Darr v. Eldridge

• Decision Date: 19 November 1959
• Docket Number: No. 6523,6523
• Citation: 346 P.2d 1041,66 N.M. 260,77 A.L.R.2d 1052,1959 NMSC 93
• Parties: , 77 A.L.R.2d 1052 Mabel C. DARR and W. A. Darr, Plaintiffs-Appellants, v. Grace E. ELDRIDGE, Defendant-Appellee.
• Court: New Mexico Supreme Court

Page 1041

346 P.2d 1041

66 N.M. 260, 77 A.L.R.2d 1052

Mabel C. DARR and W. A. Darr, Plaintiffs-Appellants, v. Grace E. ELDRIDGE, Defendant-Appellee.

No. 6523.

Supreme Court of New Mexico.

Nov. 19, 1959.

Glen G. Hilford, Truth or Consequences, for appellants.

Nils T. Kjellstrom, Truth or Consequences, for appellee.

LUJAN, Chief Justice.

This is a suit to cancel a lease on certain premises in Truth or Consequences, New Mexico, on which a mineral water well is located. Hereafter, plaintiffs-appellants will be referred to as lessors, the original lessee as the lessee, and the defendant-appellee as assignee.

The lease from lessors to the predecessor in interest of the assignee was for a primary term of five years with an option to renew for successive five-year periods so long as the covenants set forth in the lease were kept and performed. The lease provided for a minimum royalty of $100 per month for the first six months of the primary term; thereafter, the royalties were based on the gallonage taken from the well (five cents per gallon on the first 4000 gallons of water taken from the well each month). The lease also contained a proviso that the lessors could, at all reasonable times, examine the books of the lessee to ascertain the gallonage sold.

At the time the well and premises were leased, the mineral water was being sold by the lessors for drinking purposes only. When the lessee went into possession he built a tub for giving vapor baths and used the mineral water for this purpose, paying the lessors five cents per bath royalty rather than five cents per gallon.

The lessors, thereupon filed suit in Sierra County against the original lessee on September 27, 1951 (Docket No. 4783) to recover a royalty of five cents per gallon of mineral water used in giving the baths rather than five cents per bath. The court indicated that its ruling would require the payment of fifty cents royalty per bath since approximately ten gallons of mineral water were used for each bath. The parties thereupon agreed to settle the royalty liability for $775. The day following the trial the lessee piped city water to the premises and discontinued the use of mineral water from the well in giving the vapor baths. Instead he, and subsequently his assignee, poured a cupful of dry minerals into the city water in the tub. Accordingly, no further royalty was paid to the lessors for baths given and this suit was instituted.

The first cause of action sought cancellation of the lease on the ground that shortly after the original lease was signed the use of the mineral water was promoted and increased by installing a vapor bath; that the lessee refused to pay the royalty as specified in the lease for the water used in the baths and that the lessors filed suit to recover this royalty and cancel the lease; that thereafter the lessee installed city water which he and his assignee used in giving the baths instead of the water from the mineral well, thereby depriving the lessors of the royalty of which they were entitled; that this action constituted a breach of the implied covenant to promote, exploit and extend the distributional and sale of the mineral water.

The second cause of action alleged that lessors had called on assignee to examine her books and found that she kept no books of account showing gallonage sold or baths given on the premises.

The third cause of action sought an accounting for all baths given on the premises alleging that the royalth should be paid on all baths given using city water since the assignee should have used mineral water from the leased well.

The trial court apparently rather reluctantly, found in favor of the assignee on all issues.

Lessors urge that the lessee of the mineral well and his assignee were bound by an implied covenant to use reasonable diligence in marketing the mineral water. We agree.

The lease in question is similar to, and should be governed by the doctrines relating to, oil and gas leases. In the usual oil and gas lease the lessor's principal compensation for executing the lease is the royalty he hopes to receive on the oil and gas produced by the lessee. Merrill, Covenants Implied in Oil and Gas Leases, pp. 186, 187 (2d Ed. 1940).

In the instant case the principal remuneration, and after the first six months the only remuneration, to lessor was to be the royalty from the sale of the mineral water.

The following statement by Ryan, Implied Covenants of the Oil and Gas Lease, 29 Dicta 178 (1952), in connection with oil and gas leases is equally appropriate in regard to the lease in question 'The oil and gas lease has been a fruitful force for the development of implied covenants * * * By such contract the lessor effectively bars himself from taking any action during the term of the lease to capture any oil or gas that may be beneath his land, to operate any wells thereon, to market any oil and gas that may be produced therefrom, or to protect himself from loss of oil or gas that may be beneath his land through wells drilled on adjoining lands.' Pressler, Implied Covenants in Oil and Gas Leases, 18 Miss. L.J. 402 (1947).

Merrill, Covenants Implied in Oil and Gas Leases, p. 464 (2d Ed. 1940), states this principle as follows:

'We have seen that the courts in varying language, base the doctrine of implied covenants, other than that for protection, upon the ground that the lessor's chief remuneration is to be derived from the royalties resultant from development and operation, that this remuneration constitutes his chief inducement for executing the lease, that, therefore, the lease in all respects, must be construed as having written into it this duty of diligently promoting the...