Ohio Oil Co. v. Hurlbut

7 Ohio Cir. Dec. 321

• Court: Sandusky Circuit Court
• Decided: May 27, 1897
• Status: Published

Opinion

KING, J.

(orally).

This action was brought in the court ol common pleas and after the trial and judgment was appealed to this court and has been heard by us. The action wss brought by the Ohio'Oil Company to enjoin Peters, as the owner of certain lands, and other defendants claiming an interest in the premises by the way of a lease, from interfering with-the plaintiff in operating the premises described, for oil and gas, under a lease previously executed to it by Peters.

. The action was commenced on January 16, 1897, and the lease to the plaintiif under which it claimed in this action was executed on the 11th day of April, 1889, the lease providing that in consideration of $160.00 in hand paid, the receipt whereof was acknowledged by A. Peters the first party therein named, did hereby grant unto Wm. Flemming of Oil City, > Pa., second party, his heirs and assigns, all the oil and gas in and under the following described premises, together with the right to enter thereon at all times for the purpose of drilling and operating for oil, gas or water. And then followed the usual form excepting and reserving however to first party the one-eighth part of all the oil produced and saved from said premises to be delivered in the pipe line with which second party may connect his well. The land in question being sixty-three and twelve one-hundred acres more or less, situated in this county. Then there is a provision relating to gas wells which is not in contention, and then follows this: In case no well is completed within one year from this date then this grant shall become null and void, unless the second party shall pay to said first party $160.00 in advance for each year' such completion is delayed; then follows a clause relating to the right of the second party to the use of gas, oil or water to run its machinery for operating said wells; and the right to remove its property; a provison that the location of wells should be mutual and that all conditions of the agreement between the parties should extend to the heirs, executors and assigns and then follows the execution by the parties. The lease in question then, granted all of the oil and gas to be found under these premises to the party of the second part, with a provision that in case no well shall be completed within a year the grant should become null and void unless the second party should pay the first party $160.00 a year in advance for each year the completion was delayed. No other provisions of forfeiture are contained in the lease, The lease itself recites $160.00 for the right to enter at any time during the year from the execution of the contract so paid and accepted by the first party. I will say here that the defendants other than Peters claimed an interest in these premises by virtue of a lease of a similar kind tc which they and Peters are parties, executed on the 13th day of January, 1897, three days before the commencement of this action by the Ohio Oil Company. No claim is made in the case by any of the defendants that anything occurred between the 13th and 16th off January which would authorize Mr. Peters or any of the defendants to forfeit this lease, and therefore the defendants other than Peters have no interest to assert here under the ground of forfeiture as they cannot assert any ground of forfeiture existing prior to the 13th day of January, 1897. That has been held by this court in the case of Ohio Oil Co. v. Wichman, it is held also in other decisions so that the right of the parties must be deteimined as between the Ohio Oil Company and Mr. Peters alone who was the owner of the property and in possession of all that he had not granted from the time of the execution of this lease up to the 13th of January, 1893, and now it is insisted by Mr,. Peters who has filed an answer herein that this lease was forfeited and it is claimed upon the hearing of the case that it was forfeited by reason of the fact that the plaintiff delayed his operation under the lease. The facts with reference to the delay are these: The lease was executed, as I have stated, April 11, 1889. The first well was completed December 4, 1894, nearly five years thereafter. The second well was completed July 8, 1896, nineteen months after the first well, the third well was completed February 16, 1897, or after this action was commenced, but the proof in the case indicates that the third well was commenced by plaintiff about a week before he filed this petition against Peters and the other defendants, and that it was commenced before the making of the lease from Peters to the other defendants. The lease we have seen provides as ground of forfeiture that if the defendants should fail to complete one well within one year from the date of the contract it should be null and void, unless they should pay $160.00 in advance for each year the delay was continued. They paid $160.00 at the execution of the lease and they paid thereafter $160.00 for each and every year there was a delay up to and including the 11th day of April, 1895, about four months after the first well was put down. They had paid undoubtedly $160.00 at the beginning of that year and it covered the year ending April 11, 1895, and the money had been received and accepted by Mr. Peters and no complaint was made by him up to or prior to December, 1894, when the first well was completed of delay. It is alleged in his answer that in 1891, about two years after the execution of this lease and three years before the putting down of the first well, the plaintiff and others having leases and interests in surrounding property were proceeding to develop it and to extract the oil from the ground and which of necessity extracted some of the oil from these premises, but as I have said, he, after, and during the time, and until April 11, 1895, accepted the payment of the rental which the contract provided should be paid at the option of the second party, to-wit: the plaintiff for delay in the operation of these premises under the lease. The delay up to 1894 may have been unreasonable, and if Mr Peters had undertaken to avail himself of that delay to insist upon the sinking oil wells or abandoning the premises; if they had not obeyed his notice and put down wells it is quite likely he might have held defendants to a forfeiture 0f their rights under this contract, but that he did not do; made no complaint of it. There is no evidence to indicate that he complained at the time, but he did receive the money that the contract provides should be paid, the consideration for the right of plaintiff to delay operations under the lease. This lease has no limitation in it in regard to time; it is different from most leases in that respect, it simply provides that the owner of the property has granted all the oil and gas under these premises and that the consideration' for it is that the defendant shall proceed to operate, and under the construction that is given to that clause in the lease by the court, it might proceed with reasonable diligence to operate the lease or in case it did not see fit to operate should pay in advance, $160.00 a year, and that part of the contract was fulfilled by the oil company up to April, 1895, and its payment accepted by Peters for this delay. Now the well completed December 7, 1894, did not prove to be a paying well. Indications of oil were present, but the amount of oil secured from the well was very small. The proof shows it was registered in the pipe line, about 96 barrels in a year and a half, and within the observation of everybody who knows anything about this business that would not be a profitable oil well; nor was there any pretense of operating it as an oil well for a good part of the 18 months nor was there any payment.of an additional $160.00 a year after April 11,1895,, and between 1895 and 1896 there elapsed nearly a year and a half after the rental had been paid, and more than a year and a half after the first well had been put down which had proved to be an unprofitable well, and a reasonable time it is certain had elapsed in which to sink another well. It is likely that Mr. Peters had the right long before July, 1896, to insist upon the fulfillment of this contract in the development of this property in securing the product of oil from underneath the premises, but Mr. Peters did not do that; nor did he insist upon the payment of the rent. In February, 1895, a month or so after this first well had been put down and proved to be a failure he did speak to the agent of the oil company and say to him he wanted him to put down more wells. Something was said I think about this well not having proven successful and he wanted another well put down, and the agent of the oil company told him he would do it shortly, but he did not, and thereafter the parties remained in the same situation and nothing further was said about it. Now as I have said, Peters in that time might have insisted upon the development of this property and upon the failure to do that insisted upon the forfeiture of the lease, treated it as forfeited, leased it to other parties, brought an action to eject defendants, or availed himself of any legal remedy to end the lease, but Mr. Peters failed to do that. In June, 1896, the oil company put up a derrick and Mr, Peters was present nearly every day while they were doing that, and proceeded to drill an oil well and he was there every day until completed, and that well was profitable, the well producing somewhere in the neighborhood, of 20 to 80 barrels of oil and has continued in operation ever since that time. That gave the Ohio Oil Company an interest in this property under their lease and the right to insist at least upon the right which they had acquired under the contract of taking oil from that well as long as it should produce oil. Mr. Peters, after that well -had gone into operation and the oil had passed through into the pipe lines, received the proceeds of the cine-eighth of the oil he contracted to receive by virtue of this lease, and he received that up to the time of the commencement of this action and ever since.

On August 3d, as he fixes the date, he saw Mr. Gorden, the general agent of the oil company in charge of its business, and requested him to sink more wells, and Mr. Gorden told him he would. That is the only conversation that occurred between the parties up to the time they commenced to sink well number 3. Well number 3 they commenced to sink in January, 1897, along about the 9th or 10th, then on the 13th, Mr. Peters, without any further communication with the oil company or its agents, made the lease to the defendants that I have spoken of. Now it is clear up to July, 1896, Mr. Peters had waived his right to insist upon the forfeiture of this lease for the reason that the premises had not been further developed. In his answer he denies plaintiff has kept and performed the conditions of the lease on his part to be kept and performed, and he denies that plaintiff entered upon said lauds in said lease in said petition described and drilled in a large number of wells thereon at great expense, and that each of said wells was producing oil or being operated by plaintiff, but this defendant avers that plaintiff has drilled and a part of the time operated, but one well in the extreme northwest corner of said property and no more thereon, and that plaintiff has given and that defendant A. Peters has received the one-eighth part of the oil therefrom.

This distinct allegation in his answer is that he concedes that in 1894 one well was put down from which he received one-eighth part of the oil produced therefrom. It is true that was a very small quantity, and also true, that it may not have been a satisfaction or fulfillment of this contract. He might have been authorized to have treated Shis contract as forfeited if no well has been put down within a reasonable time; may have treated this well as not being a well and insisted upon the payment of the consideration in the contract, $160.00, and brought action for it, or action at least for damages for failure to complete that provision of the contract that they would pay the $160.00. Ho might have done any one of these things, but did not do either or any of them; he waited until 1896, and saw another well put down at an espense of anywhere from $1,200.00 to $2,000.00, and received the oil from it ever since. Now, then, did anything occur after July, 1896, to authorize Mr. Peters to insist upon a forfeiture of this contract? We have held in one or two cases arising on oil leases that after the lessees had entered upon the performance of his contract and had expended money in the development of the lease, as in this case, having put down two wells one of them being in full operation, that before his rights under the contract which had then attached and which in this case consisted of a title to all the oil and gas there was under these premises, could be forfeited or. he be deprived thereof, it was due him in good conscience, that the party insisting upon the forfeiture should give notice of it; give notice not of the forfeiture, but of his intention to forfeit in case there be not a reasonable operation under the lease. • It seems to us that" this is a fair and sound rule to insist upon. The lessee after he has entered upon the premises and after he has expended money as in this case, has a right to know if the lessor is going to insist upon greater developments of the property than has already been going on, and shall have notice of the fact and be given then an opportunity to more fully and more speedily develop the property. As I have said the only intimation from Mr. Peters is a conversation that he testifies to, that he called upon Mr. Gordon and said he wanted him to sink more wells, and Gordon replied that he would do so, shortly or soon, or something to that effect. No definite time was named, no intimation was given by Peters to Gordon that if he failed or refused to go and develop the premises that he should insist upon a forfeiture, nothing was said to him about that, and no further conversation took place between the parties. Mr. Peters saw fit in January, 1897, to make a lease to another party without saying anything to the oil company. Now he insists in defence to this action for injunction that plaintiffs’ lease was forfeited at all these various times by reason of delay. Now, unless we are to hold that the delay from August 3, to January 10 was an unreasonable delay, then Mr.-Peters’ defense is not a good one to this action in our judgment, and in view of the fact that nothing occurred between these parties except the conversation above related, we are compelled to hold that Mr. Peters has not made any defense to this application for injunction. He has treated the operation of these premises all the time so far as anything he has done is concerned, as if it was satisfactory to him. No complaint has emanated from him except the single request in August, 1896, that more wells should be drilled upon the property. Another ground is insisted upon, and that is that the lease should be forfeited because of their having violated the implied covenants of this contract, which are that they should not only reasonably develop, but should sink off-setting wells. Very little need be said upon that subject, since there was upon the adjoining property either controlled by plaintiff or others, but four wells that required offsetting. There is one other well that is about 400 feet from the premises to the north, and there are four wells about 1,000 feet from the premises to the east, some of them in operation and some have been dry for two or three years. There are four wells then about 200 feet from Peters’ lands ; three of these are on the piece next adjoining the northeast corner and are, as I say, 200 feet from his line, but the well sunk by the plaintiff in the northwest corner of Peters’ farm are likewise two hundred feet from the line both north and west, so that if that well was down where it ought to be, it protects his land from any drainage from any of these three wells, because it is just 400 feet away from two of them and a little more than that from the center one at the northwest corner, but in July, as I have said, with his consent and approval the company put down another well on the west line of the property or 200 feet from it, and that off-sets the only other well there is near the line adjoining Mr. Peters’ property, so that all the wells on the adjoining lands that are adjacent to them have been offset by these two wells. Now a great many authorities have been cited in this case to show that there is ground here for declaring this lease forfeited, but none of them in our judgment reach the facts of this case where there has been a distinct, plain line of conduct pursued by both parties with reference to the construction that should be given to this contract — a line of conduct that the court cannot ignore on the part of Mr. Peters and the Ohio Oil Company amounting to a consent to all of this delay, or waiver of the right to ask a forfeiture. It seems like a long delay, that has expired since 1889, but it has been consented lo by Peters, and treated as though a proper thing, and he received and accepted $160.00 a year as a full satisfaction for that as long as it was paid, so that no ground exists upon the facts for application of any of the law that has been there cited. Many of the cases cited from Pennsylvania that have been read to us have no application to- an action like this, most of which are actions for damages, ejectment, or for the specific pertorm anee of contracts in which different rules of law are applicable. I shall not have time to refer to these authorities, but will content myself by saying that we hold upon the facts in the case that the plaintiffs are entitled to the injunction as prayed for.