Lassig v. Cahill (41 S.W.2d 469, 1931)

MCCLENDON, C. J.

Cahill sued Lassig (and a corporation, his assignee) to cancel a 50-year lease, under which Lassig was given the exclusive privilege of quarrying stone on land near Round Rock. In the alternative Cahill sought damages for failure to reasonably develop and for breach of certain covenants in the lease. Trial was to the court without a jury, and judgment was in favor of Cahill, canceling the lease. From this judgment Lassig and his codefendant have appealed.

The lease was executed April 27, 1923. It provided for a royalty of $2 per railroad car of stone mined and shipped from the premises, and that, if less than 100 cars were shipped in any year, lessee should pay $300. The lease was to be forfeited upon failure to ship the minimum of 100 cars or to pay the $300. The original petition, filed December 27, 1929, alleged three grounds of forfeiture, in substance as follows: (1) Failure to ship 100 cars prior to April 27, 1924, whereupon Lassig “became indebted” to Cahill for $300, and upon failqre to pay which the lease was forfeited; verbal extension of the lease for one year upon payment by Lassig of $250 and his promise to begin operations on a large scale; subsequent annual extensions from year to year upon like promises up to April 27, 1929, when Lassig represented he had large financial backing and would put the quarries in operation on a large scale if granted a little more time; and failure of Lassig to perform any of these promises, whereby the lease became forfeited. (2) Failure to perform an obligation in the lease to erect and maintain a gate where spur track entered the premises, whereby Cahill was inconvenienced and damaged in loss of and injury to stock. (3) Failure to operate and develop tl)e quarries since the latter part oí 1923, whereby both the written lease and verbal extensions were forfeited. Substantially the same grounds are alleged in the amended petition upon which the case was tried, with an additional alternative prayer for damages.

In addition to the holding that the lease had been forfeited by abandonment, which we will later consider, the trial court found that the cash consideration of $50 recited in the lease had never been paid “and has therefore failed” ; and that the provision for erecting and maintaining gates had not been complied with. These findings and plaintiff’s first ground of forfeiture will be first disposed of.

The failure of consideration finding which was not alleged in plaintiff’s pleadings arose out of the following circumstances: April 25, 1922, a lease in terms substantially the same as that of 1923 was executed. It recited a cash consideration of $50, which admittedly was paid. It covered only 87 acres, but contained tbe stipulation that Cabin owned 1,000 adjoining acres covered by a previous lease, wbicb had been abandoned, and Cahill agreed “to include said property within the terms of this lease agreement or supplemental agreement, upon the same terms and conditions as herein provided as soon as he can get fully released from said prior lease agreement.” The 1923 lease carried the $50 cash consideration recital, and differed from the 1922 lease only in that it included the additional acreage. Lassig paid the $300 (due April 27, 1924, for failure to ship 100 cars) by check dated April 24, 1924, bearing the notation, “for one year rental on lease”; which check Cahill indorsed and cashed. The $50 recited in the 1923 lease was never paid. Lassig’s version of the matter was that the 1923 lease was merely substituted for that of 1922, and the recitation referred to the $50 paid on the latter. No demand was ever made for a $50 payment on the 1923 lease, and no complaint was ever made that it had not been paid. Cahill merely testified that he never got the $50, which fact Lassig frankly admitted, except as stated, under the 1922 lease. At the end of each year under the 1923 lease, including 1929, Lassig paid, and Cahill accepted, the $300 for failure to ship the 100 cars. Checks covering these payments for the years ending 1925, 1926, 1927, and 1928, were introduced, each showing the indorsement of Cahill. In acknowledging the 1926 check, Cahill wrote (4 — 19—26): “Your cheek and letter came to hand O'. K. to pay the lease. Many thanks, I was needing the check.” Accompanying the 1928 payment, which was in the form of a cashier’s check in favor of Cahill with the notation “for one years Rental for lease,” and was indorsed and cashed by Cahill, Lassig wrote, “Enclosed please find cashier’s check for $300.00 for one year’s rental for lease.” Cahill admitted getting the 1929 payment for which he executed the following receipt:

“Received of Oswald J. Lassig and Lassig Limestone Quarry Corporation, Houston, Texas, this the 22 day of April, 1929, the sum of Three Hundred and No/100 ($300.00) Dollars to cover lease rental on leases originally executed as between J. D. Cahill and Oswald J. Lassig, both of which are recorded in the Deed Records of Travis County, Texas.

“[Signed] J. D. Cahill.”

From the foregoing it is manifest that, if Lassig’s version of the recital of cash consideration was not correct, Cahill nevertheless acquiesced therein, and, in any event, waived the failure to pay same as a ground of forfeiture or failure of consideration.

The agreement in the lease regarding the erection and maintenance of gates was clearly not a limitation or condition subsequent, breach of which would terminate or afford ground to forfeit the lease; but was only a covenant for breach of which damages constituted the legal remedy.

There is no basis in the evidence for Las-sig’s first alleged ground of forfeiture. There was no failure to pay the $300 in 1924, and consequent abandonment and verbal one-year extension of the lease. That Cahill got this $300 is established by undisputed proof, including Cahill’s own admission. Lassig gave Cahill a check for this amount on a Houston bank, dated April 24, 1924. Cahill indorsed the check and deposited it with a bank in Round Rock, which latter indorsed it April 26, 1924; and it was paid in Houston April 28, 1924. There was never any claim by Ca-hill that the lease had been forfeited for default in this payment; and, as above shown, at the end of each succeeding year the $300 was accepted in recognition of and in accordance with the terms of the written lease. Cahill’s own testimony negatives the theory of default and verbal renewal as shown in the following excerpts:

“There was no agreement that way, that in April, 1924, Mr. Lássig wanted a one year oral extension and I agreed to that for $250, and he paid me the $250. * * * he never paid me $250. I had no agreement of that kind with Mr. Lassig.”

“I did not have any agreement where I told Lassig that I would let him stay one more year by paying me $250.00; I did not have any agreement of that kind.”

“I say here in my suit that I granted him an extension from time to time. I told him just to go ahead, I hope you will make money ; and he went ahead under the same written lease that he started with in April, 1923.”

This brings us to what we regard the controlling issue in the case, namely, whether the trial court’s judgment can be sustained upon the theory of cessation or abandonment.

Appellee’s theory in this regard may be summarized as follows: The leased -premises contained valuable deposits of building stone, the development and marketing of which constituted the main consideration for the lease ; the $300 in event of not shipping the minimum 100 cars each year was not a rental in lieu of development, but a penalty to force development; and therefore a total cessation or abandonment of operations on the .lease worked a forfeiture, regardless of the $300 annual payments. This theory was upheld. by the trial court.

We will consider this theory in the light of the provisions of the lease, the trial court’s findings, and the evidence viewed most strongly in support of those findings.

The lease was for 50 years, granting “the exclusive right and privilege of mining and quarrying the rocks and stone only, and removing the same from the following described property.” In addition to the $50, the lease recited “the further consideration of the covenants, and agreements hereinafter mentioned.”

We copy in full the pertinent portions of the lease:

(4) “Second party further agrees to pay to the first party the sum of Two (2.00) dollars per railroad car for every car of rock shipped or used by him off of said land, whether rough rock, cut rock, dressed rock or crushed rock. The payments‘to be made hereunder on the 15th day of each month for all rock shipped for the previous calendar month, and second party agrees to begin operations and the quarrying of said rock on the land hereby leased within six (6) months from date hereof.

(5) “Second party shall have the privilege of removing twenty-five (25) cars of said rock from said land hereby leased without additional payment, said payment of $50.00 here-inbefore mentioned to be applied as a credit for said twenty-five (25) cars of rock.” •

(8) “Second party agrees to pay Two (2.00) Dollars per car for all rock as stated in paragraph four (4) of this lease; and in addition thereto the party of the second part agrees that if there is any year that he does not quarry and ship as many as One Hundred (100) cars, then he agrees to pay to party of the first part the sum of Three Hundred ($300.00) Dollars ,at McNeil, Travis County, Texas, for each and every year he fails to quarry and ship as many as one hundred (100) cars of rock; and if he ships more than one hundred (100) cars then he is to pay Two ($2.00) Dollars for every car shipped, and in «ase the party of the second part fails to ship as many as one hundred (100) cars of rock or fails to pay the Three Hundred ($300.00) Dollars any year, then this lease is forfeited and the party of the first part may take possession without bringing suit in court.”

(10) “Second party agrees to pay promptly and punctually all of the rents and for all rock hereinbefore provided for, and that he will quietly deliver up the said premises upon the expiration of the term of his occupancy. * * *"

The trial court’s findings pertinent to the issue considered, read:

“Third: That the defendants have quarried approximately 20 car loads of rock since April 27th, A. D. 1923, up to the trial of this cause, and the rock quarried was in the latter part of the year A. D. 1923, and have not operated the quarries on the leased premises with' any degree of diligence whatsoever; that at the end of each quarry year, that is on or about the 27th day of April of each year, the plaintiff did complain to the defendants relative to his failure to operate the quarry on these premises in a diligent manner, and each time the defendants would promise more diligence m their operations.

“Fourth: That the defendants, Oswald J. Lassig, and the Lassig Limestone Quarry Corporation, have not proceeded with the development of these premises, and are not able to do so. That neither one of the defendants are possessed of sufficient capital to properly develop these rock and stone' deposits.

“Fifth: That the machinery placed by the defendants on the lands of the plaintiff for the operations of said quarry, is antiquated, obsolete and not sufficient for the purpose of operating said quarry and developing .the rock and stone industry upon these premises.

“Sixth: That the defendants, and both of them, have abandoned the leased premises for more than two yedrs at a time, without any effort to operate or develop the same.

“Seventh: That the plaintiff, at a great cost to himself, in the beginning of this lease, purchased land for the purpose of enabling the defendants to connect their quarry with railroad transportation, but the defendants only paid the railroad company to build a short spur track which would only accommodate a few railroad cars and lacked several hundred feet of extending to this quarry, which necessitated the trucking of stone from the quarry to the railroad sp'ur track and not permit the loading of the cars by crane or shovel from the quarry as contemplated by plaintiff when he purchased the large tract of additional land for the defendants’ use for this purpose; and the I. & G. N. Railroad built a spur track as above mentioned for the use of the defendants for the loading of rock, which spur track has long since been removed by the Railroad, on account of the use of same having been abandoned by the defendants.”

“Ninth: I further find that if the defendants had operated this quarry or a quarry on the leased premises with reasonable diligence, and even with the antiquated machinery they had upon the ground, that they could have gotten out at least three cars of stone each week, and with proper machinery and with ordinary diligence in the operations of these quarries could have gotten out easily a hundred car loads of stone a week.

“Tenth: I further find that neither of the defendants are possessed of sufficient funds, or credit, to operate this rock quarry with reasonable diligence.

“Eleventh: I further find that the stone and rock under the leased premises herein inquired about is very valuable, and is found in large quantities thereon, and if operated and developed with' reasonable diligence the revenues therefrom would be in a substantial amount to this pláintiff under this contract.

“Twelfth: I further find that the sum of $300.00 agreed to be paid by the defendants per year, would be approximately twenty-five cents per acre for such leased premises, and would hardly pay the taxes thereon; and that the stone on each acre of said premises is worth in the market many thousands of dollars.

“Thirteenth: I further find that upon the execution of this lease agreement that the understanding of both parties was that large quantities of stone was to be quarried and marketed from these premises for the' mutual benefit of both parties, and not that the premises be kept by lessee for speculative purposes and allowed to remain undeveloped.

“Fourteenth: That the leased premises have already been held an unreasonable length of time without any serious effort on the part of the defendants to develop and operate quarries thereon.”

From these findings the court made the following conclusions of law:

“3. That the $300.00 agreed to be paid by the defendants each year to the plaintiff was a penalty for failure to ship as many as one hundred railroad carloads of stone during the preceding year, and was not a rental.

“4. That the defendants failed the first year to develop the quarries, and that since then have failed to operate and’ develop the quarry or quarries, and have therefore lost their estate for failure to operate quarries and develop the premises, and have therefore forfeited their rights under said lease.

“5. That defendants estate was only a determinable fee, and as a matter of law was lost through the cessation of operations and failure to'develop. *

“6. That defendants have abandoned the premises for the purpose for which the lease was entered into.

“7. That the defendants are not able to develop the premises, and have long since spent all their capital, and are therefore unable to answer in damages to plaintiff for failure to use the premises for the-purpose of which the lease was entered into, and therefore their lease is subject to cancellation.

“8. It is the settled law in this State that where a mineral lease conveys no absolute title, but only a determinable fee, there can be no complete cessation of the use of the leased land for purposes of mineral exploration, development and production, save at the cost of the loss of the lessees estate.”

The trial court correctly construed the lease as a terminable estate (not a fee, however, but an estate for 50 years). But we are not in accord with the trial court’s views to the' effect that the cessation of production since 1923 worked an abandonment and consequent forfeiture of the lease, notwithstanding the payment and acceptance each year of the $300; and this regardless of whether these payments be classified as penalty or rental.

There is much contrariety of view in the decisions of other states both as to the character of interest or estate created by mineral leases and as to the effect of breach of obligations, express or implied, on the part of the lessee, where forfeiture is not expressly provided for. In our state these questions have been clarified by our Supreme Court in a number of decisions.- In Stephens County v. Oil Co., 113 Tex. 160, 254 S. W. 290, 29 A. L. R. 566, and other cases decided at the same time, mineral leases providing for duration as long as there is production in paying quantities were held to create estates in the minerals in fee upon limitation. In Waggoner Estate v. Sigler Oil Co., 118 Tex. 509, 19 S.W.(2d) 27, 30, it was held that breach of implied obligation to reasonably develop did not work a forfeiture of the lease either ipso facto as upon limitation or at the election of the lessor, as upon condition subsequent; but gave to the lessor a right of action for damages or in a proper case for specific performance and cancellation in case the decree were not complied with. It was also recognized that the interest of the lessee might be lost by total cessation .of production or abandonment. This latter holding was predicated upon the proposition that there ha