Case ID: ohio-st_92/html/0324-01.html
Source: Caselaw Access Project
Author: {"author": "Matthias, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Kachelmacher v. Laird et al.
    
      Contracts — Implied covenants — Oil and gas lease — Written conditions control, when — Forfeiture for delay in drilling — Defeated by payment, and lease continued, when — Deposit in bank payment to lessor, when — Effect of refusal to withdraw same.
    
    1. There can be no implied covenants in a contract in relation to any matter that is specifically covered by the written terms of the contract itself.
    2. There being an express condition written in an oil and gas lease as to the right of the lessor to declare forfeiture thereof for delay in drilling the first well, no covenant authorizing forfeiture for such delay can be implied in direct opposition to the plain provisions of the written contract.
    3. Where a lease of land for ten years for oil or gas purposes provides that the lease shall be void if no well is drilled within four months from the date thereof unless the lessee shall pay the lessor the sum of fifty dollars for each and every year that the drilling of such well is delayed, payment of such sum by the lessee to the lessor, according to the terms and provisions of the lease, prevents forfeiture and continues the lease in force during the year for which such payment is made.
    4. If such lease specifically provides that the amount to be paid for delay in drilling may be paid by the lessee to a bank named in the lease to the credit of the lessor, and payment is made in accordance with the terms of the lease, the lessor cannot avoid the effect of such payment by refusing to withdraw the sum from the bank to which it was paid by his direction. When so paid said fund became the property of the lessor and can be lawfully paid to no one except upon his order.
    (No. 14538
    Decided July 2, 1915.)
    Error to the Court of Appeals of Perry county.
    The defendants in error, on the 14th day of April, 1910, executed and delivered to one S. S. Smith an oil and gas lease on their premises, consisting of about eight-tenths of an acre of land, which lease was, on May 10, 1910, assigned to the plaintiff in error. On March 4, 1911, the defendants in error filed their petition in the common pleas court of Perry county and sought an order requiring the plaintiff in error “to drill and develop plaintiff’s said land; or that said lease may be cancelled and ordered surrendered up.”
    Upon hearing on-appeal, in the court of appeals of Perry county, the conclusions of law were favorable to the lessors, the defendants in error, and decree was entered as prayed, upon the following finding of facts:
    “1. On the fourteenth day of April, 1910, and ever since that date, the plaintiffs were the owners in fee simple of a tract of land in section 30, township 14, range 1-5, Coal township, Perry county, Ohio, containing approximately eight-tenths (8/10) of an acre of land.
    “2. That on the fourteenth day of April, 1910, the plaintiffs executed and delivered to one S. S. Smith an oil and gas lease on said real estate, a copy of which lease was attached to the petition and marked ‘Exhibit A.’
    “3. That on the third day of May, 1910, said Smith made a written assignment of said lease to the defendant, N. L. C. Kachelmacher.
    “4. That by the terms of said lease the plaintiffs granted to said Smith all the oil and gas in and under said tract of land and also said tract of land for the purpose of operating thereon for oil and gas; said grant to be for the term of ten (10) years from the date thereof and as much longer as oil or gas was found in paying quantities, not exceeding in the whole the term of twenty (20) years from the date thereof, the lessee yielding and paying to the lessors one-eighth (1/8) part or share of all the oil produced and saved from the premises, delivered into pipe lines to the lessors’ credit and at the rate of two hundred dollars ($200.00) per year for each gas well when utilized off the premises and free use of gas for one dwelling house now on said premises, if found in paying quantities, lessors making their own connections for such gas at the well at their own risk and expense.
    “5. That said lease contained the following provision :
    “ ‘Provided, however, that if a well be not completed on said premises within four months from the date hereof, unavoidable accidents excepted, then this lease and agreement shall be and become null and void unless the lessee, within each and every year after the expiration of the time above mentioned for the completion of a well, elects to and does pay the sum of fifty dollars ($50.00) until a well is completed thereon; if the lessee elects to pay, the same may be paid direct to the lessors or may be deposited to their credit at The Miners & Merchants Bank, Nelsonville, - Ohio.’
    “6. No well has been drilled by the defendant or by anyone else on said land so leased by the defendant.
    
      “7. The defendant, in each of the years 1910, 1911, 1912 and 1913, deposited to the credit of the plaintiffs in The Miners & Merchants Bank of Nelsonville, Ohio, the sum of fifty dollars ($50.00), said respective sums being the payments provided for in said lease under the paragraph set forth in special finding No. 5, and notified the plaintiffs of such deposits, but plaintiffs did not draw these deposits.
    “8. At the time the plaintiffs made the lease on the land described in the petition to S. S. Smith on April 14, 1910, no oil wells had been drilled in what is now known as the New Straitsville field in which plaintiffs’ lands were located and that territory was what was known as ‘wild cat’ territory.
    “At that time the first well in the field now known as Lawson well No. 1 was in process of drilling on the Lawson tract and distant about eighty-six and one-half (86¿) feet from plaintiff’s land.
    “9. An oil well in the the vicinity of plaintiffs’ land must be drilled from 3000 to 3200 feet in depth and costs approximately ten thousand dollars ($10,-000.00),
    “10. At the time plaintiffs made the lease on the land in question to S. S. Smith, the territory in which plaintiffs’ land was located and the territory 'now known as the New Straitsville field was ‘wild cat’ territory and except one well known as the Bessie well which was distant about 3000 to 4000 feet from plaintiffs’ land, there were no wells in what is now known as the New Straitsville field; there were no wells north, south or east of plaintiffs’ land and excepting the Bessie well distant 3000 to 4000 feet to the west, the nearest well to the west was two miles distant.
    “11. At the time plaintiffs made their lease to Smith the customary rental paid landowners in that territory for time that would elapse until wells were drilled, ranged from twenty-five cents to one dollar an acre a year.
    “12. The territory in which plaintiffs’ land is situated is what is known as the spotted field and dry holes are often found between and near to good producing wells.
    “13. Considering the character and cost of the wells in that field, the nature and uncertainty of the sands and formations, reasonably conservative drilling would contemplate that one well should be drilled to approximately each fifteen to twenty .acres of land.
    “14. After plaintiffs made the lease in question to the defendant Smith the Lawson well No. 1 located eighty-six and one-half (86J) feet east of plaintiffs’ land and Lawson well No. 2, located 438¿ feet east of plaintiffs land were both drilled in and were producing wells. The Moody well located on an acre of land carved out of the Lawson tract and which well was two hundred (200) feet east of plaintiffs’ land and two hundred (200) feet distant from Lawson well No. 1, proved a dry hole. On the Wion tract of 105 acres, immediately west of the plaintiff’s land, five wells were drilled. The first one being completed about December, 1910, the second in August, 1911, the third in February, 1912, the fourth in February, 1913, the fifth in July, 1913.
    “Wion well No. 1 was distant about 152 feet from the Laird land; started out with a production of ten barrels a day which gradually decreased until the well was abandoned. Wion well No. 2 started off at 110 barrels a day, then dropped to about 80 barrels for a month or six weeks and then gradually decreased to about eight barrels per day. This well was located 650 feet west of Wion well No. 1.
    “Wion well No. 3 was 550 feet west and a little south of No. 2 and 1350 feet from the Laird line. This well started off at 60 barrels and the production was steadily reduced.
    “Wion No. 4 startéd off at approximately 40 to 45 barrels per day and the production steadily reduced. Wion No. 5 started off with a production of 75 barrels a day and in less than thirty days had dropped off to one-half that production.
    “In the last week of February and the first week of March, 1913, the four Wion wells, No. 1, 2, 3 and 4, were gauged every day for two weeks and showed an aggregate production of 26 barrels per day or 6J barrels per well per day.
    “The Cheetham well, 175 feet north from plaintiffs’ line, was a producing well.
    “On the Lawson tract of about 45 acres (including the one acre of Moody land sold out.of it) there were six wells drilled, of which one was absolutely dry, another was almost dry and the other four were more or less producing wells.'
    “15. Distant 175 feet north of the Laird land the Cheetham well was drilled in and started off with a production of about 35 barrels per day and was exhausted and abandoned within a year and a half.
    “16. The wells on the Lawson tract were owned and operated by the Continental Oil Company of which the defendant is a stockholder and officer. The defendant had no interest in any other wells in the vicinity of plaintiffs’ land.”
    Plaintiff in error now seeks a reversal of the judgment of the court of appeals.
    
      Mr. C. A. Donahue and Messrs. Booth, Keating, Peters & Pomerene, for plaintiff in error.
    
      Mr. J. B. Powell, for defendant in error.
   Matthias, J.

Although the lessors, the defendants in error, charge fraudulent conduct upon the part of plaintiff in error, Kachelmacher, the assignee of said lease, it is apparent that the case involves only the construction of the contract entered into between the parties. It is to be observed that the court of appeals does not include in the findings of fact any finding of fraud or of fraudulent conduct by-the plaintiff in error, and the conclusions of law are that there was an implied obligation upon the part of the lessee to drill one or more wells upon said premises, and that he should be required to comply with such implied covenant or suffer a cancellation of the lease.

Fraud upon the part of plaintiff in error is not shown 'by the finding of facts nor disclosed by the record, nor does it appear that any inequity has been suffered by the defendants in error. It .is disclosed by the finding of facts that the drilling of each well in that vicinity cost about $10,000, that many "dry holes” were drilled, and that those which at any time were sufficiently productive to be regarded as paying wells very rapidly decreased in production. It is further shown that each well drained from fifteen to twenty acres, and hence, that if a well were drilled upon this tract, assuming it should be productive, it would draw only about five per cent, of its production from the premises of the defendants in error.

It is obvious that when the conditions and developments in that vicinity, shown by the record, are considered, the rentals actually paid the lessors are undoubtedly equal to, if not greater than, the royalty upon the value of the oil that would actually be produced from their own land, in the event a well were drilled thereon.

The defendants in error rely, with considerable confidence, upon the case of Coffinberry v. The Sun Oil Co., 68 Ohio St., 488, and Kleppner v. Lemon, 176 Pa. St., 502, but there is a very vital distinction between the leases involved, which a comparison will disclose. In the Coffinberry lease there was an express agreement to complete a well within a year, and a further agreement for additional drilling if the first well should be a paying well. The Kleppner lease likewise contained an express agreement that a well should be drilled' within a stipulated time. The decision in that case, however, rested upon a finding of fraud. In each of those cases the first or experimental well had been drilled, resulting in the production of oil in paying quantities, and action was brought to require a compliance with the further express covenant to continue drilling until the premises should be fully developed. Such was the express agreement in the Coffinberry lease, and there was no provision whatever for the payment of any sum as rental or otherwise in lieu of drilling. It was for failure and refusal to comply with such express covenant contained in the lease that cancellation was awarded.

In the lease in this case there is an express stipulation for the payment of rental in lieu of drilling, and the option is thus given the lessee to drill or pay rental in accordance with the terms of the contract. Surely the clause making such provision, which is set out in full in the finding of facts, cannot be otherwise construed or interpreted. The rights of the parties must be determined from their own contract. Under the clearly expressed terms of the lease, if the lessee does not drill he may still continue the lease in force by payment of the stipulated rental. Such matter being covered by the express terms of the written contract, no implication can arise in relation thereto inconsistent with, or in opposition to, such plain provision of the written contract. An implied covenant can arise only when there is no expression on the subject.

Even if there be such implied covenant, as contended by counsel for the lessors, it cannot be made the ground of forfeiture. Under the express terms of this lease the right to declare a forfeiture arises upon the failure of the lessee to drill or pay rental, and, hence, forfeiture can be enforced only if the lessee neither drills nor pays the stipulated rental in accordance with the terms of the lease. Such cause of forfeiture being expressly mentioned, none other can be implied.

The facts disclosed by the record and appearing in the finding of facts of the court of appeals, indicate the reasons which probably moved the parties to agree upon the terms of this lease. That territory was what is called “wildcat” territory, being then undeveloped. The premises of the lessors consisted of less than an acre, while one well drains oil from fifteen to twenty acres. It must be concluded that the parties did not contemplate that more than one well should be drilled upon these premises, and, hence, the contract in reference to the drilling of this one well covers the whole subject-matter comprehended by this lease. The customary rental in that territory, at the time this lease was executed, was from twenty-five cents to one dollar an acre a year. It is fair to assume that the extraordinarily high rental stipulated, $50 a year, was agreed upon by the parties in lieu of an express covenant to drill and a clause requiring forfeiture for failure to do so, and that the lessors considered they would be amply remunerated by payment of the agreed rental.

This lease, by its terms, requires a forfeiture unless a well is drilled within four months or rental paid within each and every year. The lessee did not drill, but did elect to and did pay the agreed rental. This court has heretofore held that under the provisions of a lease similar in terms to that now under consideration, the lessee has an option to complete wells or pay rental to keep the lease alive, and that under such terms the lessee may retain the lease by paying the stipulated rental, or may elect to permit the lease to lapse. Brown et al. v. Fowler et al., 65 Ohio St., 507; Van Etten et al. v. Kelly, 66 Ohio St., 605.

One of the terms of this lease is that the rental, “if the lessee elects to pay, the same may be paid direct to the lessors or may be deposited to their credit at The Miners and Merchants Bank, Nelson-ville, Ohio.” It appears from the finding of facts that payment of rental for the years 1910,' 1911, 1912 and 1913 was made by deposit with said bank in accordance with the terms of said contract. Although'the lease expressly provides for delay in drilling from year to year upon the terms stated, the record shows that the petition seeking cancellation was filed within a year after the execution of the lease and after payment of the rental for the first year had been made in the precise manner agreed- upon. Said payments having been made in strict accordance with the express terms of the contract, this was equivalent to payment to the lessors themselves. There was no agreement that such sum should be deposited with the bank named, to be paid to lessors upon some condition that might develop, but under the terms of the contract payment, when made and accepted by the bank, was complete, and passed said sums of money effectually to the lessors and entirely beyond the authority and control of the lessee. Such fund became the property of the lessors, and they cannot, therefore, avoid the effect of such payment by refusing to withdraw the fund from the bank to which it was paid by their direction, it not appearing that any contrary instructions were given the bank by the lessors at any time. Such payment of rental, in accordance with the terms of the lease, serves to keep it in force during the year for which the rental was paid, and within that time an action for the cancellation of the lease could not be maintained.

The judgment of the court of appeals is reversed for error to the prejudice of the plaintiffs in error in its conclusions of law from the facts found. Judgment is entered for plaintiff in error. ■

Judgment reversed.

Nichols, C. J., Johnson and Donahue, JJ., concur.