Kleppner v. Lemon

176 Pa. 502 | Pa. | 1896

Lead Opinion

Opinion by

Mr. Justice Williams,

This is in substance, though not in form, a bill for specific execution of a contract. The defendant denies' that the contract set out in the bill as the basis of the relief asked imposes any obligation, express or implied, upon him to do that which the plaintiff demands of him. The case must therefore depend upon the proper interpretation of the contract, aided by the necessities and usages of the business to which it relates. The plaintiff is the owner of a lot of land containing seven and one half acres. The adjoining lands, at least on two sides, were being developed as oil lands by the defendant. He applied to the plaintiff for, and obtained, a lease for oil and gas covering his tract. This lay in a triangular shape with its base about seven hundred and fifty feet long on land of Stewart ,• its perpendicular resting against the tract known as the Stotler tract; and its hypothenuse about one thousand feet long abutting on the right of way of a railroad. The lease confers on the lessee “ the exclusive right of drilling and operating for petroleum and gas ” on the plaintiff’s land. If oil is found, the lessee covenants to pay a royalty of one eighth of all oil produced, free of cost or expense, to the lessor. If gas is found in sufficient quantity to justify marketing it, he is to pay the sum of $500 per annum for each well. The right to divide the leasehold, and to sublet the parts into which it is divided, for oil purposes, is distinctly reserved by the lessee. There is no distinct covenant for putting down wells on the land except that which relates to the first, or experimental well, which was to determine the value of the land for oil purposes. But in a lease for oil purposes, a stipulation that other wells shall be put down, where the land is shown to be valuable for oil by the production of the first or test well, is not indispensable. The nature of oil and gas, the pressure of the superincumbent rocks, and the vagrant habit of both fluids under the influence of this pressure, enter into the contemplation of both parties to such an agreement: McKnight v. The Gas Co., 146 Pa. 185. It is an implied condition of every lease of land for the production of oil therefrom that when the existence of oil in paying quantities is made apparent the lessee shall put down so many wells as may be reasonably necessary to secure the oil for the common advantage of both lessor and lessee. In determining when and where such wells shall be located regard must be had to the operations on adjoining lands, and to the well known fact that a well will drain a territory of much larger extent when the sand rock in which the oil or gas is found is of coarse and loose texture, that when it is of fine grain and compact character. Whatever ordinary knowledge and care would dictate as the proper thing to be done for the interest of both lessor and lessee under any given circumstances is that winch the law requires to be done as an implied stipulation of the contract. If this was not so held it would be practicable to defeat the very purposes of the contract, and to drain from the land of the lessor the oil underlying it and yield him nothing in return. The reason why this doctrine is modified in its application to gas territory is plainly stated in McKnight v. The Gas Company, supra. It is the difference in the manner of gathering and utilizing the product in gas and oil wells. Turning now to the findings of fact made by the learned judge of the court below, we learn that the defendant has put down one well on the plaintiff’s land about midway across the base line of the triangle and very close to the line of the Stewart. The rock there is very compact and the well yields but four or five barrels per day. He has put down two wells on the Garlach, finding a loose rock and good wells. He has finished one large well on the Stotler quite near to the top of the triangle and in a very porous rock. He has another in progress on the same tract not far from the base end of the perpendicular side of plaintiff’s land. These wells show with a reasonable degree of certainty that the . upper half of the Kleppner lot is over a coarse porous rock and is capable of furnishing one or more good wells. The location of the other wells referred to shows that this end of the Kleppner lot will in two or three years be completely drained by them; other persons will secure the royalties for his oil; and he will receive nothing whatever for the oil under the only valuable portion of his land. The findings further show that it is the expressed purpose of the defendant to secure Kleppner’s oil through his wells on the Garlach and Stotler tracts of land. From the terms and purposes of the lease, from the nature and usages of the business to which it relates, and from the findings of fact to which we have referred, we draw the following conclusions of law:

First. The lease contemplates the production of the oil underlying the Kleppner lot by means of operations conducted on its surface.

Second. The number and location of the wells necessary to carry out the purposes of the contract is a subject belonging primarily to the lessee.

Third. In disposing of this question, the lessee is bound to •take into consideration the fact that his lessor is the owner of the oil, and to arrange and conduct his efforts to bring it to the surface in such manner as shall best protect the interests of both parties to the contract.

Fourth. He is not bound to put down more wells than are reasonably necessary to obtain the oil of his lessor, nor to put down wells that will not be able to produce oil sufficient to justify the expenditure.

Fifth. But that the oil may be obtained in time through other wells, on the lands of other owners, is not enough to excuse the lessee from his implied undertaking to operate the land for the best interests of both owner and operator.

In the main, the decree appealed from is justified by these legal conclusions. The operator has the right, as we have seen, to locate the well he is to put down; but we think the court below was justified in holding that the evidence afforded good ground for the belief that a paying well could be found on the upper end of the triangle, if so located as fairly to command the oil underlying the land. The defendant may think differently. If so, he may surrender all of the land covered by his lease except that naturally tributary to the well near the Stewart line. The conclusion that this well cannot reach and bring to tlie surface the oil in the loose rock under the other end of the plaintiffs land, but that the wells of the defendant now down, and in progress, on the Garlach and the Stotler lands, will do so seems fully justified by the evidence. It is not found as a fact that these wells do now reach the. plaintiff’s so as to draw from it. It is the fact that they may do so that gives the plaintiff his claim to present consideration. As bearing upon this general subject the attention of the profession is called to James v. Emery Oil Co., 1 Pennypacker, 242, and Blair v. Peck, 1 Pennypacker 247, eases which are not to be found in the authorized reports. We affirm the decree with slight modifications as follows:

' Upon consideration of the appeal from the decree of the court of common pleas No. 2 of Allegheny county, made on the 23d of December, 1895, it is ordered, adjudged and decreed that it is the duty of the defendant to proceed at once to drill and operate another oil well on the land of the plaintiff described in the bill, and in the lease thereto attached, near the northern end of said piece of land.

It is further ordered that if the defendant does not within ten days after notice of this decree file in this case a declaration setting forth that he will put down another well on said land near the north end thereof and begin the same within twenty days thereafter, and prosecute the same to completion with all reasonable diligence and in good faith, his leasehold estate in said land shall be deemed to be abandoned except as to the well known as Kleppner No. 1 and a space of three hundred feet around it on all sides, and the right of way, etc., incident thereto.

It is further ordered that the defendant be enjoined, from and ' after ten days after notice of this decree, from exercising any authority or control over any portion of said land except that now designated as appurtenant to Kleppner well No. 1, and that he retire from and surrender the same to the plaintiff, unless the notice hereinafter provided for be filed within the said ten days.

The record is now remitted that the court below may give such further orders as may be necessary to give full effect to above decree.

The costs to be paid by the appellant.

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Dissenting Opinion

Mitchell, J.,

dissenting.

A lessee who covenants to pay royalty on production is undoubtedly bound in good faith to make proper effort to develop the land. But while the interests of the parties are the same in getting the largest production yet in some respects they differ. The lessee has to bear the cost of putting down wells, and his interest is to proceed carefully, with due regard to expense and probable returns, while the lessor’s interest is to have search and experiment without regard to present cost. The decision in regard to such matters belongs primarily to the lessee. It is a proper subject for agreement, and when the parties have agreed what shall be done their rights are not subject to the judgment of any court to fix a different standard. If the parties to the present controversy had expressly stipulated that one well should be sufficient for the whole tract, no court would venture to enlarge the test by directing another to be put down at the lessee’s expense, yet the covenant of the lease amounts to just that, as I understand the learned court below to admit. I would reverse this judgment as a flagrant violation of the liberty and sanctity of contracts by raising a purely factitious equity to enable the complainant now to make a better bargain at the defendant’s expense than he chose or was able to make for himself at the time.