Montana-Fresno Oil Co. v. Powell

• Decision Date: 30 August 1963
• Docket Number: MONTANA-FRESNO
• Citation: 33 Cal.Rptr. 401,219 Cal.App.2d 653
• Court: California Court of Appeals Court of Appeals
• Parties: OIL COMPANY, Plaintiff and Respondent, v. Jean Marvin POWELL, Defendant and Appellant. Civ. 252.

Page 401

33 Cal.Rptr. 401

219 Cal.App.2d 653

MONTANA-FRESNO OIL COMPANY, Plaintiff and Respondent, v. Jean Marvin POWELL, Defendant and Appellant.

Civ. 252.

District Court of Appeal, Fifth District, California.

Aug. 30, 1963.

Rehearing Denied Sept. 20, 1963.

Hearing Denied Oct. 23, 1963.

Vizzard, Baker, Sullivan & McFarland and Jere N. Sullivan, Bakersfield, for appellant.

Julian P. Beek, San Francisco, and Miles, Sears & Franson, Fresno, for respondent.

CONLEY, Presiding Justice.

Jean Marvin Powell appeals from a decree quieting plaintiff's title to 120 acres of oil land in the Kern River Field as against an oil and gas lease originally executed in her favor by plaintiff. Of a total of 52 defendants, Mrs. Powell is the only one who has not disclaimed, defaulted or failed to appeal; she will be referred to herein as the defendant.

The principal questions to be determined are the meaning of the habendum clause of the oil lease itself, and whether under the evidence the lease terminated as found by the trial court. Additional claims of estoppel, waiver, laches and unjust enrichment will be considered, as well as the further contentions of appellant that even if the term of the lease ended as claimed by respondent, she nevertheless is a tenant from month to month, or, alternatively, is entitled to operate an area of 10 acres surrounding each 'well producing or being drilled.'

Plaintiff corporation became the owner of the 120-acre parcel in 1901. The defendant submitted to plaintiff a printed form of oil lease (Oil Age Form of the Petroleum World) with some blanks filled in and several deletions and riders; it was signed on July 16, 1945. Previously, seven wells had been drilled, three of which had been abandoned; the remaining four wells were numbered 1, 2, 3 and 4. Number 2 well never thereafter produced. The lease recites a consideration of $10 and other consideration; another lease was assigned at that time by the defendant to plaintiff. No substance other than oil was ever produced on the land. At the end of the primary two-year period, the lease was concededly in effect. Thereafter, defendant, or those claiming rights in sequence under her, drilled wells 5, 6, 7 and 8 and produced some oil up to the time of the commencement of suit on October 2, 1959, with the exception of five separate periods of total cessation of production: six months, from April to September 1948; 19 months, from August 1949 to February 1951; eight months, from August 1951 to March 1952; 18 months, from July 1952 to December 1953; and five months, from April 1959 to August 1959.

On December 15, 1951, defendant executed a document in favor of R. Monterastelli, denominated an assignment therein but which counsel for the appellant contend was in fact a sub-lease. By the terms of this instrument defendant reserved an override of 4 1/2 percent, provided a right of reentry for condition broken, and by contractual provisions obtained a monthly payment irrespective of production. The legal effect of this writing will be further commented on at a later point in the opinion. Monterastelli was succeeded in turn by several assignees or sublessees who produced oil on the premises.

This suit was commenced without service of any notice of default or notice of termination. If, as defendant contends, the habendum clause in the original lease created title in fee on Condition subsequent rather than a determinable fee, the defendant would have been entitled to a notice of termination, and the judgment concededly would have to be reversed. If, on the other hand, as plaintiff claims, the habendum clause created a determinable fee and the defendant's interest ceased upon the first or a later period of total cessation of production, then no notice would be required, and the principal question on the appeal would necessarily be decided in respondent's favor.

The lease provides in part as follows:

'OIL AND GAS LEASE

'THIS AGREEMENT, made and entered into this 16th day of July, 1945, by and between MONTANA-FRESNO OIL COMPANY, a corporation, party of the first part, herein styled 'Lessor,' and L. JEAN MARVIN [POWELL], party of the second part, herein styled 'Lessee.'

'WITNESSETH: That for and in consideration of Ten (10.00) Dollars lawful money of the United States of America, to the Lessor paid, and of other valuable considerations, the receipt of all of which is hereby acknowledged, and in consideration of the covenants and agreements hereinafter contained by the Lessee to be kept and performed, the Lessor has granted, leased, let and demised, and by these presents does grant, lease, let and demise unto the Lessee, its grantees, successors and assigns, the land and premises hereinfater described with the sole and exclusive right to the lessee to drill for, produce, extract, take and remove oil, gas, asphaltum and other hydrocarbons (and water without cost for its operations) from, and to store the same upon, said land during the term hereinafter provided, with the right of entry thereon at all times for said purposes, and to construct, use, maintain, erect, repair and replace thereon and to remove therefrom all pipe lines, telephone and telegraph lines, tanks, machinery, buildings and other structures which the lessee may desire in carrying on its business and operations on said land, or adjoining or neighboring premises operated by Lessee, with the further right to the Lessee or any of its subsidiaries to erect, maintain, operate and remove a plant with all necessary appurtenances, for the extraction of gasoline from gas produced from said land and/or other premises in the vicinity of said land, including all rights necessary or convenient thereto, together with rights-of-way for passage over, upon and across, and ingress and egress to and from, said land, for any or all of the above mentioned purposes. The possession by the Lessee of said land shall be sole and exclusive, excepting only that the Lessor reserves the right to occupy said land or to lease the same for agricultural, horticultural, or grazing uses, which uses shall be carried on subject to, and with no interference with the rights or operations of the Lessee hereunder. The land which is the subject of this lease is situated in the County of Kern, State of California and is described as follows, towit:

'South half of Southeast quarter and Northeast quarter of Southeast quarter of Section 13, Township 28 S., Range 27 E., M.D.B.&M.

'and contains 120 acres, more or less.

'TO HAVE AND TO HOLD the same for a term of Two (2) years from and after the date hereof and so long thereafter as oil or gas, or casinghead gas, or other hydrocarbon substances, or either or any of them, is produced therefrom.'

The habendum clause is immediately followed by the statement: 'In consideration of the premises it is hereby mutually agreed as follows:' with some 30 numbered paragraphs in sequence thereafter, including:

'21. Upon the violation of any of the terms or conditions of this lease by the lessee and the failure to begin to remedy the same within 90 days after written notice from the Lessor so to do, then, at the option of the Lessor, this lease shall forthwith cease and terminate, and all rights of the Lessee in and to said land be at an end, save and excepting ten (10) acres surrounding each well producing or being drilled and in respect to which Lessee shall not be in default, and saving and excepting rights-of-way necessary for Lessee's operations, provided, however, that the Lessee may at any time after such default, and upon payment of the sum of TEN (10) DOLLARS to the Lessor as and for fixed and liquidated damages quitclaim to the Lessor all of the right, title and interest of Lessee in and to the leased lands in respect to which it has made default, and thereupon all rights and obligations of the parties hereto one to the other shall thereupon cease and terminate as to the premises quitclaimed.'

An operating oil lease is both a conveyance and a contract designed to fit the needs of the owner of the land and the operator of the oil properties in making them productive. As such, it contains traditional conveyancing portions and particularly phrased contractual portions. The lease, upon analysis, is divided into three distinct parts, which illustrate the usual separate conveyancing and contractual elements: (1) The granting clause which is a conveyance of the fee simple in the profit a$ prendre; (2) The habendum (and tenendum) clause which limits the fee simple by the determinable event; (3) The contractual provisions numbered 1 to 30, which contain detailed specifications for the operation of the oil wells.

Under the usual oil lease, the ownerlessor transfers to his lessee the right to drill for and produce oil and other similar substances, in return for which he receives a rental share of royalty. In effect it is a sale and conveyance of a part of the land; the nature of the lessee's interest is a profit a$ prendre, either for a term of years or indefinitely. A determination of the term of the lease requires a consideration of all of its provisions, but in the absence of later specific wording which would compel a different conclusion, the habendum clause controls the period for which the lease is to run. An oil lease may provide for a primary term and for continuance for so long thereafter as the lessee conducts drilling or producing operations. The language providing for a continuance of the lease after the definite stated term is often designated as a 'thereafter' clause. The main purpose of an oil or gas lease is to secure production of oil and gas in paying quantities.

In the leading case of Dabney v. Edwards, 5 Cal.2d 1, 53 P.2d 962, 103 A.L.R. 822, the Supreme Court said that an oil lease which provides for a definite term of years is not included within the concept of 'real estate,' but is a chattel, as at common law; however, an oil lease containing a 'thereafter'...