did not consider the notice of October 11, 1921, to be an extension for sixty days of the time within which to begin operations without payment of rent. The notice is not susceptible of an inference that the forfeiture could be avoided other than by the commencement of operations within sixty days. It does not suggest that should the rent be paid the forfeiture would be avoided.

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 1501 of the Civil Code,

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, 175 Ind. 621 [ 95 N. E. 123 ], it was said that “oil and gas leases or contracts are in a class by themselves, and the ordinary rule that forfeitures are not favored does not apply with full force to them, if at all. The provisions for a forfeiture usually found in them are generally held to be for the benefit of the landowner, and clearly enforceable by him where the lessee has done nothing to carry out the purpose of exploration, and has failed to make payments for the right to do so.” However, in discussing an oil lease in Acme Oil Co. v. Williams, 140 Cal. 681 [ 74 Pac. 296 ], it was said: “While the general rule is, that forfeitures are discountenanced in law, there are occasions when the only protection a landlord has is through the exercise of this reserved right, and the case at bar presents one of those occasions. If the right of forfeiture could not be exercised under such circumstances, a lessor would be at the mercy of his lessee; his land would be burdened by a lease which, while it could, and should, be made profitable through the diligence contemplated, would in fact be profitless through neglect; the lessor could not make other arrangements for the development of his property and his interest in the fee in the oil district might consist of a small holding, surrounding which numerous other operators would be successfully

Respondents claim that under section 2076 of the Code of Civil Procedure and section 1492 of the Civil Code they are entitled to equitable relief upon the payment of the rent due with interest. [14] But the facts show that the lessee was in default on October 11, 1921, in not having commenced operations on or before October 9, 1921, and in failing to pay rent in advance. The notice is legally sufficient and as it does not amount to a waiver or an offer to extend the time for the performance of either or both conditions there is an entire failure of consideration and the lease stands forfeited. In such a clear case of forfeiture on the facts, equity will not intervene to restore respondents to their right, title, and interest in the lease.

Judgment reversed.

Richards, J., Lennon, J., Seawejl, J., Shenk, J., Waste, J., and Myers, C. J., concurred.

Rehearing denied.