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District Court of Appeal, Fourth District, California.


Civ. 1830.

Decided: March 23, 1937

John W. Preston, C. A. A. McGee, and Robert Lee Collins, all of Los Angeles, Brittan & Mack, of Bakersfield, and Daly B. Robnett, of Los Angeles, for appellant. Frank S. Hutton, of Los Angeles, and Alfred H. McAdoo and Harvey, Johnston & Baker, all of Bakersfield, for respondents Staples, Hales, and Fisher, Goodwin J. Knight, L. J. Knight and others. John L. Schaefer, of Los Angeles, for respondents Burton Bros., Inc.

In this action the plaintiff sought to recover possession of certain mines and mining claims and also asked for an accounting with respect to the value of any ores or minerals removed from the premises, and for damages. In answering, the defendants set up failure to perform and abandonment of the project on the part of the plaintiff, and among the main issues thus presented were: (1) Whether the plaintiff was in default under the contract under which he claimed; (2) if he was in default, whether his failure to perform was caused by fraud and conspiracy among and on the part of the defendants, as a result of which facts were concealed from the plaintiff and certain quantities of ore were taken and withheld from him; (3) whether, if a default existed, performance on the part of the plaintiff had been prevented or waived by acts and conduct on the part of the defendants and by failure on their part to perform conditions precedent. At the conclusion of a trial before a jury the court granted a motion for a directed verdict and this appeal is from the judgment which followed.

Two groups of mines or mining claims are involved here. One group was owned by the respondent Staples and the other by the respondent Fisher. On July 30, 1932, Fisher gave to the respondent Hales a lease on the property owned by him with an option to purchase on certain terms. On the same day Staples executed and delivered to Hales a similar lease and option covering the claims owned by him.

On August 1, 1932, Hales as first party, and one Harper as second party, executed an instrument entitled “Lease and option to purchase” covering all of these properties, which was under the same date assigned to the appellant. This instrument, Exhibit 1 in the record, after reciting that the first party is the owner of a lease and option to purchase two groups of mining claims, as described therein, and that the first party is desirous of leasing said claims to the second party and granting to the second party an option to purchase the same, provides that in consideration of $5,000, the receipt of which is acknowledged, and the performance of the “covenants and agreements hereinafter expressed,” the first party leases to the second party these mining claims, including machinery and equipment, for the term ending August 1, 1937, “unless sooner forfeited or determined through the violation of any covenant hereinafter against said tenant.” It is then stated that the parties agree “as follows:” Ten numbered paragraphs then follow, only the material parts of which will be here summarized. In (1) the second party agrees to so work the premises as to take out the greatest amount of ore possible with due regard to the development and preservation of the premises as a workable mine. In (3) the second party agrees to begin work within thirty days and to perform a certain amount of work per month. In (4) the second party agrees to pay all current taxes upon the property. Paragraph (5) provides that in consideration of the “foregoing lease, and the expenditures to be made thereunder, and the faithful performance of the covenants thereof,” the second party is given the option to purchase the properties for $120,000, payable as follows: 15 per cent. of the gross bullion or net smelter returns of all ores mined to be applied upon the purchase price and in the event such royalties shall not amount to $3,500 by January 1, 1933, the second party is to make up and pay the difference to the first party. Other payments at subsequent dates are then provided for, and the paragraph closes with a provision “that the payments in this paragraph specified shall be subject to the provisions in the forfeiture clause hereinafter in this instrument specified.” In (6) it is agreed that upon full payment the first party will execute and deliver a deed conveying the premises to the second party. It is then agreed that deeds “signed by the owners of the said mining claims” shall be placed in escrow with a named trust company, with instructions to deliver the same to the second party or his order on full payment of the purchase price “as specified in this lease and option.” In (7) it is agreed that the failure of the second party to comply with the conditions of this agreement shall, upon written notice given the second party by the first party, operate as a forfeiture of this agreement, provided that no forfeiture “shall be declared by the party of the first part, or effected by him,” until sixty days after the receipt of a written notice, during which period the second party may make up any deficiency in performance. Paragraph (8) reads as follows:

“It is understood and agreed between the parties hereto that until the royalties, to–wit, 15 per cent. of the net returns payable to the party of the first part, shall have amounted to the sum of Two Thousand One Hundred Dollars ($2,100.00), the forfeiture clause next above shall not be operative, save and except for failure to employ the minimum number of shifts hereinbefore set forth in this agreement, and it is further provided and specifically agreed that the party of the first part represents that, save and except for the unpaid taxes on the mining claims known as Soledad and Echo, comprising a portion of what is known and designated herein as the Grey Eagle Group, the title to said property, as of the date hereof, is vested in the said party of the first part, W. E. Hales, free and clear of any liens, encumbrances and/or claims of whatsoever nature.

“Wherefore, it is specifically agreed that the said fifteen percent (15%) royalty herein provided to be paid under the terms hereof to the party of the first party by the party of the second part, or his assigns, shall be impounded and held in trust by the party of the second part, or his assigns, until an amount sufficient to pay and discharge all accrued taxes, and all other liens, encumbrances or claims now due or past due, has been accumulated in said fund, at which time the party of the second part, or his assigns, is authorized, out of said fund, to pay said taxes and/or other liens, encumbrances or claims, for and on behalf of said party of the first part, and all such payments so made by the said party of the second part on account of royalty payments to be made in contemplation of this agreement.”

In (10) it is provided that this agreement is to be binding upon the parties thereto and their assigns and that the second party may lease or sublease all or any part of the properties and may assign, sell or otherwise dispose of “all rights, titles and interest which he may have or enjoy under and by virtue of this agreement, not only as to the lease, but likewise as to the bond, without the consent” of the first party, but that any such lease, sublease, or transfer shall be subject to all of the conditions “of this lease.”

On August 20, 1933, Staples and Fisher each signed a statement to the effect that he had full knowledge of the above agreement, and that said agreement was “hereby authorized and approved.” These statements are Exhibits 3 and 4. On the same day the five parties so far mentioned signed a notice stating that Staples and Fisher, as owners of the respective properties, had given leases and options to purchase to Hales, that Hales had given a lease with an option to purchase to Harper, that Harper had assigned the latter instrument to Raymond, and that Raymond had taken possession of the properties through Harper, as his manager. This notice was recorded on August 22, 1932.

It appears from the evidence that the appellant took charge of these properties on August 20, 1932, with Harper as his superintendent; that the appellant remained in Los Angeles except for occasional trips to the property; that Staples repeatedly informed the appellant that Harper was not properly operating the mines and that he (Staples) could produce better results; that the appellant installed Staples as superintendent on or about November 1, 1932; and that the amount of returns from the mines decreased from that time. During the fall of 1932 and for some time prior thereto two methods of mining had been carried on upon this property. In addition to the mining operations carried on by the lessees other operations were carried on by sublessees or so–called “leasers,” who received a certain proportion of the proceeds for their work. A part of the ore was handled in a mill upon the property and the rest was milled by the respondents Burton Brothers, who ran an independent mill. On September 6, 1932, the appellant gave written notice to Burton Brothers that the proceeds of all ore from these properties were to be sent to him. The appellant received certain proceeds up to January 1, 1933, but none thereafter.

On January 1, 1933, because of labor troubles and the inability to get money with which to operate, the appellant closed the mill and ceased the mining operations which he had been directly carrying on, but continued the operations through the “leasers.” At the same time Staples agreed to remain as superintendent to look after the property and the work done by the leasers with the understanding that he would charge his salary on the books, but that he could not be paid unless the property was sold. The appellant continued to write to Staples, addressing him as superintendent, and on several occasions sent prospective purchasers with directions to Staples to show them the property. Staples received from Burton Brothers the proceeds of all ores taken from the property which he originally owned. He testified that the appellant told him to take these proceeds and use them in keeping the properties going. It does not appear why he needed to use these proceeds, since the leasers were paying the expenses of their own mining. Fisher notified Burton Brothers that all of the proceeds from ore taken from the property which he originally owned must be retained for him and none of such proceeds were ever paid to the appellant. On June 26, 1933, Burton Brothers wrote the appellant that all royalty coming from the Fisher property was being held by them pending the outcome of a settlement between him and Fisher. Some time in November, 1933, these proceeds were paid to Fisher and certain other proceeds paid to Staples by Burton Brothers on the verbal statements of Staples and Fisher to the effect that the appellant was “out.”

In the meantime and about the middle of May, 1933, one of the leasers ran into what is called a “hot spot” from which ore of an unusual value was taken, which strike was never reported to the appellant. On May 12, 1933, Staples and Fisher gave notice to Hales that he was in default in his payments, and otherwise, under their leases to him. On May 15, 1933, Hales served written notice on the appellant that he was in default under the provisions of Exhibit 1, in that he had failed to pay the $3,500 due on January 1, 1933, and that he had failed to impound 15 per cent. of the net returns and apply the same as provided therein. He was further notified that unless he remedied these defaults within sixty days his rights in the lease and option would terminate without further notice. Staples ceased making charges on the books for his salary after July 15, 1933. The appellant continued to send prospective purchasers to the premises asking Staples to show them the property and about October, 1933, Staples and Fisher gave an option to a third party to purchase the property under an arrangement under which the appellant was to share in the proceeds. About November 1, 1933, L. J. Knight and Goodwin J. Knight showed an interest in purchasing these claims and the appellant sent L. J. Knight to Staples with the request that he show him the property. Shortly thereafter L. J. Knight and Goodwin J. Knight entered into new agreements with Staples and with Fisher to purchase the property, under which they took possession and have since continued operation of the properties. This action followed and the respondents contend that the appellant had forfeited all interest in the properties and the proceeds therefrom and that his rights were terminated when he failed to meet the requirements of the 60–day notice which was served upon him.

The briefs are voluminous, a large number of points are raised, and the respondents in particular quote and rely upon as conclusive a great deal of evidence which is merely conflicting and which must be disregarded under familiar rules, since the judgment here in question rests upon a directed verdict. It is impractical and unnecessary to consider all of the points raised and we therefore confine ourselves to the more important and controlling issues, disregarding evidence which is merely in conflict with other evidence more favorable to the appellant.

The respondents contend that the appellant was under obligation to comply with the provisions of Exhibit 1 and also to comply with the terms of the prior contracts under which Hales derived his rights from Staples and Fisher. The appellant contends that a surrender of Hales' title occurred by operation of law when Staples and Fisher authorized and approved the execution of Exhibit 1 by signing Exhibits 3 and 4 or that, under the circumstances, Hales must be taken to have been acting as the agent of Staples and Fisher in executing Exhibit 1, with the result that Exhibit 1 must be considered as being a contract between Staples and Fisher on the one hand and the appellant on the other. If the terms of all of the contracts had been performed in their entirety Hales would have received from the appellant more than twice the amount he was called upon to pay under his contracts with Staples and Fisher. There was no surrender of title by Hales within the meaning of the cases cited by the appellant nor does any agency relationship appear between Hales and his predecessors in interest. On the other hand, the evidence shows that Exhibits 3 and 4 were signed by Staples and Fisher upon the demand of the appellant, in order that he might be assured that he would get title to the properties if he complied with the terms of Exhibit 1. It follows that Exhibit 1 measures the rights and liabilities of the appellant and the three respondents just mentioned. It also measures the rights and liabilities of the respondents Knight since the evidence discloses that they contracted with Staples and Fisher with knowledge, both actual and constructive, of the interests of the appellant.

One of the main questions raised relates to the interpretation of Exhibit 1. The appellant maintains that this is a severable agreement containing a straight lease for five years with a separate and independent option to purchase. It is therefore argued that the appellant was entitled to possession of these premises and to share in the proceeds therefrom irrespective of whether or not he was in default in either of the respects set forth in the notice of forfeiture.

While some of the language used in Exhibit 1 seems to support the contention thus made, we are of the opinion that the two portions of this agreement referred to are so interrelated as to constitute one agreement and that the forfeiture provisions thereof, except as otherwise provided therein, apply to the contract as a whole. It is customary in such mining agreements to provide for possession by the other party for a sufficient length of time to enable him to determine whether or not he desires to exercise the option to purchase. While such an agreement might be so drawn as to constitute a lease for a definite time without regard to whether or not the option to purchase was exercised, we think the agreement in question cannot be so interpreted. The fact that the appellant agreed to take out the greatest amount of ore possible is inconsistent with the idea that the first payment of $5,000 was intended to cover the rental for a full five years without regard to the exercise of the option and the making of the other payments in connection therewith. While the purchase price named is $120,000, the payments named in the option provision amount to $115,000 showing that the first payment was considered a part of the purchase price. After the first payment of $3,500 on January 1, 1933, the payments named in the option provision extend over the same period mentioned in the lease, the last payment being on August 1, 1937. All of these payments are to be paid by applying 15 per cent. of the gross bullion or net smelter returns of all ore extracted, and it is further agreed that in the event such royalties are insufficient to meet the payments at specified dates throughout this term of five years the appellant shall make up any deficiency. The consideration for the lease is not merely $5,000 but also includes compliance with the “covenants and agreements hereinafter expressed.” The provision that the second party shall have and hold the property for the term ending August 1, 1937, is immediately qualified by the provision “unless sooner forfeited or determined through the violation of any covenant hereinafter against said tenant.” The covenants which follow that provision are set forth in paragraphs numbered from 1 to 10. The option agreement, with the forfeiture clauses, are among the covenants thus set forth. The forfeiture clause refers to “this agreement” and “this contract” and not merely to the option portion thereof. Viewing this agreement as a whole, we feel it must be held that the purported lease for five years is not severable from the other covenants set forth and that the appellant was not entitled to possession of the premises for that term in the absence of compliance with the other provisions of the contract, unless compliance therewith was waived or prevented by acts of the other parties thereto.

Under this view of the contract, the next question is whether it must be said that the appellant failed to perform the contract in the respects set forth in the forfeiture notice. According to that notice the only default or failure to perform claimed is that the appellant failed to pay $3,500 on January 1, 1933, and that he failed to impound 15 per cent, of the net returns and apply the same as provided in the agreement. It is conceded that the $3,500 was not paid on January 1, 1933, and the question is whether the failure to make this payment placed the appellant in default.

Paragraph 8 of Exhibit 1 provides that the forfeiture clause shall not be operative until 15 per cent. “of the net returns payable to” the appellant shall have amounted to $2,100, save and except for failure to do the minimum amount of work required by the agreement. The notice of forfeiture made no claim that the minimum amount of work had not been done and the most that can be said of the evidence in that regard is that it is in conflict. There is direct evidence that 15 per cent. of the net returns payable to the appellant amounted to $1,312.31 up to the time it is claimed the forfeiture took effect. This omits certain royalties which Staples received from the strike in the “hot spot” which he secreted and for which he failed to account to the appellant. If those royalties be added there is evidence that the total amount did not equal $2,100.

While the respondents point to certain other evidence indicating total net returns payable to the appellant in excess of $2,100, that evidence merely raises a conflict. Not only did this present a question of fact, but the evidence thus relied on by respondents includes returns which became payable in May, June, and July, 1933, after the notice of default was given, although such returns were not actually received by the appellant. It would seem to appear, even from the evidence relied upon by the respondents, that 15 per cent. of the net returns had not amounted to $2,100 at the time notice of default was served on May 5, 1933. If the appellant was not then in default the notice was ineffective. That notice did not purport to specify that 15 per cent. of the net returns then amounted to $2,100 or that any payments had then become due, other than that the appellant was in default in that he had “failed to make the payment of $3500 which was due and payable on January 1st, 1933.” While that amount was due and payable on that date, a forfeiture for failure to pay could not be declared, under the plain provisions of the contract, until something else occurred. It is clear that no right of forfeiture existed on January 1, 1933. If such a right ever accrued it was because of something that occurred after that date. It may be seriously questioned whether a valid notice of default and forfeiture was ever served, under the facts now appearing in the record.

It should be further observed in this connection that other evidence raises the question whether performance by the appellant, in making payments called for by the contract, was not excused and prevented by acts on the part of the respondents. The requirement of the contract that deeds signed by the owners of the mining claims should be placed in escrow with a named trust company was not complied with. While the respondents seek to excuse their failure to perform this covenant a question of fact was presented as to whether they were not themselves in default. There is also evidence that Burton Brothers, apparently upon demand of Fisher, withheld certain moneys from the appellant which should have been paid to him; that Staples concealed from the appellant knowledge of large amounts of ore taken out and retained the proceeds therefrom; and that both Burton Brothers and Staples failed to make reports to the appellant which they had agreed to make relative to the amount of ore taken out and the disposition of the proceeds therefrom. While the respondents point to other evidence on these matters, the resulting conflicts merely present questions of fact. Under the entire evidence the question of whether the appellant was in default at all, in failing to make any payment required by the contract, is a question of fact.

The other ground of forfeiture set forth in the notice, a failure to impound the 15 per cent. royalty until an amount was produced sufficient to pay and discharge accrued taxes and other liens, could not, under the provisions of the contract, constitute a ground of forfeiture until the amount of royalties or net returns equalled the sum of $2,100. It may be further observed that the situation in this respect is also affected by the failure of the respondents to pay over to the appellant certain moneys to which he was entitled, according to the evidence favorable to him, as well as by the acts of Staples in concealing and retaining certain proceeds.

Another question of fact is presented with relation to the accounting asked for by the appellant. In any event, the evidence on behalf of the appellant, if believed, would justify and support a judgment for him in some amount and the court erred in treating this evidence as entirely insufficient to sustain any judgment.

The respondents Burton Brothers contend that the directed verdict was proper and should be sustained in so far as they are concerned. Aside from any other consideration, there is evidence that they agreed with the appellant to handle certain ores from these properties and to account to him for the proceeds; that they handled large amounts of such ore; that they failed to make full reports and accounts to the appellant; that they wrote him that all royalty coming from the Fisher property was being held by them pending the outcome of a settlement between him and Fisher; and that later they paid these proceeds to Fisher and certain other proceeds to Staples without the consent of the appellant on the verbal assurance of Staples and Fisher that the appellant had no further interest in the matter. A full settlement of all of the issues involved in this action requires the continued presence of these parties.

The rules governing the directing of verdicts are well settled and need not be here repeated. In our opinion, the evidence in the record discloses a number of questions of fact which should have been passed upon as such and which require a retrial of the action.

For the reasons given the judgment is reversed.

BARNARD, Presiding Judge.

We concur: MARKS, J.; JENNINGS, J.

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