Yeadon v. Graham

• Decision Date: 02 October 1975
• Parties: John YEADON and Samuel H. Nelson, Appellants, v. Daniel A. GRAHAM et al., Respondents.
• Court: Oregon Supreme Court

Page 1007

540 P.2d 1007

273 Or. 234

John YEADON and Samuel H. Nelson, Appellants, v. Daniel A. GRAHAM et al., Respondents.

Supreme Court of Oregon.

Argued and Submitted Sept. 9, 1975.

Decided Oct. 2, 1975.

Michael B. Dye, Salem, argued the cause for appellants. On the briefs were Dye & Olson and Rolf T. Olson, Salem.

H. W. Devlin, McMinnville, argued the cause and filed the brief for respondents Daniel A. and Shirley Graham. Willard L. Cushing, McMinnville, argued the cause for respondent Peter Kiewit Sons Co. On the brief with him were Marsh, Marsh, Cushing & Haugeberg, McMinnville.

Before O'CONNELL, C.J., and McALLISTER, ^* HOLMAN, TONGUE, HOWELL and BRYSON, JJ.

TONGUE, Justice.

This is a suit for an injunction and declaratory judgment involving a 1966 mineral lease giving plaintiffs the right to remove rock from land owned by defendants Graham near Gaston in Yamhill County. Claiming that the lease had been terminated, defendants Graham entered into another lease in 1974 with defendant Peter Kiewit Sons Co. to remove rock from the same land for use in construction of the Scoggins Valley Dam.

The trial court held by its decree:

'That plaintiffs did not perform the covenants of the lease, as expressly understood by the parties, in that they failed to pay rent as provided therein and failed to perform the implied duty to mine and quarry rock, and that said lease dated February 15, 1966, was terminated by reason of plaintiffs' failure to perform as above set forth, * * *.'

Although the trial judge made only general findings, at the conclusion of the trial he stated the basis for his decision as follows:

'I will be resting my decision instead on the sole issue of performance. The question, as I see it, is this: Have these Plaintiffs satisfied their obligations under the lease? And I don't believe they have.

'The parties' intent looks clear to me. The Grahams wouldn't tie up their property for twenty-five years for a mere $10 a year. Reasonable minds would not differ that these Plaintiffs had a duty to get on with the business of marketing the Graham rock.

'Not only were these obligations expressly understood between the parties, but the law also stepped in and implies a duty on these Plaintiffs to develop the mining procedures in accordance with the spirit of the lease.

'Their failure to respond to this obligation and the further obligation of payment frustrates the whole purpose of the lease.

'In all fairness to the Grahams the Court has no other alternative but to hold that the lease is terminated as suggested by Mr. Devlin in his first affirmative defense.

'In this connection it is this Court's finding that there has been a failure of proof of payments in recent years, specifically from 1969.'

In appealing from that decision plaintiffs first contend that the trial court erred in holding that the parties to the lease intended that the plaintiffs have a duty to begin mining operations prior to June 1974.

Plaintiffs concede that the rule of law to be applied in deciding this question is the rule as stated by this court in Fremont Lbr. Co. v. Starrell Pet. Co., 228 Or. 180, 199, 364 P.2d 773, 782 (1961), as follows:

'The consideration stated on the face of the lease was one dollar and the delaying rentals were nominal at ten cents an acre. It is, therefore, quite evident that the real consideration expected by the lessor was the prospect of royalties from production and, therefore, such leases should be construed against the lessee to prevent delay and to effectuate the intended purpose, i.e., to promote production and development. (Citing cases) This intended purpose included the obligation that the lessee would test and develop the property in good faith and proceed with reasonable diligence to obtain production. (Citing cases) As said in Munroe v. Armstrong, (1880) 96 Pa. 307, 311: '* * * Perhaps in no other business is prompt performance of contracts so essential to the rights of the parties, or delay by one party likely to prove so injurious to the other. * * * " ¹

Plaintiffs go on to say that:

'As Freemont Lumber (sic) indicates, the general rule is founded on the principle that the lessee must act in good faith and with reasonable diligence. The nature of the acts which constitute good faith and reasonable diligence will necessarily depend on the facts of the particular case. Where there is no commercially reasonable basis for delay, as in the case of readily marketable minerals, a duty to immediately begin work might be implied. But where the minerals are presently unmarketable, it cannot reasonably be inferred that the parties intended that mining activities begin at once.

'In the present case, the plaintiffs impliedly agreed to use reasonable diligence in developing the rock quarry. * * *'

Plaintiffs' argument in support of the contention that they did not fail to perform the duty to exercise reasonable diligence under the circumstances of this case is summarized by them as follows:

'* * * The parties knew that opening the quarry would be very expensive and that the market for the type of rock found on this property was very limited. They also knew that certain large construction projects would be developing in several years which would create a high demand for this rock. For these reasons, the parties intended that plaintiffs' obligation was to put forth a good faith effort to develop the quarrying operation at such time as these construction projects created a reasonably large demand for this rock, and not within a specific period of time.'

79 A.L.R.2d 792, 793 (1961).

After reviewing the lengthy transcript we find that although evidence was offered by the defendants that might well support such a conclusion in the absence of evidence to the contrary, there were other circumstances in this case, supported by other evidence, which fully justify the finding by the trial court to the effect that plaintiffs not only impliedly agreed to act in good faith and with reasonable diligence to develop the rock quarry, but failed to do so. Among the facts and circumstances, which lead us to the same conclusion as that reached by the trial court, are the following:

1. Although $10 was paid on execution of the lease (instead of $1, as in Fremont) the 'delaying rentals' of $10 per year for 100 acres of land were also the equivalent of 10 cents per acre, as...