Federal Oil Co. v. Western Oil Co.

• Decision Date: 07 October 1902
• Docket Number: 871.
• Citation: 121 F. 674
• Parties: FEDERAL OIL CO. v. WESTERN OIL CO. et al.
• Court: U.S. Court of Appeals — Seventh Circuit

121 F. 674

FEDERAL OIL CO. v. WESTERN OIL CO. et al.

No. 871.

United States Court of Appeals, Seventh Circuit.

October 7, 1902

E. H Adams, for appellant.

Frank E. Gavin and D. J. Cable, for appellees.

The appellant on November 18, 1901, filed its bill in the court below, setting forth that on February 22, 1901, it entered into an agreement with the Bradfords, appellees, as follows:

'In consideration of the sum of one dollar, the receipt of which is hereby acknowledged, R. W. Bradford of Van Buren Ind., of the first part, hereby grant and guarantee unto the Federal Oil Company (a corporation) of Chicago, state of Illinois, second party, all the oil and gas in and under the following described premises together with the right to enter thereon at all times for the purpose of drilling and operating for oil and gas and to erect and maintain all buildings and structures and lay all pipes necessary for the production and transportation of oil or gas. The first part shall have the one-eighth (1/8) part of oil produced and saved from said premises to be delivered in the pipe line with which second party may connect their wells namely: All that certain lot of land, described as follows to wit: South half of the northwest quarter of section ten (10) town twenty-five (25) north range nine (9) east, in county of Grant and state of Indiana, containing eighty (80) acres, more or less.

'To have and to hold the above-described premises on the following conditions:

'If gas only is found, in sufficient quantities to transport, second party agrees to pay first part one hundred ($100) dollars annually for the product of each and every well so transported, and the first part to have gas free of

cost for heating and lighting purposes in dwelling house. Second, party shall bury all oil and gas lines when same interfere with cultivation, and pay all damage done by reason of operating under this grant.

'In case no well is commenced within one day from this date, then this grant shall become null and void unless second party shall thereafter pay at the rate of eight and seventy-five hundredths dollars ($8.75) for each month such commencement is delayed in advance. A check to the credit of the first part mailed to Van Buren Ind. will be good and sufficient payment for any money falling due on this grant. First party has right to locate roads to and from places of operations. No well shall be drilled nearer to buildings than three hundred feet, unless by agreement and with an understanding between the parties hereto. Second party to erect and maintain gates and keep same closed. Shackel lines shall be high enough for train to pass under. Second well shall be completed ninety days after first well and a well each ninety days thereafter until seven wells are in, then rental to cease.

'The second party shall have the right to use sufficient gas, oil and water to run all machinery for operating said wells, also the right to remove all its property at any time, and may cancel and annul this contract or any part thereof at any time.

'It is understood between the parties to this agreement that all conditions between the parties hereunto shall extend to their heirs, executors, successors and assigns.'

The bill alleges compliance by the appellant with the stipulations of the instrument; the payment by it of $8.75 per month in advance; that the tender of $8.75 on October 10, 1901, was refused by the Bradfords, who, ignoring the rights of the appellant, placed the Western Oil Company, appellee, in possession, which company, with knowledge of the rights of the appellant, had placed machinery upon the land, had made excavations, and were drilling thereon for oil and gas; that subsequently thereto, and on November 14, 1901, the appellant moved material upon the land for the purpose of erecting a rig thereon to be used in drilling for oil and natural gas, which material was removed by the Western Oil Company, with the knowledge and approval of the Bradfords, and cast upon the highway. The bill alleges that the acts complained of constitute a lien and cloud upon the household title of the appellant, removable only in equity, that it has no adequate remedy at law, and prays an injunction suitably restraining the appellees, and a decree to establish the title of the appellant, and to subordinate all rights of the appellees to the title of the appellant. A demurrer to the bill was sustained by the court below (Federal Oil Company v. Western Oil Company (C.C.) 112 F. 373), and on January 11, 1902, a decree passed dismissing the bill for want of equity, which decree is brought here for review.

Before JENKINS and GROSSCUP, Circuit Judges.

JENKINS Circuit Judge (after stating the facts as above).

The nature of property in natural gas and oil contained in the earth, and the legal effect of the instrument here in question, have been settled authoritatively by the rulings of the Supreme Court of Indiana (State v. Indiana & Ohio Oil, Gas & Min. Co., 120 Ind. 575, 22 N.E. 778, 6 L.R.A. 579; People's Gas Company v. Tyner, 131 Ind. 277, 31 N.E. 59, 16 L.R.A. 443, 31 Am.St.Rep. 433; Heal v. Niagara Oil Company, 150 Ind. 483, 50 N.E. 482; Manufacturers' Gas Company v. Indiana Gas Company, 155 Ind. 461, 57 N.E. 912, 50 L.R.A. 768), and by the Supreme Court of the United States in Ohio Coal Company v. Indiana, 177 U.S. 190, 20 Sup.Ct. 576, 44 L.Ed. 729. In the last case the nature of the property right is thus clearly stated by Mr. Justice White (page 208, 177 U.S., page 583, 20 Sup. Ct., and 44 L.Ed. 729):

'It is apparent that the cases in question (referring to the Indiana cases cited), in accord with the rule of general law, settle the rule of property in the state of Indiana to be as follows: Although, in virtue of his proprietorship, the owner of the surface may bore wells for the purpose of extracting natural gas and oil, until these substances are actually reduced by him to possession he has no title whatever to them as owner; that is, he has the exclusive right on his own land to seek to acquire them, but they do not become his property until the effort has resulted in dominion and control by actual possession. It is also clear from the

...