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upon the lessee, pursuant to Section 7 of the lease, that if the requirement of Section 2 (a), as amended, is not obeyed within 30 days after receipt of decision, the lease will be subject to cancelation without further notice. The 30-day notice period is required by section 17 of the act of February 25, 1920 (41 Stat. 437, 443, ch. 85), as amended by the act of August 21, 1935, supra, at 676 (30 U. S. C. sec. 226). This period usually expires before the rental for the third year is due.

At the end of this period, if the lessee has not heeded the decision, the lease is subject to immediate cancelation for failure to file a rental bond. There can be no termination at this point for nonpayment of rent since the amendment to section 2 (a) does not make the rent due in advance but merely authorizes its prepayment as a substitute for the bond. The General Land Office encounters no problem if the recommendation that the lease be canceled for failure to file a bond is made. to and acted upon by you before the rent for the third year has accrued. Its difficulty arises when, because of the inherent lag in administration, the recommendation to cancel or the cancelation for such a breach is not made until after the rent for the third year normally would have accrued. In such a case, is the rent a debt due the United States, notwithstanding that the lease is canceled for a breach occurring prior to the accrual of the obligation to pay such rent?

This question must be answered in the negative because an oil and gas exchange lease does not provide for the survival, after cancelation, of future liability. The termination of such a lease releases the lessee from all future obligations under it, see Gardiner v. Butler & Co., 245 U. S. 603, 605 (1918); Hartford Wheel Club v. Travelers Ins. Co., 78 Conn. 355, 62 Atl. 207, 209 (1905), including liability for after-accruing rent. Cannon v. Fifty-Sixth Street Garage, 45 F. (2d) 110 (C. C. A. 2, 1930); Burns Trading Co. v. Welborn, 81 F. (2d) 691, 695 (C. C. A. 10, 1936), cert. den. 298 U. S. 672 (1936); Watson v. Merrill, 136 Fed. 359 (C. C. A. 8, 1905).

It is submitted that "after-accruing rent" must have the same meaning in ascertaining the effect of a forfeiture as it has in determining whether there can be a forfeiture. In the latter situation, the rule is that a forfeiture is waived if there is either an unqualified demand for rent accruing after the act which is the basis of the forfeiture, Hartford Wheel Club v. Travelers Ins. Co., 78 Conn. 355, 62 Atl. 207, 209 (1905); see In Re Hook, 25 F. (2d) 498, 499 (D. C. D. Md. 1928); 2 Tiffany, Landlord and Tenant (1912), sec. 194i (1) (b), p. 1387, or a suit for such rent, Rich v. Rose, 124 Ky. 669, 99 S. W. 953, 955 (1907), or an acceptance of such rent, Title Ins. & Trust Co. v. Hisey, 95 F. (2d) 555 (C. C. A. 9, 1938); Woollard v. Schaffer Stores Co., 272 N. Y. 304, 5

N. E. (2d) 829 (1936); Stover v. Hazelbaker, 42 Nebr. 693, 60 N. W. 597 (1894); 1 Tiffany, Real Property, (3d ed. 1939), sec. 207, p. 345; Note, 34 Harv. L. Rev. 203 (1920-21).

Since the assertion of a right to after-accruing rent would bar the forfeiture of the lease, then the forfeiture clearly is a bar against collecting such rent. Bohning v. Caldwell, 36 F. (2d) 222, 223 (C. C. A. 5, 1929); Locke v. Fahey, 288 Mass. 341, 193 N. E. 26 (1934); Jones v. Carter, 15 Mees. & W. 718, 726, 153 Eng. Rep. 1040, 1043 (Exch. 1846); see Coburn v. Goodall, 72 Calif. 498, 14 Pac. 190, 195 (1887). The ground of forfeiture in the question presented is the lessee's failure to comply with Section 2 (a) of the lease, as amended, by furnishing a bond in advance to secure payment of the third year's rent. This breach occurred prior to the accrual of such rent. Hence, even though the cancelation is consummated after the rental for the third year normally would have accrued, the Government cannot consider such rent as a debt due it.

Nor is it possible, because the cancelation has not been made before the rental became due, immediately to cancel the lease for failure to pay the rent, making it a debt due to the United States. This is because of the rule that where nonpayment of rent is a ground of forfeiture, a demand for the rent is a prerequisite to the enforcement of a forfeiture. Henderson v. Carbondale Coal and Coke Co., 140 U. S. 25, 33 (1891); see Prout v. Roby, 15 Wall. 471, 476–7 (1872); 1 Tiffany, Real Property (3d ed. 1939), sec. 200, p. 332.

Since no demand for the rent qua rent has been made pursuant to the lease, this would have to be done in order to comply with this rule. Action on the pending cancelation, therefore, would have to be suspended. This could be done and cancelation be made for nonpayment of rent since your power to cancel is an option (see Smith v. United States, 113 F. (2d) 191, 193 (C. C. A. 10, 1940); American Surety Co. of New York v. United States, 112 F. (2d) 903, 906 (C. C. A. 10, 1940); 2 Tiffany, Landlord and Tenant (1912), sec. 194d, p. 1369), whose exercise is probably not effective until the final step has been taken. Cf. Metropolitan Life Ins. Co. v. Childs Co., 230 N. Y. 285, 130 N. E. 295 (1921). However, there would be no benefit in adopting this policy and in abandoning the policy now followed by the General Land Office, that of recommending cancelation when there is a failure to provide a rental bond or prepay the rent.

The present policy is based upon the provisions of the lease intended to safeguard the interests of the United States. Section 2 (a) originally required a bond so that, among other things, the United States

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would have adequate security for the rent if not paid when due. The necessity of this is apparent, especially since these exchange leases were converted from permits issued for "wild-catting." To ease the burden on these lessees, this clause was amended so as to dispense with the bond if the rent were prepaid each year 90 days before it became due. Laxity in the enforcement of this amended provision would leave the Government without any security for rent.

There can be no doubt that postponement of cancelation until it could be made because of nonpayment of rent is the equivalent of such laxity. Furthermore, by shifting to this ground in the present instances, the General Land Office would have to begin anew the necessarily slow administrative process in order to comply with the requirements of the law and the lease. This would mean expenditures whose net result would be to establish that a debt, most likely uncollectible, was due the United States, as well as to tie up the land for an additional period. It would also entail needless expense in a probably unsuccessful effort to collect the manufactured debt.

A further consideration is the contrary policy which has been followed in the surrender of such leases. Where a surrender is offered, it is accepted by you as of the date of the offer filed in the General Land Office, even though another year's rent would otherwise have become due in the interim between offer and acceptance. There can be no different policy in the case of a cancelation since there is no valid distinction.

There being no sound reason for suspending the process of cancelation once it has been begun, merely because in accounting chronology rent would have become due, it is recommended that a lease which has been submitted to you for cancelation because of the failure to furnish a rental bond should be canceled on that ground. The Commissioner of the General Land Office should be instructed that when a lease is actually canceled for this reason, there is no debt due the United States, and no account, therefore, should be set up against the former lessee looking towards the collection of this item. Since the administrative process is not always of the same length, it would tend to simplify matters if each forfeiture were to be made effective as of the end of the 30-day notice period, at which time each breached lease would become ripe for cancelation.

Approved:

OSCAR L. CHAPMAN,

Assistant Secretary.

EXEMPTION OF MENOMINEE INDIAN MILLS FROM FEDERAL AND STATE TAXATION ON SALES OF OLEOMARGARINE

Opinion, January 8, 1942

MENOMINEE INDIAN MILLS EXEMPTION FROM STATE TAXATION-FEDERAL TAXATION-FEDERAL AND STATE LICENSES.

The Menominee Indian Mills are not subject to Wisconsin state statutes imposing a license requirement and a sales and use tax on retail sale of oleomargarine.

The Federal oleomargarine tax must be paid on all oleomargarine purchased by the commissary of the Menominee Indian Mills for resale to individual employees.

The Menominee Indian Mills are not subject to the payment of a Federal license fee for retail sale of oleomargarine.

MARGOLD, Solicitor:

In connection with the desire of the commissary of the Menominee Indian Mills to sell oleomargarine, several questions have been referred to me for an opinion. These questions may be formulated as follows:

1. Are the Menominee Indian Mills exempt from the provisions of the Wisconsin statutes requiring the taking out of a license for the sale at retail of oleomargarine and the payment of a sales and use tax on oleomargarine sold at retail.

2. Are the Menominee Indian Mills exempt from the provisions of the Internal Revenue Code requiring (a) the payment of a pro rata tax on oleomargarine; (b) the payment of a license tax for the sale at retail of oleomargarine.

1. Chapter 97, section 42, of the Wisconsin Statutes (1939, 15th edition), provides that a person selling oleomargarine at retail shall obtain a State license at the price of $25 per year and shall pay a sales or use tax of 15 cents per pound on all oleomargarine sold by him.

This constitutes a regular sales tax of the type dealt with in my opinion of May 8, 1940, 57 I. D. 124, supra, in which I held that "purchases made by Indians on Indian reservations are not subject to sales taxes" and that "persons trading with the Indians on Indian reservations are not subject to sales tax laws." A similar result was reached in my opinion of May 31, 1940, 57 I. D. 129, supra, where I held that a Wisconsin statute (chs. 443, 518, Wisconsin Laws of 1939), placing an occupational tax on the sale or other disposition of tobacco products and using much the same language as that used in the instant statute, did not apply to tobacco products sold through the commissary of the Menominee Indian Mills to employees for their personal use. For a more detailed analysis of this question, I refer to the discussions contained in those two opinions.

2. (a) Section 2301 of the Internal Revenue Code provides for a tax of one-fourth of one cent or 10 cents per pound of oleomargarine,

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depending on the color. This tax is paid by the manufacturer. Section 3331 provides:

The privilege existing by provision of law on December 1, 1873, or thereafter, of purchasing supplies of goods imported from foreign countries for the use of the United States, duty free, shall be extended, under such regulations as the Secretary may prescribe, to all articles of domestic production which are subject to tax by the provisions of this subtitle.

The effect of this provision would be that oleomargarine purchased for the use of the United States could be withdrawn tax free from the manufacturer. The oleomargarine to be purchased by the commissary of the Menominee Indian Mills will be resold to employees of the mills. None of it, of course, will be used directly in the operations of the mills. The question then is, whether, under these circumstances, it can be said that the purchases of oleomargarine by the commissary are "for the use of the United States."

In my opinion of May 31, 1940, 57 I. D. 129, supra, I considered a similar question concerning the Federal tax on sales of gasoline through the Menominee Indian Mills. Subtitle (C) of the Internal Revenue Code, in which provision is made for the gasoline tax, contains a provision similar to section 3331 quoted above, namely section 3443, which provides as follows:

A credit against tax under this chapter, or a refund, may be allowed or made to a manufacturer, producer, or importer, in the amount of tax paid by him under this chapter with respect to the sale of any article to any vendee, if the manufacturer, producer, or importer has in his possession such evidence as the regulations may prescribe that such article was, by any person, resold for the exclusive use of the United States,

*

This provision, I held, could serve to exempt only those quantities of gasoline purchased by the mills which were used in the operation of the mills themselves, but the tax would have to be paid on gasoline sold through the mills' commissary to individual employees for their private use. On the basis of the reasoning set forth in detail in that opinion, I am constrained to hold that in the instant case the Federal oleomargarine tax will have to be paid on all oleomargarine purchased by the commissary of the mills for resale to individual employees, and that, therefore, none of it may be withdrawn tax free from the manufacturer.

(b) In addition to this pro rata tax on oleomargarine, a Federal tax in the nature of a license fee is imposed on persons selling oleomargarine at retail by section 3200 (c) of the Internal Revenue Code. This section provides for an annual tax of $6 or $48, depending on the color of the oleomargarine sold. It is clear that in imposing a license fee on the operations of a retailer, the Federal Government does not in

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