Jackson v. American Natural Gas Co.

Opinion by Portee, J., The plaintiff granted to the assignor of the defendant the oil and gas under the grantor’s tract of land, containing 275 acres, in Armstrong county, and the right to go upon and operate the land for oil and gas purposes. The lease, or right granted, was to continue for ten years, and as much. longer as oil and gas were produced in paying quantities, with the right to drill for the same upon the royalty of one-eighth part of the oil produced and $200 per year for the product of each gas well so long as marketed off the premises. The grant contained the following conditions: “ In case no well is commenced within three months from date, then this grant shall immediately become null and void as to both parties. Provided that the second party may prevent such forfeiture from quarter to quarter, and not longer, by paying to the first party, at the rate of $68.75 per quarter, at the office of the American Natural Gas Company, Pittsburg, until such well is commenced.” The lease contained no covenant to pay in case of a failure of the lessee to commence operations on the land, and the only liability which the lessee, or his assignee, would have incurred from such a failure to begin operations would have been that fixed by the express covenants of the lease, viz.: that the grant should become null and void as to both parties. No action could have been maintained to recover the amount of $68.75 per quarter, which it was necessary [412] for the lessee to pay in order to avoid a forfeiture: Glasgow v. Chartiers Gas Company, 152 Pa. 48; Hays v. Forest Oil Company, 213 Pa. 556; McKee v. Colwell, 7 Pa. Superior Ct. 607; McMillan v. Philadelphia Company, 159 Pa. 142. The defendant did not, however, fail to commence a well within three months from the date of the lease, but did in fact with due diligence complete two wells upon the leased premises. The above-quoted clause of the lease, therefore, never went into effect and the rights of the parties are to be determined independently of it, and under the following covenant : “ All moneys that may become due under this instrument payable to W. J. Jackson by check of the American Natural Gas Company, mailed to his address, Apollo, Pennsylvania. When a well is completed, the rental is thereby reduced to $183.83 per year, or $45.83 per quarter, and the well holds protection of ninety-one acres. When second well is completed, the rental is reduced to $91.66 per year, or $22.91 per quarter, and when a third well is completed the rental ceases, and it is understood each well holds for protection one-third of the two hundred and seventy-five acres.” The agreement furnished no means of determining what part of the tract should be protected by the first and second wells drilled. The farm was dealt with as an entirety, and the effect of this clause of the lease was to vest in the lessee an actual interest in the land, during the term of ten years. As soon as the first well was completed, that well protected the interest of the lessee in one undivided third of the 275 acres, when a second well was completed his interest was protected as to two undivided thirds of 275 acres, and had he completed a third well his interest in the oil and gas under the entire 275 acres would have been absolutely protected to the end of the ten-year term. The amount to be paid after the completion of the first and second wells is by the parties called a rental, whereas they had not so designated the moneys which were to be paid by the lessee in order to avoid a forfeiture before operations were commenced; thus clearly indicating that they understood the meaning of the term rental and here used it in the sense of money paid for the use of land under a covenant. The appellants having completed two wells on the 275 acres have acquired the right to hold two-thirds of the entire [413] tract, for tbe purposes of the lease, without any possibility of forfeiture, and in consideration of the right thus acquired they have, under the clause of the lease last quoted, agreed to pay the appellee, as a rental, the sum of 122.91 per quarter.’ The judgment is affirmed: