Benedum-Trees Oil Co. v. Davis

• Decision Date: 08 November 1939
• Docket Number: 7931.,No. 7930,7930
• Citation: 107 F.2d 981
• Parties: BENEDUM-TREES OIL CO. v. DAVIS et al.
• Court: U.S. Court of Appeals — Sixth Circuit

107 F.2d 981 (1939)

BENEDUM-TREES OIL CO. v. DAVIS et al.

Nos. 7930, 7931.

Circuit Court of Appeals, Sixth Circuit.

November 8, 1939.

COPYRIGHT MATERIAL OMITTED

J. W. Stone, of Harriman, Tenn., and R. S. Marriner, of Washington, Pa. (Mae R. Stricklin, of Wartburg, Tenn., J. W. Stone, of Harriman, Tenn., R. S. Marriner, of Washington, Pa., and Hughett & Hughett, of Louisville, Ky., on the brief), for appellant.

Joe C. Thomason, of Knoxville, Tenn., for appellees.

Before SIMONS, ALLEN, and HAMILTON, Circuit Judges.

HAMILTON, Circuit Judge.

Oil and gas leases covering 200 and 97 acres, respectively, of lands in Morgan County, Tennessee, are involved in these appeals. The disputed points are whether the terms of the leases have expired or are still current.

On December 6, 1929, Gran Davis and John W. Hall, appellees in No. 7930, and fee simple owners of the lands in question, granted, demised and leased to the appellant, Benedum-Trees Oil Company, for the purpose of mining, operating for oil and gas and laying pipe lines, building tanks, power stations and structures thereon to produce, save and store oil and gas, a certain tract of land in Morgan County, Tennessee, containing 200 acres. The lease was for a term of five years and "as long thereafter as oil or gas, or either of them, is produced from the land by the Lessee."

The lessee agreed to deliver to the lessors, free of cost, in pipe line to which they may connect their wells, the equal one-eighth part of all oil produced and saved from the leased premises and to pay to the lessors in quarterly payments, $200 annually for gas from each well where gas only was found while being used off the premises. The lessors were to have the privilege of obtaining without cost from any such well, gas for stoves and all inside lights in principal dwelling house on said land by making their own connection with the wells at their own risk and expense the appliances used, subject to approval of lessee. The lease also provided that if no well was commenced on the land on or before December 16, 1930, it would terminate unless on or before that date the lessee should pay or tender to the lessors $200 which would operate as rental and extend the lease twelve months. It also provided that the lessee could at any time remove all machinery and fixtures placed on the premises including the right to draw and remove casing and to cancel and surrender the lease to the lessors.

Within the time limit of the contract the lessee completed a well which produced gas but no oil. No market was available for the gas and the lessee capped the well in which condition it has since remained.

The lessee expended approximately $8,400 in drilling and shutting in the well. On October 21, 1935, the lessors notified the lessee that the lease had expired by its terms. After this notice, the date not shown in the record, appellees granted, demised, re-leased and let the premises to the appellee Ross H. Williams for the same purposes as the original lease and for a consideration of $200 and minimum royalties of $100 per annum.

On May 17, 1930, appellee E. W. Sedman, in No. 7931, owner in fee, granted, demised and leased to appellant, Benedum-Trees Oil Company, for the purpose of mining, operating for oil and gas and laying pipe lines, building tanks, power stations and structures thereon to produce, save and store oil and gas, a certain tract of land in Morgan County, Tennessee, containing 97 acres. This lease was for one year with which exception it was identical in terms with the one in No. 7930. A well was completed on it in September, 1930, also producing gas but no oil and at a cost of $5,000. It was also capped and has since so remained.

Sedman, in lieu of obtaining gas for his dwelling under the terms of the original lease, has since February 28, 1931, been furnished, free of cost, gas from a lease owned by appellant on the adjoining lands of F. S. Anderson.

On October 19, 1935, without previous notice to appellant, Sedman re-leased the premises to appellee Ross H. Williams for the same purpose and for a consideration of $100 and the payment of minimum annual royalties of $100.

It was provided in this lease that should any question arise as to its legality, appellee Sedman would institute legal proceedings to clear the title, the expense thereof to be borne by appellee Ross Williams.

After Williams had procured the leases, he entered on the premises, removed appellant's locks from the capped wells, substituted his own and placed on the fence around them signs "No trespassing, Ross H. Williams."

Appellant instituted these actions to quiet its title to the premises and the lower court on final hearing dismissed the petition in each case, hence these appeals.

Appellant insists that by going upon the properties and drilling wells producing gas in paying quantities, it has a vested interest therein of which it can be divested only by a showing that it had negligently or fraudulently refused to market the gas.

The rule is applicable to the leases in question that they must be interpreted reasonably to give effect to the plain intention of the parties and construed to confer substantial rights on both lessor and lessee so as not to reduce them to mere nudum pactums. In construing the contracts to ascertain the meaning of each particular part, the intention of the parties deduced from the whole of the instruments is the controlling factor and in ascertaining intent, the nature of the agreements, the situation of the parties and the objects in view will be given due weight. Tennessee Oil, Gas & Mineral Company v. Brown, 6 Cir., 131 F. 696. Generally, all leases of land for the exploration and development of minerals are executed with the expectation and upon the condition, either express or implied, that the land will be developed for such a purpose and where the parties have not fully covered the subject of delay by rental provisions, the lessee's rights terminate upon his nonperformance of the conditions. Habermel v. Mong, 6 Cir., 31 F.2d 822, 67 A.L.R. 216.

Where land has been developed under a mineral lease, as here, and oil or gas produced, the lessee has a vested leasehold estate in the leased premises; prior thereto his rights were inchoate. Morris v. Messer, 156 Tenn. 54, 299 S.W. 782. Where the right is inchoate, courts of equity quickly enforce forfeitures for failure of the lessee to comply substantially with the express or implied conditions of the lease. Where rights have vested, as here, leases will not terminate except pursuant to an express or implied condition. An implied condition may be inseparably annexed to a grant from its essence and constitution, although no condition be expressed in words. Petroleum Company v. Coal, Coke & Manufacturing Company, 89 Tenn. 381, 18 S.W. 65; Logan Natural Gas & Fuel Company v. Great Southern Oil & Gas Company, 6 Cir., 126 F. 623.

In determining whether a condition is to be implied, it is important to note that the substantial consideration which moves a grantor to execute a lease for the exploration of his lands for minerals is the hope of profits or royalties if oil or gas is discovered. Huggins v. Daley, 4 Cir., 99 F. 606, 48 L.R.A. 320.

The oil and gas leases here in question provided no remuneration to the lessors, exclusive of gas used in their dwellings except that the mineral be marketed from the premises. Under such circumstances, the requirement is implied that the lessee would develop the property and dispose of the gas off of the premises within a reasonable time, although the only result of delay might be the postponement of profits or royalties, the latter implication being hardly justified when the leases must be construed...