Backer v. Penn Lubricating Co.

• Decision Date: 18 June 1908
• Docket Number: 1,776.
• Citation: 162 F. 627
• Parties: BACKER v. PENN LUBRICATING CO.
• Court: U.S. Court of Appeals — Sixth Circuit

162 F. 627

BACKER v. PENN LUBRICATING CO.

No. 1,776.

United States Court of Appeals, Sixth Circuit.

June 18, 1908

E Heim, for plaintiff in error.

O. H Waddle, for defendant in error.

Before LURTON and RICHARDS, Circuit Judges, and KNAPPEN, District judge.

KNAPPEN District Judge.

By this proceeding a review is sought of the action of the court below in dismissing the petition of plaintiff (appellant here), filed under the Kentucky Code of Civil Procedure as statement of plaintiff's cause of action, and in not sustaining demurrer to defendant's answer and counterclaim.

Plaintiff's petition alleged that one Duncan and wife, on November 11 1902, gave to plaintiff an 'oil lease' upon certain described lands in Wayne county, Ky., by the express provisions of which plaintiff was granted the exclusive right to operate or drill thereon for petroleum, gas, and other minerals for a term of 20 years, and so much longer as such products could be produced in paying quantities, upon payment to Duncan of 10 per cent. of the petroleum extracted and $25 for each gas well (in case oil should be found in paying quantities); plaintiff agreeing to drill a well within six months from the making of the lease, or in lieu thereof to pay Duncan $50 a year until work should be commenced.

The petition alleged that plaintiff thereby acquired a leasehold estate in the land, by virtue of which he had the sole and exclusive right: (a) To enter upon, explore, and develop the land for oil, gas, and other minerals; (b) to drill wells for oil and gas; (c) 'to the oil in and under said tract of land'; (d) to extract and market the oil and gas therefrom; (e) to run the oil that might be found or that should be under the land; and (f) to sell and dispose of all the oil in and under the tract, excepting the one-tenth to be paid to Duncan by way of royalty. The petition further alleged that plaintiff lawfully entered under the lease for the purpose of exploring and developing for oil, gas, and other minerals, and that after such entry defendant, with full knowledge of plaintiff's lease and of the latter's rights thereunder, forcibly and wrongfully, and against the will and over the protest both of plaintiff and of Duncan, entered upon the land, erected derricks, and drilled for oil thereon, and extracted therefrom and converted to its own use upwards of 10,000 barrels of petroleum. The petition alleges that the oil so taken by defendant (over and above the one-tenth royalty belonging to Duncan) 'belonged to and was the property and oil of this plaintiff,' and prayed judgment for the value of the oil so converted, and for 'general, special, necessary, and proper relief.'

The answer alleged: That in 1895 Duncan and wife gave to one Williams an oil lease for 20 years, or as long as oil, gas, or minerals could be obtained in paying quantities, upon the entire of the lands in question (and other lands) upon payment of royalty; that in the year 1896, and within the time limited therefor by the lease, Williams drilled a well, which proved unproductive; that in the year 1902 defendant, who had meanwhile become the owner of Williams' rights, reentered and continued the drilling of wells with the knowledge and consent of Duncan, but, failing to find oil in paying quantities, temporarily left, with the intention, known to Duncan, of returning and continuing the development; that during defendant's temporary absence plaintiff obtained his lease, with knowledge of defendant's prior lease and the developments under it, and of defendant's intention to continue such development, and for the purpose of circumventing defendant; that the latter, in pursuance of its original intention, re-entered peaceably in 1903, and from that date until 1905 drilled the wells and produced the oil referred to in plaintiff's petition, in the goodfaith belief that it had an exclusive prior and superior right as against plaintiff; that plaintiff made no entry at least until after defendant's entry in 1903; that to prevent plaintiff from forcibly excluding defendant from the premises and from himself forcibly drilling wells and producing the oil therefrom, defendant, by suit in the state circuit court against plaintiff herein, obtained judgment that defendant had a right superior to plaintiff's in the development and exploitation of the premises under its lease, and perpetually restraining plaintiff herein from entering upon the premises for the purpose of drilling or mining for oil, gas, or other minerals; that the Kentucky Court of Appeals reversed the judgment of the Circuit Court, holding that defendant herein had abandoned its right to operate under its lease; that the circuit court refused to delay restitution of the premises until an accounting could be had of profits and improvements made under defendant's occupancy; that an appeal from said refusal was then pending in the Kentucky Court of Appeals and undetermined, such pendency being urged in abatement of plaintiff's suit; that, when defendant surrendered possession under the judgment of the Kentucky state court, it left thereon six producing oil wells, which had cost defendant, and which enhanced the value of the premises, more than the value of the oil produced by defendant therefrom; that the plaintiff took possession and had the benefit of all these improvements, thereby escaping the risk and expense of development, and thereby obtaining a profit greater than the value of the oil obtained by defendant, which production cost the latter more than its value; and that all defendant's acts complained of were done in the good-faith belief of its rightful conduct.

The answer denied that the plaintiff was the owner of the oil in question, and denied the latter's right to recovery therefor. Defendant asked judgment on its counterclaim for the value of the improvements made by it, in excess of the value of the oil taken.

The plaintiff interposed a demurrer 'that said answer and counterclaim does not state facts sufficient to constitute or to support a good defense or counterclaim to plaintiff's cause of action. ' The court carried the demurrer back to the plaintiff's petition, held that the latter did not state a cause of action, and, on plaintiff's declining to amend, entered judgment dismissing the petition with costs. The sufficiency of the answer and counterclaim was not considered.

The decision of the court below was based upon the proposition that under the lease in question title to the oil in place was not in the plaintiff; and although the court stated its opinion that to the extent plaintiff was damaged by being deprived of the right to explore for, find, and take the oil, he was entitled to recover of defendant, yet that, plaintiff's cause of action being predicated upon an erroneous theory as to the ownership of the oil in place, recovery could not be had upon that or any other theory or basis. The law seems to be settled that, under a lease of the nature here in question, title to the oil in place is not in the lessee. Steelsmith v. Gartlan, 45 W.Va. 27, 34, 29 S.E. 978, 44 L.R.A. 107; Oil Co. v. Fretts, 152 Pa. 451, 25 A. 732; Plummer v. Iron Co., 160 Pa. 483, 28 A. 853; Huggins v. Daley, 99 F. 606, 40 C.C.A. 12, 48 L.R.A. 320; Tennessee Oil, Gas & Mineral Co. v. Brown, 131 F. 696, 65 C.C.A. 524. We content ourselves with citing these few authorities, and refrain from further discussing the proposition, for the reason that plaintiff's counsel concedes in this court that the title to the oil in place was not in the plaintiff.

But does it follow from this that the petition should be dismissed? It is not seriously denied that under the facts stated in the petition the plaintiff's rights under his lease are shown to have been violated. Plaintiff had, at the least, the sole right during the leasehold term, subject to the limitations relating thereto, to explore for oil and to take it when he should find it, yielding to the lessor one-tenth thereof as royalty. The petition clearly alleges an invasion of this right, and it is clear that such invasion gives a right of action of some kind for damages suffered by the lessee, whether such invasion is the act of the lessor or of another lessee. Haven & Chase Oil Co. v. Jordan, 13 ky.Law.Rep. 878; Breyfogle v. Woods, 15 Ky.Law.Rep. 782; Logan Natural Gas & Fuel Co. v. Gt. Southern Gas & Oil Co., 126 F. 623, 61 C.C.A. 359; Gt. Southern Gas & Oil Co. v. Logan Natural Gas & Fuel Co. (C.C.A.) 155 F. 114. Here again we refrain from an extended citation of authorities because the proposition seems so obvious, and is practically conceded.

Unless therefore the court below was right in holding that the plaintiff could not recover upon any theory of his legal rights except that stated in his petition, viz., his ownership of the oil in place, the case was improperly dismissed. Were...