Case Name: Venedocia Oil & Gas Co. v. Robinson
Court: Supreme Court of Ohio
Jurisdiction: Ohio
Decision Date: 1905-01-17
Citations: 71 Ohio St. 302
Docket Number: No. 8716
Parties: Venedocia Oil & Gas Co. v. Robinson.
Judges: SpeA.r, C. J., Davis and Shauck, JJ., concur.
Reporter: Ohio State Reports, New Service
Volume: 71
Pages: 302–317

Head Matter:
Venedocia Oil & Gas Co. v. Robinson.
Oil and gas contract — Right to enter premises to drill and operate for oil and gas — Grantor to have one-sixth of the product— Implied duty of lessee — Performance within ninety days — Or penalty payable by lessee — Lease becomes null and void, when — Law of contracts.
1. A grant in consideration of one dollar of all the oil and gas under certain premises with the right to enter thereon for the purpose of drilling and operating for oil and gas excepting and reserving to the grantor the one-sixth part of all the oil produced and saved from said premises, to be delivered in the pipe lines with which the grantee may connect his wells, implies an engagement by the lessee to develop the premises for oil and gas.
2. The time within which the implied engagement must be performed is postponed by acceptance of the sum specified in the condition of such grant that “in case no well is completed within ninety days from date hereof, unavoidable delay excepted, then this grant shall become null and void, unless second party shall pay to first parties, twenty-five cents an acre per year, payable by deposits at the - or directly to first party, after demand having first been made,” and does not commence to run until the end of the year for which payment is accepted, and the lease does not become null and void at the end of such year upon refusal of the grantor to accept payment for another year.
(No. 8716
Decided January 17, 1905.)
Error to the Circuit Court of Van Wert county.
Robinson, on December 16, 1901, made an oil and gas lease to C. S. King & Co., a copy of which is as follows:
“In consideration of the sum of one dollar, the receipt of which is hereby acknowledged, H. O. Robinson and S. M. Robinson, first parties, hereby grant unto C. S. King & Co., second party, all the oil and gas in and under the following described premises, together with the right to enter thereon at all times for the purpose of drilling and operating for oil or gas, and to erect and maintain all buildings and structures, and lay all pipes necessary for the production and transportation of oil or gas taken from said premises. Excepting and reserving; however, to first parties, the one-sixth part of all oil produced and saved from said premises, to be delivered in the pipe line with which second party may connect his wells, namely: All that certain lot of land situated in the township of Liberty, county of Yan Wert, in the state of Ohio, bounded and de~. scribed as follows, to-wit: The east half of the southeast quarter,, section 8, town 3, range 2, containing* eighty acres, more or less.
“To have and to hold the above premises on the following conditions: If gas only is found, second party agrees to pay one hundred dollars each year for the product of each well while the same is being used off the premises, and first parties to have gas. free of cost to heat all stoves in dwelling house during the same time.
“Second party shall bury all oil and gas lines, and pay all damages done to growing crops by reason of burying and removing said pipe lines when so requested by first party.
“No well shall be drilled nearer than 300 feet of house, bam or orchard without consent of first party.
“In case no well is completed within ninety days from date hereof, unavoidable delay excepted, then this grant shall become null and void, unless second party shall pay to first parties, twenty-five cents an acre per year, payable by deposits at the---r- or directly to first party, after demand having first been made.
“The second party shall'have the privilege to nse sufficient, gas, oil and water from said premises to operate machinery (water wells now on said premises excepted), and the privilege of .removing all their machinery and materials at any time.. It is agreed and understood by the. parties hereto when written conditions hereinafter provided for the drilling of additional wells after first well is completed, such additional wells must respectively be paying oil wells; if not further development shall be optional with second party.
“If this lease is surrendered from any cause, such surrender shall not affect producing well or wells with ten acres surrounding them.
“It is understood between the parties hereto that these agreements shall extend to and bind their heirs, executors, administrators and assigns.
“Witness our hand this third day of December, 1901.”
The lease was duly signed, witnessed and acknowledged, and filed for record with the recorder of Van Wert county, Ohio, and duly recorded. On December 18, 1902, King & Co. sold and duly transferred and assigned the lease to plaintiff in error. On February 2, 1903, Robinson entered into an agreement in writing with the defendant, W. C. Speaker, in which it was recited that in consideration of five dollars and the further consideration of valuable legal advice given to said first parties by second party, said advice being in regard to a contract made December 3, 1901, between the Robinsons and C. S. King, said first parties agreeing to use said legal advice as may be directed by second party,. and agreeing that if said advice shall result in. the , cancellation of the above-mentioned contract or if said second party shall surrender said contract, or fail to pay rental on same, that the first parties will then make a contract with the second-party as follows: (And then follows an oil and gas lease.)
This lease was filed for record and duly recorded in the recorder’s office of said county. Rent under the first lease was paid to March 2,1903, and on that day the plaintiff in error tendered to Robinson as, rental the further sum of twenty dollars, which was refused. On March 6,1903, the defendant, Speaker, moved a load of lumber onto said premises for the purpose of erecting a derrick and drilling a well, and on March 7, 1903, plaintiff in error caused said material to be removed and itself placed a load of lumber on said premises with the intention of erecting a derrick and drilling a well. Plaintiff in error was prevented from drilling a well and thereupon commenced an action in the court of common pleas setting up its lease, the payment of rental, and averring that it had entered into possession of the premises for the purpose of erecting a derrick and drilling a well, and that it was in possession of the premises; it then sets out that Robinson is interfering with its said possession and that the defendants threaten to and will, unless restrained by the court, remove the lumber that had been by. it placed upon the premises, and will prevent the plaintiff from, drilling. For a second cause, of action it sets- out that a number of landowners, including Robinsons, desired to have a block of territory, undeveloped, tested for oil and gas, that King & Co. leased quite a. number of pieces- of property in the territory; and then it sets out what had been done, to develop the ter ritory, and avers that at the time of the filing of the petition- no well had been drilled on any land in said block adjoining the land of defendants, Robinsons, nor had any well been drilled on any land outside of said block and contiguous to the land of the defendants which produced oil in paying quantities. It is unnecessary to set out this cause of action in full, but sufficient to state that its purpose was to set out facts which would show that the plaintiff had not unreasonably delayed drilling a well upon the lands covered by the lease. Plaintiffs prayed for an injunction to restrain the defendant from interfering with them in developing the- premises for oil and gas, and that the lease to Speaker might be declared null and void and be ordered to be cancelled. The defendants admit the averments of the first cause of action, as to the facts already stated. The court of common pleas granted the relief prayed for. The action was appealed to the circuit court which found for the defendants and dismissed the petition of the plaintiff. Error is prosecuted to this court.
Messrs. Cable <# Parmenter, attorneys for plaintiff in error.
First: The instrument set forth in the record and under which the plaintiff in error seeks to enter upon the land of defendants in error is a grant of all the oil underlying the land therein described, with the right to enter thereon for the purpose of developing the-same for oil and gas.
The instrument grants the oil and gas, and also the land for the purpose of operating thereon for oil and gas. This is not a license, but is an absolute grant of the oil and a lease of the land for the purposes named in the instrument. Edwards v. McC lurg, 39 Ohio St., 41; Woodland Oil Co. v. Crawford, 55 Ohio St., 161; Kelley v. Ohio Oil Co., 57 Ohio St., 317.
In every state in which the question has been raised (so far as we are advised) except Indiana, it has been uniformly held by the courts of last resort that oil and gas in place are part of the' realty and the subject-of grant, the same as coal, iron and other minerals. Kier v. Peterson, 41 Pa. St., 357; Stoughton’s Appeal, 88 Pa., 198; Duke v. Hague, 107 Pa. St., 57; Brown v. Beecher, 120 Pa. St., 590; Coal Co. v. Melon, 152 Pa. St., 286; Williamson v. Jones, 39 W. Va., 231; Oil Co. v. McIntire et al., 44 W. Va., 296.
Second: The instrument in suit does not create a tenancy at will of the parties; it is based on a valid consideration and is not revocable at the will of the lessors.
It it contended that the instrument relied upon by the plaintiffs in error creates a tenancy at will, and whatever rights or obligations are created by the instrument can be revoked by either party thereto. The instrument in question, unlike the one construed in Brown et al. v. Fowler et al., 65 Ohio St., 507, has no term of years specified therein, but is in many respects similar to the instrument referred to in Van Etten et al. v. Kelly, 66 Ohio St., 605.
The instrument in controversy is based on a valid consideration, viz.: $1.00, the receipt of which is admitted in the answer of the defendants, Robinsons; it is further admitted that the plaintiff in error and those from whom it had purchased said instrument, had paid the rental in advance thereon to March 3,1903, and that on March 2,1903, the plaintiff in error tendered, in lawful money, to defend ants, Robinsons, the sum of twenty dollars ($20.00) as rental under said instrument for one year in advance.
The instrument in the case at bar has no term of years fixed for the drilling of a well; the plaintiff in error’ paid the consideration demanded by the landowner for the instrument; this consideration applied to the whole instrument and each clause thereof; hot to one clause, but, in the language of this court as above quoted, “for each clause and every part thereof:” One of the clauses of said instrument for which the lessee and his assigns paid, is the following:
“In case no well is completed within ninety days from the date hereof, unavoidable delay excepted, then this- grant shall become null and void, unless second party shall pay to first party twenty-five cents an acre per year, payable by deposit at the ---or directly to the first party after demand having first been made.”
The landowner did not require that the lessee should drill a well in any stated period of time; he gave the lessee the option of drilling’ a well within ninety days or (1) upon failure so to do, to have the lease terminate, or (2) to continue the right to drill in the future by payment of the stipulated rentals.
The lessee paid for all these rights by the dollar consideration' mentioned in the instrument, and it is the duty of a court to enforce each and all of them; his right to terminate the lease by either of the methods therein provided, is a valuable, privilege of the lessee and assigns, and such options in. contracts are sustained by courts. Brown v. Fowler, 65 Ohio St., 507; Thayer v. Allison, 109 Ill., 180; Waterman v. Waterman, 27 Fed. Rep., 827; Gilbert & Ives v. Port, 28 Ohio St., 276; Estes v. Furlong, 59 Ill., 298 ; Hawralty v. Warren, 18 N. J. Eq., 124; Hall v. Center, 40 Cal., 63 ; Maughlin, v. Perry, 35 Md., 352; Backhouse v. Mohun, 3 Swanst., 434; Clason v. Bailey, 14 Johns., 484; Willard v. Tayloe, 8 Wall., 557; Hayes v. O’Brien et al., 37 N. E. Rep., 73; Preston v. American Linen Co., 119 Mass., 400; Grove v. Hodges, 55 Pa., 504; Barrett v. Dean, 21 Ia., 426; Cherry v. Smith, 22 Tenn., 19; Hayes v. O’Brien, 149 Ill., 411; Boyd et al. v. Brown, 34 S. E. Rep., 907.
As no time was fixed in the contract when this right to thus extend the privilege of drilling a well should terminate, the law would and does intervene by providing that such option must be acted upon and conditions performed or abandoned within a reasonable time. Harris v. Oil Co., 57 Ohio St., 118.
Where no time is limited, the law fixes a reasonable time to be determined by the circumstances of the case, and the inquiry as to a reasonable time resolves itself into an inquiry as to what time it is rational to suppose the parties contemplated, and the law will decide this to be that time which, as rational men, they ought to have understood each to have had in mind. Hanly v. Watterson, 19 S. E. Rep., 536; Fitzpatrick v. Woodruff, 96 N. Y., 565.
Counsel then further cite and comment upon the following authorities: Simpson v. Plate Glass Co., 62 N. E. Rep., 753; Friend v. Mallory et al., 43 S. E. Rep., 114; Snodgrass v. Oil Co., 47 W. Va., 509; McMillan v. Philadelphia Co., 159 Pa. St., 142; s. c. 28 Atl. Rep., 220; Marshall v. Forest Oil Co., 198 Pa. St., 83; s. c. 47 Atl. Rep., 927; McKnight v. Kreutz, 51 Pa. St., 232; Glasgow v. Oil Co., 25 Atl. Rep., 232; Allegheny Oil Co. v. Snyder et al., 106 Fed. Rep., 764; Kenton Gas & Electric Co. v. Dorney et al., 9 Circ. Dec., 604; 17 C. C. R., 101; 4 Kent, 110; 2 Blackstone, 145; Doe v. Richards, 4 Ind., 374; Thayer v. Allison, 109 Ill., 180; Woodland Oil Co. v. Crawford, 55 Ohio St., 161; Lowther Oil Co. v. Guffey, 43 S. E. Rep., 101; s. c. 52 W. Va., 88; Foster v. Oil & Gas Co., 90 Fed. Rep., 178; Henne v. Oil Co., 43 S. E. Rep., 147; Gas Co. v. Eckert, 70 Ohio St., 127; Federal Oil Co. v. Oil Co., 112 Fed. Rep., 373; Federal Oil Co. v. Oil Co., 121 Fed. Rep., 674; Hancock et al. v. Glass Co. et al., 70 N. E. Rep., 149; Consumers’ Gas Trust Co. v. Littler, 70 N. E. Rep., 363; Consumers’ Gas Trust Co. v. Glass Co., 70 N. E. Rep., 366; Hukill v. Myers, 36 W. Va., 639; 15 S. E. Rep., 151; Thropp v. Field, 26 N. J. Eq., 82; Double v. Heat & Light Co., 172 Pa., 388; 33 Atl., 694.
Messrs. Saltzgaber, Hoke & Osborn and Messrs. Daily, Simmons & Daily, attorneys for defendants in error.
1. Contracts like the one in suit are not given the same construction as contracts relative to solid substance; nor are such contracts ruled by the strict and well established rules applicable to the law of landlord and tenancy contracts.
2. The production of oil and gas is the real and rpoving consideration in the execution of contracts like the one in suit, and if such consideration is, or can be delayed, for an unreasonable time, a court of equity will declare the contract at an end.
3. Some cases hold that one dollar is not a sufficient consideration for contracts like the one in suit.
4. The provision of this contract that “This grant shall become null and void unless the second party shall pay to first party twenty-five cents per acre per year, ’ ’ etc., is very indefinite.
“It does not specify how much further delay for drilling may he had by such payment or when such drilling shall begin or end. In case the clause had gone further and provided that in case such payment should bé made the right to drill under the terms of the lease should be extended to some definite time, force and effect could be given to -the clause, but as it is it is incomplete and fails to state what shall follow such payment.”
5. Under none of the adjudicated cases, can the one dollar mentioned in the lease in question, form a consideration for more than the ninety days given for the completion of the well.
6. A contract which does not bind both parties thereto is void for want of mutuality.
7. “Where there is no performance and no promise to perform on one side, a promise to perform on the other side is without consideration and without mutuality and such a contract can be held void on either or both grounds.”
8. The clause of this contract which says “In case no well is completed within ninety days from the date hereof, unavoidable delay excepted, then this grant shall become null and void, unless second party shall pay,” etc., does not constitute a promise or obligation to pay rental, and that the lessee had the option to drill or pay rentals to keep the lease alive and on breach no action would lie for the recovery thereof.
9. Since the second party to the contract has the right to terminate it any time, the first party has the same right.
10; The relation of landlord and tenant does not exist under this contract, no possession having been taken, and no oil or gas having been produced.
11. A lessee does not acquire -any vested rights in the land, or the oil and gas thereunder, until possession is taken and oil and gas actually produced.
12. Under such contracts as the one in suit, the oil and gas under the land cannot be sold or conveyed. No one can become the owner of oil or gas until.it is reduced to possession. G-as and oil not reduced to possession is not property, and is in- . capable of ownership.
13. The right of search or exploration is the highest and greatest right or estate that can be given by such contracts as the one in suit.
14. The consideration for an oil and gas lease is developments for oil or gas, not payment of monthly rentals, which are only in the nature of penalties for not developing.
15. A liberal construction should be put upon written instruments, so as to uphold them, if possible, and to carry into effect the intention of the parties. Written contracts should be so construéd as to give effect to them, rather than the contrary, and when they are informal, illiterate and unskillfully drawn, the intent is to be ascertained, if possible, without regard to technical rules; and the court should give such meaning to the words as was. understood by the parties, resort being had to every part of the instrument, and the intent, when thus ascertained, is the governing rule.
16. To ascertain the intention of the parties to a written contract, regard must be had to the nature of the instrument itself, the condition of the parties executing it, and the objects which they had in view. And if the words employed are capable of more than one meaning, they are to be given that meaning which it is apparent the parties intended them to have.
17. Contracts like the one in question, before actual possession is taken, are options only, and the lessee is not bound to pay rental, or develop the land for oil or gas. Gadbury v. Gas Co. (Ind.), 67 N. E. Rep., 259; Federal Oil Co. v. Oil Co., 121 Fed., 674;. Federal Oil Co. v. Oil Co., 112 Fed., 373; Maxwell v. Todd, 16 S. E. Rep., 926; Twin-Lick Oil Co. v. Marbury, 91 U. S., 592; Coal Co. v. Hise, 23 S. E. Rep., 303; Brown v. Vandergrift, 80 Pa., 142; Steelsmith v. Gartlan, 44 L. R. A., 107; Huggins v. Daley, 99 Fed., 606; 48 L. R. A., 320; Foster v. Oil Co., 90 Fed., 178; Munroe v. Armstrong, 69 Pa. St., 307; Nat. Oil & Pipe Line Co. v. Teel, 67 S. W. Rep., 545; Western Pennsylvania Gas Co. v. George, 28 Atl. Rep., 1004; Indiana N. Gas. Co. v. Pierce, 68 N. E. Rep., 691; Parish Fork Oil Co. v. Gas Co., 51 W. Va., 583; 59 L. R. A., 566; Glasgow v. Oil Co., 25 Atl. Rep., 232; Brown v. Fowler, 65 Ohio St., 507; Van Etten v. Kelly, 66 Ohio St., 605; Knight v. Coal & Iron Co.,, 47 Ind., 105; Venture Oil Co. v. Fretts, 25 Atl. Rep., 732; Chandler v. Plate Glass Co., 20 Ind. App., 165; Reese v. Zinn, 103 Fed., 97; Eclipse Oil Co. v. Oil Co., 34 S. E. Rep., 923; Trees v. Oil Co., 34 S. E. Rep., 933; Turnpike Co. v. Coy, 13 Ohio St., 84; Ohio Oil Co. v. Indiana, 177 U. S., 190; Hall v. Vernon, 34 S. E. Rep., 764; Jones v. Oil Co., 44 Atl. Rep., 1074; State v. Oil Co., 150 Ind., 21; Heal v. Oil Co., 150 Ind., 483; Hukill v. Guffey, 37 W. Va., 448; Bettman v. Harness, 42 W. Va., 433; Eaton v. Gas Co., 122 N. Y., 416; Law of Petroleum and Natural Gas (Bryan), page 79, sec. 64; Broom’s Legal Maxims, 540; 1 Beach on Modern Law of Contracts, see. 702; Brooks v. Kunkle, 24 Ind. App., 624.

Opinion:
Summers, J.
For what reasons the circuit court dismissed the petition we are not advised. The execution and delivery of the written instrument and the performance of its express conditions are admitted, excepting that it is averred that no well was drilled within said ninety days and that possession of said premises never was taken or attempted to be taken otherwise than as narrated on said seventh day of March. So that plaintiff's rights are to be determined by the interpretation of the lease.
In Harris v. The Ohio Oil Co., 57 Ohio St., 118, it is held that in such a lease, while as to the extent of development there is an implied covenant on the part of the lessee that he will drill and operate such number of oil wells on the lands as ordinarily would be required for the production of the oil therein contained, the breach of such a covenant does not work a forfeiture of the lease but that the remedy is in damages, and that certain causes of forfeiture being specified in the lease others may not be implied.
In Brown et al. v. Fowler et al., 65 Ohio St., 507, a lease almost identical in its provisions with the one under consideration, excepting that the habendum clause limited it for a term of two years, and that it contained a surrender clause, was interpreted, and it was there ruled that one dollar was a sufficient consideration, that the leáse was not void for want of mutuality, and that a clause giving the lessee the right to surrender the lease at any time did not create an estate at will.
In Van Etten et al. v. Kelly, 66 Ohio St. 605, another similar lease was under consideration. It contained the following clause: "In ease no well is completed within thirty days from this date then this grant shall become null and void unless second party shall pay to said first party thirty dollars each and every month in advance while such completion is delayed." It- was held that this gave the lessee the option by making the payment to continue the lease in force to the end of the term without completing, the first well, or upon failure to make such payment, to allow the lease to become null and void at the end of thirty days after the date of the lease.
The case at bar respecting the question under consideration is not distinguishable from Gas Co. v. Eckert, 70 Ohio St., 127, where it is ruled that a ' grant without limitation as to time of all the oil, etc., upon the following terms: "First, second party agrees to drill a well upon said premises within six months from this date, or thereafter pay first party $160.00 annually until said well is drilled, or the property hereby granted is reconveyed to the first party" is, after the expiration of six months and until a well is drilled, a lease from year to year at the option of the lessee, at an annual rental of $160.00,
These cases lead to the conclusion that the plaintiff has a. valid lease of these premises for oil and gas and that the lessor, by acceptance of the stipulated rental, has waived performance, of the implied engagement to develop the premises, to the end of the last year for which rent was paid.
We have not undertaken to determine whether the instrument technically is a lease or a license, or less than a lease hut more than a license. It is the agreement the parties have seen fit to make, and since it does not contravene any rule of law and is not controlled by, statute, by it tbe rights of the parties should be determined. In Consumers' Gas Trust Co. v. Litter, 162 Ind., 320, a similar lease was under consideration, and it is there held that there was an implied engagement by the lessee to explore for oil and gas which, if not performed within a reasonable time, entitled the lessor to a forfeiture, but that the' lessor's acceptance from year to year of the stipulated annual rental was a waiver from year to year of performance, and that the lessor could not, at the end of the last year, claim a forfeiture by refusing to accept another payment, but that the relations of the parties then stood, with respect to the lessor's right of forfeiture, precisely as they were at the moment the contract was executed.
This gives effect to the agreement according to the intention of the parties. In case of default after demand, the lease, by its express terms is at an end. By accepting the rental stipulated, performance of the implied engagement to develop the premises was waived to the end of each year for which it was accepted and, by refusing to accept the rent tendered on March 2, 1903, the lessor refused longer to waive performance.
The lease under consideration in Harris v. The Ohio Oil Co., supra, in terms granted the premises for the purpose of operating for oil and gas, while in the lease in the case under consideration the grant is of the oil and gas under the premises, together with the right to enter thereon for the purpose of drilling and operating for oil and gas. It is there held that a breach of an implied covenant does not work a forfeiture of the lease. Whether the lease under consideration is so different that a failure by the lessee to perform the implied engagement to develop the premises would be ground of forfeiture, we do not determine. It is sufficient to say that the refusal to accept rent for the ensuing year did not eo instanti terminate the lease, but left the rights of the parties respecting the implied engagement to develop the premises as they were at the time of the execution of the lease.
It follows that the circuit court erred in dismissing the petition, and, upon the admitted facts, this court rendering the decree that court should have rendered grants the relief prayed for in the petition.
Reversed.
SpeA.r, C. J., Davis and Shauck, JJ., concur.