Hopkins v. Zeigler

• Decision Date: 07 May 1919
• Docket Number: 3267.
• Citation: 259 F. 43
• Parties: HOPKINS et al. v. ZEIGLER.
• Court: U.S. Court of Appeals — Sixth Circuit

259 F. 43

HOPKINS et al. v. ZEIGLER.

No. 3267.

United States Court of Appeals, Sixth Circuit.

May 7, 1919

On Rehearing, June 30, 1919.

On Rehearing.

Mrs Emma Hamilton was (for the purposes of this case) the owner of 50 acres of land in eastern Kentucky, in a region adjoining one where oil and gas had been found. On March 2 1916, she signed the oil and gas lease set out in the margin. ^[1] The rights of Gibson, the lessee, later passed to Zeigler and Howell. They did nothing toward exploration, but on February 25-- five days before the first year expired-- they deposited in the post office a letter addressed to Mrs. Hamilton, at her post office address, with $1.25 to cover the so-called rental of the land in advance from March 2 to June 2, 1917. This never reached her, but was returned by the post office to them, and they deposited the same to her credit in the bank, as specified in the lease; but such deposit was not made until March 12-- 10 days after the year expired.

On March 7, 1917, Mrs. Hamilton gave, upon the same land, an exploration lease, the character and terms of which are in no way involved, to A. R. Putnam, who was representing himself and A. J. & J. S. Hopkins. She told him she had given a previous lease to some one, she did not know to whom, but that it was for a year, and had expired. Putnam went to the records, but did not find this previous lease. He and his associates then proceeded with exploration and development work, expended several thousand dollars and drilled three wells, the first of which was dry, but the other two of which were producing. Thereupon Zeigler and Howell made claim to the premises and filed this bill, as for waste, seeking a judicial declaration that their title and rights were paramount to those under the second lease. The District Court made a decree in accordance with the prayer of the bill, and the defendants below bring this appeal. The parties will be named as below, but 'defendants' will refer to those other than Mrs. Hamilton.

A. J. Hopkins, of Chicago, Ill., and D. L. Pendleton, of Winchester, Ky., for appellants.

Le Wright Browning, of Maysville, Ky., for appellees.

Before WARRINGTON, KNAPPEN, and DENISON, Circuit Judges.

DENISON Circuit Judge (after stating the facts as above).

No question of record or of good faith purchase is involved, to any degree which makes it important. Before the defendants took their lease, they had actual notice of the existence of the former one. It was open to them, without unreasonable effort, to learn its full terms, and the case must be considered in the same light as if a copy of it had been before them when they took their interest. The main question is sharply one of law-- whether the rights of plaintiffs had expired before defendants purchased. The answer to this question obviously depends upon the character of the first instrument. If it was a lease presently granting to the lessee a vested interest, accompanied only by covenants by the lessee as to what he would do in the future, and subject to be defeated only by some efficient future forfeiture, plaintiffs must prevail, because there never was any declared forfeiture. If it was an executory contract of lease upon condition subsequent, and not creating any vested interest until the condition had happened, defendants must prevail, because the rental which should have been paid March 2 was not paid until too late.

The court below considered with great care the question in which division this instrument belonged, and classified it as a grant which would continue during its prima facie term until forfeiture. This conclusion, and the cases cited in support of it, depend largely upon the affirmative granting language in the early part. We do not doubt its correctness, as applied to many situations in which this instrument would be involved; but we cannot escape the conclusion that this paper may belong in both classes, because, in some respects, it is fairly divisible and the different parts of it logically take different aspects. There is no reason why an executory and conditional contract for a lease may not be tacked onto the foot of a lease which is a present grant-- an executed contract; and while we are clear that this is a grant for a year, conveying an interest which persists during the year, unless lost by abandonment, yet we think that the character of the lessee's interest after the expiration of the first year is not necessarily the same as his interest during that year, but must be ascertained and determined as a measurably independent question.

Contracts of this general character are classified according to a nomenclature which calls them 'or' leases or 'unless' leases. 'Or' leases would be exemplified by clause first in this lease, if it were complete in itself; 'unless' leases are, or may be, such as are indicated by clause (6) of this lease. A covenant that the lessee will do one thing or will do another may impose a binding obligation, although in the alternative, and does not necessarily import any fatally optional or unilateral character. It is therefore held not inappropriate to a lease which grants a vested interest; ^[2] But a lease which does not take effect, or which does not continue to be in effect, unless the lessee does a certain act, is only executory, and is inoperative if the condition is not performed. Guffey v. Smith, 237 U.S. 101, 35 Sup.Ct. 526, 59 L.Ed. 856; Lindley v. Raydure (D.C. Ky.) 239 F. 928, affirmed 249 F. 675, . . . C.C.A. . . .; Van Etten v. Kelly, 66 Ohio St. 605, 610; 64 N.E. 560; Glasgow v. Chartiers Co., 152 Pa. 48, 51, 25 A. 232; Shaffer v. Marks (D.C. Okl.) 241 F. 139, 151; note 44 L.R.A. (N.S.) 50. The execution of a second lease is, in such case, a sufficient avoidance of the first. Thornton's Oil & Gas (3d Ed.) Secs. 192, 193.

We are thus brought directly to the question, as the one immediately controlling, whether, considering both clause first and clause (6) any ambiguity results, and, if so, which shall be allowed to give character to the instrument. We think these clauses, set over against each other, do create an ambiguity. It is true enough that, if clause first is considered by itself and given full and complete interpretative effect, as if clause (6) were not present, we can say that there is nothing in clause (6) necessarily inconsistent with this effect, because we thereby, more or less unconsciously, assume that the first is dominant, and that any seeming inconsistencies in the other should be eliminated, if possible; but the converse is equally true. If we consider (6) by itself, and give to it its full natural scope, we can construe away any prima facie inconsistency found in the first. To determine whether there is ambiguity in the whole contract, these two clauses must be considered simultaneously, without first assuming that either one is entitled to dominance.

We cannot take the presence of the word 'unless,' in (6), as alone a sufficient indication of an 'unless' lease. It modifies the immediately preceding provision that a well shall be completed within a year, and the vital question is whether this provision is a covenant or a condition; if the former, then the word indicates only a contingent extension of the time for performance; if the latter, then the rights of the lessee terminated at the end of the year, 'unless,' etc. The more important part of this clause is found in the later words, 'which payments shall fully and completely extend this lease from time to time until the well is completed. ' These words distinctly imply that the lease would not be extended if the payments were not made, and hence tend to show an understanding and intent that, lacking payment, the rights under the lease would terminate at the end of the specified time. It is obvious that if the lease were not to be about to come to an end, there would be no occasion for doing anything to 'extend' it.

The only reason suggested why these words do not justify this inference is that, when the parties said 'extend this lease,' they meant 'extend the time for drilling.' The reason for this interpretation is not compelling. Plaintiffs have insisted that, because the document used the language of a lease in its early part, it was a lease and not a license. There is no reason to doubt that the language of (6) was chosen as intelligently and carefully as the earlier language. Indeed, from an application of all the aids to interpretation hereafter mentioned, it seems highly probable that the parties chose their word correctly, and that they had in mind an extension, not of some provision of the lease, but of the lease itself, with everything appurtenant. We observe, also, that these payments had already been given function as the price of delay in drilling, and there was no occasion to say that they should extend the lease, unless it was intended that they should have a further and greater effect. The language is:

'Which payments for delay in completing well * * * shall fully and completely extend this lease.' Concluding, therefore, as we do, that clause first by itself tends to show an absolute obligation to pay rent after the year if the well is not completed, and that clause (6) tends to show an optional right to pay rent quarterly in advance as a condition of getting the lease extended from the certain first year to the contingent further years, it must be considered which one imparts its own character to the lease. Upon this subject, we first observe that clause first is not complete in itself, but refers to clause (6). The alternative covenant, if it be rightly called a covenant, is not to pay rentals there stated, but to pay rentals 'as hereinafter provided.' If in truth the rentals provided for in (6) are conditional,

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