McKnight v. Manuf. N. Gas Co

• Decision Date: 04 January 1892
• Docket Number: 104
• Citation: 146 Pa. 185,23 A. 164
• Parties: H.O. McKNIGHT v. MANUF. N. GAS CO
• Court: Pennsylvania Supreme Court

23 A. 164

146 Pa. 185

H.O. McKNIGHT v. MANUF. N. GAS CO

No. 104

Supreme Court of Pennsylvania

January 4, 1892

Argued October 19, 1891

APPEAL BY DEFENDANT FROM THE COURT OF COMMON PLEAS OF WASHINGTON COUNTY.

No. 104 October Term 1891, Sup. Ct.; court below, No. 207 November Term 1890, C.P.

On September 22, 1890, H.O. McKnight brought assumpsit against the Manufacturer's Natural Gas Company, to recover damages for alleged breaches of covenants contained in an oil and gas lease, the breaches assigned in the statment of claim being mismanagement of a natural-gas well drilled upon the land by the defendant company, and the failure to drill other wells requisite to the proper development of the land as gas territory. The defendant pleaded non assumpsit.

At the trial, on February 26, 1891, the following facts were shown:

On October 29, 1884, the plaintiff leased his farm containing two hundred and fifty acres to the Canonsburg Iron Company Limited, the material provisions of the lease being as follows:

"Witnesseth That the said party of the first part, in consideration of the stipulations, rents and covenants hereinafter contained on the part of the said party of the second part, its executors, administrators and assigns, to be paid, kept and performed, has granted demised and let unto the said party of the second part, its executors, administrators and assigns, for the sole and only purposes of mining and excavating for petroleum, carbon oil or gas, and for the laying of pipe under said surface for transportation of oil or gas, for and in consideration of the sum of one dollar in hand paid, I do hereby lease all of that certain tract of land situate in Chartiers township, Washington county, and state of Pennsylvania, bounded and described as follows, to wit: . . . To have and to hold the said premises for the said purposes only, unto the said party of the second part, its executors, administrators or assigns, for, during and until the full term of twenty years next ensuing the day and year above written.

"The said party of the second part hereby covenants, in consideration of the said grant and demise, to deliver unto the said party of the first part, his heirs and assigns, the full equal one eighth part of the petroleum or carbon oil discovered, excavated, pumped and raised on the premises herein leased, as produced, excavated or pumped in the crude state; the said first party to furnish tankage for the same until pipe line is provided. . . .

"The party of the second part covenants to commence operations for said mining purposes within eighteen months from the execution of this lease. Party of the first part reserves the right to locate wells. And a failure on the part of said second party to comply with either one or the other of the foregoing conditions, shall work an absolute forfeiture of this lease. If said second party fails to get oil in paying quantities in any well drilled on the within described land, but a sufficient flow of gas should be obtained to justify said second party in utilizing it at some other point not on the premises where said well is located, then the said second party agrees to pay to said first party a money royalty of one eighth of the net proceeds in cash, for each and every well so worked, as long as said well is so utilized. Said money royalty shall be paid in semi-annual instalments, one payment at the end of each half year. If gas should be found in considerable quantities in any well drilled on the within described land, then the said second party agrees to pay to said first party one eighth of the amount obtained for said well in the event of a sale of said well.". . .

By virtue of certain assignments, the leasehold estate created by the foregoing lease, became vested in the defendant company on December 15, 1885. In September, 1886, the defendant completed a producing gas well, upon a location made by the plaintiff at the southern end of the farm, and thereafter the gas in this well was utilized until some time in the spring of 1889. By an agreement between the plaintiff and the defendant company, dated October 13, 1886, the provisions of the lease were so far modified as to provide that the defendant should pay the plaintiff one thousand dollars annually for "each and every gas well having a pressure of seventeen pounds over an open five and five eighths inch casing" and utilized at any point not on the leased premises, and that, if the pressure of any well or wells should decrease materially, the amount of the annual rental should be reduced in the same proportion. By another paper dated August 1, 1888, the plaintiff agreed to accept seven hundred and fifty dollars in satisfaction of the rent on the well drilled as aforesaid, from October 19, 1887, to October 19, 1888, and it was stipulated further as follows:

"And it is further agreed that, since said well has been drilled deeper and the gas increased so that the same can be utilized and the pressure sufficient to use in the city of Pittsburgh, the annual royalty to be paid to H. O. McKnight shall be five hundred dollars per annum, so long and during such term as the said well is so utilized; payment of the royalty shall be semi-annually."

In the spring of 1889 the packer in the well drilled by the defendant got out of order; and in the course of an effort to remedy the trouble, an accident occurred which, in the opinion of the defendant's agents, made it necessary to abandon the well, and it was accordingly abandoned and plugged after unsuccessful efforts to clean it out. No other well was drilled to take its place, and this well was the only one ever drilled on the plaintiff's land.

The plaintiff being upon the witness stand, his counsel made the following offer:

Plaintiff proposes to prove by the testimony of himself and other witnesses, that his entire farm of two hundred and fifty acres, as described in this lease in evidence, was, in the years 1886-1887, good gas territory; that, in order to properly develop and operate this tract of land, it was necessary for the defendant company to drill and operate at least three or four wells on the same; that there has been an abundant market for gas in that territory ever since September 1, 1886; that five or more wells were drilled on the lands adjoining this lease in the years 1887-1888, which wells have ever since been draining the lands described in this lease; that the defendant company neglected and refused to drill any additional wells on the plaintiff's land, and also neglected and refused to protect this land leased to them from drainage by wells drilled on adjoining tracts; and that, by this failure of the defendant, the plaintiff has suffered great loss and damage. The purpose of this offer is to show that the failure of the defendant company to develop and operate this land has caused the plaintiff great damage, as set forth in his statement; and for the further purpose of ascertaining the amount of damages sustained by the plaintiff by reason of the failure of the defendant company to keep its covenants as set forth in the lease.

Objected to: (1) As irrelevant and incompetent; (2) for the reason that the written agreement on which this action is based imposes no liability upon the defendant company to drill additional wells on the plaintiff's farm; (3) the duties and liabilities of the defendant company are to be measured by the terms of the written agreement, aided by the circumstances surrounding the parties at the date of the agreement in 1884, and not by the subsequent developments on the adjoining farms in 1886-1888; (4) the defendant company is not liable in damages for any alleged drainage of gas from this farm by reason of operations on adjoining tracts of land; (5) for the reason that under the terms of the written agreement, the sale of the gas from any well is a condition precedent to the right of the plaintiff to receive any compensation from the defendant.

By the court: Since looking at these papers, we think it not necessary to have any further discussion until the end of the case. This testimony, we think, is admissible at this stage of the case, and as to whether or not the defendant company was bound to protect from drainage, that is a question we will not decide now. The proposition here, is to prove this property was not properly developed, that it was good gas territory, and that there was a market for the gas, and that to properly develop it up to the time this suit was brought there ought to have been two or three wells drilled. We think it is proper testimony; but, as to the measure of damages from other parties operating on adjoining lands, that is a question to be decided hereafter. Objection overruled; exception.

The plaintiff then testified that after the completion of the well drilled on his farm, all the land surrounding the farm was leased for oil and gas purposes by other companies, and wells were drilled upon tracts adjoining it on the north, east and south, all of which were producers of gas, and most of them close to the boundary lines of his farm; that the witness urged the defendant to have additional wells drilled upon his farm, but nothing was done in pursuance of his requests; that after the well on his farm was plugged, the defendant took away the boiler and engine that had been used at it, and took up the line of pipe connecting his farm with the defendant's gas main. Other witnesses testified that about the time the McKnight well was completed, it would have been a prudent thing to drill another well on the farm, provided the company had a market for the gas.

Testimony given on cross-examination of witnesses for the plaintiff and testimony of witnesses called by the defendant, tended to show the facts stated...