RENNER v. HUNTINGTON HAWTHORNE OIL GAS CO

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District Court of Appeal, Fourth District, California.

RENNER v. HUNTINGTON HAWTHORNE OIL & GAS CO. et al.

Civ. 4182.

Decided: November 30, 1951

Mize, Kroese, Larsh & Mize, Santa Ana, and Newby, Holder & Newby, Los Angeles, for appellants, Invader Oil Co., William Elvert McCaslin and E. B. Kenney. Ben F. Griffith, Los Angeles, for appellants Huntington-Hawthorne Oil & Gas Co. and L. L. Vogel. Blodget, Morris & Blodget, L. W. Blodget and June E. Blodget, Santa Ana, for respondent.

This is an appeal from a judgment for plaintiff in an action to quiet title to real property in Orange county. It was stipulated that plaintiff is the owner of the fee title to the real property involved, subject to the validity of the claims of the stipulating defendants, which claims are based upon and grew out of an oil and gas lease on the premises, executed April 23, 1921, by A. J. Miller, plaintiff's predecessor in title. It was further stipulated that plaintiff's contention is that the term of said lease has expired; that subject to the validity of said contention, the defendants, by mesne assignments and agreements, are the owners of certain production interests under the lease and that Invader Oil Company, a corporation, is in physical possession of the property.

The lease contains the following pertinent provisions:

‘1. The Lessee shall hold said lands with appurtenances for a period of twenty (20) years from and after the date hereof and so long thereafter as oil or gas or other hydrocarbon substances can be secured therefrom in paying quantities within the definition hereinafter particularly specified, unless otherwise surrendered or forfeited by the Lessee, and the Lessee hereby leases from the Lessor the above described lands for the purposes and term aforesaid and upon the conditions and considerations herein set forth.

‘2. Oil in paying quantities shall be understood to mean a well drilled from which there may be pumped for a period of thirty (30) consecutive days a quantity of oil which shall average fifty (50) barrels of oil of forty-two (42) gallons each per day.

‘3. The Lessee agrees to operate each completed well on the premises to its full capacity, so long as such well shall produce oil in quantities deemed paying quantities within the definition aforesaid, while this lease is in force as to the portion of the premises on which such well is situated; provided, however, that nothing in this paragraph shall be construed as to require the Lessee to maintain such well to such capacity as would, within the judgment of experienced oil men, possibly result in the destruction of such well.’

There is only one oil well on the property and it is designated in the record as ‘Miller Well No. 1 A’. It commenced production on or about August 1, 1923, and initial production was about 650 barrels of oil per day. From January 1, 1941 to January 1, 1949, the oil produced averaged less than 50 barrels of 42 gallons each for 30 consecutive days. However, total production for this period was over 90,000 barrels and averaged over 11,000 barrels per year. At the time of trial and for several years prior thereto the well produced between 30 and 40 barrels per day.

The trial court found that the lease involved expired by its own terms on April 23, 1941 and further found ‘that said well cannot be made to produce at the rate of 50 barrels of oil per day for 30 consecutive days, and it is not true that since April 23, 1941, oil or gas or other hydrocarbon substances may be pumped therefrom in paying quantities within the definition particularly specified in the lease.’

Defendants appeal from the judgment decreeing a termination of the lease and quieting plaintiff's title to the property. The first contention is that the trial court's finding ‘that said oil and gas lease expired by its own terms on April 23, 1941’, is not supported by the evidence and is in conflict with other findings. This contention is supported by the record before us. The lease, by its terms, does not automatically terminate twenty years from the date of its execution but continues in full force and effect ‘so long thereafter as oil or gas can be secured therefrom in paying quantities as defined in the lease.’ (Italics ours.) The evidence fully supports the finding that oil was not produced to the extent of 50 barrels for 30 consecutive days since January, 1941. However, the finding that it could not be made to produce the stated quantity is not supported by substantial evidence.

In this connection, Mr. Camp, experienced in drilling and producing wells, and well acquainted with the well involved, testified that in his opinion it could be made to produce 50 barrels of oil per day for 30 consecutive days and ‘may be some time longer.’ Mr. Thompson, an oil well drilling contractor, stated that the Miller well could be pumped so that it would produce an average of 50 barrels a day over a 30-day consecutive period, but that such production might result in its destruction in 80 or 90 days, or longer. Mr. Kenney, an oil producer with 28 years experience, also testified that oil could be secured or pumped from this well averaging 50 barrels per day for a period of 30 days but that such production would probably result in the destruction of the well any time after approximately 45 days. Mr. Maderas, an oil producer called by plaintiff, when asked a lengthy hypothetical question stating many of the conditions existing in the Miller well, stated that it could not be made to produce 50 barrels of oil per day for a period of 30 days ‘for long and have oil.’ As the trial court remarked, this witness was testifying from a hypothesis rather than from personal knowledge.

The foregoing testimony is not sufficient to support the finding that the Miller well could not be made to produce 50 barrels of oil per day for 30 consecutive days.

The lessees were not required by the lease to maintain the Miller well to such capacity as would, within the judgment of experienced oil men, possibly result in the destruction of the well. The record clearly shows that defendants chose to operate the well on a 30 to 40 barrel a day production, economically, efficiently and without possibly destroying the well. All parties apparently were satisfied with this arrangement until the filing of the present action.

It was stipulated that from January 1, 1941, to and including December, 1948, plaintiff and her predecessors in interest received 14% royalty or percentage of cash received by defendants for oil and gas produced from the Miller well. The plaintiff and her predecessors in interest consented to the production and sale of oil and gas under this arrangement for a period of several years and thereby placed their own construction on the lease to the effect that it was and is a binding lease and not subject to cancellation under the circumstances shown. The acceptance by plaintiff of the royalties due her under the lease over a period of years without objection and her consent to the continued production of oil, though less than 50 barrels per day, amounted to a waiver of the right to cancel the lease without notice. Kern Sunset Oil Co. v. Good Roads Oil Co., 214 Cal. 435, 443–444, 6 P.2d 71, 80 A.L.R. 453. As was said in Medico-Dental Bldg. Co. v. Horton & Converse, 21 Cal.2d 411, 432, 132 P.2d 457, 469: ‘Waiver may be shown by conduct; and it may be the result of an act which, according to its natural import, is so inconsistent with the intent to enforce the right in question as to induce a reasonable belief that such right has been relinquished.’

In this connection, it is to be observed that the provision of the lease defining ‘oil in paying quantities' does not refer to ‘gas' to be produced from the well, and the evidence shows that gas was at all times produced and sold from the well involved of the approximate value of $3,100 per year and that plaintiff received as royalty 14% of said amount in monthly installments to the date of trial.

The lease also contained the following provision: ‘If the Lessee shall fail for a period of sixty (60) days after written notice given to it by the Lessor to comply with any provision of this lease, the Lessor may, at his option terminate this lease.’

The trial court expressly found that no such notice was given. As was said in Jameson v. Chanslor-Canfield Midway Oil Co., 176 Cal. 1, 3–6, 167 P. 369, 371: ‘It is only upon the giving of this notice and the failure to perform the conditions mentioned therein that the forfeiture can be declared. This is the condition which must happen in order to give a right to declare the forfeiture. The condition cannot be said to have happened upon notification given by some of the parties of the first part or any number of them less than all. After the notification has been given by all of the parties a forfeiture may be brought about only ‘if said first parties shall so elect.’ Here again the action of all of said first parties is necessary to the happening of the condition.'

In the instant case we conclude that cancellation of the lease could not take place without written notice of default since the lessee under the circumstances shown had the right to assume that the continued production of the Miller well on the same scale for many years was satisfactory and that the lessee would not be put in default until the expiration of the specified written notice of sixty days and its failure to remedy the breach if any existed. If such a notice had been served, the lessee would have had an opportunity to produce the specified quantity of oil for a period of thirty days even though such production might, in the opinion of experienced oil men, result in the destruction of the well.

In support of her contention that the lease herein expired by its terms when the well ceased to produce 50 barrels of oil per day for 30 consecutive days, plaintiff cites Woodruff v. Brady, 181 Okl. 105, 72 P.2d 709, 113 A.L.R. 391. In that case the lease was for the term of five years and contained the following provision: ‘It is agreed that this lease shall remain in force for a term of five years from this date, and as long thereafter as oil or gas, or either of them, is produced from said land by the lessee’. It was admitted that there was no well upon the premises from which oil could be produced. In the instant case the Miller well was producing 30 to 40 barrels per day. In the Woodruff case there was no mention of a provision in the lease such as we have here, viz.: that the lessee need not destroy the well in order to produce from it 50 barrels of oil per day. In Macco Construction Co. v. Fickert, 76 Cal.App.2d 295, 172 P.2d 951, also cited by plaintiff, the lease involved was for a term of 20 years with a provision that lessee might retain and operate all wells on the premises then producing oil in paying quantities. Paying quantities was defined as production of at least an average return per month of 150 barrels of oil. The court held that the lease had expired without the presence of the conditions specified therein as prerequisite to its extension and that a notice of termination of the lease was unnecessary; that a forfeiture is not involved where an oil lease provides that the premises must be producing oil or gas in paying quantities at the expiration of the term specified. The well involved was not producing oil in any amount but was in an abandoned state and the court said, 76 Cal.App.2d at page 302, 172 P.2d at page 956: ‘Since it was producing nothing and was incapable of producing anything on the expiration date of the lease by reason of the failure on the part of appellants to maintain a pumping equipment, the rights of the lessees thereafter to produce from the well terminated on the expiration date.’

The court also stated, 76 Cal.App.2d at page 304, 172 P.2d at page 957: ‘Production is specified as a condition precedent to an extension, and unless it be established that the well was producing on the expiration date or that a condition excusing such production obtained the lessee fails to present a valid claim to possessory and exploratory or operative rights.’

In the instant case the evidence is that the well was producing and a condition excusing production obtained, in that the parties by their acts and conduct approved production in a quantity less than 50 barrels of oil per day. Both of the cases cited by plaintiff are factually different from the case at bar. Furthermore, in the instant case no test was made to determine whether the Miller well could be made to produce 50 barrels of oil per day, and, as noted, the evidence was that the well could be made to produce such an amount of oil but that such production would be likely to destroy the well in time.

Since we have concluded that the trial court's findings that the lease terminated April 23, 1941, and that the Miller well could not be made to produce at the rate of 50 barrels of oil per day are not supported by substantial evidence, it is unnecessary to pass upon the remaining questions presented in this appeal.

Judgment reversed.

MUSSELL, Justice.

BARNARD, P. J., and GRIFFIN, J., concur.

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