Moore v. Richfield Oil Corp.

• Decision Date: 19 December 1962
• Citation: 233 Or. 39,377 P.2d 32
• Parties: Vern B. MOORE and Velethia M. Moore, Respondents, v. RICHFIELD OIL CORPORATION, Appellant.
• Court: Oregon Supreme Court

Page 32

377 P.2d 32

233 Or. 39

Vern B. MOORE and Velethia M. Moore, Respondents, v. RICHFIELD OIL CORPORATION, Appellant.

Supreme Court of Oregon.

Argued and Submitted at Pendleton Oct. 29, 1962.

Decided Dec. 19, 1962.

John R. Faust, Jr., Portland, argued the cause for appellant. On the briefs were Cake, Jaureguy, Hardy, Buttler & McEwen, Portland.

William M. Holmes, Bend, argued the cause for respondents. On the brief were DeArmond, Goodrich, Gray & Fancher, Bend.

Before McALLISTER, C. J., and PERRY, SLOAN, O'CONNELL, GOODWIN, LUSK and DENECKE, JJ.

O'CONNELL, Justice.

This is a suit in equity which plaintiffs, lessors, seek to terminate a lease made with defendant, lessee, and to obtain possession of the leasehold. Plaintiffs assert the right to terminate the lease on the ground that defendant was in default in the payment of the rent beyond the grace period specified in the lease and that the lease was terminated in accordance with its terms. The lease was obtained for the operation of a gasoline filling station. Defendant appeals from a decree terminating the lease and ordering defendant to deliver possession of the premises to plaintiffs.

The premises were leased to defendant for a period of 20 years commencing on February 2, 1957. The lease provided for the payment of a rental of 1 1/2cents for each gallon of gasoline delivered to the leased premises with a guaranteed minimum of $150 per month. Subsequently, defendant subleased the premises to Ira Merritt, who, in turn, assigned his interest to Clovas Garren.

The percentage rental was computed and paid by defendant under the following arrangement. The station operator would communicate his order for gasoline to Robert Comstock, defendant's local distributor at Redmond, Oregon. The gasoline would be delivered from defendant's storage facilities at Linnton, Oregon, near Portland. Upon making delivery the driver would make out an invoice ticket (referred to as a '102 ticket') indicating the amount of gasoline delivered. The invoice would then be forwarded through Comstock to defendant's offices in Seattle where the percentage rental under the lease and under the sublease would be computed.

Defendant explains the default in payment of the rent relied upon by plaintiffs as follows. The station operator and Comstock arranged for the delivery of gasoline to the station from Comstock's supply at Redmond instead of from the supply at Linnton. The station operator paid for such gasoline with checks made payable to Comstock. Comstock reported these sales as having been made to another station at Culver, Oregon. (He was the owner of the latter station). These deliveries were not invoiced on the '102 ticket' and were not reported to defendant's Seattle office as a part of the deliveries to the station in question.

Plaintiffs learned of this practice and sought advice from their attorney, Mr. W. M. Holmes. Mr. Holmes directed the following letter to defendant's Seattle office on July 25, 1960:

'Richfield Oil Corporation

'2326 Sixth Avenue

'Seattle 1, Washington

'Re: Mr. and Mrs. Vern B. Moore

'P. O. Box 633, Madras, Oregon

'Our File No. 6951

'Gentlemen:

'This office represents Mr. and Mrs. Vern B. Moore of Madras, Oregon, who entered into a lease agreement with the Richfield Oil Corporation on October 28, 1955, and covering certain premises on The Dalles-California Highway a short distance south of Madras, Oregon.

'Article III of their lease states that they will receive 1 1/2cents per gallon for each gallon of gasoline delivered to the leased premises, with a minimum rental payment of $150.00 per month.

'It has been recently brought to the attention of Mr. and Mrs. Moore that they have not been receiving either credit or payment for all gasoline delivered to the leased premises. It also appears that apparently this has been true for a considerable period of time.

'We, therefore, on behalf of Mr. and Mrs. Moore, request that you advise us of what steps you are going to take to correct this matter.

'Very truly yours,

'De ARMOND, GOODRICH & GRAY

'By: [Signed] W. M. Holmes

'WMH/mh'

This letter was received at defendant's offices in Seattle on July 27. Defendant introduced testimony that the letter was sent to the credit department in Seattle and then forwarded to the credit department in Portland. It went from there to the sales department and was eventually received by Mr. Berger, the defendant's district wholesale supervisor on August 17, 1960. Mr. Berger immediately called Mr. Wood, the company's representative in Redmond, who got in touch with plaintiffs' attorney on or about August 25, 1960. Thereafter, Mr. Wood commenced an investigation which disclosed the checks made out to Mr. Comstock for the gasoline delivered to the station and which had not been reported on the '102 tickets.' Several conferences between defendant's agents and plaintiffs' attorney were then held. Finally, in the latter part of September, defendant made an offer of settlement, first to plaintiffs and then to plaintiffs' attorney, of an amount represented by the checks known to them at that time which were made payable to Comstock. Neither plaintiffs nor defendant knew the exact amount of gasoline not properly reported. Defendant admitted on cross-examination that there were records in its possession from which it would have been possible to determine the total gallonage pumped from the station.

The sole question is whether equity should terminate the lease under the foregoing circumstances.

First we shall dispose of plaintiffs' contention that the lease was terminated by operation of law under ORS 91.090. ¹ This statute is operative only in those cases where the lease itself does not make provision for the manner in which the tenancy is to be terminated. ² In the case at bar the lease contained such a provision. Article 15 of the lease provided as follows:

'In the event Lessee shall be in default in the payment of rentals or other charges hereunder or shall otherwise breach its covenants or obligations hereunder, and shall be and remain in default for a period of thirty (30) days after notice from Lessor to it of such default, Lessor shall have the right and privilege of terminating this lease and declaring the same at an end and of entering upon and taking possession of said premises, and shall have the remedies now or hereafter provided by law for recovery of rent, repossession of the premises and damages occasioned by such default. * * *'

It is undisputed that defendant defaulted in the payment of rent and that plaintiffs were entitled to proceed in accordance with the provisions of Article 15 of the lease to terminate the tenancy. The question is whether plaintiffs have complied with these contractual provisions.

The letter of July 25, 1960 which is set out above cannot be regarded as a notice of default within the meaning of Article 15 of the lease. While the letter notifies the lessee that lessor has 'not been receiving either credit or payment for all gasoline delivered to the leased premises,' this does not constitute a 'notice of default.' A notice of default must convey the message that the notifier is initiating the steps necessary to finally assert his legal rights and that if the default is not cured he may take final action as provided in the contract. ³ In other words, in the present case the provision for notice of default in Article 15 must be read in relation to the provision for termination. The notice to the lessee must give him warning that the lessor will assert his right of termination if the lessee does not cure the default within the 30-day period of grace. The letter of July 25 does not give this warning.

Plaintiffs did, however, give effective notice on September 22, 1960. That letter, written by plaintiffs' attorney, contained the following paragraph:

'We are, therefore, advising you pursuant to...