Conkling v. Krandusky

Spring, J.: On the 1st day of November, 1904, the defendant was the owner of a farm situate in the town of Allegany, Cattaraugus county. On that day, by an instrument commonly known- as an oil lease, she leased to the plaintiff, in consideration of the sum. of $100, which was on that day paid to her, the right to operate and drill for petroleum and gas upon said premises “ for and during the term of five years from the date hereof, arid so long thereafter as oil or gas can be produced in paying quantities.” By the' terms of the contract the defendant was to receive one-eighth part of all the petroleum which was produced. The agreement further provided ■that the lessee was to commence operations by April 1, 1905, or, in lieu thereof, was to pay a rental of $10 per month from that date. The instrument contained the covenant that the plaintiff was “ to stand all expense of any law suit that may occur in defending title of said lease.” There was also this further provision in the lease: . “ And it is-further agreed, that the second party, his heirs or assigns, shall have the right at any time to surrender up .this lease, and be released from all moneys due and conditions unfulfilled, then and from that time this lease and agreement shall be null and void and — 763 — no longer binding on either party, and the payments which shall have been made shall be held by the party of the first part as the full stipulated damages, for the non-fulfillment of the foregoing contract.” Contemporaneously with the execution of this contract the defendant executed a written instrument whereby she agreed to repay to the plaintiff said, sum of $100 in case there was any outstanding lease or contract superseding the lease to the plaintiff. And she further represented in said instrument that there was no such outstanding lease or incumbrance. The plaintiff in pursuance of his contract paid the rental of $10 for the first month. He paid no further rental after that, nor did he commence operations on the 1st day of April, 1905, or at any other time. He has brought this action, and so far successfully maintained it, to recover said sum of $100 upon the ground that there was in existence a valid lease held by one Galletts. It appeal’s that on the 28th day of March, 1893, the defendant’s husband was the owner of these premises, and on that day he executed an oil lease to said Galletts in consideration of the sum of $130, and by which Galletts was to drill for oil, and in the event that oil was discovered the lessor was to receive one-eighth of the same. This lease was for the term of fifteen years from its date, “ or as long as oil is found in paying quantities.” It further provided that the lease should be null and void unless Galletts should commence to drill a well within three months from the date of the lease, prosecute the same diligently and bore the same to the depth of 1,200 feet, unless oil was sooner found in paying quantities. During the year 1893 Galletts commenced drilling the well in pursuance of this lease and finished it to the requisite depth in 1894, but found no oil in paying quantities. He paid the lessor ten dollars a month until the well was completed. Oil not having been discovered, in 1894 Galletas took away his derrick, machinery and rigging which he had used in drilling the well, leaving only the casing which had been put in to shut off the water while he was drilling the well. Galletts did nothing further for eleven years, and made no claim that his lease was valid. . In July, 1905, Galletts entered upon the plaintiff’s farm, put down another well, and found oil in paying quantities. It will be — 764 — observed that this was eleven years after he had abandoned the premises, and more than eight months after the contract with the plaintiff. The court submitted to the jury the question for them to determine whether Galletts had abandoned the lease. I think this was error. The facts were not in dispute, and as matter of law the lease had terminated long before the1 contract made with the plaintiff. When Galletts took away his machinery and all the implements which were necessary for - the prosecution of the work under the lease, and after having drilled One well and found no oil, these acts on his part indicated that he had abandoned the project, and this is especially true when the work was not resumed again for eleven years. In Eaton v. Allegany Gas Co. (122 N. Y. 416) under a similar lease the lessees drilled the well, finding gas in large quantities and a small quantity of oil, and in the fall of 1882 they removed from the premises their engine, boiler and machinery, leaving in place the engine house, derrick and casing, but did no other work. After that, in 1884, another lease was executed by the owner of the premises to another party, subject to the first lease “ in case the same is not now or does ■ not become forfeited or canceled; ” and the controversy arose as to the validity of that lease. - There was no dispute over the facts. The court held that there was an abandohment of the premises by the first lessees, saying (at p. 422 et seq.): “ Undoubtedly the lessees had the right of possession ' so long as they, in good faith, were engaged in .boring wells or testing the oil-producing capacity of the land. But when it was demonstrated that oil could not. be obtained, or when they should abandon their search, their right to possess the property would end and thereafter they would have no more right to occupy it than a stranger. Construing all of the provisions of the instrument together and keeping in mind the evident purpose of .the -parties, we think the term created by the lease was limited to the time during which oil should be found in the quantities mentioned, and that the term, ‘ or as long as oil is.found in paying quantities,’ are words of limitation and fix the duration of the lease. The lessees having tested the premises to their satisfaction and having for two years ceased to use them for the purposes granted, it was well held by the learned referee that the contract might be, and was, legally terminated by the lessor.” — 765 — In these cases time is of the essence of the contract: Allegany Oil Co. v. Bradford Oil Co. (21 Hun, 26, 31); Boisaubin v. Reed (2 Keyes, 323). The oil is apt to be drained by the sinking of wells on adjacent premises, so it is important to the owner of land who is'to receive from the lessee as royalty a part of the oil produced, that the work should commence at the time stipulated in order that whatever oil belongs to his premises may be obtained. And it was-important to the lessor in the contract with Galletts that he should make his explorations in conformity with the agreement. The removal of his machinery and long suspension of the drilling indicated 'his purpose to surrender his rights under the contract. The granting of the lease to the plaintiff was a declaration on the part of the owner that she regarded this outstanding lease as terminated. (Shepherd v. McCalmont Oil Co., 38 Hun, 37.) It is contended, however, that because Galletts entered upon the premises after the execution of the contract with the plaintiff and drilled for oil there was no abandonment. The plaintiff could have commenced his action within a month, or at any time, to recover the $100, and certainly the Galletts lease would not then have been held to supersede this contract. It does not appear under what arrangement Galletts entered upon the premises and commenced operations again. Undoubtedly the defendant desired to have her premises fully tested, for the discovery of oil in paying quantities would materially enhance the value of her farm. The plaintiff was not making any effort to perform under his contract and, very naturally, if Galletts desired to do so she was not averse to it. Whether he entered by virtue of the old lease, or upon a new contract, does not appear, although we may assume the entry was under the old lease as there was no evidence of any other agreement. She was not required to eject Galletts, for the plaintiff was not complying with the, terms of his lease, and he was not defending his title. He kept quiet until long after Galletts discovered oil in paying quantities. It was incumbent upon the ■ plaintiff to defend the invasion of the premises by Galletts. He had undertaken to do that and there is. no claim that he complied with his undertaking. He did not show that the entry of Galletts was authorized or that it would be — 766 — fruitless to attempt to assail the lease, or that Galletts re-entered with the assent of the defendant or pursuant to some new arrangement with her. In view of the charge of the court, we assume the jury have found Galletts had not' abandoned his lease, and that finding is contrary to the evidence. A new trial may develop additional facts defining-the status of the'parties with reference to the resumption of the drilling by Galletts. Oil leases or contracts stand on an entirely different basis from any other leasehold agreements. The work which is to be done is ordinarily experimental and speculative. If oil is not found, no estate -vests in the lessee. (Eaton Case, supra ; Venture Oil Co. v. Fretts, 152 Penn. St. 451; Kennedy v. Crawford, 138 id. 561.) While, ordinarily, forfeiture or abandonment is not looked upon with favor that rule is not applicable to these oil leases. The plaintiff at the time he entered into the agreement with the defendant and when he paid the $100 knew of the Galletts lease, and that was the instrument which the parties had in mind when the provisions referred -to were inserted in their contract. . In effect, the plaintiff agreed if he entered into possession pursuant to his contract and Galletts or any one else attempted to assert the priority of any other lease, he would defend his own lease; and if the validity of the outstanding lease was established, the defendant would repay the $100. If, however, he elected to dp npthing, he would lose What he had paid. He must keep his own lease alive either by the monthly payments or by drilling for oil, if the provisions for his benefit were to be operative. . He was. an experienced oil operator and was willing to take a chance -on the situation! He paid the $10 with full knowledge of the Galletts lease, then expecting possibly to go on with the venture. . After that, and more than two months before Galletts entered, he ceased paying and made no attempt to bore for oil.' In this lease time was the controlling factor, and when he failed either to enter the premises or to pay the $10 each mouth, one or the other of which was essential to keep his right effective, he manifested his purpose to abandon the project. The Galletts lease was not an outstanding -lease in force when the contract was made with the plaintiff, nor did it supersede the Conkling lease, for the latter had expired before new life was imparted to the Galletts lease. — 767 — I think the judgment should be reversed, with costs to the appellant to abide event. All concurred, except McLennan, P. J., and Kruse, J., who dissented on an opinion by McLennan, P. J.