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Henry H. Cross Co. v. Rice

December 12, 1930

HENRY H. CROSS CO.
v.
RICE



Appeal from the District Court of the United States for the Fort Wayne Division of the Northern District of Indiana.

Author: Sparks

Before ALSCHULER and SPARKS, Circuit Judges, and FITZHENRY, District Judge.

SPARKS, Circuit Judge.

This is an appeal from a money judgment rendered for appellee, as lessor, against appellant, as lessee, growing out of a written lease dated December 8, 1924, and covering a period of time from January 1 to December 31, 1925. The lease purported to lease certain land, buildings, and equipment which constituted a petroleum oil refining plant. The action is founded on an alleged breach by lessee of its covenant to return part of leased property to lessor at the termination of the lease in as good condition as when leased, natural wear and decay only excepted.

Appellant filed two paragraphs of answer, the first being a general denial, and the second seeking to partially answer that part of the complaint which sought to recover rent, but that issue was not submitted to the jury, and both parties have regarded it as withdrawn.

Besides a considerable amount of real estate and buildings, the lease included an entire refining plant, consisting of tanks, stills, machinery of every character, pipes and connections, boilers, pumps, agitator, tools, wrenches, threading machines used in and about the plant, and office furniture and fixtures. It provided for the payment as rental of $750 on the first and fifteenth of each month, in advance, with option to lessee to purchase at $80,000. Lessee was to keep the property insured at lessee's expense, in favor of lessor, in the sum of $50,000, and to keep up all repairs during the occupancy. The lease further provided that if in the operation of the plant lessee should use and operate the Fleming cracking still and scrubbing tower, it should be used according to a contract existing between the Portland Oil & Refining Company and the M. W. Kellogg Company, from whom it was formerly purchased, and subject to the conditions and requirements of the Richard Fleming Company, patentee and licensor of such apparatus. Lessee further agreed, in case it used such apparatus, to pay all royalties which by said license were to be paid by Portland Oil & Refining Company, and in case lessee did not use the cracking still and scrubbing tower it was not to pay the royalties.

The lease contained a provision that lessee "enters into this contract depending upon the condition that said party (lessee) will be able to make satisfactory arrangements with the Indiana Pipe Line Company for the purchase of crude oil on or before the 31st day of December, 1924, and if said arrangements are not made at or before said time then this contract and option is to be of no effect."

It further provided that for any breach on the part of lessee the lease should be deemed forfeited and terminated, and that at the end of the lease the lessee should surrender to lessor, without notice or demand, the possession of all the property so leased in as good condition as it then was, natural wear and decay excepted.

Appellee contended that the cracking still and scrubbing tower and the boilers were not surrendered by appellant to appellee in as good condition, natural wear and decay excepted, as they were at the time appellant received them under the lease.

Appellant contended it was not able to make satisfactory arrangements with the Indiana Pipe Line Company on or before December 31, 1924, or at any other date, for the purchase of crude oil, of which fact appellee had notice, by reason of which facts the written lease became of no effect; and that thereupon the parties agreed verbally that appellant should take possession of the premises on February 1, 1925, pay rent, and operate the plant on a month to month basis from that date, instead of from January 1, so long as appellant could obtain crude oil upon a satisfactory basis, and that there was no reference in the oral agreement as to the condition of the property upon its return.

The written lease was put in evidence, and there was testimony given to the effect that appellant took possession of the plant some time in January, and that oil was received at the plant by appellant as early as January 17. These facts were sufficient to constitute a prima facie case in favor of appellee on the issue of appellant's possession under the written lease, and the burden was then upon appellant to disprove this fact if it so desired. Williams v. Vreeland (C.C.A.) 244 F. 346; Pacific Portland Cement Co. v. Reinecke, 30 Cal. App. 501, 158 P. 1041; Meadows v. Lovely, 90 Okl. 182, 216 P. 452. This appellant attempted to do by offering testimony to the effect that its possession was under the alleged oral lease. This issue was submitted to the jury, and it found adversely as to the existence of such oral lease. It is quite true that Cross was the only witness who testified concerning the existence of the oral lease, but the jury evidently believed that his testimony was not sufficient to preponderate over the presumption of possession under the written lease, and we cannot disturb this finding.

We are next confronted with the contention that the written lease never went into effect, by reason of the fact that appellant was never able to make satisfactory arrangements with the Indiana Pipe Line Company on or before December 31, 1924, for the purchase of crude oil. We regard this as a condition subsequent; but whether or not this is true, it is one which appellant might waive without vitiating the contract. We think that both parties construed the condition as a subsequent one. The lease was signed and delivered on December 8, 1924; and on December 4 appellant purchased insurance on the plant to the extent of $50,000, as required by the written lease, and it was assigned to appellee on March 9. This transaction was not necessary unless the written lease was in force. Both parties evidently thought that appellant had the right to cancel the lease at any time during the year on account of its failure to secure oil, for this was done after seven months' possession, and the property was surrendered to appellee.

The fact that appellant paid no rent for the month of January does not militate against the presumption that it went into possession and was operating under the written lease. The terms of payment of rent were a matter which appellee might waive without voiding the lease and without changing the theory of the complaint. We are convinced that appellant came into possession of the property by virtue of the written lease, and this being true, it would make no difference whether or not the rent was thereafter paid according to its terms, or whether or not appellant immediately after taking possession canceled the lease and refused to pay any rental, it was nevertheless bound to surrender the property to appellee according to the terms of the lease. It could not exercise its right under the lease and disregard appellee's rights.

Appellant contends that the lease was void by reason of section 12225, Burns' Ann. St. Ind. 1926. So much of this section as is pertinent to ...


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