Dickey v. The Coffeyville Vitrified Brick and Tile Company

• Decision Date: 09 April 1904
• Docket Number: 13,573
• Citation: 76 P. 398,69 Kan. 106
• Parties: WALTER S. DICKEY v. THE COFFEYVILLE VITRIFIED BRICK AND TILE COMPANY
• Court: Kansas Supreme Court

76 P. 398

69 Kan. 106

WALTER S. DICKEY v. THE COFFEYVILLE VITRIFIED BRICK AND TILE COMPANY

No. 13,573

Supreme Court of Kansas

April 9, 1904

Decided January, 1904.

Error from Neosho district court; L. STILLWELL, judge.

STATEMENT.

IN April, 1902, plaintiff in error bought from one J. W. Cole 138 acres of land, taking a special warranty deed therefor. The conveyance was made subject to the following gas and oil lease, which was on record at the time the deed was executed and delivered:

"CHANUTE KAN., December 23, 1901.

"THIS AGREEMENT, made and entered into, between J. W. Cole and wife, parties of the first part, and C. D. Martin, manager of the Kansas and Texas Oil Company, party of the second part:

"1. WITNESSETH, that parties of the first part for and in consideration of the sum of one dollar, the receipt of which is hereby acknowledged, and of the covenants and agreements hereinafter contained, on the part of the said party of the second part, to be kept and performed, do grant unto the party of the second part the exclusive right to enter upon to drill, to lay and maintain gas and oil pipe-lines so long as gas or oil may be found in paying quantities upon the following-described premises, situated in Neosho county Kansas, to wit:" [Here follows the description of 138 acres of land.]

"2. The party of the second part agrees to begin drilling upon said premises within ten days from the date of this lease.

"3. If gas is found in any well or wells in paying quantities first party is to have on demand sufficient gas for his tenants' domestic purposes upon the premises free, said second party to have the remainder. If said second party shall market or use gas from any well or wells he shall pay first party therefor at the rate of eighty dollars per year for each and every well during the time that such gas shall be sold or used, and in case said second party does not sell or use gas from said well or wells he is to pay first party one-half as much, or forty ($ 40) dollars per year, for each well so long as not used; all payments to be made on the 1st of January, at the First National Bank of Chanute, Kan.

4. "If oil is found in paying quantities upon the described premises, said second party agrees to continue drilling wells as fast as possible, until there are at least eight wells inside of one year from this date. He further agrees that the wells shall be completed and operated just as soon as possible, and should he fail to have the first well in operation within seven months from this date, he shall pay the first party one hundred ($ 100) dollars in cash, and for each and every succeeding well, if not in operation within six months from time of drilling, he shall pay to first party one hundred ($ 100) dollars, and continue to pay this amount for each well every six months until operation is begun and continued. Said second party is to have the exclusive right without interference, to lay as many gas- and oil-pipes across, over and through any portion of the heretofore described premises (except within 300 feet of the buildings now on the premises) by paying first party all damages that may occur therefrom to said land or crops. Second party further agrees to lay all gas- and oil-pipes not less than eighteen inches under the surface of said described land; no shackle rods to be used. Second party agrees that as soon as oil-wells are in operation he will deliver unto the first party one-eighth of the oil realized therefrom, in tanks at the wells, without cost, or pay the market value monthly therefor, at option of the first party.

5. "In case gas or oil is not found in paying quantities upon said described land, this lease shall be void and be surrendered, and said second party shall remove all his fixtures from the premises. If wells are put in operation, and at any time in the future the party of the second part shall become satisfied that it is not paying, he shall surrender this lease, and remove all machinery, pipes and fixtures from the premises, and be released from all further obligations.

6. "In case the party of the second part shall fail to keep and fulfil any of his part of the agreement and covenants of this lease, he shall thereby forfeit all rights and privileges granted him in the same, and shall at once peaceably and without damage surrender the said premises to said first party.

7. "All conditions of this agreement shall extend to the heirs, executors and assigns of the parties hereto.

"Witness our hands and seals, this 23d day of December, 1901. (Signed) J. W. COLE.

S. C. COLE.

C. D. MARTIN,

Manager Kansas & Texas Oil Company."

The deed was acknowledged before a notary public December 23, 1901. For convenience of reference we have numbered the different clauses of the lease.

Conforming to the conditions of the lease, Martin, the lessee, commenced drilling on the premises at once, and on or about January 13, 1902, completed a paying gas-well. The lease was assigned thereafter by Martin to defendant in error.

This was an action begun on May 9, 1902, by Dickey, the owner of the land, against the brick company to set aside and cancel the lease. He was unsuccessful in the court below, and has come here by this proceeding in error.

Judgment affirmed.

SYLLABUS

SYLLABUS BY THE COURT.

1. MINES AND MINING -- Termination of Lease. A gas and oil lease is not void for uncertainty because its duration extends "so long as gas or oil may be found in paying quantities."

2. MINES AND MINING -- Termination Clause in a Gas and Oil Lease Construed -- Exercise of Option. A stipulation in a gas and oil lease that "if wells are put in operation, and at any time in the future the party of the second part [the lessee] shall become satisfied that it is not paying, he shall surrender this lease, and remove all machinery, pipes and fixtures from the premises, and be released from all further obligations," does not put the lessee in the position of a tenant at will. The lease is not terminable at his option, after the production of gas or oil, upon his assertion that a well is unprofitable, when the contrary is true.

3. MINES AND MINING -- Clause Held to Mean the Unprofitable Well Only. The clause in the lease set out in paragraph 2 means that if the lessee become satisfied that a particular well is not paying, and such fact exists, the lease is terminated with respect to the unprofitable well only.

4. MINES AND MINING -- Gas and Oil Leases Defined -- Vested Rights of Lessee. Gas and oil leases are in a class by themselves: they are not "leases" in the ordinary sense; they are in the nature of a license, with a grant conveying the grantor's interest in the gas- or oil-well, conditioned that gas or oil be found in paying quantities. When gas or oil is found, the right to produce it becomes a vested right, and the lessee will be protected in exercising it agreeably to the terms of the contract.

John J. Jones, and Karnes, New & Krauthoff, for plaintiff in error.

W. E. & J. B. Ziegler, and H. P. Farrelly, for defendant in error.

SMITH J. All the Justices concurring.

OPINION

SMITH, J.:

It is contended that the lease is void for uncertainty, in that its duration extends "so long as gas or oil may be found in paying quantities." This is a common expression found in such leases, and it is generally for the benefit of the lessee. Whether a gas- or oil-well is a source of profit can be determined readily by deducting the cost of production from the market value of the product. We have not been referred to any adjudicated cases involving the validity of gas or oil contracts like the one at bar where leases containing such stipulations have been held void for uncertainty; on the other hand, the authorities on the subject...