## Facts

- Testamentary trustees of Anita M. Baldwin’s estate held the lessor-side interest in an oil and gas property in Los Angeles County.
- The controlling instrument (the “Baldwin sublease”) bound successors and contained an express operations covenant requiring the operator “at all times to use diligence and observe customary oil field practices and modern methods, appliances and equipment” to save production that could be saved at a reasonable profit.
- Through assignments and subleases, Sam Kubetz became the operating sublessee (ultimately holding the interest previously shared with an associate) and took the sublease subject to its terms.
- The sublease also imposed a continuous drilling obligation: the operator was to “continuously drill additional wells,” with no more than 90 days between completion of one well and the beginning of the next, until stated development benchmarks were met.
- The sublease included a suspension/force-majeure type clause providing that the drilling requirements would be suspended if performance became impossible or was prevented by causes beyond the lessee’s control.
- Under Los Angeles County zoning rules, drilling required a zoning exception, which could be granted when it appeared probable that oil lay beneath the property.
- Kubetz obtained an exception for a first well and drilled and completed that well, which produced.
- After completion of the first well, Kubetz did not secure additional zoning exceptions and did not commence additional wells within the required 90-day intervals.
- The trustees brought an action for declaratory relief seeking a judicial declaration of forfeiture of Kubetz’s sublease interest, alleging (1) failure to operate as required by customary practices and modern methods (including unsafe conditions and fire hazards) and (2) failure to comply with the continuous drilling program.
- The trial court found that Kubetz repeatedly violated county fire-prevention requirements and failed to use customary practices and modern equipment, including inadequate flow-control leading to overflows, defective wiring, and accumulation of flammable material near wells and tanks; it also found a breach of the continuous drilling clause.
- As a remedy, the trial court declared a forfeiture of Kubetz’s sublease interest, while preserving rights associated with the existing producing well and a limited surrounding area as provided in the sublease and judgment.
- Kubetz appealed, arguing the evidence was insufficient and that zoning restrictions and the suspension clause excused further drilling.

## Issues

1. Whether substantial evidence supported the trial court’s finding that Kubetz breached the sublease’s operations covenant (and related duties) by failing to use diligence, customary oil field practices, and modern methods and equipment, including by maintaining unsafe, hazardous conditions.
2. Whether Kubetz’s failure to drill additional wells within the required 90-day intervals breached the continuous drilling clause, or was excused by zoning restrictions and the sublease’s suspension/force-majeure provision.
3. Whether, given the breaches found, equitable forfeiture of the sublease (subject to the carve-out for the producing well area) was an available and proper remedy.

## Decision

- The Court of Appeal affirmed the judgment declaring a forfeiture of Kubetz’s sublease interest, subject to the preserved rights in the existing producing well and surrounding area.
- The court held that substantial evidence supported the trial court’s findings that Kubetz failed to operate in accordance with the express covenant requiring customary practices and modern methods and equipment, and that the unsafe conditions persisted despite warnings.
- The court held that Kubetz breached the continuous drilling requirement and that zoning requirements and the suspension clause did not excuse nonperformance where the zoning scheme allowed exceptions and Kubetz failed to pursue additional approvals after successfully obtaining the first.
- The court concluded that forfeiture, though generally disfavored, was justified on these facts in the oil-and-gas leasing context because the defaults defeated the development and production purposes of the sublease, while the judgment respected the contractual protection for the producing well.

## Legal Principles

- An appellate court reviews findings of fact for substantial evidence and will not reweigh conflicting testimony where the record supports the trial court’s determinations.
- An express covenant in an oil and gas lease or sublease requiring diligent operations consistent with customary practices and modern methods and equipment is enforceable; persistent unsafe conditions and fire hazards can constitute a material breach.
- A continuous drilling clause requiring commencement of successive wells within stated intervals is enforceable according to its terms; failure to commence additional wells within the specified time can support termination where the duty is central to the agreement’s development program.
- A suspension/force-majeure provision applies only when performance is prevented by causes beyond the lessee’s control; regulatory requirements do not excuse performance when approvals remain available and the lessee does not pursue them with reasonable effort.
- Although equity disfavors forfeitures, forfeiture may be granted in oil and gas lease disputes when serious, continuing breaches of core operating and development duties effectively tie up the property and defeat the agreement’s basic objective, especially where the decree is tailored to preserve contractual rights tied to existing production.

## Conclusion

Baldwin v. Kubetz affirmed forfeiture of an oil sublease because substantial evidence showed the operator repeatedly failed to run the lease using customary, safe, modern oil-field methods and also failed to drill additional wells within the required 90-day schedule; zoning rules did not make drilling impossible, and the suspension clause did not excuse the operator’s failure to seek further exceptions, so equitable forfeiture—limited to preserve rights around the existing producing well—was proper.


Baldwin v. Kubetz, 307 P.2d 1005 (1957)