Renner v. Huntington-Hawthorne Oil & Gas Co.

Plaintiff, the owner of fee title to certain real property, obtained judgment quieting her title as against defendants, who claim under an oil and gas lease. This is

On April 23, 1921, plaintiff’s predecessor in interest executed the oil and gas lease. The material provisions of the lease are as follows:

The habendum clause provides that the term of the lease is 20 years “and so long thereafter as oil or gas or other hydrocarbon substances can be secured therefrom in paying-quantities within the definition hereinafter particularly specified, unless otherwise surrendered or forfeited by the Lessee.”

The development provision requires the lessee to drill “with reasonable diligence until oil is found in paying quantities within the definition of such term next hereunder set forth, or to a depth at which further drilling would, to the judgment of the Lessee, be unprofitable, or terminate this lease . . . [I] f oil should not be obtained in paying quantities ... in the first well drilled, the Lessee shall, as a condition of the continuation of any of the rights given to it by this lease, within sixty (60) days after drilling has ceased on said first well, commence upon the premises the drilling of a second well and shall prosecute the drilling of the same with reasonable diligence until oil is found in such paying quantities by the Lessee or until such well has been drilled to a depth at which further drilling would, in the judgment of the Lessee, be unprofitable.”

The definition of “paying quantities” reads: “Oil in paying quantities shall be understood to mean a well drilled from which there may be pumped for a period of thirty (30) consecutive days a quantity of oil which shall average fifty (50) barrels of oil . . . per day.”

“The Lessee agrees to operate each completed well on the premises to its full capacity so long as such well shall produce oil in quantities deemed paying quantities within the definition aforesaid, while this lease is in force as to the portion of the premises on which such well is situated; provided, however, that nothing in this paragraph shall be construed as to require the Lessee to maintain such well to such capacity as would, within the judgment of experienced oil men, possibly result in the destruction of such well. ’ ’

Defendants rely upon Transport Oil Co. v. Exeter Oil Co. (1948), 84 Cal.App.2d 616 [ 191 P.2d 129 ]. That opinion contains the- following correct general statements (pp. 621, 622 of 84 Cal.App.2d): “In the evolution of oil and gas leases, the paying quantities phrase has come to have two entirely different meanings. In the habendum it serves to perpetuate the lease beyond the fixed term for as long thereafter as it would be mutually profitable to the parties. [Citations.] A different function is performed where the

These general statements apply where the term “paying quantities” is not expressly defined by provisions of the lease. However, the lease of which Transport was lessee, like the lease here, contained an express definition of the term “paying quantities.” The material provisions of Transport’s lease were as follows:

“The habendum clause provided: ‘The Lessee shall hold said land hereunder, for the period of twenty (20) years from, and after, the date hereof and as long thereafter as oil or gas is produced in paying quantities unless otherwise forfeited by Lessee in accordance with the terms of this lease.’ ” (Pp. 617-618 of 84 Cal.App.2d.)

“The duty to drill the first well was limited to a depth of 3,500 feet, ‘unless oil, in paying quantities shall have been obtained at a lessor [sic] depth. ’ Furthermore, a cash bonus was to become payable only ‘in the event oil is obtained in paying quantities in the well so drilled on the north half of said Lot Three.’ And finally, the lessee’s obligation to pay royalties was not to commence until ‘after the discovery and production of oil in paying quantities from said well.’ ” (P. 620 of 84 Cal.App.2d.)

The term “paying quantities” was defined as follows: “ ‘For all purposes herein contemplated, a well shall be deemed to be producing oil in paying quantities when such well, operated in a diligent and skillful manner, will produce oil or gas or both of a value at the well of $15.00 per

In the Transport case the wells on the leased property were all producing but none was making as much as $15 per day. It was contended that the lease had expired and that production could be abandoned. The District Court of Appeal (p. 621 of 84 Cal.App.2d) held that “the effect to be given to the term ‘paying quantities,’ in the habendum is not governed by the $15 per day definition, but is to be determined by reference to the established legal meaning of the term” (i.e., production yielding revenue in excess of operating costs); otherwise, said the District Court of Appeal, the operator of the wells could abandon production even though such production was mutually profitable to lessor and lessee, a result which “would do violence to the rule that such leases are to be construed in accordance with their reasonable and common sense meaning.”

Defendants urge that by similar reasoning the lease here should be rewritten to strike from the habendum clause the phrase “within the definition hereinafter particularly specified.” As so rewritten the lease would continue for a term as long as operation of the well was “mutually profitable.” Defendants would have us read into the habendum clause another provision of the lease which has nothing to do with the duration of its term; i.e., the provision that the lessee need not operate a well at a capacity which would result in its destruction. This construction, they say, is in accord with the construction which the parties themselves adopted when, after April 23, 1941, they continued to operate as if the lease were still in existence. These arguments ignore the elementary rule of construction, applicable to oil leases as well as to other documents, that the function of the court is not to make a new lease for the parties but to interpret the lease which they have made, “without regard to its wisdom or folly.” (Hill v. General Petroleum Corp. (1932), 128 Cal.App. 284 , 294 [ 16 P.2d 1035 ].)

Defendants argue that because plaintiff and her predecessor in interest permitted Invader to continue production and accepted royalty payments, plaintiff “waived the right to cancel the lease” or “is estopped to deny that said lease is still in full force.” These arguments are but another way of saying that, because plaintiff for a time accepted her royalty share of a production less than 50 bar

Defendants urge that their construction of the term “paying quantities” in the habendum clause of the lease is res judicata because of the decree of distribution in the estate of the original lessor, plaintiff’s predecessor in interest. That decree distributed to plaintiff “All of the right, title and interest” of the lessor and stated, “The right of deceased at the time of his death, was, and the right of his estate now is, inter alia, 14 barrels out of each 100 barrels of oil produced and saved, together with four-fifths" (4/5) of one (1) cent per 1,000 cubic feet of gas royalty, all as shown by the records in the office of the Recorder”; the decree contains no mention of any minimum rate of production. It is obvious that the decree did not purport to define the precise quantum of plaintiff’s interest. Even if it had purported to do so the probate court could not have adjudicated the respective interests of plaintiff and defendants in the oil land in question. (Noble v. Beach (1942), 21 Cal.2d 91 , 98 [ 130 P.2d 426 ].)

Notice to quit is necessary to terminate a month to month tenancy; such tenancy is “deemed to be renewed” each month “unless one of the parties gives written notice to the other of his intention to terminate the same, at least . . . 30 days ’ ’ before the expiration of the month; or either party to the month to month tenancy “may terminate the same by giving at least 30 days’ written notice thereof at any time and the rent shall be due and payable to and including the date of termination. ’ ’ (Civ. Code, § 1946; see Sullivan v. Cary (1860), 17 Cal. 80 , 85.) The month to month tenancy here was never terminated by the required notice; therefore, the finding that “defendants have no right, title or interest whatever in said land,” and the portions of the judgment which decree that plaintiff is entitled to exclusive possession and that defendants have no interest in or right to possession of the real property, are erroneous. (Cf. Moon v. Marker (1938), 26 Cal.App.2d 33 , 37 [ 78 P.2d 460 ], where the lessees, prior to the end of the term of years fixed by their oil lease, completely ceased production and thereafter held over but, so far as appears, made no rental payments whatsoever; in that situation the lessees upon expiration of the fixed term of years became mere tenants at sufferance and no notice to surrender possession was required as a prerequisite to the maintenance of a possessory action by the lessors.)

Defendants urge that the judgment must be reversed because the trial court failed to find on material issues. The Invader defendants complain of the omission of a finding as to whether forced increased production would probably destroy the well. Such a finding would have been irrelevant because of the theory accepted by the trial court;

Defendants contend that the trial court should have made a finding as to whether gas was being produced in paying quantities. As previously stated, the court found that “it is not true that since April 23, 1941, oil or gas or other hydrocarbon substances may be pumped therefrom in paying quantities within the definition particularly specified in said lease.” The lease contains no definition of the term “paying quantities” as applied to production of gas or other hydrocarbon substances. Plaintiff argues that the parties to the lease, by defining “Oil in paying quantities” and omitting any specific definition of what should constitute paying quantities of other substances, showed their intention that production of oil only should be the “measuring stick” in determining when the lease terminated. This construction, upon the record in this ease, is tenable, and from the last quoted finding it appears that the trial court accepted it.

Finally, defendants contend that the trial court should have made a finding on the question of Invader’s right to remove its casing, equipment and machinery from the premises. The trial court expressly declined to make any finding “concerning the title to or right to remove by any party any personal property placed upon the premises by Lessee or his successors in interest.” The lease provides that lessee shall have the right to remove casing, machinery, “and other property and improvements belonging to or furnished by said lessee.” This provision of the lease, rather than the rules of law concerning removal of fixtures (see Civ. Code, §§ 660, 1013, 1019; 39 A.L.R. 1255 ), controls the right of the lessee to remove machinery and equipment. (R. Barcroft & Sons Co. v. Cullen (1933), 217 Cal. 708 , 712 [ 20 P.2d 665 ]; Teater v. Good Hope Dev. Corp. (1939), 14 Cal.2d 196 , 207 [ 93 P.2d 112 ].) Defendants produced no evidence that the equipment and machinery on the premises belonged to or was furnished by the lessee or any of defendants; the record does not disclose who furnished such equipment and machinery; therefore, the trial court could not make a finding favorable to defendants concerning title and right to remove such property.

Gibson, C. J., Shenk, J., Edmonds, J., Carter, J., Tray-nor, J., and Spence, J., concurred.

Appellants’ petition for a rehearing was denied June 26, 1952.