Lindlay v. Raydure

• Decision Date: 03 February 1917
• Citation: 239 F. 928
• Court: U.S. District Court — Eastern District of Kentucky
• Parties: LINDLAY et al. v. RAYDURE.

239 F. 928

LINDLAY et al. v. RAYDURE.

United States District Court, E.D. Kentucky.

February 3, 1917

[Copyrighted Material Omitted]

Burnam & Burnam, of Richmond, Ky., and R. W. Smith, of Irvine, Ky for plaintiffs.

Hugh Riddell, of Irvine, Ky., and Frank A. Baldwin, of Bowling Green, Ohio, for defendant.

COCHRAN District Judge.

This cause is before me for final decree. It involves a controversy between holders of rival oil and gas leases. Thomas Tipton and George Pitts owned adjoining farms in Estill county, Dy., within this district, the one containing 185 acres and the other 75 acres. Each executed-- the one on May 20, 1915, his wife uniting with him, and the other on May 22, 1915, he then being a widower--such a lease on his farm to the plaintiff Harvey Huntsman, who subsequently assigned three-fourths thereof to his coplaintiffs, one-fourth to each. The Tipton lease was lodged for record November 12 1915, and the Pitts November 10, 1915. The two leases were alike, save in the one particular, hereafter indicated. Each recited, as the consideration therefor, payment of $1, receipt of which was acknowledged, and the covenants and agreements on the part of Huntsman therein contained, purported to grant and convey all of the oil and gas in the land, and demised, leased, and let the land for the purpose and with the exclusive right to enter thereon at all times to drill and operate wells for oil and gas for the term of 10 years, and so long thereafter as oil and gas, or either of them, was produced, except that the lessor was to have 8 per cent. of the oil produced. Huntsman covenanted and agreed to pay $100 per annum for each gas well from which gas was marketed, and to complete a well within one year from the date of the lease, or to pay at the rate, in the Tipton lease of 25 cents, and in the Pitts lease of 10 cents, per acre for each additional year the completion thereof was delayed, payable yearly in advance, until a well was completed or the lease surrendered as therein provided, which payment might be deposited to the lessor's credit in the Farmers' Bank of Irvine, county seat of Estill county. In each it was provided that the completion of the well should be a full liquidation of such rentals during the remainder of the term of the agreements, that Huntsman was to have the privilege at any time of removing all machinery and fixtures, and that upon the payment of $1 at any time he should have the right to surrender the lease for cancellation, after which all payments and liabilities thereafter to accrue thereunder should cease and determine, and it be absolutely null and void. Each contained other provisions usual in such leases, which it is not necessary to set forth.

On October 13, 1915, Tipton and his wife made a lease on his farm similar to that which they had made to Huntsman, except in that Tipton was to have one-eighth of all the oil produced and it contained no surrender clause, which was lodged for record November 17, 1915; and on October 21, 1915, Pitts made a lease on his farm similar to that which he had so made, except in that Huntsman was to pay 25 cents, instead of 10 cents, an acre per annum for delay in completing the test well, which was lodged for record November 15, 1915; each lease being to the defendant Raydure. At the time of making of these leases the year had not elapsed which Huntsman had under his leases to complete a test well and he had not commenced to drill on either farm. Tipton and Pitts made these two leases to Raydure upon his representation that the Huntsman leases were void and upon an agreement on his part to defend against them. Huntsman was then still the sole owner of his leases. He did not assign interests in them to his coplaintiffs until in February and March, 1916. At that time nothing had been done under any of the leases. In April, and in time enough to have completed a test well before May 22, 1916, when the year would expire for completing it under the Pitts lease, plaintiffs selected a site for drilling a test well on the Pitts farm and were in the act of placing a drilling outfit thereon for that purpose, when they were forcibly prevented from so doing by the defendant. They made no attempt to commence drilling such a well on the Tipton farm. They were made to understand that it was not agreeable that they should do so, and that they would be resisted. Before the expiration of the year they tendered Tipton the rental for the succeeding year, which he refused to accept, and they thereupon deposited same to his credit in the prescribed bank. On the other hand, Raydure, before the expiration of the year under the Huntsman leases, entered upon both farms and has drilled five wells on each, each of which wells is capable of producing 50 barrels of oil per day.

This suit was brought May 15, 1916, and in it plaintiffs seek an injunction against defendant, restraining him from producing oil on or removing it from those farms, and from interfering with their so doing, and judgment against him for $200,000 damages; i.e., $100,000 for each of the wrongs already done. A number of questions bearing on plaintiffs' right to relief have been raised in the case. Two of them pertain to both of the Huntsman leases. One is whether they are invalid because of the surrender clause contained therein. The other is as to whether the defendant had actual notice of them at the time he obtained his leases. They had not been lodged for record at that time. It is essential, therefore, that he should have then had such notice thereof to be affected by them. Two questions have been raised as to the Tipton lease alone. One is as to whether it was acknowledged by Tipton and his wife before a deputy clerk of the Estill county court, as it is certified to have been, and the effect thereof, if it was not. The other is as to whether it was obtained by deception practiced by Huntsman on Tipton and his wife. The agreement was that Tipton was to have one-eighth of the oil produced as royalty. The lease provides that he should have only 8 per cent., and it is in its so providing that it is claimed that deception was so practiced. Huntsman's claim is that it was by mutual mistake that the lease was different in this particular from the agreements. One question has been raised as to the Pitts lease alone, and that is whether he was the owner of the farm covered by it when he leased to Huntsman. It is claimed that the title was then in his granddaughter, Nancy Jones, and her husband, Harvey Jones from whom the defendant obtained a second lease after obtaining the one from George Pitts as hereinbefore stated. I decided all these questions, except the first one, as to the invalidity of both leases because of the surrender clause, against defendant at the hearing and then orally gave my reasons therefor. These will not be repeated here, and the opinion will be limited to the one which was not decided, and which was reserved for further consideration.

The question as to whether the validity of these leases is affected by the surrender clause contained in each of them is a local one. If it has been determined by the Court of Appeals of Kentucky, this court is bound by its decision. There can be no doubt, and the parties are agreed, as to this. Guffey v. Smith, 237 U.S. 101, 113, 35 Sup.Ct. 526, 59 L.Ed. 856. They differ as to what that court has decided in regard thereto. Each side claims that it has decided its way, and that with equal sincerity and cocksureness as to the correctness of its position. Whilst, then, the only question before me is as to what has been thus decided in this particular, there is a right way of approaching that question, and that is from the standpoint, first of personal conviction, and then of authority elsewhere. It has been said by a great biblical scholar of a charming spirit that one cannot attain 'to the highest truth or the highest sincerity until he can speak from personal conviction, ' and that until he can do so he has not yet attained to 'the verite vraie which is the crowning stage of all. ' It is from that high standpoint that I would view authority. I proceed first, therefore, to a consideration of the question as to the validity of these leases on principle. What, according to fundamental notions, is the true position in regard thereto'

But before coming to close quarters with this question accurate position should be taken as to certain matters. One of them has to do with an instrument which is unlike those involved here, in that it has no surrender clause, but is otherwise exactly like them. There is no question that such an instrument is valid. Opinion does not differ as to this anywhere. The matter relating thereto which I would develop is as to whether, immediately upon the execution of such an instrument, an estate of any character vests in the lessee. It is certain that none vests in him as to the oil and gas which may be in the land, notwithstanding the instrument in express terms purports to grant and convey them. This follows from the consideration that the lessor himself has no estate therein; and this is so because of the fugacious nature of such substances. That he has no estate therein is thus put by the Supreme Court, through Mr. Justice White, in the case of Ohio Oil Co. v. Indiana, 177 U.S. 190, 208, 20 Sup.Ct. 576, 583 (44 L.Ed. 729):

'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

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