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No. 12864 I N THE SUPREME COURT O THE STATE O M N A A F F OTN 1975

WAYNE CARROLL, P l a i n t i f f and Respondent,

RANDALL N.

EATON e t a 1. , Defendants and A p p e l l a n t s .

Appeal from:

D i s t r i c t Court o f t h e F i f t h J u d i c i a l D i s t r i c t , Honorable Frank E. B l a i r , Judge p r e s i d i n g .

Counsel o f Record: For A p p e l l a n t s :
R. Thomas G a r r i s o n a r g u e d , V i r g i n i a C i t y , Montana

F o r Respondent : C h e s t e r L. J o n e s a r g u e d , County A t t o r n e y , V i r g i n i a C i t y , Montana

Submitted: Decided; ,

September 11, 1975
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M r . J u s t i c e John Conway Harrison d e l i v e r e d t h e Opinion of t h e Court.

I n t h i s a p p e a l t h i s Court i s asked t o c o n s i d e r and review t h e r i g h t s of t h e p a r t i e s concerning t h e c o n s t r u c t i o n of a mining l e a s e . Judgment f o r p l a i n t i f f Wayne C a r r o l l was e n t e r e d

June 1 0 , 1974, i n t h e d i s t r i c t c o u r t , Madison County, and from t h a t judgment d e f e n d a n t s Randall Eaton, M. P. Middleton and John B o l i n g e r a p p e a l . The p r o p e r t i e s which a r e t h e s u b j e c t of t h e c o n t e s t e d l e a s e a r e known a s t h e '94ogul Claims", located i n t h e Gravelly The b u s i n e s s d e a l i n g s O n

Range Mining D i s t r i c t of Madison County.

between t h e p a r t i e s r e g a r d i n g t h i s land d a t e back t o 1963.

September 20, 1963, C a r r o l l , a s l e s s e e , executed a mining l e a s e w i t h Eaton i n d i v i d u a l l y , and a s a t t o r n e y i n f a c t f o r M.P. t o n , a c i t i z e n and r e s i d e n t of Canada. Middle-

The l e a s e was t o extend
9 :

f o r two y e a r s "and a s long t h e r e a f t e r a s o r e o r m i n e r a l s

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s h a l l b e produced from s a i d premises i n commercial q u a n t i t i e s .

Upon t h e l e s s e e ' s f a i . l u r e t o produce o r e , t h e l e a s e was allowed t o terminate.
A second l e a s e was d r a f t e d by C a r r o l l , and was executed

by t h e same p a r t i e s on August 16, 1965.
II

I n t h i s document, t h e

kabendum c l a u s e " , o r t h a t p a r t of t h e l e a s e which d e s c r i b e s i t s The l e a s e a g a i n

d u r a t i o n , was s e t o u t i n much g r e a t e r d e t a i l .

e s t a b l i s h e d a "primary term" of two y e a r s and a " t h e r e a f t e r term" which was dependent upon t h e production of o r e i n commercial q u a n t i t i e s f o r i t s length. D e f i n i t i o n a l and d e l a y r e n t a l p r o v i s i o n s

were a l s o i n c l u d e d i n an a t t e m p t t o s p e c i f y t h e r i g h t s of t h e parties : "Commercial q u a n t i t i e s s h a l l b e and i s hereby d e f i n e d a s t h a t q u a n t i t y n e c e s s a r y t o produce t o f i r s t p a r t i e s a t l e a s t $500.00 p e r y e a r . And i n t h e event of no o p e r a t i o n s upon s a i d mining c l a i m s , t h e payment by second p a r t y t o f i r s t p a r t y of t h e sum of $500.00 p e r y e a r a s minimum d e l a y r e n t a l s h a l l be s u f f i c i e n t t o hold s a i d mining c l a i m under t h i s l e a s e and t o keep t h e same i n good s t a n d i n g . I I

Pursuant t o l e a s e p r o v i s i o n s , t h e l e s s e e tendered payments of $500 t o t h e l e s s o r s i n 1966, and a g a i n i n 1967.
A t h i r d payment

of $500 i n d e l a y r e n t a l was tendered by t h e l e s s e e f o r t h e purpose of extending t h e l e a s e a n o t h e r y e a r . Lessors accepted t h e payment

without any a t t e m p t t o d e c l a r e a f o r f e i t u r e o r t e r m i n a t e t h e l e a s e , t h e r e b y extending i t f o r a period of one y e a r . I n 1968, t h e p a r t i e s e n t e r e d i n t o a new l e a s e , w i t h p r o v i s i o n s i d e n t i c a l t o t h o s e found i n t h e 1965 l e a s e . In l i e u

of production, t h e l e s s e e tendered payments o f $500 f o r t h e y e a r s 1969 and 1970.
A s he had done p r e v i o u s l y , t h e l e s s e e a g a i n t e n -

dered a t h i r d d e l a y r e n t a l payment f o r t h e purpose of extending the lease another year. on August 16, 1971. The check was r e c e i v e d by t h e l e s s o r s

Lessee heard n o t h i n g f u r t h e r u n t i l t h e check

was r e t u r n e d t o him on A p r i l 17, 1972, more than e i g h t months a f t e r t h e check had been r e c e i v e d by t h e l e s s o r s . Lessor Eaton t e s t i f i e d t h a t he was employed o u t of s t a t e d u r i n g most of t h e time between August 1971 and A p r i l 1972. He

a l s o s t a t e d he knew of t h e e x i s t e n c e of t h e check, i n s t r u c t e d h i s w i f e t o r e t u r n i t , and t h a t h i s absence from t h e s t a t e r e s u l t e d i n h i s i n a b i l i t y t o ensure t h e check was r e t u r n e d w i t h i n a r e a s o n a b l e time. I n September 1971, Eaton e n t e r e d i n t o a n o t h e r l e a s e ~ ~ i t h C a r r o l l continued t o t e n d e r d e l a y r e n t a l payments

John E o l i n g e r .

through t h e y e a r s 1972 and 1973 i n o r d e r t o p r o t e c t h i s r i g h t s . Both checks were promptly r e t u r n e d by l e s s o r s . Under t h e s e f a c t s , t h e d i s t r i c t c o u r t found t h e p a r t i e s intended t h a t t h e l e a s e be extended, and t h e l e s s e e was e n t i t l e d t o , and i n fact d i d r e l y t o h i s detriment upon l e s s o r s ' r e t e n t i o n o f h i s check a s c o n f i r m a t i o n and v a l i d a t i o n of t h e l e a s e and i t s extension. O a p p e a l , i t i s contended t h a t t h e d i s t r i c t c o u r t n

e r r e d i n i t s c o n s t r u c t i o n o f t h e l e a s e and i n i t s a p p l i c a t i o n o f t h e d o c t r i n e of e q u i t a b l e e s t o p p e l . W disagree. e

T r a d i t i o n a l l y , mining l e a s e s

iil

Jloneana and elsewhere have Under t h e p r o v i s i o n s

Seen d r a f t e d i n two b a s i c and d i s t i n c t forms.

. ~ f "or" t y p e l e a s e , t h e l e s s e e i s o b l i g a t e d t o produce o r pay an
delay r e n t a l s . The l e a s e can t e r m i n a t e o n l y by mutual consent of

]:he p a r t i e s d u r i n g t h e primary term, f a i l u r e t o pay d e l a y r e n t a l s o r an ~ction by t h e l e s s o r t o d e c l a r e t h e l e a s e f o r f e i t e d . Hager-Stevenson O i l Co., McDaniel v. When i t

75 Mont. 356, 365, 243 P. 582.

dppears t h a t t h e p a r t i e s have executed an "unless" t y p e l e a s e , t h e 1-essee h a s t h e o p t i o n t o produce, pay d e l a y r e n t a l s , o r do n e i t h e r , a l l without i n c u r r i n g o b l i g a t i o n . ~ e r m i n a t i o ni n f a v o r of t h e l e s s o r . But f a i l u r e t o a c t i s automatic Irwin v. Marvel Petroleum Corp.,

139 Idont. 413, 365 P.2d 221.
Here, t h e t r i a l c o u r t p r o p e r l y found t h a t t h i s was an
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o r " t y p e l e a s e i n which t h e l e s s e e was r e q u i r e d t o e i t h e r produce

o r pay d e l a y r e n t a l s .

A s noted from t h e c a s e s c i t e d , one r e l i a b l e

me~hodof determining what t y p e of l e a s e i s i n t e n d e d i s t o look a t
t h e n a t u r e of t h e o b l i g a t i o n s i n c u r r e d by t h e l e s s e e .

Here, t h e l e a s e terms o b l i g a t e d t h e l e s s e e t o pay d e l a y r e n t a l s i n l i e u of production f o r t h e primary period of two y e a r s , i n o r d e r t o keep t h e l e a s e
II

i n good s t a n d i n g " .

]Tad t h e l e s s e e de-

f a u l t e d i n t h e s e payments, t h e l e s s o r s would c e r t a i n l y have had t h e option due. t o i n s i s t upon f o r f e i t u r e o r waive i t and s u e f o r t h e r e n t a l s

Thus t h e p a r t i e s c l e a r l y contemplated an "or" l e a s e , and a s

such, i t was incumbent upon t h e l e s s o r s t o d e c l a r e a f o r f e i t u r e a t t h e c l o s e of t h e primary term, i f t h a t was d e s i r e d .

I t i s a p p a r e n t from t h e r e c o r d t h a t no such a c t i o n was
taken by t h e l e s s o r s . The o n l y r e s p o n s e t o t h e l e s s e e ' s t e n d e r of

d e l a y r e n t a l s was t o hold t h e same f o r a p e r i o d of time i n e x c e s s of e i g h t months. T h e r e f o r e , t h e n e t r e s u l t of the l e s s e e ' s t e n d e r

of payment was a v a l i d andkinding e x t e n s i o n o f t h e l e a s e .

Having r e s o l v e d t h i s q u e s t i o n on t h e l a w , t h e r e i s
n o need t o d i s c u s s t h e d o c t r i n e of e q u i t a b l e e s t o p p e l o r i t s

applicability to the facts. Judgment of t h e d i s t r i c t c o u r t i s a f f i r m e d .

'Justice

E

V e Concur:

Justices.



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