71 W. Va. 438 | W. Va. | 1912
Lead Opinion
In this contest for supremacy between a senior and junior lessee of the. same property, brought into the realm of the judiciary by a bill to cancel the later leases as clouds upon title of the former, and an injunction to protect the lessee in possession 'under the senior lease from molestation and injury at the hands of the junior lessee and lessors, their agents, servants and employes, one ground of attack upon the senior lease is alleged lack of mutuality and inadequacy of consideration.
It recites a consideration of one dollar paid and the covenants and agreements therein contained to be kept and performed by the lessee. These are to deliver to the credit of the lessors or their assigns free of cost in the pipe lines to which the lessee’s wells should be attached the usual royalty of one-eighth of the oil; to pay one hundred dollars per year for each paying gas well that should be drilled and operated; and to locate all wells so as to interfere as little as possible with the cultivated portions of the farm. Wo covenant to drill any well or pay any money in default of drilling was inserted; but this proviso was put in: “This lease shall remain null and void and all rights hereunder shall cease and determine unless a well shall be completed on the said premises within one year from the date hereof or unless the lessee shall pay at the rate of ($60.00) Sixty Dollars quarterly in advance for each additional three months such completion is delayed from the time above mentioned for the completion of such well until a well shall be and operate as a full liquidation of all rental under this provision during the remainder of the term of this lease.” In connection with these provisions, showing slight consideration, a surrender clause in the following terms is relied upon as proving lack of mutuality: “It is agreed that the second party * * * shall have the right at any time to surrender this lease to first parties for cancellation, after which all payments and liabilities to accrue under and by virtue of its terms shall cease and determine and this lease become absolutely Null & Void.” The term was for ten years, commencing Dee. 14, 1899. Wo well was commenced until within the last quarter of the last year of the ten year period, but the delay or commutation money was paid for
Though it contains no covenant to drill or pay rent and allows the lessee the privilege of surrender at any time, the validity of this lease and its binding force upon the lessor, as one creating a conditional tenancy for the specified term of ten years, are put beyond all question by several decisions of this Court, distinguishing leases of its class and character from those considered in Eclipse Oil Co. v. South Penn Oil Co., 47 W. Va. 84, and Trees v. Eclipse Oil Co., 47 W. Va. 107. Re-statement of the principles and reasoning of the decisions declaring the recited consideration of one dollar sufficient and adequate for a conditional term, to be kept alive only by the drilling of wells or periodical payment of money, would be a work of supererogation and a waste of time. It amply suffices to cite the following cases: Smith v. Root, 66 W. Va. 633; Pyle v. Henderson, 65 W. Va. 39; Friend v. Mallory, 52 W. Va. 53; Guffy v. Lowther, 52 W. Va. 88. A very clear and able exposition of the same principles will be found in the opinion of Judge Van Devanter in Brewster v. Lanyon, 140 Fed. Rep. 801.
Whether the lease created a tenancy of a single tract of 600 acres, composed of three smaller tracts, or separate tenancies of three constituent tracts, is a subject of lengthy discussion in the briefs, based upon the erroneous view of the lease just disposed of. C. A. Snodgrass, l\í. J. Snodgrass, his wife, and O. W. Snodgrass, owning, respectively, the three contiguous tracts of 329 acres, 143 aeres and 127.5 acres, executed a single lease covering all of them and describing the premises as a single tract of 600 acres more or less. Later, O. W. Snodgrass conveyed his portion thereof to M. J. and J. O. Elmore, and C. A. Snodgrass 114.5 acres of his portion to Daniel D. Snodgrass. Notwithstanding the description of the land as a single tract, the commutation or delay money was paid by the lessee to the several owners in amounts corresponding to their respective portions of the land. The rentals having been paid to September 14, 1909, leaving only one more quarter of the term, all of the lessors except Daniel D. Snodgrass, ■ attempted to terminate the lease by declining to receive the rental. Thereupon the lessee paid their portions of the rental into the Bank of Spencer, to
Failure to drill wells on two of the tracts, namely, the 134 acre tract and the C. A. Snodgrass tract, within the ten year period, however, necessitates an inquiry as to whether there were three separate leases within the meaning of the proviso, requiring a well to be drilled, and the clause extending the lease beyond the specific term of ten years. We think not. Nowhere in the lease is there an intimation of several ownerships of parts of it, or a suggestion of intent to make separate tenancies. The proviso is for “a well,” not wells, “on the said premises,” or payment of a lump sum of money quarterly as rental, and for liquidation of all rental by “the completion of such well.” The clause providing for extension of the lease beyond the ten year term requires only production of oil or gas thereafter, without any stipulation for production from more than one place or any particular place. Being general, production from any place on
The vital question in the case is whether the lease of the South Penn Oil Co. had expired before this suit was instituted. This involves a subsidiary one of fact, namely, whether any oil was discovered by the lessee within the life-time of the lease, and another of law, namely, whether mere discovery of oil within the term created by the lease, without production thereof, or in quantity too slight for profitable production, suffices to extend the term beyond the specified period of ten years under the phrase, “as long thereafter as oil or gas or either of them is and assigns.” Upon the question of fact the evidence is conflicting and we may consistently refuse to disturb the finding of the court below as to it. It is conceded, however, that the evidence does not show anything more than mere discovery of oil within the period of ten years and production of traces thereof. That period expired on the 14th day of December, 1909. The discovery was made on the 8th day of December, 1909. . The well was shot on the 14th day of December, 1909, the last day of the term. About the 22nd or 23rd of that month, the lessee began to pump the well and continued to do so, night and day, for two and a half months, and thereafter once a week for a considerable period of time. All of this effort resulted in the accumulation of not more than one barrel of oil, and there is a denial, not wholly unsupported by evidence, that this came from that well. Confessedly, therefore, oil was not produced from
Before proceeding to disposition of the vital question already indicated, it is fair to say, upon consideration of the following facts, the equity of the case is with the plaintiff. Before it began to drill, it paid the lessors about two thousand dollars in rentals. It sank a well to a depth of 2038 feet within the term, the cost of which, together with that of equipping and operating the well afterward, was more than seven thousand dollars. A second well was located on the leased premises, on the day of the execution of the first subsequent lease thereof, to-wit: December 18, 1909. A well on an adjacent tract of land, known as the Looney tract, drilled by the plaintiff, had shown the presence of oil in paying quantities, the production of that well being about forty barrels per day. This second well on the Snodgrass land was located as an offset to the well on the Looney land. In the midst of this diligent and .costly effort to make the lease yield profit, the defendants, part of the lessors and their subsequent remote lessee, the White Rock Oil Co., attempted to oust the senior lessee. Of course subsequent production under the senior lessee would profit the junior lessee nothing. It would be to its detriment in the practical sense of the term, for it would derive no benefit .therefrom; but such production by the senior lessee would inure to the benefit of the lessors in the junior leases, since the stipulated royalty would be run into the pipe lines to their credit, and the object of the original lease thereby accomplished. However, if the senior lease, tested by legal rules, had expired, such an equity cannot be permitted to control. The
In a number of cases, decided by this Court, involving inquiries as to loss of oil and gas leases by abandonment, we have had occasion to say mere discovery of oil or gas in the leased premises, vests in the lessee a limited or qualified estate, the right to mate further exploration and to develop, produce and take away the mineral so discovered. Crawford v. Ritchey, 43 W. Va. 252; Parish Fork Co. v. Bridgewater Co., 51 W. Va. 583; Lowther Oil Co. v. Oil Co., 53 W. Va. 501; Steelsmith v. Gartlan, 45 W. Va. 27; Henne v. South Penn Oil Co., 52 W. Va. 192. The rights of the parties in all these cases were tested and determined by principles applicable during the continuation of the stipulated term, not after the expiration thereof. Such was the case of Parish Forts Co. v. Bridgewater Co., in which mere discovery of oil was held sufficient to vest an estate, and in which we animadverted, upon the importance of considering, in the interpretation of oil and gas leases, the purpose and design of the parties thereto, giving rise to implied covenants or obligations. Such was also the case of Steelsmith v. Gartlan. in which the drilling of a well, disclosing no oil whatever, was held not to vest any estate. Such was also the case of Lowther Oil Co. v. Oil Co., in which part of the observations made in the case just alluded to, were repeated and it was added that determination of the question, whether oil discovered is sufficient in quantity to pay, is left to the judgment of the lessee. As I have said, these were all abandonment cases and arose within the limits of the specific term created and defined by the lease. Those expressions must be taken for the purposes of that class of cases, and cannot be extended to cases arising after the expiration of that term, if the extension clause, tested by the application of legal principles and rules of interpretation, does not sustain the rights and interests predicated of the lessee within the term.
We have another class of cases involving controversies arising after the expiration of the fixed term. Ammons v. Toothman, 59 W. Va. 165; Sult v. Hochstetler, 63 W. Va. 317; Eastern Oil Co. v. Coulehan, 65 W. Va. 531; McGraw Oil Co. v. Kennedy, 65 W. Va. 595, in which some of the observations made in the
Eastern Oil Co. v. Coulehan seems to sustain the contention of the senior lessee, unless we say the gas or oil discovered must be shown to exist in paying quantities and to be capable of production in an amount profitable to both lessor and lessee, especially the former. In the Coulehan Case, the extension clause said nothing about the quantity of production, nor does the lease involved here. Both required production to keep the leases alive after ten years. In the McGraw Oil Co. v. Kennedy case, the lease was to continue after the specified term, so long as oil or gas should be produced therefrom. In discussing this clause, Judge Beannon said: “So, this lease contains nothing in terms allowing the lessor to end it because oil or gas is not found in paying quantity; and if there were such provision, I should regard it as made in the interest of the lessee to protect him from payment of the annual sum for a gas well, if insufficient in quantity, and not as intended to give the lessor right to terminate the lease against the lessee’s will, he treating the quantity as sufficient and electing to pay. What right has Evans
The words of the contract, respecting the condition upon which the tenancy is to be continued after the expiration of
The process of reasoning by which this result is reached,, however, segregates the clause in question from its context. Nothing is considered but its own words. If other parts of the-instrument, read with them, show a clear intent and purpose to-restrain or limit them, the rules of construction demand the-adoption of the qualified or limited meaning. The clause follows other provisions exactly defining the rights of the parties-in some respects and not expressly in others. A term of ten years, forfeitable for non-compliance with carefully worded conditions, is created, but some of the most vital provisions of the-instrument are raised by implication only. The relative rights-of the parties arising on the completion of a well without finding any mineral are not stated. Nor is anything said as to* what shall happen in case of discovery of oil by the completion of a well without actual production. The courts have supplied' these omissions by construction, on the theory of necessary implication. Completion of a "dry hole” does not terminate the-lease. Tenne v. South Penn Oil Co., 52 W. Va. 192; Aye v. Philadelphia Co., 193 Pa. St. 451. If thereafter the lessee continues his -explorations with diligence, his inchoate right cannot be denied him. Discovery of oil without production vests-an estate. Parish Forte Co. v. Bridgewater Co., 51 W. Va. 583; Crawford v. Ritchey, 43 W. Va. 252; Venture Oil Co. v. Fretts,
In the interpretation and application of a contract, the spirit and purpose of the instrument as well as its letter must be regarded, and made effective in all directions and as to all parties. This rule is well nigh universal and is often enforced to the extent of restraining within reasonable limits - general and indefinite terms, literally importing consequences plainly variant from the true intent and purposes of the parties, ascertained from consideration of the whole instrument, read in the light of their situation and the circumstances surrounding them at the date of its execution. This rule was emphasized in favor of the lessor in Parish Fork Co. v. Bridgewater Co. and others both prior and subsequent. It is equally applicable in favor of the lessee when the terms and conditions warrant its application. He takes upon himself enormous risks and burdens in consideration of his covenants when he drills a well on the leased premises. It is going'too far to say either party, at the time of the execution of the lease, intended general and indefinite terms employed by them to be used as instruments of extreme hardship by the operation of technical rules. The clauses operative within the specific term are uniformly construed and applied so as to work out equitable and just results. A “dry hole” does not end the lease under a clause forfeiting for failure to drill a well within a stipulated time. Mere discovery of mineral vests an estate and, without actual production, gives right to continue operations. Cessation of actual production is excused by adverse conditions and miscarriages which must have been contemplated by the parties, though not specified in the lease. The tests of duty and right are diligence and good faith in almost all cases
Is' the situation here such as may occur under any oil and gas lease, drawn as this one was ? If so, both parties must have intended an equitable and just result under the circumstances, if the terms used will permit it, for they must he deemed to have foreseen and contemplated it. It is matter of common knowledge that no man can estimate the exact time within which a well can be completed, and that delays due to accidents, trivial and grave, and other causes beyond the possibility of accurate anticipation will occur. Adherence to the strict letter of the extension clause would make no allowance for any of these, and indict disastrous losses upon diligent and honest lessees in many instances, a consequence plainly not within the intent of either party. These leases are drawn for all sorts of territory, some known to be rich in minerals, and others not known to contain any, and their terms are varied to allow for such differences. In territory remote from actual and profitable operation, leases are often taken, without reasonable expectation of any immediate advantage to the lessor other than a rental in the form of delay monév, and with the expectation of delay in drilling until neighboring lands are shown to contain the minerals, and the consequent establishment of probability of the existence thereof in the leased premises. Such seem to have been the conditions under which this lease was taken, as it was for a long term and imposed no obligation to drill a well. In delaying the work until the last quarter, the lessee acted within the terms of the lease and manifested no lack of diligence. Then it discovered and actually produced oil within the term, and continues to do so in fulfillment of the letter of the contract. The facts do not warrant an inference of bad faith. There was no lack of diligence unless failure to commence and complete the well at an earlier date constitutes it, and we are unable to say it docs. In this result the lessors obtain all they contemplated or expected at the date of the execution of the contract. Their property has been drilled and its character as oil territory revealed, and the senior lessee is as capable of making it yield them profit as the appellant. They lose nothing but the
In view of these considerations, we are of the opinion that Cassell v. Crothers, cited, and Murdock-West Co. v. Logan, cited, accord too much force and effect to the letter of the contract and do violence to its spirit. They make no allowance for accident or miscalculation as to ability or error of judgment as to conditions, entailing enormous consequences, the parties cannot reasonably be deemed to have intended to impose or assume as hazards. Hor do we think they can be distinguished from this case by reason of the difference in terms. “Produced,” “produced in paying quantities” and “found in paying quantities” must mean about the same thing, else substance will be subordinated to shadow or mere technicality.
Seeing no error in the decree, we affirm it.
Affirmed.
Dissenting Opinion
(dissenting) :
This decision makes the contract between the parties to be other than that which they must have contemplated when the lease was executed. To my mind, the extension of the lease beyond its term-of ten years is justified by neither reason nor authority. It is not sound doctrine that an oil lease may be extended beyond its terms by the production of a mere smell of oil, or by the t pumping of salt water. In reason, both from the character and purposes of the lease as well as from its terms, the parties thereto can not be said to have meant any such thing.