Case ID: ny-st-rep_34/html/0051-01.html
Source: Caselaw Access Project
Author: {"author": "Follett, Ch. J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

William T. Eaton et al., Resp’ts, v. The Allegany Gas Co., Limited, Impl’d, App’lt.
    
    
      (Court of Appeals, Second Division,
    
    
      Filed December 2, 1890.)
    
    1. Lease—Oil well contract.
    In 1881 Foster executed an agreement giving plaintiffs a lease of fifteen acres of land on which to bore for oil and to hold. “ for the term of twelve years” or “as long as oil is found in paying quantities,” etc., for which Foster was to have one-eighth of the oil. The lessees in the spring of 1883 ceased drilling, not having found oil in paying quantities, and in 1884 Foster leased the land to Thurston who with the defendant company tubed the well, after which it produced gas and became of great value. Held, that the lessees having tested the premises to their satisfaction and having for two years ceased to use them for the purposes granted, the contract was legally terminated by the lessor.
    3. Same.
    The lease created a term limited to the time during which oil should be produced in paying quantities, and not for the term of twelve years.
    Appeal from an order of the general term of the supreme court of the fifth department, which reversed a judgment dismissing the complaint without costs and was entered on the report of a referee.
    Since 1880 Harvey C. Foster has been the owner in fee of the land described in the written contract entered into under seal by him with Walter A. Wilcox, Amos D. Wheeler and William T. Eaton¡ dated April 27, 1881, and acknowledged May 9, 1881, the material parts of which are as follows:
    “Agreement made this E7th day of April, 1881, between Harvey G. Foster, party of the first part, and W. A. Wilcox, A. D. Wheeler and W T. Eaton, party of the second, Witnesseth that the said first party in consideration of the sum of one dollar to -paid by the second party, the receipt of which is hereby acknowledged, and of the agreements hereinafter mentioned to be kept and performed by said second party, have granted, leased and demised, and do hereby grant, lease and demise unto the said second party, their heirs and assigns, all that tract or parcel of land situate in the town of Wirt, described as follows, to wit: ” (here follows a description of fifteen acres of land), “ with the exclusive right to dig, bore and mine for and gather all oil or gases found in and upon the aforesaid premises, to have and to hold the same for the term of twelve years from this date, or as long as oil is found in paying quantities, also the right of way to enter upon said premises for the purpose of operating, mining or removing said oil or gases therefrom, and full power to erect all necessary buildings and tanks upon said premises for the purpose of procuring or storing said oil or gases, with the full right to said second party of appropriating tto their own use all the oil or gases found upon said premises during said term.
    “In consideration whereof, the said second party agrees to give the said first party one-eighth part of the oil produced and saved from said premises, to be delivered on said premises to the party of the first part. The first party has the right to use for agricultural purposes whatever portion of said premises second party does not use and need for said oil and other purposes herein stated. The party of the second part covenants to commence operations for said mining purpose and prosecute the same on some portion of the above described premises within two years from this date, or thereafter pay to the party of the first part-dollars per ■-- until work is commenced. This lease shall be null and void and at end unless said second party shall, within six months from this date, commence and prosecute, with due diligence, unavoidable accidents excepted, the sinking and boring of one well on or in the vicinity of this lease to a depth of 1,200 feet, unless oil in paying quantities is sooner found. * * '*
    “ Said second party shall have the right and power to remove their machinery, derricks, tools and fixtures, or any other property at any time from said premises. If the party of the second part fails to keep and perform the covenants and agreements by him to be kept and performed, then this lease shall be null and void and surrendered to the party of the first part It is agreed that the foregoing stipulations and agreements shall apply to and bind the heirs, executors, administrators and assigns of the respective parties hereunto.”
    The contract is partly written and partly printed, the written words being underscored in the copy above set forth. When this action was begun, William T. Eaton was the owner of 3-12, Amos D. Wheeler of 3-12, Charles Peavy of 2-12, Morris C. Mullein of 2-12 and the Allegany Gas Company of 2-12 of the interest of the parties of the second part in this contract.
    The parties of the second part entered upon the premises in June, 1881, erected an engine house, placed therein an engine and boiler, with tools and machinery, erected a derrick and began drilling a well and before the end of July had drilled to the depth of 1,093 feet, and about the middle of August had reached the depth of 1,500 feet. Drilling was then suspended until the winter and early spring of 1882, when it was resumed and the well sunk to the depth of 1,800 feet, at an expense of about $3,000.
    At the depth of 1045 feet natural gas was found in large quantities; .at 1093 feet some oil was found, but not in paying quantities. On one or two occasions about a barrel of oil was bailed out, bnt was not saved for commercial purposes, and no tanks or means were provided for storing oil. The well was cased down to rock, a depth of 285 feet, but was never tubed for the purpose of obtaining the oil. The gas was conducted about 150 feet away from the well, as a precaution against the destruction of the buildings and derrick- by fire, the pipe being turned up at the end and the gas lighted and allowed to burn. The parties of the second part used the gas for fuel in running their engine while drilling, but not for any other purpose. -In the spring of 1882 the parties of the second part ceased to prosecute operations for mining purposes on the premises, and afterwards did not in any manner attempt to obtain oil therefrom, which they never found in paying quantities. In the autumn of 1882 the parties of the second part removed from the premises their engine, boiler and machinery, but left thereon their engine house, derrick, the casing in the well down to the rock and the tubing which conducted the gas from the well. On the 8th of February, 1884, Harvey C. Foster entered into a written contract, under seal, with Charles P. Thurston, whereby he leased to said Thurs-ton 100 acres of land, including the fifteen acres described in the contract first mentioned, for the purpose of mining, drilling and excavating for petroleum, rock carbon, oil and gas or other valuable minerals or volatile substances, with the right to lay, maintain and operate pipes for the transportation of oil or gas over the other lands, and to erect structures for the purpose of drilling wells and storing gas or oil, reserving to the lessor one-fourth of all oil found, and in case gas was found to furnish Foster with light and fuel for his dwelling and pay him an annual rental of fifty dollars for each well after the first from which gas should be taken.
    The lease contains this covenant: “And it is further agreed, that this instrument is subject to a lease on a part of said lands made to Wilcox, Wheeler and Eaton, in case the same is not now or does not become forfeited or cancelled.”
    On the day of the date of the last mentioned lease it was assigned by the lessee to the Allegany Gras Company, limited, which immediately entered into possession of the premises, cleared out and tubed the well; since which it has produced gas and become of great value. Shortly after the corporation began its operation the plaintiffs gave it, notice of their claims, and insisted that they were entitled to 10-12 of the gas produced, and demanded that they be permitted to enjoy their rights, which was refused, and thereupon this action was brought to restrain the Gras Company from appropriating to itself, to the exclusion of the plaintiffs, the well and its products, and to recover their respective interests in the property with damages for the exclusion. The corporation alone answered.
    
      E. 0. Sprague, for app’lt; Rufus Scott, for resp’ts.
    
      
       Reversing 3 N. Y. State Rep., 501.
    
   Follett, Ch. J.

It is conceded that the parties of the second part to the contract dated April 27, 1881, performed their covenants in respect to the time in which they should commence operations for mining purposes, and that they sank the well to the required depth within the time limited.

Whether the lease (so called for convenience) created a term for twelve years, or whether the term granted is limited to the time during which oil should be produced in paying quantities, is the question upon which the decision of this case turns.

This contract is called a lease, but it should be borne in mind that nothing is granted by it except the oil and gases found in the land described, together with the incidental rights to use the premises for the purpose of obtaining and removing those products, and that no rent or compensation is to be paid unless oil be found in paying quantities, in which case the lessor is to be compensated in kind.

Had neither gas nor oil been found, it would not have been contended that the lessees would have a right to occupy the premises for the full term of twelve years without rent.

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, wc 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.

The order should be reversed and the judgment entered upon the report of the referee should be affirmed, with costs.

All concur, except Bradley and Haight, JJ., not sitting.