No. 12864 

IN THE SUPREME COURT OF THE STATE OF MONTANA 

1975 

WAYNE CARROLL, 

Plaintiff and Respondent, 

RANDALL N. EATON et a 1. , 

Defendants and Appellants. 

Appeal from: District Court of the Fifth Judicial District, 

Honorable Frank E. Blair, Judge presiding. 

Counsel of Record: 

For Appellants : 

R. Thomas Garrison argued, Virginia City, Montana 

For Respondent : 

Chester L. Jones argued, County Attorney, Virginia 

City, Montana 

Submitted: September 11, 1975 

Decided; - , \+ ; = 

. " 8- 9 

Filed : 

yg&*.- I - 

Clerk 
Mr. Justice John Conway Harrison delivered the Opinion of the 

Court. 

In this appeal this Court is asked to consider and 

review the rights of the parties concerning the construction of 

a mining lease. Judgment for plaintiff Wayne Carroll was entered 

June 10, 1974, in the district court, Madison County, and from 

that judgment defendants Randall Eaton, M. P. Middleton and 

John Bolinger appeal. 

The properties which are the subject of the contested 

lease are known as the '94ogul Claims", located in the Gravelly 

Range Mining District of Madison County. The business dealings 

between the parties regarding this land date back to 1963. On 

September 20, 1963, Carroll, as lessee, executed a mining lease 

with Eaton individually, and as attorney in fact for M.P. Middleton, a citizen and resident of Canada. The lease was to extend 

for two years "and as long thereafter as ore or minerals 9: * 

shall be produced from said premises in commercial quantities. 11 

Upon the lessee's fai.lure to produce ore, the lease was allowed 

to terminate. 

A second lease was drafted by Carroll, and was executed 

by the same parties on August 16, 1965. In this document, the 

I I kabendum clause", or that part of the lease which describes its 

duration, was set out in much greater detail. The lease again 

established a "primary term" of two years and a "thereafter term" 

which was dependent upon the production of ore in commercial 

quantities for its length. Definitional and delay rental provisions 

were also included in an attempt to specify the rights of the 

parties : 

"Commercial quantities shall be and is hereby defined 

as that quantity necessary to produce to first parties 

at least $500.00 per year. And in the event of no 

operations upon said mining claims , the payment by 

second party to first party of the sum of $500.00 per 

year as minimum delay rental shall be sufficient to hold 

said mining claim under this lease and to keep the same 

in good standing. I I 
Pursuant to lease provisions, the lessee tendered payments 

of $500 to the lessors in 1966, and again in 1967. A third payment 

of $500 in delay rental was tendered by the lessee for the purpose 

of extending the lease another year. Lessors accepted the payment 

without any attempt to declare a forfeiture or terminate the lease, 

thereby extending it for a period of one year. 

In 1968, the parties entered into a new lease, with 

provisions identical to those found in the 1965 lease. In lieu 

of production, the lessee tendered payments of $500 for the years 

1969 and 1970. As he had done previously, the lessee again tendered a third delay rental payment for the purpose of extending 

the lease another year. The check was received by the lessors 

on August 16, 1971. Lessee heard nothing further until the check 

was returned to him on April 17, 1972, more than eight months after 

the check had been received by the lessors. 

Lessor Eaton testified that he was employed out of state 

during most of the time between August 1971 and April 1972. He 

also stated he knew of the existence of the check, instructed his 

wife to return it, and that his absence from the state resulted in 

his inability to ensure the check was returned within a reasonable 

time. In September 1971, Eaton entered into another lease ~~ith 

John Eolinger. Carroll continued to tender delay rental payments 

through the years 1972 and 1973 in order to protect his rights. 

Both checks were promptly returned by lessors. 

Under these facts, the district court found the parties 

intended that the lease be extended, and the lessee was entitled 

to, and in fact did rely to his detriment upon lessors' retention 

of his check as confirmation and validation of the lease and its 

extension. On appeal, it is contended that the district court 

erred in its construction of the lease and in its application 

of the doctrine of equitable estoppel. We disagree. 
Traditionally, mining leases iil Jloneana and elsewhere have 

Seen drafted in two basic and distinct forms. Under the provisions 

.~f an "or" type lease, the lessee is obligated to produce or pay 

delay rentals. The lease can terminate only by mutual consent of 

]:he parties during the primary term, failure to pay delay rentals or an 

~ction by the lessor to declare the lease forfeited. McDaniel v. 

Hager-Stevenson Oil Co., 75 Mont. 356, 365, 243 P. 582. When it 

dppears that the parties have executed an "unless" type lease, the 

1-essee has the option to produce, pay delay rentals, or do neither, 

all without incurring obligation. But failure to act is automatic 

~ermination in favor of the lessor. Irwin v. Marvel Petroleum Corp., 

139 Idont. 413, 365 P.2d 221. 

Here, the trial court properly found that this was an 

I I or" type lease in which the lessee was required to either produce 

or pay delay rentals. As noted from the cases cited, one reliable 

me~hod of determining what type of lease is intended is to look at 

the nature of the obligations incurred by the lessee. 

Here, the lease terms obligated the lessee to pay delay 

rentals in lieu of production for the primary period of two years, 

I I in order to keep the lease in good standing". ]Tad the lessee defaulted in these payments, the lessors would certainly have had the 

option to insist upon forfeiture or waive it and sue for the rentals 

due. Thus the parties clearly contemplated an "or" lease, and as 

such, it was incumbent upon the lessors to declare a forfeiture 

at the close of the primary term, if that was desired. 

It is apparent from the record that no such action was 

taken by the lessors. The only response to the lessee's tender of 

delay rentals was to hold the same for a period of time in excess 

of eight months. Therefore, the net result of the lessee's tender 

of payment was a valid andkinding extension of the lease. 
Having resolved this question on the law, there is 

no need to discuss the doctrine of equitable estoppel or its 

applicability to the facts. 

Judgment of the district court is affirmed. 

E 'Justice 

Ve Concur: 

Justices.