Steven v. Potlatch Oil & Refining Co.

*247 MR. CHIEF JUSTICE CALLAWAY delivered the opinion of the court. The plaintiffs are the owners of 320 acres of land in Toole county. On April 16, 1921, they executed to Troy-Sweet Grass Oil Syndicate a lease whereby they granted all the oil and gas in and under the land for the term of five years from that date “and as much longer as oil and gas, or either of them, shall be produced from said land by the lessee.” The lease contained this provision: “The lessee agrees to yield and pay to the lessor the one-8th part or share of the oil which he may obtain and save from said land, which share shall be delivered to the lessor from the lessee’s tanks at the wells, or for the lessor’s credit to such Pipe Line Company as may connect its lines with said tanks, and to pay for the gas at each well which shall not produce oil in paying quantities, but produce gas in marketable quantities, a royalty of one-8th per year for each well so produced, except that during the time any such gas shall be ‘shut in’ by reason of there being no profitable market for its output, there shall be no royalty.” It was provided that, if no well should be commenced on the land within two years from the ’ date of the lease, the lease should become null and void unless the lessee should pay to the lessors for further delay a rental of fifty cents per acre in advance for each additional year until a well should be commenced on the land. The royalties, delay rentals and other payments which might fall due under the lease were to be paid to the lessors, or to their credit in the First State Bank of Shelby, which was constituted the agent of the lessors, with power to receive and receipt for the same. Upon failure of the *248 lessee to make any of the payments provided for delay in commencing the well on the date when the payment should become due, the lessors were given the right to declare a forfeiture of the lease if the payment be not made within ten days after written notice to pay the same. About August 18, 1923, the defendant, Potlatch Oil & Refining Company, succeeded to the rights of the Troy-Sweet Grass Oil Syndicate in the lease, and on April 14, 1926, H. G. Hungerford, as trustee, succeeded to the rights of the Potlatch Oil and Refining Company in the lease to the extent of eighty per cent of the oil, gas and other mineral in one-half of the land. On May 31, 1926, the plaintiffs, asserting that the defendants had not complied with the requirements of the lease, and that the same was forfeited and terminated, demanded of them in writing that the oil and gas lease be released of record, and on July 30th commenced an action against the defendants, alleging in the complaint that the defendants had failed to produce oil or gas, or either of them, from the land within five years from the date of the lease, or thereafter, and that the lease became forfeited and terminated on April 16, 1926. Plaintiffs prayed judgment for the sum of $8,000 damages and $100 provided by statute as a penalty, and that the lease be declared forfeited and released of record in addition to the damages. Upon the overruling of their demurrer to the complaint the defendants answered. They alleged that prior to the expiration of the five years’ period during which the lease was to run, and on the eighth day of April, 1926, they encountered gas in paying and commercial quantities, to wit, a flow of approximately 456,000 feet per day, and ever since that date had produced gas from the land and had paid to the lessors the royalty required under the terms of the lease; that ever since April 8, 1926, the well had produced gas in marketable quantities and had been “shut in” a large part of the time since production was obtained by reason of there being no profitable market for its output. They alleged that *249 they had in all respects complied with the lease. These allegations were denied by the reply. The case was tried to a jury, which found a verdict for the plaintiffs in the sum of $4,900, upon which the court entered judgment, from which the defendants have appealed. 1. The defendants urge here, as they did at various times during the proceedings in the trial court, that the complaint does not state facts sufficient to constitute a cause of action, for the reason that it shows upon its face that the action was brought prematurely. It is said that the defendants, after forfeiture, are given sixty days by the terms of the statute in which to record their release, and that as the statute provides that before commencing an' action a lessor must give twenty days’ notice to the lessee, eighty days must elapse before an action may be commenced. In this instance the plaintiffs, asserting that the lease had expired on April 9, 1926, gave their notice on the 31st of May, 1926. Section 6902, Rev. Codes 1921, provides in effect that when any oil, gas or other mineral lease shall become forfeited it shall be the duty of the lessee, his successors or assigns, within sixty days from the date of the forfeiture, to have the lease released from record in the county where the leased land is situated, without cost to the owner. Section 6903 provides that if the owner of the lease neglects or refuses to execute a release the owner of the leased premises may sue in any court of competent jurisdiction to obtain the release, and may in the action recover of the lessee, his successors or assigns, the sum of $100 as damages, and costs, and any additional damages that the evidence in the ease may warrant. The next section, 6904, provides that at least twenty days before bringing the action the owner of the leased premises shall demand of the holder of the lease, if he can be found in the state, that the lease be released of record. Thus, we see that by the provisions of section 6902 it is the duty of the lessee, and without any action on part of the lessor, to record the release within sixty days from the *250 date of the forfeiture. There is nothing in any of the three sections above referred to indicating that the lessor must wait until the expiration of the sixty days, before demanding the cancellation of the lease. It is simply provided that before bringing action against the lessee, he must demand that the lessee place the release of record. No good reason appears why the lessor after forfeiture, may not make the demand whenever he sees fit, provided he does not begin the suit before the expiration of the sixty days during which period it is the duty of the lessee to make the release. The defendants also claim that the statute applies in cases of forfeiture only and does not apply to the termination of a lease in virtue of its terms, and in support of their position present argument and cite authorities, though none directly in point. The word “forfeit” has a number of meanings, or shades of meaning. It may mean to alienate the right to possess by some neglect. (Webster’s International Dictionary.) Forfeiture is a deprivation or destruction of a right in consequence of a nonperformance of some obligation or condition. (Webster v. Dwelling House Ins. Co., 53 Ohio St. 558, 53 Am. St. Rep. 658, 30 L. R. A. 719, 42 N. E. 546, quoted in Words & Phrases, 2893.) Forfeiture is where a person loses some property, right, privilege or benefit in consequence of having done or omitted to do a certain act. (1 Rapalje & Lawrence’s Law Dictionary, 535; State v. DeGress, 72 Tex. 245, 11 S. W. 1029.) To forfeit is to divest or to suffer divestiture of property .without compensation in consequence of a default or offense. (Anderson’s Law Dictionary.) These definitions, we think, indicate the meaning which the legislature intended in using the words “forfeited” and “forfeiture” in the statutes above referred to. The statute is remedial in character. (Solberg v. Sunburst Oil & Gas Co., 73 Mont. 94, 235 Pac. 761; Id., 76 Mont. 254, 246 Pac. 168.) Even if the statute is of a penal nature, and may not be extended by construction, it should receive such a construction *251 as, when practically applied, will tend to afford the remedy which the legislature sought to apply. (State v. Livingston C. B. & M. Co., 34 Mont. 570, 9 Ann. Cas. 204, 87 Pac. 980.) The period of the lease is for five years and as much longer as oil and gas, or either of them, shall be produced from the land by the lessee. If the lessee, or its successors, had drilled a well which produced oil in paying quantities or gas in marketable quantities on April 16, 1926, the lease would continue in full force so long as the well continued thus to produce. If the lessee or its successors had not drilled a well which was producing oil in paying quantities, or gas in marketable quantities, on April 16, 1926, the lease, an “unless” lease, came to an end, and the right of the lessee and its successors to remain in possession of the land or to explore it for oil or gas was forfeited. The lessee by neglecting to avail itself of its privileges had alienated its right to continue its lease. By reason of omitting to do the act which entitled it to enjoy the lease — its failure to drill a well producing oil or gas- — -the lessee’s privilege was gone. The forfeiture clause, as we said in McDaniel v. Hager-Stevenson Oil Co., 75 Mont. 356, 243 Pac. 582, is for the benefit of the lessor. In that case the lessor, correctly, deemed it unnecessary to require the lessee to cancel the lease of record. The lessor may waive the right if he sees fit to do so. The statute does not require him to insist upon it. But in the instant case the lessee, after demand, refused to execute the release and place it of record, from which the lessors were warranted in thinking the lessee still claimed the lease to be in force. The lease was of record, and the end of its term was not ascertainable from its face, for the reason that its .termination or forfeiture depended upon what the lessee might or might not do or have done. (Caylor v. Bankers Oil Co., 110 Kan. 224, 203 Pac. 735.) The lease, uncanceled upon the record, was a cloud upon the title, which the lessors desired to remove and if the lease had come to an end it was their right to have the lessee cancel it of record. The complaint states a cause of action. *252 2. Many errors are assigned but the case is determinable upon the assignments of error which are to the effect that the court erred in not granting defendants’ motion for a nonsuit, and that the evidence does not sustain the verdict. As there was not a motion for a new trial the review of the evidence by this court is limited to an examination of the record to determine whether there is any substantial evidence to support the verdict, or judgment. (Watts v. Billings Bench Water Assn., 78 Mont. 199, 253 Pac. 260; La Bonte v. Mutual Fire & Lightning Ins. Co., 75 Mont. 1, 241 Pac. 631; State v. Brantingham, 66 Mont. 1, 212 Pac. 499.) Counsel for plaintiffs insisted that in order to maintain their lease the defendants must have produced gas in “paying quantities,” citing many authorities. But their main reliance is based upon their assertion that to continue the lease in force after April 16, 1926, “the production must be in marketable quantities, and must be actually marketed,” relying on Kahm v. Arkansas River Gas Co., 122 Kan. 786, 253 Pac. 563, and cases therein cited. They argue also that the marketing clause in the lease has only to do with the payment of royalty and does not relate to the habendum clause. On the other hand counsel for defendants rely upon 1 Thornton on Oil & Gas, 4th ed., 430, wherein it is said: “If a lease is to continue so long as oil or gas is produced, then it is immaterial whether the lease is a paying one or not; for so long as the wells drilled produce either oil or gas the lease continues. The lessor cannot complain of his own folly in granting such a lease. This is especially so if the lessee made and is making a faithful effort to make the well sunk productive.” They also say that the question as to whether the well is producing in paying quantities is to be determined by the lessee acting in good faith and upon honest judgment, citing Manhattan Oil Co. v. Carroll, 164 Ind. 526, 73 N. E. 1084, and other authorities. As to marketing the gas, the defendants rely upon the terms of the lease itself. *253 Into some of these divergent theories we shall not go. We have examined the authorities cited by respective counsel and many others, but as we view the situation a discussion of the holdings of the various courts would prove without profit in the decision of this ease. The parties made a contract for themselves and must stand or fall by its terms. The land was in what oil operators term a wildcat field.' The lessors had much to gain and little to lose in granting the lease. They exacted a payment of $160 as an initial consideration for the lease, and after two years, if a well was not commenced on the land, $160 in advance until a well should be commenced. If the lessee should be successful its success would mean success for the lessors. The lessors would receive a royalty on the oil and gas produced. The lessee was about to enter upon an uncertain and expensive undertaking, speculative in character, which might result in heavy loss. Under these circumstances an exploratory period of five years, but with substantial payments exacted by the lessors, was agreed upon; it was also agreed, in the event that oil or gas were produced within the exploration period the lessee should have a longer term — “as much longer as oil or gas, or either of them, shall be produced from said land.” Two phrases were used with respect to the royalty; royalty should be paid on oil produced in “paying quantities,” and upon gas produced in “marketable quantities.” The lease must be read as a whole; each and every part of it must, if possible, be given effect; one portion must be used to explain another in order to bring harmony to the whole. By construing the instrument with- these guides in mind we ascertain the meaning of the word “produced” in the habendum clause. It means oil produced in paying quantities and gas produced in marketable quantities. The parties contemplated that there might not be any market for gas immediately, and provided “that during the time any such gas shall be ‘shut in’ by reason of there being no profitable market for its output, there shall be no royalty.” They contemplated the possibility of a well capable of producing *254 gas in marketable quantities and the possibility that there would be no market for it. They provided, in effect, therefore, that the gas should not be permitted to waste, but that it should be confined in the well, “shut in.” Bear in mind that on April 16, 1921, this was a wildcat field. Their foresight was good. Five years later Shelby, the principal town in the Kevin field, which embraces the leased land, eighteen miles distant from the well, was consuming only between 400,000 and 500,000 cubic feet of gas daily. It would require millions, said a witness, to conduct gas to Great Falls, 100 miles distant, and a pipe-line to that city was not yet begun. The wells in the Kevin field at the time of the trial were producing (or capable of producing) ten times the amount of gas for which there was a market. Assuming that the defendants had brought in a well capable of producing gas in marketable quantities: to say that they shall be declared in default and shall forfeit their lease if they do not market the product, when there is no profitable market within reach, would be contrary to the terms of the contract which the parties have made for themselves. Such a construction would violate the spirit if not the very letter of the contract. It would amount to saying, the defendants have drilled a producing well which furnishes gas in marketable quantities, but as there is no market the well is not producing. The contract is not reasonably susceptible to any such interpretation. The lessors will not be heard to complain of their own folly, if folly it was, in granting such a lease. . The defendants began drilling on March 24, 1926, and on April 9, 1926, brought in a well which would produce 450,624 cubic feet in twenty-four hours. It would produce that amount on April 21, 1926. In the latter part of May or first part of June, 1926, it was producing 450,000 feet; it was producing that amount on the day the plaintiffs demanded that the lessees cancel the lease of record. And there is nothing to show that the well was not capable of producing that amount on the day the suit was filed. The plaintiffs were per *255 mitted, over the objection of defendants, to introduce testimony to the effect that the well was producing but 10,000 a day in November, 1926, but no supplemental complaint was filed, and that testimony will not support the verdict. But, said the witness who gave the testimony, there appeared to be an obstruction in the well. There was considerable testimony concerning the rock pressure, but no witness was able to state what the pressure was. A witness said, “By memory only, I think it was around twenty to twenty-five pounds.” In November this same witness found the pressure to be thirty-three pounds when the well has been closed only thirty minutes. Rock pressure, said the witness, is the pressure taken on a well after it is closed in for twenty-four hours. After production of gas was encountered the defendants drew from the well the eight-inch casing and inserted instead a two-inch casing. According to a witness, it is a practice in that field to have a small casing put in a gas well with a packer around it. The packer is placed around the pipe to keep the dirt from going down and falling into the gas sand, and is sufficient to protect the well. This is just as satisfactory as leaving the gas in the well so far as protecting the gas is concerned. The well was never connected with any gas-pipe line. It was developed that by reason of the low rock pressure gas from the well in question could not be conducted to market in a line carrying a higher pressure. Some other wells in the field have rock pressures varying from 370 to 650 pounds. In order to take gas from a well with a low pressure the pressure in the carrying line must be reduced. The gas might be pumped. Whether it is economical to pump, said a witness for plaintiffs, “is up to the man that puts money in it. A gas pumping plant is not expensive to install and not expensive to operate.” This well was capable of producing at its mouth approximately the amount of gas consumed daily in Shelby, eighteen miles away, but that market was being supplied by much superior wells. The well in question, by reason of its low rock *256 pressure, cannot without artificial aid be made available for use at Shelby. A witness for plaintiffs said that, assuming that the well has a rock pressure of twenty-five pounds it would deliver one-fifth of its production, 90,000 cubic feet, six miles distant. The market price of gas in the field, where there is a market, is five cents per thousand. Evidence on part of the defendants tended to show that after gas was discovered in the well there was no cost of production. The gas from this particular well was worth $15 a day per boiler with which it was connected. It would run four or five, or possibly six, boilers. A boiler requires between forty and eighty thousand cubic feet of gas, a two-cycle internal combustion between eight and twelve thousand cubic feet, per day. The defendant Hungerford, an oil operator, used gas from the well from June 24 to July 8, 1926, including both days, for the purpose of running a boiler in connection with drilling operations upon land a mile or two distant from the well. He testified that he paid royalty in the sum of $28.12 to the credit of the plaintiffs at the First State Bank of Shelby; he credited the pipe-line which was laid from the well to “Barger Number One,” where the drilling was done, with $7.50 per day and the producing well with $7.50 per day. From all the testimony, it seems that the well was capable of producing 450,000 cubic feet per day at all times from April 9, 1926, until the suit was commenced. If we regard the quantity of gas it must be admitted that the well produced, or was capable of producing, gas in marketable quantities. It must be admitted, too, that the well was shut in by reason of there being no profitable market for its output. It is not claimed that the defendants abandoned the well, or efforts to make the same profitable. The plaintiffs moved with haste, and the reason is plain. Plaintiff William H. Steven in March, 1926, contemplating forfeiture of defendants’ lease, gave one Farrish an option extending to April 17, 1926, for a lease on the land, being thereto induced by an offer of $4,000 in cash and a royalty of *257 fifteen per cent. Steven testified that there was a good market for an oil and gas lease upon his land between June 24, 1926, and July 4, 1926, and he could have got $20 an acre cash bonus for the lease. Rehearing denied October 27, 1927. Consequently he desired to rid himself of the defendants and their lease. Plaintiffs had received $160 cash consideration when the lease was executed. Presumably the rentals for the years 1924, 1925 and 1926 also had been paid. The defendants had drilled a well capable of producing 450,000 cubic feet of gas. Yet within two months of the bringing in of the well plaintiffs demanded cancellation of the lease, and brought suit within two months thereafter. After giving the defendants the demand asserting the lease had come to an end and that the defendants had no further rights in the premises, the plaintiffs will not be heard to complain that the defendants did not continue further exploitation. Upon the facts the plaintiffs were not warranted in making the demand nor in commencing the action. Their vaulting ambition, like Macbeth’s, o’erleaped itself. The judgment is reversed and the cause is remanded to the district court, with direction to dismiss the action. Reversed. Associate Justices Myers, Stark, Matthews and Galen concur.