Court Opinion

ID: 3179020
Source: CourtListenerOpinion
Date Created: 2016-02-19 20:29:42.83368+00
Date Added: 2024-06-11T09:20:30.805786
License: Public Domain

J-A35036-15

NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37

EUGENE AND MARIE SMITH,                   :        IN THE SUPERIOR COURT OF
                                          :              PENNSYLVANIA
                  Appellants              :
                                          :
            v.                            :
                                          :
T.W. PHILLIPS GAS SUPPLY                  :
CORPORATION, SUCCESSOR IN                 :
INTEREST TO T.W. PHILLIPS GAS AND         :
OIL COMPANY                               :             No. 375 WDA 2015

            Appeal from the Order entered on October 15, 2013
             in the Court of Common Pleas of Jefferson County,
                      Civil Division, No. 577 CD 2010

BEFORE: BENDER, P.J.E., SHOGAN and MUSMANNO, JJ.

MEMORANDUM BY MUSMANNO, J.:                       FILED FEBRUARY 19, 2016

      Eugene and Marie Smith (“the Smiths”) appeal from the Order

granting summary judgment against them and in favor of T.W. Phillips Gas

Supply Corporation, successor in interest to T.W. Phillips Gas and Oil

Company (collectively, “Phillips”). We affirm.

      The trial court summarized the relevant factual history underlying the

instant appeal in its Opinion, which we adopt as though fully restated herein.

See Trial Court Opinion, 10/15/13, at 1-5.

      The Smiths filed the within action on June 11, 2010, alleging (1) the

expiration of Phillips’s gas lease (“the Lease”) with the Smiths for failure to

produce; (2) breach of the Lease for failure to make royalty payments; and

(3)   breach of the implied covenant to develop underground resources.

Phillips filed an Answer to the Complaint.       At the close of pleadings and
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discovery, the Smiths filed a Motion for Summary Judgment as to their claim

alleging the expiration of the Lease for failure to produce. On October 15,

2013, the trial court denied the Smiths’ Motion for Summary Judgment, and

entered summary judgment in favor of Phillips as to Count I of the Smiths’

Complaint. On February 19, 2015, the Smiths discontinued Counts II and III

of their Complaint. Thereafter, the Smiths timely filed a Notice of Appeal of

the Order denying their Motion for Summary Judgment and granting

summary judgment in favor of Phillips, as well as a court-ordered Pa.R.A.P.

1925(b) Concise Statement of matters complained of on appeal.

      The Smiths present the following claims for our review:

      1. Whether the trial court erred by holding that the Lease
      remains in force and effect pursuant to [T.W. Phillips Gas and
      Oil Co. v.] Komar[, 227 A.2d 163 (Pa. 1967)], which held that
      the payment of a flat royalty, even in the absence of production
      of oil or gas from the leasehold, is sufficient to extend the term
      of a lease into its secondary term, when Phillips admits that it
      failed to tender the flat royalty payments to the Smiths for
      approximately one year instead of on a quarterly basis as
      required by the Lease[?]

      2. Whether the trial court erred by entering summary judgment
      in favor of Phillips when Phillips had not moved for summary
      judgment, and the factual record before the trial court did not
      support the entry of summary judgment in favor of Phillips, …
      there being no competent evidence on which to enter summary
      judgment pursuant to the holding in Nanty-Glo v. American
      Surety Co., … 163 A. 523 ([Pa.] 1932)[?]

Brief for Appellants at 3.

      As this Court has explained,

      [o]ur scope of review of an order granting summary judgment is
      plenary. [W]e apply the same standard as the trial court,

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     reviewing all the evidence of record to determine whether there
     exists a genuine issue of material fact. We view the record in
     the light most favorable to the non-moving party, and all doubts
     as to the existence of a genuine issue of material fact must be
     resolved against the moving party. Only where there is no
     genuine issue as to any material fact and it is clear that the
     moving party is entitled to a judgment as a matter of law will
     summary judgment be entered.

     Motions for summary judgment necessarily and directly implicate
     the plaintiff’s proof of the elements of his cause of action. ...
     Thus, a record that supports summary judgment will either (1)
     show the material facts are undisputed or (2) contain insufficient
     evidence of facts to make out a prima facie cause of action or
     defense and, therefore, there is no issue to be submitted to the
     [fact-finder]. Upon appellate review, we are not bound by the
     trial court’s conclusions of law, but may reach our own
     conclusions. The appellate Court may disturb the trial court’s
     order only upon an error of law or an abuse of discretion.

DeArmitt v. New York Life Ins. Co., 73 A.3d 578, 585-86 (Pa. Super.

2013) (citations and quotation marks omitted).

     The Smiths first claim that the trial court improperly entered summary

judgment where, for one year, Phillips had failed to tender the flat royalty

payments required by the Lease.    Brief for Appellants at 12.   The Smiths

assert that the term of the Lease was dictated by the payment of royalties.

Id. Therefore, the Smiths argue, the Lease expired when Phillips failed to

make three consecutive royalty payments. Id. Citing Komar, the Smiths

contend that where the lessor’s compensation is a fixed amount and

unrelated to the volume of production, the duration of a gas lease is

determined by the payment of royalties.          Brief for Appellants at 13.

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According to the Smiths, the Lease terminated upon Phillips’s failure to make

the royalty payments. Id.

      The Smiths argue that the trial court improperly relied upon the

holdings of our Supreme Court in Smith v. People’s Natural Gas Co., 101
A. 739 (Pa. 1917), and Marshall v. Forest Oil Co., 47 A. 927 (Pa. 1901).

Brief for Appellants at 14. The Smiths assert that in Smith, the lessee had

missed only a single payment, and in Marshall, there existed an alleged

parole agreement that waived the required payments. Brief for Appellants

at 14. According to the Smiths, “[m]issing three payments over the course

of a year is more factually similar to situations in which a Court has found a

forfeiture for failure to perform.”   Id.   Finally, the Smiths assert that the

equitable prohibition against a finding of forfeiture is usually found on facts

where a party fails to perform for weeks, or a month or two at most, “and

not three failures to comply over a sustained period of one full year, as

found here.” Id.

      At issue in this case is the interpretation of the Lease between the

Smiths and Phillips. Our Supreme Court has recognized that

      a lease is in the nature of a contract and is controlled by
      principles of contract law. J.K. Willison v. Consol. Coal Co.,
      536 Pa. 49, 54, 637 A.2d 979, 982 (1994).           It must be
      construed in accordance with the terms of the agreement as
      manifestly expressed, and “[t]he accepted and plain meaning of
      the language used, rather than the silent intentions of the
      contracting parties, determines the construction to be given the
      agreement.” Id. (citations omitted). Further, a party seeking to
      terminate a lease bears the burden of proof. See Jefferson

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     County Gas Co. v. United Natural Gas Co., 247 Pa. 283, 286,
     93 A. 340, 341 (1915).

T.W. Phillips Gas and Oil Co. v. Jedlicka, 42 A.3d 261, 267 (Pa. 2012).

     In Jedlicka, this Court explained that,

     [w]ithin the oil and gas industry, oil and gas leases generally
     contain several key provisions, including the granting clause,
     which initially conveys to the lessee the right to drill for and
     produce oil or gas from the property; the habendum clause,
     which is used to fix the ultimate duration of the lease; the
     royalty clause; and the terms of surrender.         Jacobs [v.
     Penneco Energy Corp.], 332 F.Supp.2d [759,] 764 [W.D. Pa.
     2004)] (citing 3 Howard R. Williams & Charles J. Meyers, Oil and
     Gas Law § 601 (2003)). Further,

         [a] habendum clause is used to fix the ultimate duration
         of an oil and gas lease. 2 Summers, THE LAW OF OIL
         AND GAS § 281. “The habendum clause of the modern
         oil and gas lease is the result of a long process of
         development, in which many influences have aided in
         shaping its final form,” chief of which have been the
         [distinct] interests of the lessor and lessee, the peculiar
         needs of the industry and the interpretation and
         enforcement of certain phrases by the Courts. Id. at
         § 282. Experimentation in the industry for a suitable
         durational term progressed from definite term leases,
         which placed the lessee at a disadvantage if production
         was only attained late in the term or extended beyond
         the term, to a definite term with an option to renew, to
         long term leases with conditional clauses extending the
         term through the production life of the land. Id. at
         §§ 283-287.

     Jacobs, 332 F. Supp. 2d at 765 n.1.

           Typically, … the habendum clause in an oil and gas lease
     provides that a lease will remain in effect for as long as oil or gas
     is produced “in paying quantities.” Traditionally, use of the term
     “in paying quantities” in a habendum clause of an oil or gas
     lease was regarded as for the benefit of the lessee, as a lessee
     would not want to be obligated to pay rent for premises which
     have ceased to be productive, or for which the operating

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      expenses exceed the income. Swiss Oil Corp. v. Riggsby, 252
Ky. 374, 67 S.W.2d 30, 31 (Ky. 1933). More recently, however,
      … these clauses are relied on by landowners to terminate a
      lease.

Jedlicka, 42 A.3d at 267-68 (footnote omitted).

      Here, the habendum clause of the Lease provided as follows:

            TO HAVE AND TO HOLD the said premises for the sole and
      only purpose of drilling and operating for oil and gas and of
      storing in any underlying strata therein and withdrawing
      therefrom gas originally produced from the same or other lands,
      with the exclusive right to operate the same for the term of
      twenty years, and as long thereafter as oil or gas is
      produced, stored in, or withdrawn therefrom, or
      operations for oil or gas are being conducted thereon,
      including the right to commence operations for drilling a well or
      other wells at any time during the term of this lease, or at any
      time oil or gas is being produced, stored in, or withdrawn
      therefrom, or operations are being conducted thereon, and to
      complete the same; also the right to re-lease and subdivide the
      leased premises, together with a right of way to all places of
      operating, and also a right of way for pipe lines to convey oil,
      gas, water or steam off, on or across the same as long as said
      second party, its successors or assigns, desires to maintain the
      same.

Lease at 1.     The Lease further defined the consideration to be paid by

Phillips:

             IN CONSIDERATION of the above demise, [Phillips] agrees
      to deliver in pipe line unto [the Smiths] the one-eighth part of
      the oil produced and saved from the premises.

            Should any well not produce oil, but gas originally
      produced or previously stored, and the gas therefrom be sold off
      the said premises, the consideration to [the Smiths] for the gas
      from each well from which gas is marketed shall be as follows:

              At the rate of two hundred dollars ($200.00) per year
            while the well shows a pressure 200 or more lbs. per
            square inch upon being shut in five minutes in two inch

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         pipe or thirty minutes in larger pipe: to be paid quarterly
         from completion until abandonment of well.

      [The Smiths] except[] and reserve[] from the leased premises[,]
      through any well thereon producing gas only, provided the gas
      pressure is high enough, gas for use in one dwelling on said
      premises, to the extent of 200,000 cubic feet per year, or such
      part thereof per year as first party requires; subject, however, to
      the operation and pumping by [Phillips] of its wells and pipe lines
      on the premises, the [Smiths] to make the necessary connection
      and assume all risk in using the gas.

Id.

      The parties do not dispute that Phillips and its predecessors “took the

steps necessary over the next 6 decades to retain the full measure of their

rights to the entire leasehold.”    Trial Court Opinion, 10/15/13, at 2.    The

Smiths allege that for the one-year period prior to filing their Complaint,

Phillips made no royalty payments. Complaint, ¶ 9. It is undisputed that

Phillips missed payments in October 2009, January 2010, and April 2010.

The Smiths claim that during the period of missed royalty payments, the

Well was not “producing,” thereby effectuating an abandonment of the well

and the termination of the Lease.    Id., ¶ 21.

      In its Opinion, the trial court addressed the Smiths’ claim and correctly

determined that it lacks merit. See Trial Court Opinion, 10/15/13, at 5-8.

We agree with the sound reasoning of the trial court, and affirm on this

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basis.1 See id.

      The Smiths next argue that the trial court erred by entering summary

judgment in favor of Phillips “because the basis for the record is the

testimony of Phillips’s own witnesses and proffered documents, consideration

of which in the context of summary judgment violates the Nanto-Glo rule;

and there exists sufficient facts of record to sustain the Smiths’ claim that

Phillips abandoned the Lease.”      Brief for Appellants at 16.    The Smiths

contend that the question of whether Phillips had abandoned the Lease is an

issue of fact that must be decided by a jury. Id. at 17-18. We disagree.

      Here, the parties did not dispute that Phillips had failed to tender

timely rental payments. The trial court was required to determine whether

the Lease, as a matter of law, allowed forfeiture as a remedy for the failure

to tender rental payments.     The trial court correctly determined that the

Lease did not provide for forfeiture upon the failure to tender rental

1
  Further, our own review of Pennsylvania law discloses that forfeiture
clauses in oil and gas leases have been applied where the lessee failed to (a)
complete a well on the premises; or (b) pay delay rentals during the initial
term of the lease. See, e.g., Craig v. Cosgrove, 121 A. 406 (Pa. 1923)
(addressing forfeiture clause for nonpayment of rent or for failure to fulfill a
covenant for drilling wells in an oil and gas lease); Wolf v. Guffey, 28 A.
1117 (Pa. 1894) (addressing forfeiture clause of lease for failure to complete
a well or make rental payment); Bertani v. Beck, 479 A.2d 534 (Pa. Super.
1984) (addressing a delay rental clause, in an oil and gas lease, giving the
lessee the option to pay an annual delay rental or forfeit the right to develop
the premises); Scilly v. Bramer, 85 A.2d 592 (Pa. Super. 1952) (deeming a
forfeiture clause enforceable upon the failure to develop a portion of the
premises). Thus, we discern no error by the trial court.

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payments. See Trial Court Opinion, 10/15/13, at 8. The Nanty-Glo rule is

not implicated, and we cannot grant the Smiths relief on this claim.

      The Smiths also argue that the trial court improperly entered summary

judgment, sua sponte, where Phillips had not filed a Motion for such relief.

Brief for Appellants at 18. Phillips counters that they moved for summary

judgment in their Sur-Reply Brief opposing the Smiths’ Motion for Summary

Judgment. Brief for Appellee at 27.

      Our review discloses that the Sur-Reply Brief is not included in the

certified record, or noted on the docket. It is well settled that an appellate

court may consider only those facts which have been duly certified in the

record on appeal.     Ruspi v. Glatz, 69 A.3d 680, 691 (Pa. Super. 2013)

(citation omitted). Those items that do not appear of record do not exist for

appellate purposes.    Stumpf v. Nye, 950 A.2d 1032, 1041 (Pa. Super.

2008).

      Certainly, a trial court should not act as a party’s advocate. Yount v.

Pa. Dep’t of Corr., 966 A.2d 1115, 1119 (Pa. 2009) (citation omitted).

“For a trial court to raise an argument in favor of summary judgment sua

sponte and grant summary judgment thereon risks depriving the court the

benefit of advocacy on the issue, and depriving the parties the opportunity

to be heard.” Id. However, our Supreme Court has declined to reverse a

grant of summary judgment in the narrow circumstances where, on appeal,

no party is prejudiced, and both parties have been afforded argument on the

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dispositive issue.   Id.   As our Supreme Court opined, “[i]t would unduly

place form over function to remand the matter for a futile reconsideration

below,” where the appellate court considered the merits of the issue with the

benefit of advocacy from both parties, and a trial court Opinion. See id.

      Here, both parties briefed and argued the dispositive issue before the

trial court and this Court. This Court considered the merits of the issue, with

the benefit of the parties’ briefs and a trial court Opinion.     Further, we

discern no prejudice resulting from the trial court’s grant of summary

judgment.    Under the narrow circumstances of this case, we decline to

reverse the trial court’s grant of summary judgment on this basis.

      Order affirmed.

Judgment Entered.

Joseph D. Seletyn, Esq.
Prothonotary

Date: 2/19/2016

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