Gulf Production Co. v. Cruse

CHAPMAN, J.

The Gulf Production Company, on May 16, 1916, secured an oil and gas lease from W. W. Cruse on 125 acres of land in Hardin county for a consideration of $2,962.50. The lease provided that the company should be under no obligation to drill any well or wells on the land at any time within the 10-year period that the lease was to run, except necessary offset wells. The lease contains the following forfeiture provision:

“Sixth. Under penalty of forfeiture of the rights hereby granted, the company agrees to pay the taxes on the property above described for the present year and those accruing hereafter, annually as the same become due and payable, unless and until it exercises the right of surrender given it in 'paragraph tenth hereof; provided, however, that should the company fail to so pay said taxes, the said first party shall call the company’s attention to its default by written notice, and no forfeiture shall be declared by the first party unless and until the company fails to pay said taxes within thirty (30> days after its receipt of said written notice.’-’

On October 26, 1916, Cruse wrote the company that the taxes on the lease for the year 1916 was $21.50, and that he usually paid his taxes about the middle of January. December 27, 1916, Cruse again wrote the company that he had already written them in regard to the 1916 taxes, and again stated the amount of taxes due, and further stated that penalty would attach after January 31, 1917. The taxes were not paid by the company but were paid by Cruse on January 31, 1917. On March 31,’ 1917, Cruse'in answer to a letter from the company notified the company that they had defaulted in making payment of the taxes, and that he had paid the taxes at the last moment that they could be paid, and that he was claiming a forfeiture of the contract. The company tendered the amount of the taxes to Cruse April 17th. These letters are all set out in full in the opinion by the Court of Civil Appeals (258 S.-W. 211). Cruse brought suit for a forfeiture of tbe lease contract on account of the failure of the company to pay the taxes in the manner provided, and both the trial court and the Court of Civil Appeals found in his favor, The action of those courts is now before us for review.

As the lease did not carry a provision for development of the leased premises for oil and gas purposes, then the contract would be governed by the general rule of law that forfeitures are looked upon with disfav- or by the courts, and that the party to a contract claiming the benefit of a forfeiture clause must clearly show that the contract Las been breached by the other party in the particular manner providing for a forfeiture.

It is well settled that in construing contracts the courts will taire into consideration general customs and practices, as well as the law affecting the matters contracted about, and will presume that the parties contracted with such customs, practices, and laws in mind, unless the contrary clearly appears from the terms of the contract.

When judicial construction of a contract becomes necessary, the object of the court is to ascertain the intention of the contracting parties.

With these general principles in mind we will undertake to discuss the clause of the contract under consideration.

In our opinion this clause was not intended by the parties to mean that the taxes should be paid on the first of October of each year, as intimated by the Court of Civil Appeals, but, in view of the fact that they knew taxes were payable at any time before February 1st of each year and that a very small per cent, of taxes are paid during the first months that taxes are payable, and considering the letter of Cruse of October 26, notifying the company that he usually paid his taxes about the middle of January, and his letter of December 27, stating that penalty would attach after January 31, 1917, we think that they intended to agree that the Oil Company would, between October 1 and February 1 of each year, pay the taxes for that year. Under the facts and conditions already enumerated, it seems to us that the portion of the clause reading as follows: “Provided, however, that should the company fail to so pay said taxes, the said first party shall call the company’s attention to its default by written notice, etc.,” could mean nothing else than that, should the company fail to pay the taxes within the time provided by law, that is, before February 1, that it would be held in default of payment of the taxes, and that the contract would be subject to forfeiture after 30 days’ notice of such default, and notice of default could not be given until default was made.

The letters of October 26th and December 27th could not be considered as notice’ of default, because the company could not have been in default until after those dates. The lettér of Cruse of March 31 is the first notice given by him to the company of default, after the company was guilty of default, and the company tendered him the amount of the taxes within 30 days after that notice. If the company had paid the taxes any time before they were paid by Cruse on January 31, it would, as we construe it, be fulfilling every condition of the contract as to the payment of the taxes, regardless of how many notices it had received ■ from Cruse.

We recommend that the judgment of the district court and Court of Civil Appeals be reversed, and that judgment be here rendered for plaintiff in error.

CURETON, C. J.

Judgments of the dis-, triet court and Court of Civil Appeals are both reversed, and judgment rendered in favor of the plaintiff in error, as recommended by the Commission of Appeals.