Federal Oil Co. v. Western Oil Co.

JENKINS, Circuit Judge (after stating the facts as above). The nature of property in natural gas and oil contained in the earth, and the legal effect of the instrument here in question, have been settled authoritatively by the rulings of the Supreme Court of Indiana (State v. Indiana & Ohio Oil, Gas & Min. Co., 120 Ind. 575, 22 N. E. 778, 6 L. R. A. 579; People’s Gas Company v. Tyner, 131 Ind. 277, 31 N. E. 59, 16 L. R. A. 443, 31 Am. St. Rep. 433; Heal v. Niagara Oil Company, 150 Ind. 483, 50 N. E. 482; Manufacturers’ Gas Company v. Indiana Gas Company, 155 Ind. 461, 57 N. E. 912, 50 L. R. A. 768), and by the Supreme Court of the United States in Ohio Coal Company v. Indiana, 177 U. S. 190, 20 Sup. Ct. 576, 44 L. Ed. 729. In the last case the nature of the property right is676 thus clearly stated by Mr. Justice White (page 208, 177 U. S., page 583, 20 Sup. Ct., and 44 L. Ed. 729): “It is apparent that the cases in question [referring to the Indiana eases cited], in accord with the rule of general law, settle the rule of property in the state of Indiana to be as follows: Although, in virtue of his proprietorship, the owner of the surface may bore wells for the purpose of extracting natural gas and oil, until these substances are actually reduced by him to possession he has no title whatever to them as owner; that is, he has the exclusive right on his own land to seek to acquire them, but they do not become his property until the effort has resulted in dominion and1 control'by actual possession. It is also clear from the Indiana cases cited that, in the absence of regulation by law, every owner of the surface within a gas field may prosecute his efforts, and may reduce to possession all or every part, if passible, of the deposits, without violating the rights of the other surface owners.” The legal effect of the instrument here in question is therefore the grant of a mere use for the purpose of prospecting. The title is inchoate, and for purposes of exploration only until oil or gas is found. If not found, no estate vests in the lessee, and his title, whatever it is, ends with the abandonment of the unsuccessful search. If found, the right to produce becomes a vested right, and the lessee will be protected in exercising it in accordance with the terms and conditions of his contract. Heal v. Niagara Oil Company, 150 Ind. 483, 50 N. E. 482; Venture Oil Company v. Fretts, 152 Pa. 451, 25 Atl. 732. . The question then arises whether the specific performance of this contract should be enforced in equity. The principles by which courts of equity are guided" in respect to the subject are well established. The right to specific performance is not absolute, but rests in judicial discretion — not an arbitrary, capricious discretion, but sound judicial discretion, controlled by established principles of equity, and exercised upon the consideration of all the circumstances of each particular case. The contract must possess certain elements, to demand of equity the exercise of its jurisdiction to enforce performance. It must be upon a valuable consideration. It must be mutual in its obligations and in its remedy. It must be perfectly fair, equal, and just in its terms and in its circumstances, and the situation must be such that the remedy of specific performance will not be harsh or oppressive. The contract must be such that the court is able to make an efficient decree for its specific performance, and to enforce the decree when made. Pomeroy’s Eq. § 1405. With respect to the agreement in question, there are two considerations which go far to impeach its’ fairness: First, its want of mutuality. No obligation is assumed by the appellant to do anything — either to drill or to pay. It is in fact a mere option. It is undoubtedly true, as urged by the appellant, with respect to enterprises of this character, that a company proposing to obtain natural gas or oil in large quantities for sale or manufacturing purposes finds it desirable to acquire exclusive right to search, for the fugitive mineral in a large area or areas; and, though it be not necessary for the proper development of the particular area to drill [677] a well upon the land of all the several proprietors within the district, it is desirable and_ profitable to have no competing wells on the territory near to wells deemed sufficient for the development of the territory. That, howevér, was not the purpose of this contract. It contemplated immediate exploration upon the particular land. A well was to be commenced within one day from its date, and postponement of operation was to be compensated for at the rate of $8.75 for each month that such commencement was delayed. Bradford was to have one-eighth part of the oil produced, and, if gas only should be found, $100 annually for the product of each well, and to have gas free of cost for heating and lighting purposes in his dwelling. It was not contemplated, as we read this instrument, that the appellant could indefinitely postpone the commencement of operations upon the payment of $8.75 per month. That would only compensate during the delay for the gas which Bradford would receive if gas only should be found, and he would receive no compensation for oil if oil should be found by drilling upon other land within the oil district. The appellant had the right at any time to remove its property and cease' operations without respect to the interests of Bradford, and with respect only to its own interest; and it could cancel and annul the contract, or any part thereof, at any time. There was here an entire want of mutuality — an utter absence of obligation on the part of the appellant. Equity will not specifically enforce a contract against one party when it cannot be specifically enforced against the other. Marble Company v. Ripley, 10 Wall. 339, 359, 19 L. Ed. 955; Karrick v. Hannaman, 168 U. S. 328, 336, 18 Sup. Ct. 135, 42 L. Ed. 484. Not only could this contract be not enforced against the appellant, for want of obligation assumed, but it does not offer by its bill to do that which it was the obvious intent of the contract it should do, but which it had not obligated itself to do, namely, to drill for oil and gas. Tender of performance is absolutely necessary, especially in cases of optional contracts. Kelsey v. Crowther, 162 U. S. 404, 16 Sup. Ct. 808, 40 L. Ed. 1017; Richards v. Green, 23 N. J. Eq. 536. The only effect of a decree would be to drive the appellees out of possession and put the appellant in possession; allowing it to hold the land indefinitely without action upon its part, and to exploit adjacent lands for natural gas. and oil, if it had acquired the right so to do, and thus to defeat any participation by Bradford in the oil which may be beneath the surface of his land. It is no answer to say that the appellant could only do this upon monthly payments to Bradford of $8.75, for that would not compensate him for his share of the oil which it was- hoped would be developed, and would permit the appellant if it had obtained like rights upon adjoining lands, and should, by drilling thereon, develop the presence of oil, to obtain the oil beneath the surface of Bradford’s land without any participation therein by him. Nor does the fact that the monthly payments had been made for some months after the contract remove from this agreement the want of mutuality. That payment was not part performance of the contract, but merely the stipulated sum for delay in performance. Contracts unperformed, optional as to one party, are optional as to both. The contract here was deter [678] mined by the act of Bradford refusing to receive the stipulated sum for further delay, and by placing the Western Oil Company in possession. Knight v. Indiana Coal & Iron Company, 47 Ind. 105, 17 Am. Rep. 692; Huggins v. Daley, 40 C. C. A. 12, 99 Fed. 606, 48 L. R. A. 320; Reese v. Zinn (C. C.) 103 Fed. 97. Secondly, this agreement, upon its face, is without limit of time. There is no period within which the thing sought to be accomplished must be commenced, or the contract should cease. It is terminable at the will of the appellant. Certainly the contract is most unfair, and it would be unconscionable for a court of equity to place the appellant in a position to forever deprive the owner of the soil of the right to use his land, or to drill for such treasures as the earth may contain. Munroe v. Armstrong, 96 Pa. 307. The decree is affirmed.