Plaintiff has appealed from a judgment in favor of defendants. In this action plaintiff sought cancellation of assignments of oil leases on property in the North Dome of the Kettleman Hills oil fields in Kings County, cancellation of a mortgage, and of a drilling agreement providing for the development of the leases, upon the ground that the documents constituted a single contract which was usurious and void. Plaintiff also sought an accounting and damages.

The facts presented by the record are involved but it will only be necessary to detail such of them as will sufficiently explain the question presented for our decision.

In 1924 the Marland Oil Company of California executed two oil leases on property in the North Dome of the Kettle-man Hills oil fields to B. J. Miley. On October 27, 1926, Miley assigned these leases to the Miley Oil Company. On the next day that company assigned the leases to the Farmers and Merchants National Bank of Los Angeles, in trust, to secure a loan of $100,000. At that time both Miley and the Miley Oil Company were indebted to numerous creditors in sums totaling more than $2,000,000. All of the receipts from the oil production of the two debtors had been taken over by the Associated Oil Company, one of the major creditors, and the proceeds applied upon its claim. The wages of various employees of Miley and the Miley Oil Company were unpaid and labor claims had been filed with a deputy labor commissioner.

About this time valuable oil wells were brought in on the North Dome of the Kettleman Hills oil fields which gave a considerable value to the oil leases here involved. It seemed probable that these leases might be of sufficient value and might produce a sufficient revenue to liquidate the indebtedness of Miley and the Miley Oil Company. In 1929 the leases were assigned to Messrs. DeLorme, Neblett and Thayer, as trustees, for' the purpose of attempting to work out the tangle in the financial affairs of Miley and the Miley Oil Company.

The trustees devised the plan of organizing a new corporation to which the leases would be assigned. It was proposed to issue $2,000,000 in bonds which would be delivered to the creditors in payment of their claims. It was necessary, also, to secure between $250,000 and $500,000 with which to pay, in cash, the creditors who would not accept bonds. The trustees also proposed to enter into a fifty-fifty drilling agreement with a major oil company for the purpose of having oil wells drilled on the leases. It was hoped the $250,000 to $500,000 could be secured from this oil company. The new corporation, the plaintiff, was organized and many creditors agreed to accept its bonds in payment of their claims.

The trustees negotiated with several major oil companies, among them the General Petroleum Corporation, in an endeavor to secure the fifty-fifty drilling contract and the payment of from $250,000 to $500,000 for its execution'. They were unsuccessful, but the General Petroleum Corporation submitted a counter offer which is described in plaintiff’s opening brief as follows (transcript references deleted) :

Generally speaking, this proposition was accepted and put in effect by a mortgage securing a note for $250,000, an assignment of the leases, and a fifty-fifty drilling contract. The mortgage and note. were made to the Amerada Petroleum Corporation which also executed the fifty-fifty drilling contract with plaintiff. The Amerada Petroleum Corporation of California took over all of the assets of the Amerada Petroleum Corporation in California and assumed and agreed to perform all of its obligations in that state.

It is contended by plaintiff that the loan of $250,000 was the principal transaction between it and the defendants, and that the fifty-fifty drilling contract and the assignment of its leases were exacted from it as a bonus for making the loan; that the leases had a value of many hundred thousand dollars which made the transaction usurious and therefore void. (Stats. 1919, p. lxxxiii.) On the other hand, the defendants contend that the drilling contract was the main concern of the parties, and that the loan was only incidental to.it and necessary to permit the execution of the drilling contract and to enable the carrying of its terms into effect because it was imperative that the debts of Miley and the Miley Oil Company be liquidated so that threatening bankruptcy proceedings be avoided and the operating company be given and allowed to retain quiet and uninterrupted possession of the leased property during the development and production period.

Fifty-fifty drilling contracts are not strangers to the oil industry and are used on suitable occasions. When they are used leases are usually assigned to the operating company as it is not an unreasonable requirement that it be given the lessee’s interest in the land, it being required to perform the lessee’s obligations and to expend large sums of money in the drilling operations which it can only recover if oil is discovered and produced. That it should hold the lessee’s title is a proper incident of such a contract.

The contract before us is drawn upon the theory just outlined. It contains the following provisions as to the division of the proceeds of hydrocarbon substances obtained from the leased premises:

The mortgage given to secure the promissory note of $250,000 was upon real and personal property, and was not unusual in form, except in its provisions concerning the repayment of the loan, which are in part as follows:

Defendants concede that where a debtor gives a consideration for a loan that will make the profits of the lender from the loan more than the maximum legal rate of interest no subterfuge of the parties will be permitted by the courts to conceal the real purpose of the transaction, and if in fact a usurious rate of interest is exacted the penalties of the usury law will be firmly imposed. They urge, however, that when “besides making the loan the lender obligates himself to pay out additional moneys or to render additional services, there is no usury”.

The case of Freedom Oil Works Co. v. Williams, 302 Pa. 51 [ 152 Atl. 741 ], involves a question quite similar to the one before us. In that case the defendants desired to purchase a garage and in order to finance the purchase and procure necessary additional equipment they entered into a contract with plaintiff whereby plaintiff agreed to advance a sum not to exceed $10,000, to be secured by a mortgage, the principal to be repaid in instalments with interest at six per cent per annum. The defendants further agreed to procure certain equipment from the plaintiff under a bailment lease and to purchase from plaintiff exclusively all gasoline and oil used or sold at the garage for a minimum period of three years, and until the loan should be repaid. The transaction was later continued for an additional period of five years in consideration of an advancement by plaintiff of an additional sum of $4,000.' Defendants sold their business and repaid the loans. The purchaser declined to carry out the contract to sell only the products of plaintiff and action was brought to recover damages for breach of contract. The defendants interposed the defense of a usurious contract, urging that the profits derived by the plaintiff from the entire transaction brought the interest rate on the loan above the lawful maximum limit. The Supreme Court of Pennsylvania was of the opinion that no usury was proven and said:

In Lamb v. Herndon, 97 Cal. App. 193 [ 275 Pac. 503 ], it is said:

In Terry Trading Corp. v. Barsky, 210 Cal. 428 [ 292 Pac. 474 ], the Supreme Court said:

When we measure the contracts before us by the foregoing rules it is evident that the evidence fully justifies the finding of the trial court that they are not usurious. The question being one of fact this finding is binding upon us and is final here.

Plaintiff was indebted to the extent of $2,000,000, or more. It was necessary to have $250,000 in addition to its bond issue with which to liquidate the portion of its debts it could not refund with the bonds. Its only asset from which it could even hope to pay this indebtedness, which totaled more than $2,000,000, was the Kettleman Hills oil leases. In order to reduce a potential value of the leases to a tangible liquid value so that the indebtedness might be paid it was necessary that the oil, which probably existed under the surface of the ground covered by the leases, be brought to the surface and sold. This required extensive and expensive drilling operations which plaintiff could not prosecute. If the $250,000 loan were repaid there would still remain the much larger bonded debt which, upon foreclosure, would take all of plaintiff’s properties. The bond issue could only be paid from oil produced from the leases. It is clear that the major objective of plaintiff in its refinancing operations was the production of oil from its leases. That end was to be accomplished by means of the fifty-fifty drilling contract. In the estimation of both parties this was undoubtedly the document of major importance executed by them. It is true that as part of the same transaction plaintiff was loaned $250,000, drawing interest at six per cent per annum. This money was used to pay labor and other claims that could not be refinanced through the bond issue. It was necessary that these claims be paid to prevent bankruptcy proceedings and without the loan defendants could not have had peaceable and continued possession of the leased property, nor could they have performed the obligations of the leases and the drilling contract. While the loan was a part of the entire transaction it was incidental to the main purpose, that of devoloping and marketing oil. There was a consideration separate and apart from the loan supporting the drilling contract. Plaintiff assigned its leases to a defendant. Defendants agreed to drill for oil and in so doing would expend large sums of money which could not be recovered if petroleum products were not found. The consideration for the drilling contract to this extent was entirely separate and distinct from the consideration for the loan. The former did not depend on the latter. Defendants took all the risks incident to the drilling operations and plaintiff took none. The profits to be derived by defendants from the leases assigned to them and from the money expended in the hazardous enterprise of drilling for oil were a recompense for the risk they took in drilling and were perfectly legitimate, as the money expended in drilling could not be recovered if oil were not produced. The leases were not assigned to them as security for the loan nor as a bonus for it, but to permit them to drill, find, and sell oil, and produce money for plaintiff as well as for themselves.

The only interest which defendants could receive for the loan of $250,000 was six per cent per annum, the rate specified in the promissory note, which rate was not usurious. Any other profits accruing to defendants must come under the drilling contract. Such a contract does not come within the terms of the usury law.

Defendants urge that the usury law (Stats. 1919, p. lxxxiii) has been repealed by section 22 of "article XX of the Constitution which was adopted November 6, 1934. See Fenton v. Markwell & Co., 11 Cal. App. (2d) (Supp.) 755 [ 52 Pac. (2d) 297 ]; Andrews v. Reidy, (Cal. App.) [ 54 Pac. (2d) 30 ]; Andrews v. Reidy, 7 Cal. (2d) 366 [ 60 Pac. (2d) 832 ] ; Matulich v. Marlo Inv. Co., 7 Cal. (2d) 374 [ 60 Pac. (2d) 842 ]. As we have concluded that the contracts are not usurious we need not consider this question.

Judgment affirmed.

Barnard, P. J., and Jennings, J., concurred.