Blausey v. Stein
| Decision Date | 20 February 1980 |
| Docket Number | No. 79-471,79-471 |
| Citation | 61 Ohio St.2d 264,400 N.E.2d 408 |
| Parties | , 15 O.O.3d 268 BLAUSEY, Appellant, v. STEIN, Appellee. |
| Court | Ohio Supreme Court |
Syllabus by the Court
1. In determining whether an oil or gas well is producing in paying quantities for purposes of carrying out the provisions of an oil or gas lease, it is not necessary to include the value of an individual lessee's own labor as an operating expense.
2. Requiring an oil or gas lessor to execute a division order prior to receiving royalties is not such a burden that it can be considered an attempted modification of the lease, in the absence of express provisions in the lease to the contrary.
Plaintiff-appellant, Leona Blausey, is the record owner of 80 acres of land in Ottawa County. Since 1934, the land has been subject to an oil and gas lease which is now held by defendant-appellee, Richard H. Stein, as lessee. The lease, executed by the predecessors in interest of the parties herein, provided that it would continue for a term of "five years, or as long thereafter as oil or gas is found in paying quantities * * *."
There has been no production of gas from the premises; however, there is one well located on this parcel, which intermittently produces oil. Evidence presented at trial tended to establish the following: In 1971, 4,050 gallons of oil were sold for $241; in 1972 and 1973, oil was periodically pumped from the well, but none was sold; in 1974, no oil was produced, ostensibly due to a damaged pipeline; in 1975, appellee resumed operations, and sold 3,707 gallons for $889.68; and, in 1976, 4,148 gallons were sold for $1,089.60.
Appellant received royalty payments for oil sales occurring in 1971; thereafter, however, she refused to sign the division orders upon which her royalty payments were contingent. In March 1976, appellant notified appellee of her intention to declare the lease forfeited. Another notice was delivered on June 2, 1976. Appellee did not reply to the county recorder, and on July 7, 1976, appellant filed an affidavit of forfeiture with the recorder. Finally, on December 28, 1976, appellant brought this action to quiet title, basically seeking a return of possession of her land, extinguishment of all claims of appellee, and damages. Appellee counterclaimed for damages for slander of title.
The trial court rendered judgment for appellant, finding that the lease had expired of its own terms because the well no longer produced oil in "paying quantities." That court also dismissed appellee's counterclaim. On appeal, the Court of Appeals reversed, holding that the lower court had improperly calculated the operating expenses of the well. However, the appellate court affirmed the dismissal of appellee's counterclaim.
The cause is now before this court pursuant to allowance of a motion to certify the record.
Kline & Corogin and Dale A. Kline, Port Clinton, for appellant.
Jonathan B. Cherry, Toledo, for appellee.
The primary term of the lease under consideration expired in 1939. The resolution of this appeal turns upon the meaning of the phrase "found in paying quantities" contained in the habendum clause.
In Murdock-West Co. v. Logan (1904), 69 Ohio St. 514, 520, 69 N.E. 984, this court held that the mere existence of oil which is capable of being produced is insufficient to support an extension of the leasehold under this type of lease, unless that oil has, in fact, been produced. The record indicates that appellee extracted oil in the period from 1971 through 1976. We must determine whether this oil was produced in "paying quantities."
The term "paying quantities," when used in the habendum clause of an oil and gas lease, has been construed by the weight of authority to mean "quantities of oil or gas sufficient to yield a profit, even small, to the lessee over operating expenses, even though the drilling costs, or equipping costs, are not recovered, and even though the undertaking as a whole may thus result in a loss." Annotation, 43 A.L.R.3d 8, 25. In this cause, the well operated by appellee has been only marginally productive, and the determination of whether it produces in paying quantities hinges upon whether the value of appellee's own labor must be treated as an operating expense.
The trial court determined that appellee sustained a net operating loss during the six-year period for which evidence was introduced. In reaching this conclusion, the court found that appellee's gross receipts of $2,220.28 were exceeded by his operating costs, which the court calculated as $3,741.04, including the sum of $2,887.50 as the value attributed to appellee's labor. On appeal to the Court of Appeals, neither party...
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