GOLD MINING WATER CO v. SWINERTON ET AL

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District Court of Appeal, Third District, California.

GOLD MINING & WATER CO. v. SWINERTON ET AL.

Civ. 6602.

Decided: January 27, 1942

Hartley F. Peart and Howard Hassard, both of San Francisco, for appellant Swinerton. Edward R. Solinsky, of San Francisco, for appellant Morrison. John L. McNab and S. C. Wright, both of San Francisco, and Virgil Airola, of San Andreas, for respondent.

This action was brought to recover damages for breach of a mining lease. The first cause of action concerns an agreement by appellants to make certain improvements upon the mining property, while the second arises out of the alleged failure of appellants to conduct mining operations. Findings were made in favor of respondent upon both causes of action, and judgment entered upon the first in the sum of $25,000, and upon the second in the sum of $15,000. The appeal is from the judgment.

On and prior to the 21st day of September, 1937, plaintiff was the owner of certain real property in the county of Calaveras, and water rights connected therewith. It also held a lease and option to purchase from the Emery Company, covering contiguous mining ground, ditches, reservoirs and water rights. Through all of said property ran an ancient river channel, containing auriferous gravel, thirty to one hundred feet beneath the surface, and extending for over a mile through said property. In early days the channel had been mined in several places by hydraulic process. Practically all of the improvements to be made were upon the Emery property, and they were connected with the development of a water supply for mining, together with a system of ditches. It was provided in the Emery lease that all such improvements should revert to the lessor upon the termination of its lease to respondent.

It is first contended by appellants that there is no evidence to sustain the findings of the trial court that they repudiated the lease. We are satisfied that there was sufficient evidence to justify the finding. Defendant Swinerton testified as follows, with respect to what took place at a conference between him and the officers of plaintiff corporation on November 11, 1937––about a month and a half after the lease had been executed:

“Q. But you did state on that occasion that neither you nor Morrison would proceed under the lease? A. I could not speak for Morrison, but I said as far as I am concerned I would have nothing further to do with the contract unless they would assign the contract.”

Defendant Morrison gave the following version of the same meeting:

“Q. In what connection did he make the statement that he was going away to Europe? A. After the discussion, we started to leave and he said he was going to Europe the next day.

“Q. Was it at that time he stated they could either consent to the assignment, or cancel? A. He made the statement ‘cancel the lease’ in the same sentence when he asked for permission to assign.

“Q. You were present during the entire conversation? A. I was.

“Q. Did you participate in the conversation? A. Very little.

“Q. To what extent? A. The conversation started out by discussing the effect on the Gold Mining and Water Company of a change in the royalty provisions, changing from a sliding scale to a straight ten per cent, providing that prospecting showed yardage to justify.

“Q. Who brought up that subject? A. I imagine, I think it was Mr. Swinerton, but I don't recall who did.

“Q. Did you participate in that discussion? A. I did.

“Q. Did you request a change in the lease? A. I joined Mr. Swinerton in his request, when he said that.

“Q. And when he made his statement that they could either accept an assignment of this lease, or cancel it, did you join in that also? A. Yes.

“Q. And you left the office with him? A. I did.

“Q. When you left the office, it was with the distinct understanding in your mind, was it not, that if they did not consent to the assignment of this lease to Mr. Johnson, you would both be through with the property? A. Yes. * * *”

The conference arose out of a request made previously by appellants for permission from respondent to assign the lease. Such permission was denied. The foregoing evidence, together with other testimony in the record, was sufficient to support a finding that appellants had repudiated the lease, and brought the action clearly within the principle announced in 17 C.J.S., Contracts, § 472a, page 973:

“Strictly an ‘anticipatory breach’ of a contract is one committed before the time has come when there is a present duty of performance, and it is the outcome of words or acts evincing an intention to refuse performance in the future. Where a party bound by an executory contract repudiates his obligation before the time for performance, the promisee has, according to the great weight of authority, an option to treat the contract as ended so far as further performance is concerned, and to maintain an action at once for the damages occasioned by such anticipatory breach.”

It is contended, however, by appellants that the doctrine of anticipatory breach is not applicable. They rely upon the case of Bradbury v. Higginson, 162 Cal. 602, 123 P. 797. That case involved the sufficiency of the complaint. It was alleged that the parties, on December 13, 1904, executed a lease to certain real property, at a monthly rental of $100 per month, for a term of five years; that the rental was paid up to and including the month of June, 1909, and that on August 17, 1909, the defendants repudiated the lease. Judgment was prayed for in the sum of $600. This was the entire rental due to the end of the term. The trial court sustained a demurrer to the answer, and gave judgment for said amount. This judgment was reversed, with directions to dismiss the action. It was held that the complaint failed to state a cause of action, upon the ground that the lessor was not entitled to recover rental which was to accrue subsequent to the date of the repudiation. The decision turned upon the measure of damages––a matter of evidence and proof rather than a question of substantive law. This clearly appears from the following language found on pages 608, 609 of 162 Cal., page 800 of 123 P.:

“But is argued that the plaintiff had the right to recover on the doctrine of ‘anticipatory breach.’ Alderson v. Houston, 154 Cal. 1, 96 P. 884. That is to say, that the defendant's repudiation of the obligations of his lease gave the plaintiff the right to treat the entire contract as broken, and to recover at once the damage sustained by such breach. But in an action to recover for such breach, the measure of damage would be, not the total rent reserved, but the difference between the rent to accrue and the value of the remaining portion of the term. See cases cited in the foregoing opinion of James, J. The complaint does not aver that plaintiff has sustained any damage by the defendant's repudiation, nor does it state any facts from which the amount of such damage may be inferred. It avers merely the nonpayment for two months, and the repudiation, and then asks judgment for $600. There is no allegation that the premises could not have been rented, during the rest of the term, for an amount equal to the rent agreed to be paid by the defendant.”

We are therefore unable to agree with appellants when they state that the doctrine of anticipatory breach does not apply to the relationship of landlord and tenant.

The court also observes that there was contained in plaintiff's complaint no statement that she was damaged other than by the rental which would become due thereafter. We are of the opinion that other damage not so arising might be recovered in a similar action. We believe that the rule in the Bradbury case does not apply to a lease of the character we have here, where the consideration for the use and occupancy of the premises is not a fixed sum, but is based upon a royalty––in this case, a percentage of the gross yield of gold extracted in the mining operation. Turning to another branch of mining, the common oil and gas lease under which the lessee is entitled to enter the premises of the lessor and develop and remove oil or gas is a “profit à prendre.” The latter expression is defined as “a right to take something out of the soil of another, as a right of common, and also some minor rights as a right to fish, hunt, and hawk, or to mine metals, dig for oil, take oil from the land.” Richfield Oil Co. v. Hercules Gasoline Co., 112 Cal.App. 431–434, 297 P. 73. The same rule applies to extraction of gold. Such principles do not apply to a lease of the character involved in the Bradbury case. The lessee here is obligated to do more than merely pay a fixed monetary consideration. He must proceed with the usual mining operations. If no gold is found, the lessor receives nothing by way of rental or royalty. The cases cited by appellants point out the injustice which would result if the lessor could recover future rent and then proceed to lease the property again. Here, the lessor may still have the gold in the ground, but this is a far cry from having it in his hand. He has a right to insist that the lessee proceed with the operation of mining and extracting the gold. It is idle to say that he could contract with another to proceed with the same operation. In such a case he is entitled to the equivalent of full performance, just as he would for the anticipatory breach of any other contract. In 12 Am.Jur. § 392, page 970, it is said:

“A majority of the courts have reached the conclusion that a renunciation of a contract before the time for performance, which amounts to a refusal to perform it at any time, gives the adverse party the option to treat the entire contract as broken and to sue immediately for damages as for a total breach.”

We are therefore of the opinion that the rule laid down in the Bradbury case is not applicable to the situation here.

It is next contended by appellants that the trial court adopted the wrong measure of damages in respect to the award of $15,000. We think there was sufficient evidence to justify the award. The lease provided that 300,000 yards of gravel should be worked the first year––1937–1938. The evidence showed that there was over 300,000 yards of gravel, and that it carried a value, in gold, of fifty cents per yard. This would make a gross value of $150,000. The lease provided for a gross royalty of ten per cent, which is the amount for which judgment was given. A leading authority upon the measure of damages in a case of this character is Texas Pacific Coal & Oil Co. v. Barker, 117 Tex. 418, 6 S.W.2d 1031, 1032, 60 A.L.R. 936, which involved a lease providing for royalty arising from oil to be extracted from the premises. It was alleged that the lessee (plaintiff in error) had breached the terms of the lease, in the following particulars:

“That after drilling said well, plaintiff in error moved away its drilling equipment and tools, and since failed and refused to further drill or test the land, or to permit any other person to drill or test the land, notwithstanding the oil and gas in the land were being drained away by numerous specified wells within short distances of the land––all in violation of the express and implied covenants of the lease binding plaintiff in error to fully develop the oil and gas in said premises and to protect the minerals on said premises from drainage from nearby wells on adjacent lands * * *.”

The court held that the measure of damages for such breach was the agreed royalty upon all oil and gas which the proof showed was in the ground and should have been produced. We quote the following portions of that opinion:

“The purpose of the law to give compensation for breach of contract is subserved by allowing the injured party to have the value to him of the contract's performance. 3 Williston on Contracts, §§ 1338, 1339, pp. 2392 to 2394. Performance of a covenant to produce a certain quantity of oil or gas, under a contract promising royalty, is worth to the lessor as much as the value of his royalty at the time the oil or gas should have been produced and delivered or marketed. Therefore, to allow the lessor the value of royalty wrongfully withheld from him complies with the law's fundamental purpose of adequate compensation. The lessor is put in the same position as though the contract had been performed. Freeport Sulphur Co. v. American Sulphur Royalty Co. [117 Tex. 439], 6 S.W.2d 1039 [60 A.L.R. 890].

“Under sound fundamental principles, no deduction should be made from the value of the lessor's royalty on account of the value of unmined minerals which the lessee was entitled to remove from the leased premises. The lessor pays the consideration for the lessee's performance by his conveyance to the lessee of the oil and gas where the lease is in the ordinary form. Stephens County v. Mid–Kansas Oil & Gas Co., 113 Tex. 160, 254 S.W. 290, 29 A.L.R. 566. As declared by Professor Williston: ‘Where a unilateral contract is broken, the only performance to be valued is that of the defendant promisor. The plaintiff ex hypothesi has already performed and is therefore entitled to the full value of the defendant's performance. The situation is the same where the contract was originally bilateral but the plaintiff has fully performed his part.’ 3 Williston on Contracts, §§ 1349 and 1350, p. 2408. * * * Summers says: ‘The nature of the subject–matter is such that it is practically impossible to determine with certainty how much a lessor has lost in the way of royalties or rentals by the failure of his lessee to fully develop the premises or drill wells to offset those on adjoining lands. The difficulty lies in the proof rather than in the measure of damages. If it can be shown with reasonable certainty that the land would have produced a certain amount of gas or oil, or a certain amount more than it did produce, had the lessee exercised reasonable diligence in drilling additional or offset wells, the proper measure of damages is the value of the lessor's royalty of such oil or gas at the time it should have been produced and marketed.’ Summers', Oil & Gas, § 139, p. 449.”

We therefore conclude that the trial court adopted the proper measure of damages, upon the second cause of action.

The doctrine of anticipatory breach should also be applied to the first cause of action arising out of a breach of covenant to make improvements. The rule in the Bradbury case has never been applied to an action for damages arising out of such a situation, but appears to be applicable only to actions by a lessor to recover rent to the end of the term.

It is contended by appellants that the evidence is insufficient to sustain the award upon the first cause of action, and that the trial court adopted the wrong method of measuring the damages. Under the lease, appellants agreed to make certain improvements upon the property, in the following language:

“Lessees agree, upon execution of this lease agreement, to enter into immediate possession of leased mining properties, and to diligently and constantly operate and develop same, and to have all water facilities, improvements from Jesus Maria Creek, (Juri Properties), fully completed, and all machinery in full operation to take advantage of water run–off for season 1937–1938, to wash and clean up for such materials or metals, or other valuable substances, (not reserved herein by lessor), as lessees may be able to discover and mine within limits of said placer mining properties, and to extract, mill, and reduce, and to otherwise treat said minerals, metals, and other valuable substances.”

No work of the character mentioned, or of any character, was done upon the property, and the court so found. An engineering expert testified that such work would cost $167,735. There is ample evidence in the record to support a finding that the damage for failure to perform such covenants amounted to $25,000. Appellants assert, however, that damages must be based upon the injury done to the reversion, and not upon the cost of making the improvements. Conceding that appellants state the correct rule, we see little or no distinction between the two methods, and in any event do not see how any prejudice would arise by the adoption of the method pursued by the court. An analogous situation exists with reference to the rule applying to damages to an automobile. It is stated in Huddy's Enc. of Automobile Law, 17–18, § 253, pp. 527–528:

“Although the difference in value before and after an injury is the technical measure of damages for an injury to a motor vehicle, as a practical proposition this difference in many cases is represented by the cost of repairing the machine. The difference in value of the property before and after the injury is presumptively the amount it would cost for repairs.”

In Menefee v. Raisch Impr. Co., 78 Cal.App. 785–789, 248 P. 1031, 1032, it is said: “As held in Overpeck v. Rapid City, 14 S.D. 507, 85 N.W. 990, the difference in value of the property before and after the injury is presumptively the amount it would cost for repairs.”

If the improvements cost $25,000, the value of the property or the reversion would be enhanced to that extent.

It is further contended by appellants that the court arrived at the sum of $25,000 solely by reason of a letter which they introduced in evidence, for the purpose of impeachment only. That letter was written by the president of plaintiff corporation to counsel for defendants. It was dated August 16, 1937, some weeks prior to the execution of the lease. It was stated therein that the cost of the improvements had been budgeted at $25,000. When the letter was offered in evidence, its effect was not limited to purposes of impeachment. According to the record, it was in evidence for all purposes. The court could therefore have considered it in finding the facts. However, we do not believe that the findings should be so narrowly construed. The court does state that the sum of $25,000 was the amount “contemplated” by the parties as the cost of the improvements. Elsewhere, however, the court found on the issue as follows:

“The court finds that the defendants, and each of them, failed to enter on the property, to bring water to the mining properties, to repair the water system to make it usable for mining, or to do or perform any other agreement on their part to be performed with respect to said properties. The court further finds that the defendants, and each of them, without attempting to perform under said agreement, repudiated the lease agreement of September 21, 1937, never attempted to perform any of the covenants of said lease agreement, and that such repudiation by the defendants was at a time when all of the leaseholds and property interests embraced in said mining properties and described in said lease agreement of September 21, 1937, were all in good standing; the court finds that at the time of the repudiation by the defendants of said lease, and at the time of their refusal to perform thereunder, there was no default on the part of the plaintiff with respect to any of the leasehold interests transferred under said lease, but all of said leases and other properties were in good standing, free from default, and that the repudiation by the defendants, and refusal to proceed on their part, was without justification or legal excuse. The court finds that the defendants made no attempt at any time to take over possession of said premises; to improve the water facilities; to mine said properties; or to do anything whatsoever to comply with the provisions of the lease, all to the damage of the plaintiff in the sum of $25,000.00.”

It is the duty of this court to adopt that construction of the findings which will support the judgment. We are satisfied that the finding has sufficient evidentiary support.

Appellants contend that the lease was terminated by loss of title. It was set up in the answer that the lease to the Emery property was abrogated on February 1, 1938. This was property held by plaintiff under a lease from the Emery interests, and constituted a major portion of the mining land. Conceding that proper proof was made showing that plaintiff lost its rights in said lease on the date mentioned, we do not believe it would affect the right of recovery here. The lease involved here was breached in October, 1937. The right of action then accrued. It was not incumbent upon plaintiff, nor was it under the legal duty to thereafter maintain the lease in full force and effect. It may be, and apparently is, the fact in this case that the breach by defendants was the direct cause of the failure of respondent to carry out the terms of the Emery lease. To adopt the theory of appellants would, in effect, permit them to take advantage of their own derelictions. The law does not countenance such conduct.

Several other points are relied upon by appellants. We have considered them, and do not find them worthy of extended discussion, due to lack of merit.

The judgment is affirmed.

TUTTLE, Justice.

THOMPSON, Acting P. J., concurred.