No. 14911 INTHE SUPREME COURT OF THE STATE OF MONTANA, 1980

TIM CLAWSON, Plaintiff and Respondent,

VS

# . RONALD D. BERKLUND, Defendant and Appellant.

Appeal from: DistrictCourt of theFifteenth Judicial District, Honorable H. James Sorte, Judge presiding. Counsel of Record: For Appellant: Loren J. O'Toole argued, Plentywood, Montana For Respondent: Gerard M. Schuster argued, Wolf Point, Montana

Submitted: February 21, 1980 Decided:

# my"mMr. Chief Justice Frank I. Haswell delivered the Opinion of the Court. Plaintiff-respondent Tim Clawson brought this action for the cancellation of an oil and gas lease in the ~istrict Court for the Fifteenth ~udicial District,Sheridan County. The Court found that Clawson, the lessor,was entitled to cancellation and a recorded release of the lease. Defendant Ronald Berklund, the lessee, appeals from the judgment. Tim Clawson and Ronald Berklund entered into an oil and gas lease covering a portion of Clawson's land on September 30, 1977. According to the terms of the lease, it was to terminate unless an oil or gas well was commenced or an annual rental of $720 was paid by the lessee on or before March 10, 1979. Two $5,400 sight draftswere issued in conjunction with the lease agreement on September 30, 1977, one being a 15 day sightdraft (DraftNo. l), the other a 160day sight draft (Draft No. 2). The drafts contained writing that they were "bonusconsideration" for executing the oil and gas lease. Both drafts were sent for collection to Midland National Bank (Midland)in Billings,Montana, by the Security State Bank of Plentywood,Montana (SecurityState). Midland acknowledged receipt of both drafts on October 4, 1977. DraftNo. 1was paid. Payment of DraftNo. 2was received by Tim Clawson on March 15, 1978. Mr. Clawson treated the draft as dishonored, contending that payment was due on March 13, 1978; 160 days from October 4, 1977,exclusive of October 4, isMarch 13, 1978. The lease was recorded in SheridanCounty by Ronald Berklund

on October 6, 1977. his actionwas initiated on December 11, 1978,and sought the cancellation of the lease and a recorded release. Ronald Berklund has never tendered payment of the annual rentalwhich was to be paid by March 10, 1979. The District Court found that the defendant failed tocomplywith the lease agreementby notmaking timely payment of sight DraftNo. 2 and by failing to make the annual rentalpayment as agreed. As a result,plaintiff was entitled to a release of the lease filed by the defendant. The following issueshave been considered on appeal:

(1) Whether defendantmade a timely payment of DraftNo.

(2) In the event the payment of DraftNo. 2 was untimely, whether it rendered the alleged oil and gas lease invalid? (3) In the alternative, if the lease was valid, did it terminateby reason of a failure to tender payment of the annual rental which was due onMarch 10, 1979,which date was after litigation concerning the validity of the lease had commenced? The issue concerning timeliness of payment requires an examination of the provisions of the Uniform Commercial Code (UCC). Draft No. 2 appears substantially as follows:

COLLECT DIRECTLY THROUGH MIDLAND NATIONAL BANK 559499 Billings, Montana 59101 September 30, 1977 One Hundred Sixty (160)DaysAfter Sight and Subject to Approval of Title Pay to the Order of Tim Clawson $5,400.00



## -- - Five Thousand Four Hundred and No/100 

## -- - DOLLARS Consideration for Balance of bonus consideration

## - executing oil & gas lease To: Ronald D. Berklund /s/ Ruth L. Berklund 605Midland Bank Bldg. Ruth L. Berklund Billings,Montana 59101

AS a result,Ruth Berklund is the drawer,defendant Ronald Berklund is the drawee,and plaintiff Tim Clawson is the payee under the UCC. Midland is a collectingbank under section 30-3-120,MCA,by virtue of the collect directly "through"language. See Engine Parts, Inc. v. Citizens Bank of Clovis (1978), 92N.M. 37, 582

Section 30-3-501(1)(a), MCA,provides that "presentment for acceptance is necessary to charge the drawer and endorsers of a draft where 

# . .. itsdate of payment depends upon such presentment." Section 30-3-504,MCA, definespresentment and explains how it is to be made. "30-3-504. How presentment made. (1) Presentment is a demand for acceptanceorpayment made upon themaker, acceptor, drawee or other payor by or on behalf of the holder. 

### "(2)Presentmentmay be made: "(a) by mail, inwhich event the time of presentment is determined by the time of receipt of the mail; or

"(b) through a clearinghouse;or "(c) at theplace of acceptanceor payment specified in the instrumentor if there be none at the place of business or residence of the party to accept or pay. If neither the party to accept or pay nor anyone authorized to act for him ispresent or accessible at such place presentment is excused." Theprincipal issue in the present appeal is when the presentment was made upon defendant Ronald Berklund, the drawee, to commence the 160 day period. No date of presentment iswritten on the draft or contained in the record. The only evidence concerning a date in the collection process is Midland's acknowledgementof receipt of the item on October 4, 1977. Section 30-3-409,MCA, provides that a drawee isnot liable on a draft until he accepts it, and section 30-3-410,MCA, provides as follows: "30-3-410. Definition and operation of acceptance. (1)Acceptance is the drawee's signed engagement to honor the draft as presented. Itmust be written on the draft, and may consist of his signaturealone. Itbecomes operative when completed by delivery or notification, "(2) A draft may be accepted although it has not beensigned by the drawer or is otherwise incomplete or is overdue or has been dishonored. "(3) Where the draft is payable at a fixed period after sight and the acceptor fails to date his acceptance the holder may complete it by supplying a date in qood faith." (Emphasisadded.) DefendantBerklund never signed the draft and no date was

ever written on the draft other than the issuance date, September 30, 1977. Instead,he attempted payment by a Midland bank draft dated March 14, 1978,which was received by Security State on March 15, 1978, Plaintiff Tim Clawson contends that since Berklund never provided a date of presentment he may supply the presentment date of October 4, 1977. Plaintiff asserts that this date is supplied in good faith sinceMidland received DraftNo. 2

on October 

### 4 and Mr. Berklund has an office in the same building. Further,

### Mr. Berklund specified his address on the draft as "605 Midland Bank Bldg." We find plaintiff's contention meritorious in light of Official Comment 6 to UCC 53-410 and the underlying UCC policy of providing a definite timewithin which tomake payment. The comment provides: "6. Subsection (3) changes the last sentence of the original Section 138. The purpose of the provision is to provide a definite date of payment where none appears on the instrument. An undated acceptance of a draft payable 'thirtydays after sight' is incomplete ,; and unless

. thePacceptor -- himself writes in a diffc authorized to com~lete the & the terms of the draft by sentment. Any date which :rent date the holder is acceptance according to supplying a date of pre- the holder chooses to write

- -- in is effective providing his choice of date ismade in good faith, Any different agreement not written on the draft isnot effective, and par01 evidence isnot admissible to show it." (Emphasisadded.) Pursuant to section 30-3-410(3),MCA, and Official Comment 6we find that respondent Tim Clawsonmay supply a date of presentment when the drawee fails to provide his written acceptance or date thereof. As a result,payment was not received within the 160 day period. Section 30-3-507,MCA, provides that a draft isdishonored when "due acceptance or payment is refused or cannot be obtainedwithin theprescribed time." Thus,plaintiff was entitled to treat the draft as dishonored sincepayment was due

onMarch 13, 1978 and not received until March 15, 1978. Next,we must consider the effect of untimely payment upon the oil and gas lease. It is well established that instruments between the same parties, involving the same subject matter and executed on or about the same date are to be considered as one agreement. Hoerner Waldorf Corp. of Montana v. Bumstead-Woolford Co. (1972),158Mont. 472, 494 P.2d 293. In addition, parties must be presumed to contract with reference to the law in force at the time and place of the contract. Moses v. School Dist. No. 53,Lincoln County (1938), 107Mont. 300, 86 P.2d 407. Further, a series of Montana caseshave held that oil and gas leases are to be construed liberally in favor of the lessor and against the lessee, that time is of the essence even though the contract does not so provide, and that forfeiture is favored in oil and gas leases. Christianv. A. A. Oil Corp. (1973), 161Mont. 420, 506 P.2d 1369; Solberg v. Sunburst Oil & Gas Co. (1926),76 Mont. 254, 246 P. 168. Consequently, the two sightdrafts are a part of the lease agreement, the parties must be presumed to contractwith reference to the UCC, and the lease is to be liberally construed in favor of the lessor. Appellant failed to pay Draft No. 2 in compliancewith the previously discussed provisions of the UCC. Especially in light of the liberal construction of oil and gas leases in favor of the lessor, respondent was entitled to a cancellation and recorded release as a result of Mr. Berklund's breach. Since the issuespreviously discussed are determinative of this appeal,we need not reach the issue concerning the appellant's failure to tender payment of the annual rental after this suit to cancel the leasewas commenced.The judgment of the District Court is affirmed.

Chief Justice We concur: