Nadeau v. Texas Co.

• Decision Date: 26 May 1937
• Docket Number: 7649.
• Parties: NADEAU v. TEXAS CO. et al.
• Court: Montana Supreme Court

69 P.2d 586

104 Mont. 558

NADEAU v. TEXAS CO. et al.

No. 7649.

Supreme Court of Montana

May 26, 1937

Rehearing Denied June 26, 1937.

Appeal from District Court, Glacier County, Ninth District; R. M Hattersley, Judge.

Action to quiet title by Wilfred Nadeau against the Texas Company and others. From a judgment for plaintiff, defendant the Texas Company appeals.

Affirmed.

Y. A Land, of Denver, Colo., and Louis P. Donovan, of Shelby, for appellant.

E. K Cheadle, Jr., of Shelby, and H. C. Hall, of Great Falls, for respondent.

ANDERSON Justice.

Plaintiff brought this action to quiet title to his interest, under an oil and gas lease on 80 acres of land in Glacier county. The case was tried before the court sitting without a jury. Findings of fact and conclusions of law were made in favor of the plaintiff. Judgment was entered in conformity therewith, and the appeal is from this judgment.

Plaintiff in his complaint alleged the corporate capacity of the defendant corporation; that on February 18, 1930, and thereafter, F. A. Ewald was the owner of this tract of land; that on February 9, 1934, Ewald executed and delivered to R. J. Reynolds an oil and gas lease which was duly recorded on the same day; that thereafter, on May 3, 1935, this lease was assigned by an instrument in writing to the plaintiff, which was duly recorded on the following day; that plaintiff is the owner of this lease and the leasehold thereby conveyed; and that defendant claims some interest therein adverse to the plaintiff.

Defendant by its answer set forth numerous defenses. The first defense alleges that defendant claims adversely to plaintiff under an oil and gas lease executed by Ewald and wife on these lands to the defendant on September 26, 1933, and also a certain "unit operation and royalty pooling agreement," which it is asserted Ewald and wife agreed to execute on January 11, 1935. This agreement described all the lands in the section containing the tract in question. It was signed by numerous other land and royalty owners who, it is alleged, are necessary and indispensable parties to the settlement of this controversy. Ewald never executed this written agreement.

By the second defense defendant admits its corporate capacity, the execution and recording of the lease by Ewald to Reynolds, and denies its validity; admits the execution and recording of the assignment of the Reynolds lease to the plaintiff, but denies that the lease was actually assigned; and admits that defendant claims adversely to the plaintiff. By other affirmative defenses it is alleged that the lease to Reynolds was without consideration, a mere sham or subterfuge; that it had terminated; that it was intended that this lease was not to become effective until the lease claimed by defendant was released, which had not occurred. Affirmatively defendant pleads its claim under the oil and gas lease executed by Ewald and wife, and also the unit and pooling agreement. By reply issue was joined on the affirmative allegations and defenses contained in the answer.

The trial court found that Ewald had been the owner of the lands since the year 1930; that he executed the lease to Reynolds as alleged in the complaint, and ever since its execution and delivery it has been a valid and subsisting oil and gas lease; also, that the assignment was executed as alleged for a valuable consideration, and that plaintiff is the owner and holder of the lease in question; that the defendant claims an interest in these lands adverse to plaintiff, which claims are without right; and the judgment quiets the title in the leasehold interest in the plaintiff.

The defendant for some time prior to October 10, 1933, had been negotiating with Ewald with reference to a lease on these lands without arriving at an agreement. On that day Ewald delivered a signed and acknowledged oil and gas lease in favor of the defendant, describing the lands, together with a draft drawn on the defendant for the sum of $480 to a bank in Michigan. The draft was to be paid before the delivery of the lease. These documents were forwarded by the Michigan bank to a bank in Denver, Colo. Twelve days were to be allowed the Texas Company for the examination of the title to the land. On October 23, 1933, the defendant company advised Ewald that the abstract of title to the land disclosed that he was vested only with a one-half interest therein and requested particulars. He replied that he knew of no flaw in his title and would check up the matter on his early return to Montana. At the request of the Texas Company the time for payment of the draft was extended by Ewald on January 5, 1934. Ewald on January 27 of that year recalled the draft and lease from the Denver bank. The defendant had not paid the draft or any consideration to Ewald for this lease. On February 1, 1934, the defendant delivered to the Denver bank a check for the draft which was by it endorsed to the clerk of the district court in Denver. At the same time an action was instituted by the defendant in the district court there to compel the delivery of the lease. Both the check and lease were impounded in this action, which has not been tried or decided.

On February 9, 1934, Ewald and wife executed and delivered the lease claimed by plaintiff, to Reynolds for a recited consideration of $3,000. It provided for the drilling of a well or the payment of delay rentals. This lease was assigned by Reynolds to plaintiff on May 3, 1935, for a consideration of $100 paid to Reynolds. The plaintiff was advised, according to the testimony, that the delay rentals "had been taken care of until August 1, 1935." It appears that they were not paid. Nadeau paid to Ewald the sum of $1,100 to cover rentals which might accrue under the terms of the lease during the pendency of the litigation in Denver. On May 15, 1935, plaintiff entered into an agreement with one Johnson for the assignment of an undivided one-half interest in the Reynolds lease, but no instrument of assignment was ever executed. This action was brought August 19, 1935. Other facts appearing from the evidence will receive consideration hereafter in the opinion.

Many questions have been raised by appropriate specifications of error. Defendant contends that, since the Reynolds lease was an "unless" lease and the rentals were not paid and no drilling was done strictly in accordance with the terms of the lease, it was ipso facto terminated upon failure to comply with these provisions, citing in support of its contention the cases of McDaniel v. Hager-Stevenson Oil Co., 75 Mont. 356, 243 P. 582; Griffith v. Cedar Creek Oil & Gas Co., 91 Mont. 553, 8 P.2d 1071; Williard v. Campbell, 91 Mont. 493, 11 P.2d 782; and Berthelote v. Loy Oil Co., 95 Mont. 434, 28 P.2d 187. While we have said in these and many other cases that an "unless" lease ipso facto terminates upon the failure of the lessee to drill or pay delay rentals as provided in the contract, yet none of these cases, with possibly one exception, involved the right of the lessor to waive or extend the time of performance of such terms by agreement.

The trial court found that this lease was valid and subsisting. Testimony is found in the record to the effect that Ewald accepted $1,100 from the plaintiff as and for delay rentals after the accrual of rentals. A lessor in an "unless" lease waives his power to declare a forfeiture for failure to drill or pay rentals within the time designated by the lease, by the acceptance of delay rentals after the breach has occurred. Summers on Oil & Gas, § 156, p. 498; § 161, p. 512; Blair v. Clear Creek Oil Co., 148 Ark. 301, 230 S.W. 286, 19 A.L.R. 430; Southwestern Oil Co. v. McDaniel, 71 Okl. 142, 175 P. 920; Maud Oil & Gas Co. v. Bodkin, 75 Okl. 6, 180 P. 959; Miller v. Union Oil & Gas Co., 295 F. 27 (C.C.A.); Pyle v Henderson, 65 W.Va. 39, 63 S.E. 762. Friend v. Mallory, 52 W.Va. 53, 43 S.E. 114. Likewise a lessor may waive his power of forfeiture for breach of the condition of the lease to drill or pay delay rentals, by a contract extending the time for commencement of drilling operations or the payment of delay rentals. Summers on Oil & Gas, § 158, p. 501; Pyle v. Henderson, supra; Ohio Oil Co. v. Detamore, 165 Ind. 243, 73 N.E. 906; Cf. Griffith v. Cedar Creek Oil & Gas Co., supra.

Ample evidence is found in the record to justify the court in finding that the delay rental clause in the lease was waived by the lessor, and the court must have so found as a necessary implication to its finding that the lease was valid and subsisting.

Defendant argues the record demonstrates that since the plaintiff alleged in his complaint that he held his title under a lease dated in 1934, and the proof was to the effect that he was claiming under a later lease executed in 1935, therefore a variance between the pleading and proof resulted. The basis of this argument is, first, that the contract for an assignment of an interest in this lease from the plaintiff to Johnson, wherein reference was made to a lease from Ewald to plaintiff under date of May 3, 1935, as being executed and delivered; and, second, that although the plaintiff at one point testified as to the payment of $1,100 for delay rentals, at another he said it was for extending the lease or for delay rentals. The record discloses that the lease referred to in the agreement to assign was delivered into escrow and there held until after the trial of this cause in the lower court. Subject to certain exceptions not here involved, an instrument delivered into escrow, to be delivered on the performance of certain conditions, does not become effective until delivery by the depositary. Section 6846, Rev.Codes; Knapp v. Andrus, 56 Mont. 37, 180 P. 908; Corey v. Sunburst Oil & Gas Co., 72...