Geary v. Adams Oil & Gas Co., 110.

• Decision Date: 01 February 1940
• Docket Number: No. 110.,110.
• Citation: 31 F. Supp. 830
• Parties: GEARY et al. v. ADAMS OIL & GAS CO.
• Court: U.S. District Court — Eastern District of Illinois

31 F. Supp. 830

GEARY et al. v. ADAMS OIL & GAS CO.

No. 110.

District Court, E. D. Illinois.

February 1, 1940.

C. M. Raemer, of Salem, Ill., for plaintiff.

H. G. Gwinnup, of Houston, Tex., and Baker, Lesemann, Kagy & Wagner, of E. St. Louis, Ill., for defendant.

WHAM, District Judge.

In this suit the plaintiffs, hereinafter sometimes referred to as the "Geary heirs," seek to recover damages from the defendant, Adams Oil and Gas Company, for alleged failure on the part of the defendant properly to fulfill its obligations, as lessee, to plaintiffs, as lessors, under the terms of an oil and gas lease upon a tract of land containing approximately twenty acres owned by said Geary heirs, the legal description of which appears in the complaint. Plaintiffs also seek an annulment of said lease upon the same grounds. Plaintiffs base their complaint upon the alleged failure of the defendant to comply with implied covenants of the lease to protect the plaintiffs against loss by drainage of oil from beneath plaintiffs' land through wells drilled on adjoining lands. Defendant's answer is two-fold. First, that the implied covenants relied upon by the plaintiffs have been replaced in the lease by express covenants and conditions which specifically define the number of wells defendant may be required to drill upon plaintiffs' land and that defendant has fulfilled such express conditions. Second, that, in any event, defendant is not required, under the law, or implied covenants in the lease, to drill more wells than it has for the reason that to do so would require the defendant to sustain a loss in that the cost of drilling, equipping and operating one or more additional wells would be greater than the value of the oil that could be so produced. The answer also renews the motion to dismiss the complaint on the ground of insufficiency, which motion was heretofore denied when presented before answer filed.

The pertinent facts shown by the evidence are as follows: The Geary tract, which lies immediately west of the City of Centralia, Illinois, is rectangular in shape, approximately one-quarter of a mile east and west and one-eighth of a mile north and south. Its eastern boundary is adjacent to the western boundary of the City of Centralia, a public street separating it from the city blocks and lots into which this portion of the city is divided and subdivided. Lying immediately north of said tract along its entire boundary is the Hefter tract of sixty acres. Along its entire south boundary is a narrow strip of land belonging to one J. Klein, the eastern portion of which is only one hundred thirty feet in width from north to south. South of the Klein tract is the Stead tract of considerable area.

At the time the defendant took the lease upon the Geary tract on January 29, 1938, it held the leases on the Hefter tract on the north and the Klein and Stead tracts on the south. Other interests held the leases on the city lots lying immediately to the east.

The lease taken by defendant on the Geary land contained the usual provisions of an oil and gas lease and also certain additional provisions. It provided that the lessors should receive one-eighth of all the oil produced and saved. A subsequent clause reserved to the lessors an additional one-eighth of all oil produced until the proceeds of the additional one-eighth should amount to $1,000. As further consideration, plaintiffs were paid $2,500 in cash at the time the lease was taken. The evidence shows that the additional $1,000 has been paid in full and that the entire consideration agreed upon was an adequate consideration for the lease. The lease provided that the lessee should commence operations for the drilling of a well on or before March 1, 1938.

At the time the lease was taken the Geary tract consisted of several parcels, or lots, which were separately owned by the various Geary heirs of whom there were eight. The paragraph of the lease governing the assignment of interests in the lease closed with the following sentence: "If the leased premises are now or shall hereafter be owned severally or in separate tracts, the premises, nevertheless, shall be developed and operated as one lease, and all royalties accruing hereunder shall be treated as an entirety and shall be divided among and paid to such separate owners in the proportion that the acreage owned by each such separate owner bears to the entire leased acreage." Then, following intervening paragraphs, appeared the paragraph which defendant contends expressly provides the specific number of wells which defendant may be required to drill and relieves it of any implied covenant further to protect the land from drainage caused by wells on adjoining lands. This paragraph reads: "It is further stipulated and agreed by all parties hereto that the above described land shall be operated and developed by lessee as one communitized lease, with the further understanding that all royalties accruing from production on said property shall be deemed as an entirety and shall be divided equally among the above eight heirs of W. D. Geary and Lois H. Geary, deceased, share and share alike. There shall be no obligation on the part of the lessee to offset the separate tracts into which the property is now divided and a well drilled by the lessee at a regular location (the center of a ten acre tract) which location shall be made by the lessee at a point selected by it, shall be deemed and accepted by the lessors herein as an offset to any and all wells drilled adjoining or adjacent said ten acres. Nor shall the lessee be required to furnish separate measuring tanks by reason of the diverse ownership of the minerals in and under the property communitized hereby."

The defendant contends that the paragraph last quoted specifically relieves it of all implied covenants to drill offset wells and limits the number of wells it may be required to drill to one on the east and one on the west ten acres of the tract regardless of the number of size of the producing wells that may be drilled along its boundaries and despite the fact that defendant owned the leases along the entire north and south boundaries of the lease.

I can not agree with defendant's interpretation of said paragraph. To me the language used in the above quoted sentence and paragraph from the lease clearly indicates that the parties had before them a single unusual problem to be met in the drafting of the lease. This problem grew out of the fact that the tract covered by the lease, being part of an estate, had been divided into several small tracts which were separately owned by the individual heirs who were the lessors. Unless guarded against by specific language, the separate ownership of the lots, operating with the usual implied covenants of an oil and gas lease, would require the defendant to offset a producing well on any such separate tract by a well on each adjoining separately owned small tract, though all were covered by the same lease.

The problem was met by the paragraph of the lease under consideration by providing that the lease should be dealt with as an entirety and a single communitized lease. It so provides in the first sentence of the paragraph and so concludes in the last. To import a foreign subject matter into the intermediate sentence would be calculated to deceive unless couched in language so clear and obvious that it could not be overlooked, or its meaning and full implication mistaken. In my opinion, the paragraph was intended to and does deal with the single problem above mentioned and has no application to nor does it obviate any implied covenants governing the offsetting of wells drilled on lands adjoining the communitized lease.

In dealing with this same contention when presented by defendant in its motion to dismiss before answer filed I used the following language: "The meaning that I am now able to perceive in the written lease, as expressed in the next to the last paragraph therein, is an intention to relieve the defendant from any duty that...