Carter Oil Co. v. Owen

• Decision Date: 10 April 1939
• Docket Number: No. 20—D.,20—D.
• Citation: 27 F. Supp. 74
• Parties: CARTER OIL CO. v. OWEN et al.
• Court: U.S. District Court — Eastern District of Illinois

27 F. Supp. 74

CARTER OIL CO. v. OWEN et al.

No. 20—D.

District Court, E. D. Illinois.

April 10, 1939.

Walter Davison, of Mattoon, Ill., and Harold F. Lindley and W. M. Acton, both of Danville, Ill., for plaintiff.

Bryan, Williams, Cave & McPheeters, of St. Louis, Mo., Baker, Lesemann, Kagy & Wagner, of E. St. Louis, Ill., J. G. Burnside, of Vandalia, Ill., and J. Ivan Cole, of St. Elmo, Ill., for defendants.

LINDLEY, District Judge.

By their motion to dismiss, certain defendants question the sufficiency of the complaint as a statement of a cause of action in equity. Plaintiff avers that it is assignee of an oil lease entered into the 28th day of May, A. D. 1936, whereby Owens, being the owner of certain lands in Fayette County, leased the same to plaintiff's assignor for the production of oil and gas. This lease, executed under seal, duly acknowledged before a notary public and waiving right of homestead, in consideration of $1 in hand paid and "of the covenants and agreements * * * on the part of the lessee to be kept and performed," leased the land described "for the purpose of mining and operating for oil and gas." It contained agreements to the effect that it should remain in force for a term of ten years and as long thereafter as oil and gas should be produced; that one-eighth the oil produced would be delivered to the credit of lessor, free of cost, into tank, reservoir or pipe line, and "to pay lessor one-eighth of the gross proceeds each year, for the gas from each well." The lease provided that if no well should be commenced on or before the first of June, 1936, it would terminate, unless the lessee should on or before that date pay or tender to the lessor the sum of ten cents an acre which would operate as a rental and cover the privilege of deferring the commencement of a well for twelve months from the date of payment; that in like manner and upon like payments or tenders, the commencement of a well might be further deferred for like periods successively; that should the first well be a dry hole, then, if a second well should not be commenced on the land within twelve months from the expiration of the last preceding rental period, the lease would terminate as to both parties unless the lessee, on or before the expiration of said twelve months, should resume the payment of rentals; that upon the resumption of payment, the lease would continue in full force as though there had been no interruption.

Plaintiff further avers that the date, June 1, 1936, should have been June 1, 1937; that the lease should be reformed in accord with that fact; that plaintiff on May 10, 1937, paid the rental due June 1, 1937, and, on May 2, 1938, that due June 1, 1938; that the lessor has accepted such rent and that the lease remains in full force.

It is further averred that after the execution, delivery and recording of the lease, two other leases purporting to be executed by the lessor, for separate portions of the premises, to one J. B. Apperson, and subsequent assignments of said leases to various defendants, some twenty-five in number, were executed and recorded and constitute clouds upon the title of plaintiff; that the subsequent leases and all assignments thereof are inferior and subordinate to the title of plaintiff; that defendant Seaton claims some interest in the premises, the nature of which is unknown; that he has contracted with defendants Barnes and Menhall to drill oil wells upon said premises and that the contract thus made is a cloud upon the title of plaintiff; that other defendants claim some interests in the premises; that such interests, if any actually exist, are invalid as against plaintiff and constitute clouds upon its title; that producing oil wells have been constructed upon certain portions of the land; that certain defendants are removing oil and delivering it to the Allied Refining Company and Allied Pipe Line Corporation; that an accounting is necessary to determine the amount of oil thus far removed; that seven-eighths of such oil belong to plaintiff; that defendants have wrongfully entered upon the premises and continue to trespass thereon and have threatened to continue to remove oil therefrom unless restrained; that each of defendants are without right, title or authority in and to the premises; that their actions are such as will irreparably damage plaintiff.

Plaintiff prays that the court may appoint a receiver to take possession of the premises, to operate all oil wells thereon and to market the product; that the right and title of plaintiff be declared superior to the rights of all defendants in the premises and that the subsequent leases and assignments be cancelled and decreed null and void as against plaintiff; that an accounting be had; that defendants be permanently enjoined from continuing to trespass and to operate under said subsequent leases and assignments and from interfering with plaintiff in operating under its lease and from asserting any right to the oil and gas under said land or the right to mine and remove the same, and that plaintiff have such other relief as the court may deem proper.

Under the decisions of Illinois, the right to occupy the premises for the production of oil confers upon the lessee a free-hold estate. Bruner v. Hicks, 230 Ill. 536, 82 N.E. 888, 120 Am.St.Rep. 332, was the first Illinois case so holding. As late as 1921 the Supreme Court of Illinois adhered to this doctrine. Transcontinental Oil Co. v. Emmerson, 298 Ill. 394, at page 403, 131 N.E. 645, 16 A.L.R. 507. To the same effect are: People v. Bell, 237 Ill. 332, 86 N.E. 593, 19 L.R.A.,N.S., 746, 15 Ann.Cas. 511; Ohio Oil Co. v. Daughetee, 240 Ill. 361, 88 N.E. 818, 36 L.R.A.,N.S., 1108; Daughetee v. Ohio Oil Co., 263 Ill. 518, 105 N.E. 308.

This case is not unlike that of Gillespie v. Fulton Oil & Gas Company, 236 Ill. 188, 86 N.E. 219, 221. There the lease involved recited the payment of $1 as consideration and contained the covenant that the lessee "shall, within twelve months from the date hereof, drill a test well." It further provided that in case no well be completed within twelve months "the lessee shall pay the party of the first part a rental of twenty-five cents per acre per year, to be paid annually, counting from the expiration of said twelve months," and that in case no well be completed within five years, the lease should be null and void.

The lessee brought suit in equity praying for an injunction, accounting, appointment of receiver and cancellation of a subsequent lease to other parties. The trial court found the issues for defendant and dismissed the bill for want of equity. The appellate court affirmed the decree; the Supreme Court reversed.

The lessee averred that it had kept and performed the covenants of the lease and was willing to carry on in good faith with its performance; that in violation of its rights, the lessor subsequently pretended to lease the premises to one Rogers who took with notice and knowledge of the prior lease; that the assignee of the second lease had entered upon the land and was producing oil; that irreparable damage was accruing to plaintiff; and sought to remove the second lease as a cloud upon its title. The court granted the equitable remedy holding that plaintiff had set forth and proved a valid cause of action in equity and saying: "The contention that appellant has a complete remedy at law is untenable. Ejectment will not lie. Watford Oil & Gas Co. v. Shipman, 233 Ill. 9, 84 N.E. 53 122 Am.St.Rep. 144. Equity has jurisdiction to prevent waste and irreparable injury at the suit of an assignee of an oil and gas lease against an adverse lessee. Indianapolis Natural Gas Co. v. Kibbey, 135 Ind. 357, 35 N.E. 392; Allegheny Oil Co. v. Snyder 6 Cir. 106 F. 764, 45 C.C.A. 604; Logan Natural Gas & Fuel Co. v. Great Southern Gas & Oil Co. 6 Cir. 126 F. 623, 61 C.C.A. 359; Allegany Oil Co. v. Bradford Oil Co., 21 Hun N.Y., 26 32."

Thus, under the law of Illinois, it is established that the title under such an oil lease is a freehold; that to protect the same, equity has jurisdiction to remove clouds and to prevent waste and irreparable injury, there being no complete remedy at law. These legal truths are decisive of the issue unless the oil lease before us is so different in legal effect from that before the court in Gillespie v. Fulton Oil & Gas Co., supra, as to exclude it from the established rule.

It is first contended by defendants that the lease cannot be enforced in equity because of the announcement by the courts of Illinois in cases passing upon the validity of similar leases, and they refer to various cases. In Cortelyou v. T. N. Barnsdall & Red Tank Oil Company, 140 Ill.App. 163, affirmed 236 Ill. 138, 86 N.E. 200, the court found, however, that there was no consideration for the lease. Gillespie v. Fulton Oil & Gas Co., 140 Ill. App. 147, was reversed by the Supreme Court in 236 Ill. 188, 86 N.E. 219. In Clark v. Potts, 255 Ill. 183, 99 N.E. 364, the court again held that there was no consideration. There was a mere option agreement to sell land without consideration; consequently the offer could be withdrawn at any time before its acceptance. The same is true of Miller v. Moffat, 153 Ill.App. 1, 4. In Illinois Kaolin Company v. Goodman, 252 Ill. 99, 96 N.E. 867, Poe v. Ulrey, 233 Ill. 56, 84 N.E. 46, Watford Oil & Gas Co. v. Shipman, 233 Ill. 9, 84 N.E. 53, 122 Am.St.Rep. 144, Ulrey v. Keith, 237 Ill. 284, 86 N.E. 696, each of the leases involved contained a surrender clause which gave to the lessee the right to surrender the lease, at any time it should choose to do so, upon payment of $1. There was no like privilege extended to the lessor. The Supreme Court held such a clause fatal to relief in equity. It said that the leases were valid but that the lessees could not invoke a remedy in equity in the nature of compulsion of specific performance because of lack of mutuality. These decisions have been frequently...