No. 14911
I N THE SUPREME COURT O THE STATE O MONTANA,
F F
1980
T I M CLAWSON,
P l a i n t i f f and Respondent,
VS .
RONALD D. BERKLUND,
Defendant and A p p e l l a n t .
Appeal from: D i s t r i c t Court of t h e F i f t e e n t h J u d i c i a l D i s t r i c t ,
Honorable H. James S o r t e , J u d g e p r e s i d i n g .
Counsel o f Record:
For Appellant:
Loren J. O'Toole a r g u e d , Plentywood, Montana
F o r Respondent :
Gerard M. S c h u s t e r a r g u e d , Wolf P o i n t , Montana
Submitted: February 2 1 , 1980
Decided: m "m
y
Mr. 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 ~udicialDistrict, Sheridan County.
The Court found that Clawson, the lessor, was entitled to cancel-
lation and a recorded release of the lease. Defendant Ronald Berk-
lund, 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 drafts were issued in conjunction with
the lease agreement on September 30, 1977, one being a 15 day
sight draft (Draft No. l), the other a 160 day sight draft (Draft
No. 2). The drafts contained writing that they were "bonus con-
sideration" 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 (Security State). Midland acknowledged
receipt of both drafts on October 4, 1977. Draft No. 1 was paid.
Payment of Draft No. 2 was 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, is March 13, 1978.
The lease was recorded in Sheridan County by Ronald Berklund
on October 6, 1977. his action was initiated on December 11,
1978, and sought the cancellation of the lease and a recorded re-
lease. Ronald Berklund has never tendered payment of the annual
rental which was to be paid by March 10, 1979.
The District Court found that the defendant failed to
comply with the lease agreement by not making timely payment of
sight Draft No. 2 and by failing to make the annual rental pay-
ment as agreed. As a result, plaintiff was entitled to a release
of the lease filed by the defendant.
The following issues have been considered on appeal:
(1) Whether defendant made a timely payment of Draft No.
(2) In the event the payment of Draft No. 2 was untimely,
whether it rendered the alleged oil and gas lease invalid?
(3) In the alternative, if the lease was valid, did it
terminate by reason of a failure to tender payment of the annual
rental which was due on March 10, 1979, which date was after liti-
gation 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) Days After 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
605 Midland 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 collecting bank under section 30-3-120, MCA,
by virtue of the collect directly "through" language. See Engine
Parts, Inc. v. Citizens Bank of Clovis (1978), 92 N.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 . . . its date of payment depends upon such
presentment." Section 30-3-504, MCA, defines presentment and ex-
plains how it is to be made.
"30-3-504. How presentment made. (1) Present-
ment is a demand for acceptance or payment made
upon the maker, acceptor, drawee or other payor
by or on behalf of the holder.
" (2) Presentment may be made:
"(a) by mail, in which event the time of present-
ment is determined by the time of receipt of the
mail; or
"(b) through a clearinghouse; or
"(c) at the place of acceptance or payment speci-
fied in the instrument or 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 is present or ac-
cessible at such place presentment is excused."
The principal 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 is written on the
draft or contained in the record. The only evidence concerning a
date in the collection process is Midland's acknowledgement of
receipt of the item on October 4, 1977.
Section 30-3-409, MCA, provides that a drawee is not
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. It must be written
on the draft, and may consist of his signature alone.
It becomes operative when completed by delivery or
notification,
"(2) A draft may be accepted although it has not been
signed 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 accept-
ance the holder may complete it by supplying a date
in qood faith." (Emphasis added.)
Defendant Berklund 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 Berk-
lund never provided a date of presentment he may supply the pre-
sentment date of October 4, 1977. Plaintiff asserts that this
date is supplied in good faith since Midland received Draft No. 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 time within which to make payment. The com-
ment 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 pay-
ment where none appears on the instrument. An un-
dated acceptance of a draft payable 'thirty days
after sight' is incomplete and unless thePacceptor
,; - -
.
himself writes in a diffc:rent date the holder is
authorized to com~letethe acceptance according to
&
the terms of the draft by supplying a date of pre-
sentment. Any date which the holder chooses to write
- -
-
in is effective providing his choice of date is made
in good faith, Any different agreement not written
on the draft is not effective, and par01 evidence
is not admissible to show it." (Emphasis added.)
Pursuant to section 30-3-410(3), MCA, and Official Comment
6 we find that respondent Tim Clawson may supply a date of present-
ment 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 is
dishonored when "due acceptance or payment is refused or cannot
be obtained within the prescribed time." Thus, plaintiff was
entitled to treat the draft as dishonored since payment was due
on March 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 instru-
ments 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), 158 Mont. 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), 107 Mont. 300, 86 P.2d 407. Further,
a series of Montana cases have 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. Christian v. A. A. Oil Corp. (1973), 161 Mont. 420, 506
P.2d 1369; Solberg v. Sunburst Oil & Gas Co. (1926), 76 Mont. 254,
246 P. 168. Consequently, the two sight drafts are a part of the
lease agreement, the parties must be presumed to contract with
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
compliance with 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 cancel-
lation and recorded release as a result of Mr. Berklund's breach.
Since the issues previously 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 lease was commenced.
The judgment of the District Court is affirmed.
Chief Justice
We concur: