78 W. Va. 433 | W. Va. | 1916
A judgment for $785.42 was rendered against tbe plaintiff in error, in an action of assumpsit for damages for tbe breach of alleged implied covenants and promises in an oil and gas lease, under which no wells have been drilled and on which the stipulated delay rentals have been accepted, to develop the property with due diligence and protect it from drainage. The recovery is an unprecedented one and some of the questions developed on the hearing are novel and highly important in their bearings.
Though leased as one containing 213 acres, more or less, the actual area of the tract seems to have been only 140 acres. Subject to the lease, a portion of it was conveyed to Susan J. Carper, as containing 46 acres, but its actual area is only about 25. The lease for a term of ten years and as much longer as oil or gas shall be produced under it, was executed, Feby. 24, 1906, and bound the lessee, the South Penn Oil Co., to complete a well on the premises within three months from its date or pay $53.25, in advance, for each three months of delay in the completion thereof.. Provision was made for payment of the rental to the lessors or deposit thereof to their credit in the Roane County Bank at Spencer. Free gas for domestic purposes on the premises was reserved to the lessors.
On February 1, 1907, the South Penn Oil Co. assigned the lease to the Hope Natural Gas Co. and that company assigned the gas right under it to the United Fuel Gas Co., by a deed dated, June 30, 1910, the assignee assuming all the obligations of every kind and character imposed by the lease in favor of the lessors. From the date of the lease down to the date of the trial, the delay rentals have been paid,' but no well has been drilled on the premises.
The drainage, if any, affects the portion of the land conveyed to Susan J. Carper more directly and particularly than the residue, but, in the deed to her, a proportional part of
The two wells by which drainage, if any, is most likely to occur are nearer to the 46 acre portion than to the residue of the leased tract. One of them is 476 feet from that part but probably three times as far from the other. The second is 575 feet from that part and considerably farther from the nearest portion of the other, a sharp angle thereof. At much greater distances, varying from a quarter of a mile to a mile, are other wells practically all around the leased tract and on leases held by the defendant. All productive of gas, some in very large quantities, they prove the field to be a good one and indicate the existence of gas in the tract covered by the lease here involved. Wells Nos. 115 and 231 on the G. R. Petit and H. C. Abbott tracts, respectively, and situate 476 and 575 feet, respectively, from the 46 acre tract, are connected with the defendant’s large transportation lines leading out of the gas field to distant markets, by means of movable gates, but it is denied that gas in any considerable quantities has been used from either of them.
In so far as right of recovery is asserted in the declaration and evidence, on the ground of duty to drill, merely because the premises are shown to be gas producing territory, the case is obviously' bad. By their written lease, the plaintiffs expressly assented to. delay in drilling and agreed to accept, in satisfaction thereof, specified pecuniary compensation
No implied covenant on the part of an oil or gas lease,for diligent operation, or operation at all, under such conditions, has ever been suggested or declared by this or any other court. There are some decisions properly holding that, in the absence of a provision for delay compensable in money, and any other consideration, there is an implied covenant to search for the mineral, because there is no substantial consideration for such lease, unless it impliedly contains a covenant for exploration. Huggins v. Haley, 99 Fed. 606; Tenn. Oil <& Gas Co. v. Broivn, 131 Fed. 696. In the first of these two cases, the court distinctly holds that an implied covenant to drill a well was the sole consideration for the lease, and it was impliedly put in because none was expressed. The lease provided for a $50.00 forfeiture, but the court held that to have been intended to operate only as a penalty, not as compensation for delay. In the other, there was an- express covenant to explore and the instrument recited no consideration, wherefore the court treated the covenant as the sole considreation. Silence of a lease as to what constitutes its consideration gives latitude to the court for ascertainment thereof in the course of construction. All authorities agree that acceptance of a stipulated delay rental must be treated
As matter of actual decision, the doctrine of implied covenants in mineral leases has thus far been limited to those cases in which it has been invoked to supply a consideration when none has been expressed, to make effective the principle of surrender by operation of law, when the premises have been abandoned after discovery of mineral and delay rentals have ceased, and to prevent loss of the subject matter of the lease by drainage through wells on adjacent lands. In all these cases, it applies without contravention of any of the rules or principles governing the construction of contracts. The generality of the terms in which it is usually expressed cannot consistently be regarded as an indication that it has no legal limitation nor ás a warrant for its application under such conditions as would make it destroy express stipulations or defeat the plain intention of the parties.
Its invocation on the ground of drainage, under the circumstances of this case, is an effort to carry it a step beyond the cases in which it has been previously applied by this court. All of them, without exception, have stood upon allegations of drainage after discovery of oil or gas and cessation of delay rental. In none of them, could it be contended the injury threatened or inflicted had been compensated by a money payment, or a covenant to accept money by way of compensation, as it is here. Drainage can be prevented only by the drilling of off-set wells, and the lessor has assented to delay in drilling and agreed to accept a money rental as the equivalent of the drilling of a well; or as compensation for the non-drilling thereof. So the appeal to the letter of the contract, in resistance of the effort to apply the doctrine of 'an implied covenant to protect the property from drainage, is literally and logically irresistible. Its literal force can be broken only by the application of legal principles allowing restraint of general terms to the extent of working out the intention of the- parties, as disclosed by the nature of the subject matter of the contract, the situation and purposes of the parties and the circumstances under which the contract was
Though, strictly speaking, the relation of1 landlord and tenant does not obtain between these parties, the lessee not having discovered oil or gas on the premises, there is a similarity of situation affording ground for some. sort of relief or protection. But., if such ground did not exist, some implied provision would have to be read into the lease to make it effectuate the clear intent and purposes of the
If the relation of landlord and tenant had subsisted between the parties, authorities above referred to and others not mentioned could be readily and, no doubt, consistently invoked as sustaining the theory of liability for damages for breach of an implied covenant to protect the leased premises from drainage, notwithstanding acceptance of the delay rentals. Unless the estate vested by an oil and gas lease differs from an ordinary tenancy, on account of the peculiar nature-of the subject matter or the purpose and terms of the lease, they would fully sustain it. But that relation had not been established, when the acts complained of here took place. Until oil or gas is found, the lease gives a mere right of exploration, and the lessée has no vested estate. • After discovery of minerals, he has a conditional estate for years, in the nature of a tenancy of the surface. South Penn Oil Co. v. Snodgrass, 71 W. Va. 438; Parish Fork Oil Co. v. Bridge-
Be that as it may, an implied covenant to prevent drainage, giving a right of action for damages for a breach thereof, is mot necessary nor essential to preservation or conservation of the minerals during the specific optional term created by the lease. If a condition less onerous than a covenant will •effectuate the manifest intention of the parties, as to a matter not specifically provided for in the lease, and adequately protect the subject, matter of the contract, the court may justly and consistently regard it as the provision intended. Both covenants and conditions are frequently used in all :sorts of contracts. They are equally known to courts, lawyers and laymen and either may have been intended by the parties, as an unexpressed safeguard against a contingency, ■and the courts may recognize one of them, as an implied provision, with as much propriety as characterizes such recognition of the other. And, if either will accomplish the purpose obviously intended, and one is less burdensome to either of the parties than the other, the adoption of the less onerous one is made obligatory by the rule applicable to the addition of terms to contracts on the theory of implication. Nothing is to be so added otherwise than upon the ground' of necessity. White v. Bailey, 65 W. Va. 573; U. S. v. Fisher, 2 Cranch. 358; Jackson v. Lewis, 17 Johnson 475; Turnpike Co. v. People, 9 Barb. (N. Y.) 161; Morgan v. Railroad Co., 96 U. S. 716; Hamlyn & Co. v. Wood & Co., 2 Q. B. 488; The Moorecock, 14 P. D. 64; Sterling v. Mitland, 5 B. & S. 840; Butler v. Manchester etc. R. Co., 21 Q. B. D. 207. Accord
Under the circumstances disclosed by the record of this, ease, typical of possibilities under thousands of leases held in the state, an implied obligation on the part of the lessee to drill a well for protection against drainage, upon necessity therefor and the lessor’s demand for such action, within any rental period for which rent has been paid, with notice of intention to refuse to accept further rentals, and right in the lessor to declare a forfeiture of the lease for noncompliance with such demand, will afford full and ample protection from such losses as are complained of here. To effect this, it is only necessary to read the lease as creating a term
Moreover, this conclusion harmonizes with the general scheme of the lease. It does not contemplate reception of both delay rentals and damages as the equivalent of well rentals or oil royalties. One of its provisions is that the completion' of a well shall be and operate as a full liquidation of the delay rentals during the remainder of the term. If the lessee may take the delay rentals and then sue for damages for non-drilling, measuring them by the stipulated well rent-
The construction upon which this action is based not only subjects the lessee to a burden unnecessary for adequate protection of the lessor, gives the latter greater right than is essential to the preservation of his minerals and conflicts with a provision of the lease, but also puts it in the power of the lessor to assert inequitable demands against the lessee. Whether drainage occurs or not is often indeterminable with any reasonable degree of certainty. In such cases, the former may take his rentals as they become due, remain absolutely silent as to any desire that the land be drilled, in view of the uncertainty as to its productiveness, and then after the lapse of years, bring an action for damages for breach of the implied covenant. By his conduct, he may indicate his entire satisfaction with the rentals or his preference therefor and later set up an unconscionable demand for damages. The construction adopted here imposes duty upon both parties, respecting a matter of mutual interest, and puts, it beyond the power of either to take airy undue advantage of the other.
Under this construction, there is no right of action for damages. Plaintiff’s remedy was a demaijd for the drilling of wells, refusal to accept further rentals, and, on failure to drill, a declaration of forfeiture' by the execution of a new lease to a third party or otherwise.
As the declaration sets forth all the express covenants and terms of the lease, claims implied covenants to drill within the term of the lease and especially an implied covenant to protect from drainage by the drilling of wells, avers no wells have been drilled on the land, and is silent as to whether the delay rentals have been paid, the demurrer thereto should have been sustained. If the rentals were paid, the express covenant was fully discharged, and payment thereof is not negatived. Read as a whole, the declaration shows the demand is founded solely upon the alleged implied covenants to drill within the term, notwithstanding payment of
For the reasons stated, the judgment will be reversed, the verdict set aside, the demurrer to the declaration sustained and the casé remanded with leave to amend the declaration.
Reversed and remanded.