Allegheny Oil Co. v. Snyder

106 F. 764, 12 Ohio F. Dec. 220, 1900 U.S. App. LEXIS 3843

• Court: Court of Appeals for the Sixth Circuit
• Decided: November 7, 1900
• Docket: Nos. 807, 808
• Status: Published

Opinion

DAY, Circuit Judge,

after stating the foregoing facts, delivered the opinion of the court.

The leading question in the case is as to the construction of the Snyder lease. As we read this instrument,' applying the familiar rule that all parts of it must be given effect if possible, and the intention of the parties gathered from the four corners of the instrument, we find it to be a lease of a certain tract of land for the purpose of removing oil and gas therefrom, together with certain privileges to enable the lessee to reach and remove the same from the premises. As was said bv the supreme court of Ohio in Harris v. Oil Co., 57 Ohio St. 129, 50 N. E. 1129:

“An instrument in such form is more than a mere license. It is a lease of the land for the purpose and period limited therein, and the lessee has a vested right to the possession of the land to the extent reasonably necessary to perform the terms of the instrument on his part.”

By the terms of the habendum clause the lessee is to enjoy the estate for the term of two years, and as long thereafter as oil and gas are found in paying quantities on the premises, not exceeding 25 years, in the whole, from the date thereof, for which the lessee is to render to the lessor one-eighth part of the oil; and, for any wells producing gas in sufficient quantities to justify marketing, the lessee is to pay at the rate of $150 per year. Thus far no time has been fixed for the beginning of operations on the premises, and no clause of forfeiture is inserted for the failure to drill and develop the same. It is then provided:

“In caso no well is drilled on said premises within two years 'from the date hereof, the lease shall become null and void, unless the lessee shall pay for the further delay at the rate of one dollar per acre at or before the end of each year thereafter.”

That is to say, the lessee is given t-wo years within which to drill, which privilege he may extend by the payment for further delay at the rate of one dollar per acre at or before the end of the following year. It is claimed that the consideration of one dollar may support the grant of the two-years term, but the privilege of extending the same beyond the term of two years is supported by no consideration and is entirely-at the option of the lessee, and, before it can become a binding agreement, requires an engagement upon the part of the lessee to pay the stipulated sum of one dollar per acre. We are unable to agree with this construction, although this interpretation is supported by a decision of the circuit court of Ohio for the Seventh judicial circuit, in the case of Brown and Myers v. Ohio Oil Company et al. We have been furnished with a manuscript copy of the opinion in that case. While the opinion of that court is not conclusive upon us, it is nevertheless entitled to great respect, being the decision of an able court. Bo far as the opinion discloses, the lease in that case was like the one now under consideration. In the opinion the court say:

‘•The lessee, plaintiffs, had paid a considerai ion for the privilege for a specified term of two years, but no longer, and all rights raider the lease ceased unless some new contract was made. The lease, as we have seen, provided how a new contract might have been made. It gives the lessee the option of making- a new contrae! upon a new and an increased consideration; but, to obtain this new right or license before developing an'd holding the territory for the period of two yeai-s, the lessee must have elected to avail himself of that provision of the lease, — have notified the lessor of this promise to pay the increased or new consideration for the further time.”

This construction undertakes to divide the lease into independent parts, and annuls the effect of the privilege granted to the lessee of continuing the right to drill a well upon payment of the annual sum stipulated. We are of opinion that this lease constituted an entire contract, and that the consideration recited supports not only the grant of the two-years term, but, as well, the privilege of extending the time of drilling, by paying the stipulated price therefor. The learned judge who delivered the opinion reached the conclusion that this agreement for further time was unsupported by a consideration, and required a new agreement between the lessor and lessee, which must he in writing and recorded, under (he statute of Ohio, or the lease would become void as against the subsequent lessee. In support of this conclusion he cites Northwestern Ohio Natural Gas Co. v. City of Tiffin, 59 Ohio St. 420, 54 N. E. 77. In that case, however, there was no stipulation for extension of time of drilling upon the face of the lease. That lease expired in Eve years, by its terms. It was attempted to hold it: as against a subsequent lessee by a certain extension, indorsed on the hack of the lease, hut not recorded. In the case in the circuit: court and the one at bar the agreement for extension, in the construction we give the lease, is found upon its face, and is of record. This instrument is a contract. Assuming now that it is free from fraud, and between parties capable of contracting, it can he supported by the consideration of one dollar as well as any other valuable consideration. It is an indivisible agreement Each part of it must he given effect. We can add nothing to it: and take nothing from it. For the consideration named the lessee received a conveyance of (he term, as we have already stated, with a stipulation that the lease should become void unless delay in sinking a well within the term of the lease should be paid for at the rate of one dollar per acre at the end of two years. This privilege is not to be separated from the other conditions of the lease. It is one of its terms, and must be given force and effect. Seeking to ascertain its meaning, as it has been reduced to writing by the parties, we think it is to be construed as conveying a term within the 25 years, as we have heretofore said, but the grant to be void in either the contingency of failing to drill a well in 2 years, or to pay at the rate stipulated in the lease for the delay.' Either the well must be drilled within the time named, or the rate stipulated must be paid. It is urged that this construction permits the lessee to hold the territory for the term of 25 years without drilling or developing the same, paying only the rental of $114 per year, and that this would work great hardship to the landowner,- tying up his lands for speculative purposes, and permitting wells on adjoining lands to drain his premises of their value. This contract, in view of its peculiar purpose and object in the development of oil and gas in the territory, has written into it an implied covenant on the part of the lessee that he will drill and operate such number of oil wells on the lands as would be ordinarily required for the production of oil contained in such lands, and afford ordinary protection to the lines. This was the holding of the supreme court of Ohio in Harris v. Oil Co., supra, and has become a rule of property in Ohio; and the lessor is not obliged to let the lessee hold this land indefinitely, but may have an action upon this implied covenant for the proper development of the oil and gas on the premises.

We have now to deal with the Ohio statute requiring oil leases and licenses to be entered of record. This statute, passed April 11, 1888, now section 4112a, Eev. St. Ohio, protúdes:

“ffibat all leases and licenses, and assignments thereof, or of any interest therein, heretofore executed, given or made, for, upon or concerning any lands or tenements in this state, whereby any right is given or granted to operate, or to sink or 'drill wells thereon for natural gas and petroleum or either, or pertaining thereto, shall be recorded in the lease record in the office of the recorder of the proper county by the first day of September, 1888, and all such leases, licenses and assignments hereafter executed, given, or made, shall be filed for record as aforesaid, forthwith, and recorded in the said lease record, without delay, and shall not be removed until recorded, and no such lease or license hereafter executed, or given, unless the person claiming thereunder is in actual and open possession, shall have any force or validity, until the same is filed for record as aforesaid, except as between the parties thereto, nor shall any such lease or license, heretofore executed, or given, and not recorded by the first day of September, 1888, have any force or validity thereafter until filed for record, except as between the parties thereto, and as to persons claiming thereunder and in actual and open possession.”

This statute was construed by the supreme court of Ohio in the case of Northwestern Ohio Natural Gas Co. v. City of Tiffin, 59 Ohio St. 420, 54 N. E. 77, and was held to establish a rule governing-leases and licenses of the class referred to, and to take such leases and licenses out of sections 4112, 4134, Eev. St. Ohio; and the court held such leases and licenses to be without effect, either at law or in equity, as against a subsequent lessee or licensee or other third person acquiring an interest in or lien on the land, although he took with notice of such prior unrecorded lease or license, unless the person claiming thereunder was at the time in the actual possession of the land. Tins construction was in harmony wiih the interpretation given by the supreme court in numerous cases of the statute requiring the recording of mortgages, in which it has been held that as against third persons who acquire an interest in or lien on the property, although acquired with knowledge of the existence of the mortgage, the mortgage is without effect until recorded. The statute under consideration was held by the supreme court of Ohio to lay down an exclusive rule, requiring the recording of such instruments, and making the record thereof the only notice that can be available against the rights of third persons obtaining interests in the land, except in cases where the lessee is in actual possession thereof. Is the instrument under considera tion — the lease of Fowler to Snyder — an instrument entitled to record under this section of the statute, and, when recorded, is it notice to all persons dealing with the property? The instrument has but a single witness. Treating the case now within the conceded facts, and laying aside the attempted acknowledgment and witnessing of the instrument at a later date, and assuming that under the statute of Ohio such a lease required two witnesses, and to be acknowledged wilh the formalities required under the Ohio statutes, it has frequently been held by the supreme court of Ohio that a defectively executed or acknowleded in strument of this kind for the conveyance of land, while not a legal conveyance, may he treated as a good agreement in equity to convey the premises, and when free from fraud may be enforced as such. Barr v. Hatch, 3 Ohio, 527; Williams v. Sprigg, 6 Ohio St. 585. A lease with one witness conveys an equitable title. Abbott v. Bosworth, 36 Ohio St. 605. The object of the statute under consideration was to require not only leases, but licenses, to be recorded; and, while the instrument may be defective as a legal lease, nevertheless, being in writing and signed by the parties, and containing upon its face a license or privilege to the party to enter upon the premises, with an exclusive right to enter and operate for oil and gas, we think such an instrument is such a license as is required by the statute to be of record, and which, when recorded, will have the effect of giving notice to others. By this construction the purpose of the statute is effected, and all licensees or lessees are required to have their titles of record, so as to give notice to people dealing with the property thereafter. If it could be assumed that this instrument was not within the statute, and that, the parties were not required to take notice of the record thereof, it is a good contract for the making of a lease, and an equity is created which subsequent purchasers with knowledge are bound to take notice of. In this case it is admitted in the pleadings that the lessee and assignee had notice of the Snyder lease, but believed that it had been abandoned and the rights of the parties had ceased thereunder. No facts are set forth justifying this belief. That such equities are protected when subsequent purchasers have knowledge thereof is well established in Ohio: Morris v. Daniels, 35 Ohio St. 406; Varwig v. Railroad Co., 54 Ohio St. 455, 44 N. E. 92. It is said the effect of this construction will be to specifically enforce a contract based upon entirely inadequate consideration, and that an injunction re-straining the parties interested from interfering with, the lease held by Brown and Myers under Snyder will have an effect to specifically enforce that contract. Nothing is averred in the pleadings in anywise attacking the Snyder lease for fraud or inadequacy of consideration. In such a case mere inadequacy of consideration is no reason for withholding specific performance. Cathcart v. Robinson, 5 Pet. 263, 8 L. Ed. 120.

The question is made as to the right to try disputed questions of title under the allegations of the bill of the appellees. Under the Ohio Statutes (section 5779) an action is given to one in possession of real estate to quiet title against adverse claimants. There is no allegation in the petition filed by appellees in the state court that they were in possession at the time of the bringing of the action, nor has any amendment been made in that regard in the circuit court. We do not think the remedy given by the Ohio statute is exclusive in a case presenting the facts of the one under consideration. The equitable estate of appellees was in danger of destruction by the removal of gas and oil. In such case equity will intervene to prevent irreparable injury. Having acquired jurisdiction for the purpose of preventing waste and the destruction of the estate; a court of equity will retain jurisdiction for the purpose of granting full relief. Pom. Eq. Jur. §§ 237, 1399; Bettmann v. Harness, 42 W. Va. 433, 26 S. E. 271.

It is urged by counsel for appellant that the circuit court erred in disposing of the cases on their merits, and entering final decrees therein without taking proofs in due course und'er the equity rules. The cases came on for hearing on the application of the oil company for a temporary injunction, the granting or refusal of which necessarily involved the continuing of the injunction granted in the state court, as well as the cross application of the oil company for an injunction. The court considered these cases together. The cases stood upon bill, answer, and affidavits. In view of the construction given the Snyder lease in the circuit court, affirmed in this court, the holders thereof were entitled to have their rights protected, and interference therewith by holders of the second lease enjoined. The first lease being held valid, the attempted second lease must necessarily fail. There was nothing in the bill of the Allegheny Oil Company in the one case, or its answer in the oth§r, which required further testimony before construction and effect could be given to the first lease. As was ■ said by Judge Thompson in the circuit court, the facts were substantially undisputed. The allegation made that Fowler understood the premises were to be promptly drilled for oil and gas could not affect the agreement as reduced to writing, in the absence of allegations of fraud or mistake. There was no attempt to reform the instrument. No amendment to the bill or answer was proposed, nor has there been any suggestion of further facts material to the controversy. In such cases the courts of the United States may proceed to administer final relief without putting the parties to the expense and delay of protracted litigation. Mast, Foos & Co. v. Stover Mfg. Co., 177 U. S. 485, 20 Sup. Ct. 708, 44 L. Ed. 856, citing, with approval, Gardt v. Brown, 113 Ill. 475; Green v. Mills, 16 C. C. A. 516, 69 Fed. 852, 25 U. S. App. 383; and the decision of this court in Mayor, etc., of Knoxville v. Africa, 23 C. C. A. 252, 77 Fed. 501, 47 U. S. App. 74. Finding no error in the decrees entered in the court below, the same will be affirmed.