Court Opinion

ID: 4007186
Source: CourtListenerOpinion
Date Created: 2016-07-06 11:07:55.985408+00
Date Added: 2024-06-11T12:07:13.010504
License: Public Domain

It appears from recitals in the agreement of August 29, 1916, that it was entered into because of demands that the lessors had made for development under the leases of June 11, 1914. In pursuance thereof it was stipulated in the said agreement: First; That the lessee would begin a well on the 106 acre tract within 90 days thereafter and complete the same with reasonable diligence. Second; That in lieu of $50 quarterly delay rental which was required by the lease on the 14-acre tract the lessee should pay $62.50 quarterly. Third; That in lieu of $50 quarterly delay rental required by the lease on the 3 1/2 acre tract the lessee should pay $62.50 quarterly. And further that the lessee should not have the right to surrender the lease on either of the smaller tracts until it had completed a well thereon, "unless it shall at the same time surrender and abandon" the lease on the tract of 106 acres. The lessee reserved the right to drill upon either of the smaller tracts, if it so elected, and thereafter to surrender such smaller tract whether the 106-acre tract was surrendered or not. Fourth; That "the first parties hereby release and discharge the second party from the obligation and liability to drill any wells upon any of said three tracts of land in development thereof or as offsets to wells on adjoining land now or hereafter completed, except the well above agreed to be drilled on said tract of one hundred and six (106) acres."
The evidence shows that at the time of the compromise agreement of August 29, 1916, the average annual price paid for a gas well in the vicinity of these tracts of land was $250. Quarterly rentals of $62.50 each, amount to $250 per annum. It is thus seen that the later agreement provided for the payment of the exact amount of the average annual royalty for a gas well on each of the two smaller tracts the same as though a well had been drilled on each of them. The leases on the two smaller tracts were thus to stand in the same situation as though each had a producing gas well on it. As to these two *Page 19 
tracts there thus came into being an agreement in lieu of drilling. The effect of this was to carry the leases on the smaller tracts beyond the 10-year term and as long as that plan was adhered to. Much stress is laid by the appellees upon the last provision of the compromise agreement. It reads: "In all respects not expressly modified hereby the said three leases shall remain in force according to their respective terms and provisions." Of course all the provisions of the leases remained in effect save as the compromise modified them, but by that modification, the leases on the smaller tracts being placed on the same basis as though a gas well had been drilled on each, the lessors thereby necessarily waived their right to declare a forfeiture because wells were not in fact drilled.
The leases each provided for $300 annual gas well royalty. Able counsel for the appellees say in effect that the new arrangement of $250 per annum cannot therefore properly be considered as a substitute for the royalty for a well drilled under one of the smaller leases. I see no difficulty with this proposition. The agreement of August 29, 1926, was a compromise. The lessors had no assurance that if wells were drilled on the smaller tracts they would be producing wells. It does not seem unreasonable that a sure return of $250 per annum should take the place of an uncertain $300. Nor in my opinion is there here involved any inconsistency with the above quoted last provision of the contract, namely, that, except as expressly modified by the later agreement, the three leases should remain in force according to their respective terms and provisions. In my judgment the necessary effect of the modifying agreement was to substitute $250 definite annual income for a problematical $300 as the basis for considering and treating each small lease to be in the same situation as though a producing gas well had been drilled thereon. *Page 20