Jones v. Southern Natural Gas Co.

In my opinion the proof offered by the plaintiff successfully refutes the contention of the defendant that the maxim "de minimis non curat lex" is applicable to this case.

As I appreciate the pleadings in this case and the argument before this court, the only other defense of the defendant to the cancellation of this lease is that the plaintiff is estopped to demand such cancellation. In my opinion the doctrine of estoppel urged by defendant can have no application to this case.

The specific plea of the defendant is that the plaintiff is estopped to assert that the lease has terminated with respect to the assigned acreage, for the reason that she accepted the delay rental of $300 deposited to her credit and did not complain that it was insufficient until long after the date on which this rental was payable.

The law is well settled in our state that, to effect an estoppel by silence, the party relying upon the doctrine must affirmatively show that the person estopped had full knowledge of the facts and of his rights; that he had an intent to mislead or at least a willingness that others should be deceived; that the other party was misled by his attitude. Mere silence itself will not create an estoppel, and, for silence to operate as such, the circumstances must have been such as to create a duty to speak, and there must have been an opportunity to speak. It is essential that the party to be estopped should have hadknowledge of the facts, and that the adverse party should have been ignorant of the truth and have been misled into doing something that he would not have done but for such silence. See Parker et al. v. Ohio Oil Co., 191 La. 896, 186 So. 604; Harvey v. Richard et al., 200 La. 97, 7 So. 2d 674, and authorities therein cited.

The rule with reference to estoppel by acceptance of benefits is that, to create such an estoppel, it is essential that the person against whom the estoppel is claimed should have acted with knowledge of the facts and of his rights; that the party claiming the estoppel should have been without knowledgs or means of knowledge of the facts on which he bases his claim of estoppel, and that he must have been misled to his prejudice. See 31 C.J.S., Estoppel, § 190 (b), page 349.

It may be that defendant's plea should be construed as a plea of election or inconsistent positions. According to the text writers, there is some doubt whether the plea of election or inconsistent positions is, strictly speaking, a plea of estoppel, although it is often treated as such in a discussion of estoppel. The rule as to this plea is given by Bigelow on Estoppel (Carter's 6th Ed. 1913), Ch. XX, p. 732, as follows:

"A party cannot either in the course of litigation or in dealings in pais occupy inconsistent positions. Upon that rule election is founded; ``a man shall not be allowed', in the language of the Scotch law, ``to approbate and reprobate.' And where a man has an election between several inconsistent courses of action, he will be confined to that which he first adopts; the election, if made with knowledge of the facts, is in itself binding, — it cannot be withdrawn without due consent; it cannot be withdrawn though it has not been acted upon by another by any change of position. * * *" (All italics mine.)

Estoppel is not favored under our jurisprudence, and the burden of proving the facts to establish it rests upon the one relying on the doctrine. In the instant case the defendant has not assumed this burden or made any effort to prove that Mrs. Jones actually had knowledge of the fact that it had made an insufficient delay rental payment to her. I would feel constrained, however, in the interest of justice to regard the plea of estoppel as valid if the facts and circumstances of this case were such that this knowledge could necessarily be imputed to her.

It is my belief that the concurring opinion of Justice Fournet overlooks the fact that Mrs. Jones could not have elected to accept the $480 as total payments for delay rentals for the period September 8, 1944, to September 8, 1945, unless she had either actual or imputed knowledge of the true facts.

The record discloses that before the first anniversary date of the lease the lessee named therein made two assignments, one being to defendant, and a third assignment was made before the second anniversary date. The lease permitted and authorized such assignments, but the plaintiff was not a party thereto, and did not have knowledge of the area assigned to each, even if she actually knew assignments had been made. It naturally follows that on the first anniversary date she did not know the parties who would pay delay rentals, the area of their respective assignments, and the acreage contained therein. At the first date on which delay rentals were payable, she received only $480 from all parties paying delay rentals under the lease instead of the $518.82 stipulated; but even this fact did not inform her that the defendant was paying an insufficient amount for the surface area contained in its assignment. This is undoubtedly true for the reason that the deposit slip which the bank sent to her showing the deposit made by defendant did not contain any description of the property covered by defendant's assignment; but, even if it had, I have serious doubt that it was her duty to do what the defendant had chosen not to do — that is, to calculate the acreage with certainty — and to inform defendant of its error.

It is entirely possible that, in a lease permitting assignments such as this, the original lessee or one or more of his assignees may have elected not to pay the delay rentals, and in this event the amount deposited to plaintiff's credit as delay rentals by those assignees desiring to maintain the lease as to their respective assigned surface areas would necessarily be less than the amount of delay rental named in the lease. The mere fact, therefore, that only $480.00 was deposited to plaintiff's credit did not impose upon her the duty of checking the records to ascertain what assignments had been made, which assignees had paid their rentals, whether these rentals were sufficient, or whether the original lessee or any of its assignees had elected not to pay the delay rental and drop the lease.

The record does not affirmatively show at what exact date Mrs. Jones, the plaintiff, became aware that defendant had paid an incorrect amount of delay rental, and under the circumstances of this case I cannot say that such knowledge was necessarily imputed to her at a date prior to her demand for a release contained in her letter of September 10, 1945.

Although Mrs. Jones drew against the amount of the first rental payment deposited in her checking account, defendant has not shown or proved to my satisfaction that plaintiff had knowledge when she made such withdrawals that an incorrect amount had been paid. In view of the surrounding circumstances as set forth hereinabove, I have concluded that she had no knowledge of defendant's error.

My conviction that this knowledge cannot be imputed to the plaintiff is strengthened by the statement in defendant's brief that "Mrs. Jones accepted said rentals doubtless believing at the time that she had been paid the correct amount of rentals."

On the argument of this case the majority of this court was apparently impressed by the fact that the plaintiff failed to tender to defendant the amount of the first delay rental payment. The defendant does not complain of this fact, and Mrs. Jones herself does not contend that she is rightfully entitled to this amount. As to the second deposit of $300, Mrs. Jones informed defendant by letter that this deposit made by it was still in the bank, and that she had not accepted or used it, and did not intend to accept or use it.

Under these facts and circumstances, since Mrs. Jones acted in good faith and without knowledge of defendant's error in payment, none of the rules relative to estoppel as set out hereinabove is applicable to this case, and in my opinion defendant's plea is without merit.

Defendant relies strongly on a recent case from another jurisdiction to sustain the plea of estoppel in the instant case. Humble Oil Refining Co. et al. v. Harrison, Tex.Sup., 1947, 205 S.W.2d 355. Without expressing an opinion as to whether the doctrine of equitable estoppel was properly applied in that case, I conclude that the facts and circumstances of that case distinguished it completely from this one. In that case a grantee under an ambiguous mineral deed to which he was a party was paid an insufficient amount of delay rental by a lessee which was not a party to the mineral deed, under leases covering the land described in the deed. The court held that the mineral owner was estopped to assert that the leases had expired as to his interest because he was silent after he knew that the lessee had misconstrued the deed, and failed to notify the lessee of the proper construction. There the person against whom the estoppel was urged had the advantage of knowing what the one urging the estoppel could not know — that is, what was intended by the ambiguous mineral deed The defendant in the instant case, Southern Natural Gas Company, being a party to the assignment and familiar with the description of the property contained therein, certainly had means and ways of ascertaining the surface area of its assignment and computing the correct rental payments, and it was in a better position than plaintiff to make this calculation. That case can be distinguished on other grounds also, but this distinction effectively disposes of the case as to the question of knowledge of the person estopped.

In my opinion the error of the majority has been induced by a lack of appreciation of the difference between the "drill or pay" type lease and the "unless" type lease. This is demonstrated by the fact that the rule applicable to the forfeiture of the "drill or pay" type lease was applied in this case to an "unless" type lease, and that a case which obviously involved a "drill or pay" type lease, Monarch Gas Co. v. Roy,81 W. Va. 723, 95 S.E. 789, has been cited in support of that rule.

It will be observed that the lease in the instant case is of the type or kind known as the "unless" lease, as distinguished from the "drill or pay" type. Under an "unless" lease, the lessee is under no duty either to drill or to pay delay rentals; if he either pays or drills, the lease remains in effect, but, if he does neither, it ipso facto terminates at the time of default. It will be observed also that the forfeiture clause in the "unless" lease is for the benefit of, and exercisable by, the lessee or his assigns alone.

The difference in these types of leases has been clearly set out by Summers, thus:

"Sec. 452. When the ``unless' drilling clause is used, the lessee does not covenant to drill or pay. The clause relative to the drilling of wells within a stated time, or the periodic payment of money, is used, not for the purpose of fixing a duty upon the lessee to drill or pay, but to state a limitation upon which the lease terminates if these acts are not performed. Consequently, if the lessee fails to drill within the stipulated time, the lessor cannot recover in an action for rent, or recover in an action for damages for failure to drill, for the obvious reason that there is no duty upon which to found such actions.

"Where the ``drill or pay' clause is used, the courts uniformly hold that the interest of the lessee is subject to be defeated by breach of conditions subsequent; that is, the failure of the lessee to drill or pay within the time or times stipulated in the lease. The power to forfeit the lease is for the benefit of and exercisable by the lessor or his assigns only. Before the lease is terminated by this power there must be a declaration of forfeitures by the lessor and a perfection thereof by re-entry, action, or other operative act. But where the ``unless' drilling clause is used a failure of the lessee to drill or pay a stipulated sum of money ipso facto terminates the lease without the necessity of re-entry, action, or their equivalents by the lessor. * * *" 2 Summers, Oil and Gas, Perm.Ed., Section 452, pp. 494-497.

The power to forfeit the lease at any of its anniversary dates by failure to pay the delay rentals according to the provision of the lease being exclusively in the lessee or his assigns, it naturally follows that in the instant case, upon failure to drill, for lessee or his assigns to continue the lease in full force and effect beyond each anniversary date, it was their duty and plain obligation to pay the delay rentals as provided therein. The lease in this case plainly stated that, in the event of an assignment as to any segregated portion of the property described therein, the rental payments thereunder should be apportionable as between the several leasehold owners ratably according to the surface area of each. This being so, in order to keep the lease in force by the payment of delay rentals, it was the duty of the assignee, defendant herein, to ascertain the surface area of the property described in its assignment and pay rentals in accordance therewith. Upon its failure to pay the proper rental in accordance with the terms of the lease, the lease as to the assigned area lapsed and expired ipso facto.

By its failure to observe the difference in the "drill or pay" type lease and the "unless" type lease, the court has failed to recognize that the rule that equity abhors a forfeiture is not applicable in this case. Counsel for defendant urged in oral argument and in brief that forfeiture of a contract or of a party's rights under a contract is one of the harshest civil remedies known to the law and generally is not favored by the courts, and they invoked the court to apply that rule in the instant case. That this rule could have no application here is correctly pointed out by Summers:

"* * * It is no doubt true that, where an ``unless' lease has terminated for the failure of the lessee to drill test wells or pay delay rentals within time or times stipulated, the lessor has a right to have the cloud thereof removed from his title. Many actions for this purpose are brought by lessors, andsome courts, either through failure to carry through thewell-recognized distinction between the ``or' and the ``unless'provision, or through negligent habits in the use of terms,speak of these actions as the enforcement of forfeitures, andview them with the same grave concern that they do forfeituresfor breach of conditions subsequent. In some instances, however, courts have held that such actions are not really enforcement of forfeitures and are not affected by the rule that equity abhors a forfeiture.

"Regardless of the terminology used by the courts in reference to the termination of the ``unless' lease for failure of the lessee to drill or pay rentals, suits for cancellation of suchleases after their termination for such failures are, in thebetter reasoned cases, decided upon principles of law and equity differnet from those involved in the enforcement offorfeitures of the ``drill or pay' lease. * * *" 2 Summers, op. cit. supra, Section 452, p. 499.

The distinction in these types of leases has been correctly recognized by the Court of Civil Appeals of Texas in the case of Ford v. Cochran et al., Tex.Civ.App., 1920, 223 S.W. 1041, 1042, which involved an "unless" type lease:

"By another assignment [of error] it is insisted that as the rental was tendered on March 7th, only six days after it was due, and prior to such tender plaintiff had not been notified by the lessors of their claim of forfeiture, the court erred in rendering a judgment of forfeiture. In other words, as we interpret the assignment, it is to the effect that time was not of the essence of the contract, and that until the lessors notified the plaintiff of their claim of forfeiture they had no right in equity to claim the same by reason of the short delay in tendering the stipulated rental. Under the terms of the lease, the drilling of a well and the payment of the rental was optional with the plaintiff as the assignee of the original lessee, and he was not bound to do either, and it is a familiar rule that time is of the essence of an optional contract. * * *Briefly stated, this suit is not in the true sense a suit inequity to declare a forfeiture, but is an action seeking adecree declaring an optional lease terminated fornonperformance of its express conditions upon which itscontinuation depended, and therefore the familiar general rule that a court of equitywill not enforce a forfeiture, but will often lend its aid toprevent one, has no application. * * *"

The case cited in the majority opinion, that is, Gloyd v. Midwest Refining Co., 10 Cir., 1933, 62 F.2d 483, to substantiate the decision on the ground that the failure of the condition of the lease was due to a "pardonable" mistake on the part of the defendant, in my opinion, is not authority for the decision in the instant case. In that case the court made it clear that the failure of the condition was due to an accident or mistake resulting from causes over which the transferee of the original lessee had no control. This transferee had placed the rental payment in the mail in time to reach the transferee of the original lessor prior to the rental date, but the payment was lost in the mail. No facts similar to those exist in the instant case. Here the mistake was not one over which the assignee had no control. It could have ascertained that its assigned area contained more than 300 acres. In fact, it could have ascertained that the original lease contained oversize sections merely by examining the description of the property contained in the lease and comparing that with the number of acres recited as being contained therein, and thus have been made aware that its assigned area would in all probability also contain oversize sections. The "pardonable" mistake in the instant case is therefore not a mistake over which the assignee had no control as in the Gloyd case.

Nor was the mistake in this case a "mutual" one, for it is not shown by the record that Mrs. Jones "knew that the party making the payment believed that the amount was sufficient, and had good reason to believe it was sufficient." It was impossible for her to know that the party making the payment had good reason to believe it was sufficient, for the record shows that Mrs. Jones was not even informed prior to the date of the first rental payment — and the date on which in my opinion the lease ipso facto terminated — what portion of the lease Southern Natural Gas Company was attempting to make payments for.

Regardless of this, however, in at least one case a different view has been taken from the view in the Gloyd case. In Appling et al. v. Morrison, Tex.Civ.App., 1921, 227 S.W. 708, 709, involving an "unless" type lease, the rental payment due on July 6, 1919, was mailed on July 3 and in due course should have reached the depository named in the lease on or before the rental date, but as a matter of fact the payment did not reach the depository until July 8. The assignees of the lessee in that case contended:

"They having remitted the money through the mails in ample time to have reached said depository on or before July 6, 1919, and through no fault of theirs the remittance is delayed en route, but reached said depository a short time after the 6th, they are not guilty of laches and are entitled to the equitable relief invoked."

The court rejected this contention, saying:

"Courts of equity do not favor forfeitures, and will usually relieve against them; but this is in no wise a forfeiture. Appellants have not contracted to dig a well, nor to pay rentals. They simply had the privilege so to do, and upon failure to drill within the year, and to pay on or before the time fixed, to lose this privilege; in the words of the trial court:

"``The court concludes as a matter of law that, said rental not having been paid on or before said due date, said lease is forfeited by force of its own terms.'"

Although we have distinguished the Gloyd case from the instant case, in my opinion the reasoning in the Appling case is sounder than that in the Gloyd case. However, the solution of the problem in those cases cannot be a precedent for the decision in the instant case, because as pointed out hereinabove, the mistake was not brought about by causes beyond the control of the Southern Natural Gas Company.

The effect of this decision, in my opinion, is: First, to wipe out the distinction between the "drill or pay" and the "unless" type leases insofar as the rules of forfeitures as to those leases are concerned; second, to place on the lessor in an "unless" type lease a duty — never contemplated by the parties to the lease — of informing the lessee when an error has been made by the lessee in fulfilling the conditions of the lease, and to require such lessor to give the defaulting lessee an opportunity to correct such error; and, third, to alter completely and rewrite the contract, change the intention of the parties as to the nature of the contract when the equity and justice of the case does not require it; and, further, to impose certain duties on the lessor which she did not assume under the contract, as pointed out by Justice McCALEB in his dissenting opinion.

For these reasons I respectfully dissent.