Court Opinion

ID: 9539077
Source: CourtListenerOpinion
Date Created: 2023-08-07 07:46:23.707499+00
Date Added: 2024-06-11T14:58:26.220161
License: Public Domain

UPON DENIAL OF PETITIONS FOR REHEARING
BURNETT, Judge,
concurring specially.
The Court today has voted to deny petitions for rehearing filed by appellant Alumet and respondent Bear Lake Grazing Company. The Court adheres to its unanimous opinion authored by Chief Judge Walters. I write separately today because I believe that a point raised by Bear Lake in its cross-appeal, and urged again in its petition for rehearing, deserves further comment. I refer to Bear Lake’s contention that the lease automatically terminated, without notice, when Alumet allegedly breached it.
As noted in the Court’s lead opinion, the lease provided in pertinent part as follows:
If at the end of the primary term of this lease, Lessee is conducting mining operations upon the leased premises and is producing ore therefrom so as to obligate himself to pay royalties to Lessor, the term of this lease shall be extended, and this lease shall continue to be fully operative for so long as Lessee shall continue to mine____
Provisions of this kind commonly are called “habendum” or “thereafter” clauses. By the express terms of this habendum clause, the lease would have expired if no mining *450operations had been under way when the primary term ended.
In his well-written briefs, Bear Lake’s counsel cites cases supporting the proposition that such expiration would be automatic, eliminating any requirement that Bear Lake exercise a lessor’s right of reentry. See, e.g., Dethloff v. Zeigler Coal Co., 82 Ill.2d 393, 45 Ill.Dec. 175, 412 N.E.2d 526 (1980), cert. denied, 451 U.S. 910, 101 S.Ct. 1980, 68 L.Ed.2d 299 (1981) (lessee produced no coal during the primary term of lease); Fremont Lumber Co. v. Starrell Petroleum Co., 228 Or. 180, 364 P.2d 773 (1961) (lessee undertook no activity on leasehold until several days before expiration of primary term). By analogy, the lease also would have terminated of its own accord if Alumet had ceased mining and had abandoned the leasehold. See W.T. Waggoner Estate v. Sigler Oil Co., 118 Tex. 509, 19 S.W.2d 27 (1929). Bear Lake correctly asserts that the “so long as” phrase in the lease creates an express “estate upon special limitation” which terminates automatically when the lessee ceases to mine. See R. CUNNINGHAM, W. STOEBUCK, & D. WHITMAN, THE LAW OF PROPERTY §§ 2.4-2.5 (1984). See generally 4 AMERICAN LAW OF MINING § 132.07[2] (2d ed. 1984).
However, Alumet did not breach the express provisions of the lease. To the contrary, Bear Lake has conceded that Alumet mined some 5,000 tons of ore and paid royalties before the end of the primary term. Bear Lake also concedes that Alumet has mined ore and has paid royalties each year during the extended term. In a narrow, literal sense, the lease has been satisfied. Nevertheless, Alumet may have breached a broader, implied covenant to mine the premises actively — that is, to produce at the level which a reasonably prudent operator, acting in good faith, would achieve. Placed in this context, the real question presented by Bear Lake is whether breach of an implied term results in automatic termination of the lease.
The Court’s lead opinion, relying on language in the lease itself, concludes that termination was not automatic. Paragraph 10 provides that “[i]f the Lessee shall fail to comply with any of the provisions of this agreement, and such default shall continue for thirty days after service of written notice thereof upon him by the Lessor, the Lessor may institute ... proceedings ... for the forfeiture and cancellation of this lease.” (Emphasis added.) This provision is facially inconsistent with Bear Lake’s assertion of an automatic forfeiture. But that is not the end of the issue. Bear Lake argues that the notice requirement does not displace the habendum clause. Moreover, a notice requirement pertaining to breach of an express provision of the lease does not necessarily carry over to breach of an implied covenant. Accordingly, Bear Lake would have us hold that the implied covenant is not subject to a notice requirement.
Bear Lake cites Dethloff v. Zeigler Coal Co., supra, and Fremont Lumber Co. v. Starrell Petroleum Co., supra, in support of its position. In my view, those cases are inapposite here. Both discuss the application of a notice requirement where the lessee has failed to satisfy the express terms of an habendum clause. Moreover, each case involves a failure by the lessee to achieve any mineral production by the end of the primary lease term. Indeed, the Dethloff court stated that “[h]ad production begun within the primary term but been thereafter halted the lease would not have terminated automatically, but, instead, the plaintiffs would have been required under the terms of the lease to demand performance, and if the demand were to no avail, then to reenter the property____” 45 Ill.Dec. at 181, 412 N.E.2d at 532.
I submit that forfeiture without notice or opportunity to cure is not an appropriate remedy for breach of an implied obligation. The need for notice is especially compelling in a case, such as this one, where the implied obligation embodies an element of reasonableness. The standard of a reasonably prudent operator is imprecise. The parties may have genuinely differing perceptions as to the reasonableness of certain *451conduct. Fairness requires that a dispute over reasonableness be framed by notice, and that the lessee be afforded an opportunity to cure any deficiency in its performance, before a forfeiture is deemed to occur. Notice also may serve the objective of efficiency. In many cases notice will stimulate greater efforts by the lessee, thereby avoiding costly litigation.
Other courts have expressed similar views. In Cameron v. LeBow, 338 S.W.2d 399 (Ky.1960), the lessee failed to drill for oil in a portion of the leasehold. The lessor sought to terminate the lease for breach of an implied covenant to develop. The court held that no lessor could exercise its right of forfeiture based on the breach of an implied obligation without giving notice to the lessee that he should remedy the breach or face a forfeiture. The court further explained that, “[sjince the ground of forfeiture is not found in the terms of the lease, cancellation is not automatic and may be accomplished only through judicial action.” 338 S.W.2d at 405. See also Superior Oil Co. v. Devon Corp., 604 F.2d 1063 (8th Cir.1979).
Forfeiture itself is a topic of debate. Not all courts permit forfeiture as a remedy for breach of an implied covenant to develop a mineral leasehold. See Annot., Mineral Rights—Duty to Develop, 76 A.L. R.2d 721, § 5 (1961). For example, the Texas Supreme Court will imply a duty to develop but generally will limit the remedy to an award of monetary damages or to an order compelling specific performance. W.T. Waggoner Estate v. Sigler Oil Co., supra. As this Court’s lead opinion indicates, we do not agree with Waggoner that forfeiture is unavailable. But our willingness to countenance a forfeiture must be accompanied by insistence upon notice and an opportunity to cure. These fundamental safeguards are especially appropriate where, as here, the parties have bargained for similar protections in the event that contain express terms of the lease are breached. Such safeguards balance the competing interests of the lessor, who desires the most productive use of the property, and the lessee, who seeks to protect an investment in acquisition and preliminary development of the leasehold. For these reasons, I join the Court in holding that the implied covenant in this case is subject to a notice requirement and an opportunity for cure.