176 S.W.2d 398 | Ky. Ct. App. | 1943
[EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] *180 Reversing in part and affirming in part.
On May 18, 1916, appellees, Felix Fyffe and his wife, executed and delivered to A.C. Albin an oil and gas lease on their farm in Johnson County, Kentucky, whereby they granted to the lessee the oil and gas in and under the premises described, together with the right to enter thereon for the purpose of drilling and operating for oil and gas. In consideration of the lease, the lessors retained as royalty one-eighth (1/8) of the oil, and the lessee agreed to pay One Hundred Dollars ($100) annually for each gas well from which gas was found in sufficient quantities to "transport." The lessee was additionally granted the right to use sufficient gas, oil, and water to run all machinery for operating the wells. The lease gave the right to the lessee to assign it and the rights thereunder to any person the lessee desired, and upon such assignment the liabilities incurred under the lease were to cease as to the original lessee, the lessors agreeing that they would look to the assignees of the lessee for the fulfillment of the obligations originally incurred by the lessee. Some time after the lease was executed to Albin, the latter assigned it to the Union Gas Oil Company, which drilled five (5) wells on the farm, two of which produced gas alone, and three of which produced oil. In the latter part of the year 1923 appellees, in conjunction with other lessors in the vicinity, demanded further development of the property on penalty of forfeiture. As a result of such demand, the Union Gas Oil Company entered into a contract with appellees on the thirty-first day of December, 1923, whereby, in consideration of being relieved of liability for failure to further develop the lease, the Company agreed to pay appellees annual rental in the amount of Five Hundred Thirty-Six Dollars ($536), being the equivalent it would have been required to pay under the terms of the lease, had it successfully developed the undeveloped portion of the lease on a basis of one gas well for each twenty-five (25) acres and one oil well for each five (5) acres. The contract provided that in the event the Company drilled additional wells that should not produce gas in paying quantities, the payment for such wells should cease. *181
In June, 1924, the Company drilled the sixth well on the farm, which it is alleged in the petition was a gas well. In January, 1926, the Union Gas Oil Company sold all its leases in Lawrence and Johnson Counties to appellant, Swiss Oil Corporation. The assignment was made subject to all the terms and provisions of the leases. Appellant continued operating the lease on appellees' farm, paid the royalty for the oil produced, and paid the rental for the gas produced and which was sold to the United Fuel Gas Company under a contract the latter had entered into with the Union Gas Oil Company. Appellant continued to pay the royalties, rentals, and delay rentals under the contract, according to records and memoranda turned over to it by its assignor. On August 1, 1927, due to decreased productivity of the wells; appellant ceased marketing and selling the gas, and none has been marketed or sold since that time. However, it continued to use the gas from the wells in the operation of pumping the oil wells, and to supply gas for domestic use of the lessors. In 1929 appellant commenced on a large scale the operation of repressuring oil producing sands for the purpose of increasing the production of its oil wells. For this purpose it constructed a large compressor station requiring large quantities of gas which, mixed with air, was forced into the oil producing sands through intake wells drilled for the purpose. As a result of this activity the productivity of the oil wells on appellees' farm was approximately doubled. The compressor station served to repressure the oil wells in all of the leases owned by appellant in that vicinity, and gas from all the leases was piped into a common reserve for the purpose. The gas used from the common reserve for the purpose of repressuring the oil wells on appellees' property was greater in quantity than the gas piped into the common reserve from the gas wells on the lease.
On March 2, 1932, appellant completed the drilling of a seventh well under the lease. This well was drilled to a deeper sand than those previously drilled. The gas obtained from this well was impregnated with sulphur, rendering it valueless, although it was shown in the evidence that the sulphur veins could have been cased off, in which event the well would have produced not in excess of eleven thousand four hundred (11,400) cubic feet per day. It was proved that a well must produce one hundred thousand (100,000) cubic feet of gas per day *182 to attain the standard of marketability. Conceiving that further development on the farm was futile, and being unwilling to further continue the payment of delay rentals required under the contract of December 31, 1923, and for the admitted purpose of ridding itself of liability in respect to the payment of delay rentals for the undeveloped portion of the lease, appellant assigned the lease on such undeveloped portion of the farm to Theodore R. Fisher, of Fayette County. The assignment reserved to appellant the wells, equipment, and rights pertaining to their operation. Appellees instituted this action on October 24, 1933, seeking recovery of appellant of the amounts due as delay rentals commencing August 10, 1933, under the contract dated December 31, 1923. The petition was amended November 15, 1939, by which amendment the amount of recovery was increased to include the amounts due under the contract between the filing of the original and amended petitions. The total amount sought to be recovered was Four Thousand Four Hundred Six Dollars ($4,406). The petition alleged that the assignment of the lease by the Swiss Oil Corporation to Theodore R. Fisher was void, without consideration, and was made for the express purpose of avoiding payment by the Corporation of the rentals under the agreement. Appropriate pleadings set up various defenses, one of which will be developed in the course of the opinion, the balance of which it will be unnecessary to discuss, because of the conclusion hereinafter expressed.
With the answer appellant filed counterclaim for Five Hundred Sixty Dollars ($560), which it alleged was due it by reason of paying, "through inadvertence and mistake," excessive rentals due under the contract from the year 1926 to 1932 inclusive. In support of this claim appellant argues that, by reason of its having drilled Well No. 6, the amount due under the contract should have been reduced from Five Hundred Thirty-Six Dollars ($536) per year to Four Hundred Thirty-Six Dollars ($436) per year, although it continued to pay at the former rate. The next claim is in the amount of Seven Hundred Dollars ($700), paid "through inadvertence and mistake," as annual rental for the years 1928 to 1934 inclusive on Well No. 1, although gas was not produced in sufficient quantities to transport, and none was marketed from the well. The next claim is in the amount of Two Hundred Dollars ($200), representing annual rentals paid "through inadvertence and mistake" *183 for the years 1927 and 1928 on account of Well No. 5, which it was alleged was operated as an oil well, and for which no gas well rental was due. The fourth and last claim was for the amount allegedly due on account of the payment, "through inadvertence and mistake," of Two Hundred Dollars ($200), representing annual rentals paid for the years 1932 and 1933 on account of Well No. 7, from which marketable gas was not produced in sufficient quantities to transport, and for which no rental was due under the terms of the lease and contract. We will first discuss the rights of the parties under the allegations and proof of the petition.
It will be noted that no claim is made for any rentals which became due previous to the assignment of the lease to Theodore R. Fisher, and no claim is made for rentals or royalties due on that part of the lease which appellant retained in the assignment to Fisher. In Mills-Willingham, Law of Oil and Gas, Sec. 146, p. 214, the author said: "The assignee in severalty of a part of the lease is not a sub-lessee. This results from the divisibility of the commercial lease in its present form. It contemplates that when part has been assigned the several portions are thereafter (for certain purposes only) to be regarded as separate leases. So the assignee may pay his delay rentals and maintain his lease or may fail to pay and forfeit without being affected by, and without affecting, the unassigned portion." The right to assign a portion of a lease was upheld in Union Gas Oil Co. v. Wright,
We will now consider the claims of appellant presented in its counter-claim. The contention that it should be permitted to recover for payments made under the contract "through inadvertence and mistake" is bottomed upon the principle announced in Gratz v. Redd,
In addition to the facts related above, appellant continuously used gas from the wells for the purpose of repressuring the oil wells, and, while the lease gave it the right to use gas in the operation of oil wells, it could not have been contemplated that this extraordinary use was to be made in their operation. Repressuring was not a common practice at the time the lease was executed. It is not unreasonable to infer that this extraordinary *187 use of the gas from the wells on the leased premises was the factor motivating appellant in continuing the rentals on the property. That being true, and taking into consideration the fact that the data from which it could have been determined that the gas was not being produced in paying quantities was in the exclusive possession and knowledge of appellant, we are of the opinion it is not entitled to recover under the counter-claim.
The judgment is reversed on the appeal, with directions that it be set aside and another entered in conformity with this opinion. The judgment is affirmed on the cross-appeal.