Phillips v. Hamilton

95 P. 846, 17 Wyo. 41, 1908 Wyo. LEXIS 4

Opinion

Blard, Justice;.

This action was commenced by the defendant in error, Hamilton, against the plaintiffs in error, in the district court of Converse County, to enjoin the plaintiffs in error from drilling for oil and gas upon certain described lands and to exclude plaintiffs in error therefrom. The case was tried to the court resulting in a general finding and judgment in favor of Hamilton, who was adjudged to be entitled to the exclusive possession of the premises, and enjoining the plaintiffs in error from further drilling for oil or gas on said lands, or from otherwise trespassing thereon. From that judgment plaintiffs in error bring the case here on error.

The material facts of the case are not in dispute and are as follows: On August 4, 1902, Hamilton leased to J. Bevan Phillips, Trustee, one of the plaintiffs in error, his heirs and assigns, the real estate in controversy, consisting of about 360 acres, for the “sole and only purpose of boring, mining and excavating for Petroleum or Carbon oil and gas, and piping oil and gas” on the premises. The consideration expressed in the lease is one dollar and the stipulations, rents and covenants therein contained to be paid, kept and performed by the lessee. The lease is for the term of ten years and so long thereafter as oil or gas shall continue to be found thereon in paying quantities. The lessee to deliver to the lessor one-eighth of the oil, and to pay one hundred dollars per year for the gas from each gas well drilled on the premises, the product from which is marketed and used off the premises; said payments to be made on each well within one year after commencing to use the gas therefrom and yearly thereafter while gas from said well is so used. A failure of the lessee to make any one of said payments when due, or within six months thereafter, the lessor serving written notice by mail of otherwise on the lessee demanding said deferred payment, may declare this lease null and void, as to the well or wells upon which pay has been neglected, and no longer binding on either party thereto. The lessor to have the right to use the premises for tillage or grazing purposes, except such parts as are necessary for such mining and piping purposes and right of way. The lessee to have the right to remove any machinery, buildings or fixtures placed on the premises by him, and to sublet. The lessee to commence mining operations within one year from the execution of the lease. About Oct. 6, 1902, the lessee went upon the premises with a portable drilling rig and commenced drilling, and during that month drilled a well to the depth of about 466 feet when some gas was found but not in commercial quantity. The well was then cased and the drilling rig removed to an adjoining property, a pipe was laid from the well to this adjoining property and the' gas was there used for drilling by the lessee for some time during the fall of 1902. In February or March, 1903, the lessee returned to the premises with a portable rig arid cleaned out the well, replaced the casing and then moved the rig off, leaving the casing in the well. About Oct. 15, 1903, the lessee selected a site for another well, and hauled and placed on the land some timbers for a standard derrick. Dec. 14, 1903, Hamilton mailed to Phillips the following notice (omitting date, address and signature) : “You are hereby notified that in view of the fact that you have failed to comply with the terms of the oil land lease executed by me to you on the 4th day of August, 1902, in this: that one year has elapsed since the execution of said lease and you have not commenced mining operations on the land designated therein, I hereby rescind and cancel the same.” On Dec. 24, 1903, Phillips assigned the lease to his co-plaintiff in error, Douglas Oil Fields, a corporation, which at the time of the assignment had knowledge of the attempted cancellation of the lease by the notice of Dec. 14. On March 26, 1904, Douglas Oil Fields moved a drilling rig onto the premises and commenced drilling the second well and continued drilling until about April 28, 1904, when they had the well sunk to the depth of about 388 feet and had put in 360 feet of eight-inch casing and were preparing to sink it deeper, when they were stopped from further work on the premises by the temporary injunction in this case, which was issued May 27, 1904. The leased lands are situated in an undeveloped field supposed to contain oil and gas; but it does not appear that there were any wells in the vicinity producing either in commercial or paying quantities or that the leased lands were being drained of either by wells on adjacent lands. It is admitted by the lessor in his testimony that the notice of Dec. 14, was the only notice given to the lessee or his assigns that he .claimed a forfeiture or cancellation of the lease, until about the time of the commencement of this action, when he locked the gates on the premises and forbid the lessee from entering the premises or doing further work thereon.

The contentions of the lessor are, that by the terms of the lease, the lessee was under obligation to commence operations for oil and gas upon the premises within one year from the execution of the lease and to continue such operations diligently and in good faith until the oil or gas thereunder had been fully developed, or it had been effectually demonstrated that oil and gas was not to be found thereunder in commercial quantities, and that any cessation of such prospecting would work a forfeiture of the lease and authorize its cancellation. It is alleged that after the lessee had bored one well on the land which did not produce oil or gas in commercial quantities, he abandoned operations on the land, and that thereafter, on Dec. 14, 1903, the lessor notified the lessee that he elected to rescind and cancel the lease; and he claims that all rights of the lessee and his assigns under the lease have been forfeited. The lease contains no express covenant or stipulation for diligence in the matter of exploration, or any requirement as to the amount of work to be done or the number of wells to be drilled within any stated period of time or at all. But it is admitted in argument — and we think rightly so— that the lease does contain an implied covenant that the work of prospecting and development should continue, after the expiration of the year within which the lessee was to conmmence operation, with reasonable diligence. It is evident that the purpose of the lease was to explore the premises, and if oil or gas was found therein in paying quantities, to produce and market the same for the mutual benefit of both parties. Such being the case, it was the duty of the lessee, under the implied covenant contained in the lease, to proceed with reasonable diligence to prospect and develop the premises, having due regard to his own interest and those of the lessor. It was likewise the duty of the lessor to allow a reasonable time to the lessee to do so before he could claim a forfeiture, or right to cancel the lease, if he had any such right under the terms of the contract. The contention of counsel for the lessor that any cessation of work or the temporary removal of the drilling machinery from the land would work a fqrfeiture of the lease, cannot be sustained. The lease contains no such express provision and the implied covenant requires reasonable diligence only. No doubt the parties might have so stipulated in their contract, but they did not do so, and it is not the duty of the court to make contracts for the parties, but to interpret the language they have used and to construe the contract they have entered into according to established legal principles. We think the proper construction of the contract under consideration is, that by the express terms of the contract the lessee was required to commence operations on the land within one year from the execution of the lease, and, by the implied covenant, to continue such operations ■with reasonable diligence thereafter. Counsel for the lessor seems to confuse the rights of a lessor to a cancellation of a lease because it has been forfeited by the lessee by a breach of some covenant which the lessee is bound to perform, with the rights of a lessor upon abandonment by the lessee; and it is urged that after boring the first well, the lessee abandoned the premises and thereupon the lease was terminated. “Abandonment is the relinquishment or surrender of rights or property by one person to another; it includes both the intention to abandon and the external act by which the intention is carried into effect.” (1 Enc. Law. 1,) “In determining whether one has abandoned his property or rights, the intention is the first and paramount object of inquiry ; for there can be no abandonment without the intention to abandon.” (1 Cyc. 5.) In the present case the claim that the lease was forfeited by abandonment is wholly without support in the evidence, as it clearly, appears that there was no such intention on the part of the lessee or his assigns, but on the contrary, that such was not the intention, and they did in fact return and were at work on the land when this suit was commenced. A lessee may, however, forfeit his rights under a lease by a breach of some covenant which he is required to keep or perform, which breach may occur either intentionally or unintentionally on his part, or through his neglect or inability to keep or perform the same. The breach of the contract which it is here claimed worked a forfeiture of the lease and entitled the lessor to its cancellation, is the alleged failure of .the lessee to keep and perform the implied covenant to diligently continue the work of exploration for oil and gas. It is at ' least doubtful if a breach of sitch an implied covenant would warrant the court in decreeing a forfeiture when the lease does not expressly so provide and when it does provide that the lease may be forfeited in whole or in part for another cause therein specifically stated. (Law Relating to Oil and Gas, by Thornton, Sections 156-7, and cases cited in notes.) However, we deem it unnecessary to decide that question as we are satisfied that the evidence in this case is 'insufficient to sustain the claim that there was such a failure to diligently continue the work of prospecting and development as would warrant a cancellation of the lease for that reason. In the case of Brewster v. Lanyon Zinc Co., 140 Fed. 801, in considering what constitutes reasonable diligence in such cases, Judge Van Devanter said: “The large expense incident to the work of exploration and development, and the fact that the lessee must bear the loss if the operations are not successful, requires that he proceed with due regard to his own interests as well as those of the lessor. * * * * Whether or not in any particular instance such diligence is exercised depends upon a variety of circumstances, such as the quantity of oil and gas capable of being produced from the premises, as indicated by prior exploration and development, the local market or demand therefor, or the means of transporting them to market, the extent and results of the operations, if any, on adjacent lands, the character of the natural reservoir • — -whether such as to permit the drainage of a large area by each well — and the usages of the business. Whatever, in the circumstances, would be reasonably expected of operators of ordinary prudence, having regard to the interests of both lessor and lessee, is what is required.” In the case before us, the work that was being done, not only on the leased land but in the vicinity, was in the nature of prospecting. The lessee commenced operations within the time required by the lease, and he and his assigns, within less than one year from the time they were required to commence work, had drilled two wells to considerable depth, and at the time suit was commenced were at work and had made preparations to sink the second well to a much greater depth, and, as shown by the evidence, had expended within that time for machinery and materials, and for labor upon the premises over $5,000. It also appears from the testimony of the lessor that, except the notice of Dec. 14, he made no complaint or objection to the work that was being done, nor did he have any conversation with them on the subject. We think that, under a proper construction of the contract, the evidence in this case is insufficient to show a lack of good faith on the part of the lessee or his assigns, or a failure to exercise reasonable diligence in the work of prospecting and drilling for oil and gas on the leased premises and that the district court erred in awarding the exclusive possession of the premises to the defendant in error and in enjoining the plaintiffs in error from further -operations under the lease. For the reasons above stated, the judgment of the district court is reversed and the cause remanded to the district court for a new trial or such further proceedings as are deemed proper not inconsistent with this opinion.

Reversed.

Potter, C. J., and Ca-rpenter, District Judge, concur. Hon. Charles E. Carpenter, Judge of the Second Judicial District, sat in the place of ScoTT, justice, who, as District Judge, had presided at the trial below.