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of the beneficiary, bis will is inoperative as to such interest, since from the time the policy is issued an irrevocable trust is created in favor of the beneficiary.-Atkins v. Atkins, 41 Atl. 503, 70 Vt. 565. 7. Retention of Certificate by Beneficiary to Prevent Surrender and Change.
[a] (Ill. Sup. 1898) On trial of an issue to determine which one of two adverse claimants was entitled to the proceeds of a certificate of a mutual benefit association, the widow of the member claimed under a certificate in which she was named as the beneficiary, and which contained a promise to pay, on condition, inter alia, that “this certificate shall not have been surrendered by said member, and another certificate issued, at his request, in accordance with the laws of this order." The husband presented to the association his affidavit that such certificate had been either "lost, destroyed, or stolen," and requested a new certificate in place thereof to be issued to another beneficiary; and thereupon, in accordance with a custom adopted by the association, a new certificate in favor of the substituted beneficiary, and in other respects like the original, was issued, without requiring the surrender of the old certificate. He subsequently surrendered the second certificate, indorsed as required by the laws of the order, to the association, and, at his request therefor, received a third certificate, similar to the others, but in favor of another person as beneficiary, who thereunder, after the death of such member, claimed the fund in question, as against the widow, who had possession of the first certiticate. It appeared that she had abandoned her husband, and, on his demand, refused to give up such certificate; that the subsequent certificates had been issued with her knowledge; that the beneficiary named in the third certificate had, with her knowledge, ever since such change of beneficiaries, paid the dues of the assured and provided for his support; and that he also paid his funeral expenses. Held, that the withholding of such original certificate, when it was demanded of her, was a wrong towards her husband of which the widow could not take advantage: and that, as the contract evidenced by such certificate was abandoned by both parties thereto, no rights thereunder remained to her.-Delaney v. Delaney, 51 N. E. 961, 175 Ill. 187, affirming (1897) 70 Ill. App. 130. 8. Death of Beneficiary.
[a] (N. H. Sup. 1895) Where the laws of a benefit association give the holder of a certificate the right to control and dispose of the benefit at all times, and there is nothing in the certificate giving the representatives of the beneficiary any right therein upon the death of the beneficiary during the lifetime of the holder of the certificate, there is a resulting trust in the holder.-Supreme Council v. Adams, 44 Atl. 380, 68 N. H. 236. 9. Actions.
(a) (Cal. Sup. 1899) A beneficiary in a certificate issued by a mutual benefit life insurance association is not estopped to question the validity of a certifi. cate issued to another subsequent to the issuance to her of her certificate, on the ground that she failed to state to the former the ground on which she claimed it, when the member demanded its return for the purpose of having a new certificate issued to such other, where he did not inquire the reasons of such refusal.-Grimbley v. Harrold, 57 Pac. 558, 125 Cal. 24.
[b] (N. Y. City Ct, 1892) The evidence of a son of the insured that she had told him that she wanted plaintiff, her daughter, to have the insurance money, was properly received as tending to show that defendant, named as beneficiary, had no vested interest in the certificate.-Nix v. Donovan, 18 N. Y. Supp. 435.
[c} (Tenn. Sup. 1897) The respective rights of persons claiming to be beneficiaries, where a substituted beneficiary has been named, must be determined by a consideration of the power reserved to assured, under the rules and bylaws of the order, to deal with the certificate, though the order admits its liability on the certificate.-Sofge v. Supreme Lodge, 39 S. W. 853, 98 Tenn. 446.
[d] (Tenn. Ch. App. 1898) Where assured changed a policy in which his children were beneficiaries so as to make it payable to one of them, a bill by one of such children alleging that she had a vested right in the policy because of an agreement as to the distribution of her parent's estate prior to the father's death, and that the ultimate change of beneficiaries was induced by fraud and undue influence, stated a cause of action, and hence was not subject to demur. rers alleging facts showing such change to have been valid under the laws of the association, which did not appear on the face of the bill.—Goodrich v. Bohan, 52 S. W. 1105.
(99 Fed. 606.)
HUGGINS et al. v. DALEY.
(Circuit Court of Appeals, Fourth Circuit. February 6, 1900.)
1. OIL LEASES-CONSTRUCTION--RIGATS GRANTED.
By a course of decision in West Virginia which has established a rule of property, it is settled that an oil and gas lease in which the sole compensation to the lessor is a share of the product is not a grant of property in the oil or in the land until oil is actually produced, but merely of the right of possession for the purpose of exploration and development; and there is always an implied, if not an expressed, covenant for diligent
search and operation. 2. Same-RULES OF CONSTRUCTION.
A different rule of construction obtains as to oil and gas leases from that applied to ordinary leases or to other mining leases, and owing to the peculiar nature of the mineral, and the danger of loss to the owner from drainage by surrounding wells, such leases are construed most strongly
in favor of the lessor. 3. SAME-CONDITIONS PRECEDENT-Right OF FORFEITURE.
Where an oil and gas lease by which the lessor is to be compensated solely by a share of the product contains a proviso requiring the lessee to commence and complete a well on the property within a specified time, such proviso and the time of its performance are of the essence of the contract, and it constitutes a condition precedent to the vesting of any estate in the lessee, without regard to the grammatical construction of the instrument. When the lessee makes no attempt to comply with such provision, and evidences no intention to do so, at the expiration of the time stipulated the lease becomes forfeitable, at the option of the lessor, although by its terms it is for a definite term of years; and, being in possession, the exercise of such option is sufficiently evidenced by the
lessor's execution of a new lease to another party. 4. SAME-CONSTRUCTION-EFFECT OF PENALTY FOR NONPERFORMANCE OF Cox
A provision in an oil and gas lease, by the terms of which the lessor is to be compensated solely by a share of the product, that, in case of the failure of the lessee to comply with a condition requiring him to complete a well on the property within a stipulated time, he shall pay a forfeiture of $50, must be construed as providing a penalty intended to secure the performance of such condition, and not as an alternative condition; and where the lessee makes no attempt to fulfill the condition, and has no intention of doing so, he cannot, by a tender of the penalty, retain the lease in force until the expiration of its term, and thus secure an option on the property for speculative purposes. When, by his failure to comply with the condition, further performance of the contract becomes optional on his
part, it is also optional on the part of the lessor. Appeal from the Circuit Court of the United States for the District of West Virginia.
Before SIMONTON, Circuit Judge, and PAUL and BRAWLEY, District Judges.
BRAWLEY, District Judge. This is an appeal from the circuit court of the United States for the district of West Virginia. The appellee filed a bill in equity alleging that one A. P. Hodges had obtained from F. P. Marshall a lease for oil and gas upon a certain tract of 50 acres of land situated in Ritchie county, W. Va., which had been assigned to him, and that subsequently said Marshall had leased the identical premises to J. J. and J. B. Huggins; and the prayer of the bill was that the said Huggins' and their associates should be restrained in prosecuting the work for developing said leasehold for oil, and that a receiver be appointed to take possession of said leasehold premises and operate the same, and that a decree should be entered canceling said lease as a cloud upon the title of the appellee.
Marshall was an illiterate farmer, the owner in fee of the tract of land described; and on March 12, 1897, he entered into an agreement, under seal, of which the substantial parts are as follows:
In consideration of one dollar paid by Hodges, the lessee, the lessor “does hereby grant, demise, and let unto the said lessee all the oil and gas in and under the following described tract of land, and also said tract of land for the purpose of operating thereon for oil and gas, with the right to use water therefrom, and all rights and privileges necessary or convenient for conducting said operations and the transportation of oil and gas, and waiving all rights to claim or hold any of the property or improvements placed or erected in and upon said land by the lessee as fixtures or as part of the realty."
Then follows the description of the land. The habendum clause is as follows:
"To have the same unto and for the use of the lessee, his executors, administrators, and assigns, for the term of 5 years from the date thereof, and as much longer as oil or gas is found in paying quantities thereon, not exceeding the term of 35 years from the date thereof; yielding and paying to the lessor the one-seventh part or sbare of all the oil produced and saved on the premises."
Then follows a further description of the method of delivering the oil into tanks, and a reservation of gas for the personal use of the lessor, and a proviso which is in the following terms:
"Provided, however, that a well shall be commenced upon the above-described premises within 30, and completed within 90, days from the date hereof; and, in case of failure to commence and complete said well as aforesaid, the lessee shall pay to the lessor a forfeiture of $50."
This lease was not recorded until April 8, 1898. At the same time was recorded an assignment of a half interest in said lease by Hodges to Daley, dated April 2, 1897, and acknowledged on April 4, 1898, and the assignment of the remaining half interest, dated April 2, 1898, and acknowledged April 4, 1898. The lease from Marshall to J. J. and J. B. Huggins was executed November 6, 1897, and recorded January 31, 1898.
Much testimony was taken tending to show that at the time of the execution of the lease Marshall was under the impression that the lease was only for 90 days, and that he believed that the words “5 years" had been stricken from the printed form of the lease, and “90 days” written therein; and in the copy of the lease which was given to him by Hodges the words “5 years" were stricken out, and “90 days" substituted, but it appears that the substitution was not in the handwriting of Hodges. The proviso was in the handwriting of Hodges; the remainder of the lease being printed, with the exception of some interlineations. There was also testimony to the effect that Daley was a partner of Hodges, and that Hodges had taken the lease for the benefit of the Cairo Oil Company, and impeaching the bona fides of the assignment to Daley. The conclusions reached by us do not require the determination of these questions, if, indeed, they are properly before us. It is undisputed that nothing was done by Hodges towards boring the well. It is clear from the testimony that he had no intention at any time to bore the well within the 90 days stipulated, and that he had not the means to do so if he had any such intention. In November following the execution of the lease to Hodges, the appellants leased from one Moore the land adjoining Marshall's for the purpose of operating for oil, and began to bore a well within 100 feet of Marshall's line, and about the same time they leased the land of Marshall for the purpose of operating for oil. At the time they took this lease they had knowledge that Hodges had some claim upon the land, and Marshall exhibited to them what purported to be a copy of the Hodges' lease. In this copy, as above stated, the words "5 years" had been stricken out, and “90 days” substituted; and after submitting the copy to a lawyer, and being informed that the lease had no further validity, they commenced operations upon the Marshall land, and expended about $3,600 in the boring of a well. About the time they struck pay sand, and after the well upon the Moore land was flowing oil, on April 15, 1898, Daley filed his bill for injunction. Their lease had been recorded January 31st, and some time between that day and the filing of the bill, but after they had commenced operations, Daley came upon the land, and informed them that he had some claim thereto; but the Hodges' lease and assignment to Daley was not recorded until April 8th, 10 days before the filing of the bill.
The question for decision is whether the proviso in the Hodges lease constituted a condition precedent, and whether the failure of Hodges to do anything towards the boring of the well did not prevent the vesting of any rights under that lease. By the terms of that instrument the lessor granted to the lessee all the oil and gas in and under the land described, “and also the said tract of land for the purpose of operating thereon for oil and gas.” By a course of decisions it is well settled in West Virginia that a lease of this character is not a grant of property in the oil or in the land, but merely a grant of possession for the purpose of searching for and procuring oil. The title is inchoate, and for the purpose of exploration only until the oil is found. If it is not found, no estate vests in the lessee; and, where the sole compensation to the landlord is a share of what is produced, there is always an implied covenant for diligent search and operation. There is, perhaps, no other business in which prompt performance is so essential to the rights of the parties, or delays so likely to prove injurious,-no other class of contracts in which time is so much of the essence. There is no other branch of mining where greater damage is done by delay. Coal and precious metals lie either in horizontal veins or in pockets. They remain where they are until removed. Oil and gas are the most uncertain, fluctuating, volatile, and fugitive of all mining properties. They lie far below the surface, beyond the control of human will, and beyond the reach of any legal process, whence they may flow unrestrained if the owner of adjoining land bores a well down to the strata which holds them; and there is no law which can provide adequate, or indeed any, compensation for such results. This is a matter of common knowledge, and “courts will generally take notice of whatever ought to be generally known within the limits of their jurisdiction." Greenl. Ev. $ 6. It furnished the ground upon which the plaintiff in this case asks the court, through a receiver, to bore the well which the lessee was required to bore within 90 days from the date of execution of the instrument under which he claims. The only consideration which moved the lessor to grant the lease was the prospective royalties from oil and gas, which could come only if the lessee complied with the terms of this proviso that required the boring of a well; for, while the sum of one dollar is technically a valuable, it is only a nominal, consideration. If the contention of the plaintiff is correct, the lessee, Hodges, or his assigns, could have waited the full term of five years without expending one dollar or moving a hand for the development of the leased property, meantime tying the hands of the owner of the land, forbidding him to make arrangement with any other persons for the explorations which the lessee undertook to make, and perhaps suffering irreparable injury from the drainage of his oil and gas. This is the contract which a court of equity is asked to enforce. It is a short view of the range of equitable principles. There are no precise technical words which distinguish conditions precedent or subsequent. Whether they are one or the other is a matter of construction, to be solved by ascertaining the intention of the party creating the estate. They are not determined merely by the structure of the instrument, or the arrangement of the covenants. Where mutual covenants go to the whole consideration on both sides, they are mutual conditions,—the one precedent to the other. 4 Kent, Comm. 144. Where the undertaking on one side is, in terms, a condition to the stipulation on the other (that is, where the contract provides for the performance of some act or the happening of some event, and the obligations of the contract are made to depend on such performance or happening), the conditions are conditions precedent. The reason and the sense of the contemplated transaction as it must have been understood by the parties, and is to be collected from the whole contract, determines whether this is so or not, or it may be determined from the nature of the acts to be done, and the order in which they must necessarily precede and follow each other in the progress of performance. But when the act of one is not necessary to the act of the other, though it would be convenient,