Phillips v. Hamilton

• Decision Date: 25 May 1908
• Citation: 17 Wyo. 41,95 P. 846
• Parties: PHILLIPS ET AL. v. HAMILTON
• Court: Wyoming Supreme Court

95 P. 846

17 Wyo. 41

PHILLIPS ET AL. v. HAMILTON

Supreme Court of Wyoming

May 25, 1908

ERROR to the District Court, Converse County; HON. RICHARD H SCOTT, Judge.

Action by William F. Hamilton against J. Bevan Phillips, trustee and Douglas Oil Fields, a corporation, to enjoin the defendants from drilling for oil and gas upon certain described premises and to exclude them from the same. From a judgment in favor of the plaintiff, the defendants prosecuted error. The lands had been leased by Hamilton to Phillips for the purpose of their exploration for oil and gas, and the lease had been assigned by the latter to his co-defendant. The plaintiff declared the lease cancelled and brought this action. The other material facts are stated in the opinion.

Reversed.

W. R Stoll, for plaintiffs in error.

Mere inadequacy of consideration or other inequality in the terms of a lease does not in itself constitute a ground for its avoidance in equity. The lease in controversy was not only based upon a good and sufficient consideration, but it is not objectionable on the ground that the consideration was inadequate. (Brewster v. Lanyon Zinc Co., 140 F 801; 1 Story Eq. Jur., Sec. 244; Marble Co. v. Ripley, 10 Wall. 339; Oil Co. v. Guffey, 52 W.Va. 88; Brown v. Fowler, 56 O. St. 507; Oil Co. v. Oil Syndicate, (La.) 38 So. 932; Oil & Gas Co. v. Robinson, 71 O. St. 302; Gas & Fuel Co. v. Echert, (Ohio) 71 N.E. 281.) The mere fact that the lessee has a right to remove all his property at any time, does not create a tenancy at will nor show a want of mutuality. A lease for a definite period is not a tenancy at will, nor one for so long a time as oil and gas may be found thereon in paying quantities. Any lease or contract imposing mutual conditions or obligations cannot be considered as wanting in mutuality. Where the lessor and lessee each covenant and agree to do certain things, the lease or contract is necessarily mutual on its face. (Brewster v. Lanyon Zinc Co., supra; 9 Cyc. 334; Gas & Fuel Co. v. Echert, 70 O. St. 127; Davis v. Wells Fargo & Co., 104 U.S. 159; Brown v. Fowler, supra; Oil Co. v. Snyder, 106 F. 64; Oil Co. v. Oil Syndicate, supra; Dickey v. Brick & Tile Co., (Kan.) 76 P. 398.)

A greater degree of diligence may with propriety be exacted of a lessee in a field which has aready been developed than would be justified in an undeveloped field and where the lessee is a pioneer in attempting to demonstrate the existence of oil and gas. The evidence in this case establishes the fact that doubts were entertained as to whether there was an appreciable quantity of oil and gas in the locality where the lands were situated, and that the well upon the premises in question was the first one in which there had been a showing of gas. The evidence is not disputed that the well sunk by the lessee upon the leased premises was intended as a test well to demonstrate as a precautionary measure whether the supposed strata of gas sand did in reality exist. (Baumgardner v. Browning, 12 O. C. C. 73.)

Where a lease specifies a particular ground of forfeiture no other ground will be implied. (Harris v. Ohio Oil Co., 57 O. St. 118; McKnight v. Kruetz, 51 Pa. St. 232; Koch's App. 93 Pa. St. 434; Armitage v. Oil & Gas Co., (Ky.) 80 S.W. 177; Thornton on Oil & Gas, 91.)

It is incumbent upon one alleging abandonment to prove it by a preponderance of the evidence; and abandonment is a matter of intention. A mere suspension of operation does not constitute abandonment. (1 Cyc. 4-8; Price v. Black, (Ia.) 101 N.W. 1056; Paine v. Griffiths, 86 F. 452.) The lessee clearly commenced operations within the time specified in the lease for that purpose.

Although the lease in question does not specify the extent of the operations to be carried on, there is, however, implied the condition that at the expiration of the first year the work was to be prosecuted with reasonable diligence, but nothing more. A temporary suspension of operations does not show, necessarily, a lack of reasonable diligence. Even if the lessor had a right to terminate the lease by declaring an abandonment, he waived that right by permitting the lessee to return and resume operations. (Price v. Black, supra.)

The exercise of reasonable diligence is necessarily a matter largely left to the determination of the lessee, and where he acts honestly and in good faith, exceedingly strong evidence is required to justify a conclusion that the lessee had abandoned the land. The evidence in this case is clearly insufficient to show an abandonment or want of diligence. (Brewster v. Zinc Co., supra; Gas & Oil Co. v. Leer, (Ind.) 72 N.E. 283.)

Though the lessor may have the right at a given time to declare a forfeiture as by reason of abandonment, if he neglects to do so at such time, but on the contrary, permits the lessee to resume operations without protest or opposition on the part of the lessor, the latter waives any right he may have had to claim abandonment or other non-compliance with the terms of the lease. (Thornton, 159; Oil Co. v. Hurlbut, 14 O. C. C. 144; Kellar v. Craig, 126 F. 630; Petroleum Co. v. Lubricating Co., (Ky.) 87 S.W. 1102.) The lease expressing but one cause of forfeiture, viz.: non-payment of rent, a forfeiture could not be declared for a breach of the implied covenant as to diligence, had there been a breach thereof. (1 Pom. Eq. Jur., Sec. 459; Thornton on Oil & Gas, Secs. 156, 157.) While as a general rule notice of forfeiture is not necessary where the lessor is in possession of the premises, yet, if the lessee has substantially complied with the lease, or made a bona fide attempt to do so, and the lessor claims a forfeiture because the terms have not been strictly complied with, or the land has not been fully developed, he is required to give notice to the lessee of his intention to declare a forfeiture and to specify the ground thereof, and to give the lessee reasonable time after such notice to comply with the lease, so far at least as development is concerned. (Thornton on Oil & Gas, 158; Gas Co. v. Kelsay, 164 Ind. 563.) Temporary suspension of operations is not sufficient in itself to establish abandonment. (Gas Co. v. Ross, 32 Ind.App. 638; Baumgardner v. Browning, supra; Thornton, Secs. 133, 137; 1 Cyc. of Ev. 1-13.) A forfeiture is never enforced where the principles of right, justice and morality would be denied, and wherever a forfeiture would be oppressive, courts of equity have refused to enforce it. The enforcement of the forfeiture claimed in this case would be exceedingly harsh and oppressive and in violation of the plainest principles of right and justice. (1 Pom. Eq. Jur., 113 et seq.; Brewster v. Lanyon Zinc Co., supra.)

F. H. Harvey, for defendant in error.

The lease in question is to be construed as requiring the lessee to commence drilling within one year and to continue such drilling, without interruption, to success or abandonment. (Bryan Law of Petroleum &c., Sec. 217.) In case the lessee concluded to quit he had a right to remove his machinery and fixtures. The fact that he did remove the same is to be taken as conclusive evidence of abandonment. (McNish v. Stone, 152 Pa. St. 457; Bryan, Sec. 219.) The lessee's right to remove machinery and fixtures could be exercised only after having demonstrated a non-productiveness of the land and concluded to terminate the lease. He had no right to remove during a continuance of the lease. (Thornton, Sec. 191; White on Min. & Min. Rem., Secs. 137-186; Bryan, Sec. 62.) When the lessee left the premises with his drilling outfit the lease was of no further effect and thereafter became void for want of further mutuality. Where the lessee has the right to abandon the lease after operations begun and remove his property from the premises and he does abandon such operations, the lease is then at an end. (Thornton, Sec. 53; Paine v. Griffith, 86 F. 452; Cowan v. Iron Co., 3 S.E. 120; Huggins v. Dailey, 90 F. 606; Steelsmith v. Gartlan, 29 S.E. 978; Oil Co. v. Oil Co., 112 F. 376; Reese v. Zinn, 103 F. 97; Foster v. Gas Co., 90 F. 75; Barnsdall v. Boley, 119 F. 201; Cowan v. Iron Co., supra; Ray v. Gas Co., 20 A. 1065.)

An oil and gas lease granting the lessee the option to annul the lease at his pleasure and withholding such option from the lessor may, if based upon a sufficient consideration, still be mutual and valid, but only so long as the lessee is bound by some covenants of the lease, express or implied. (Oil Co. v. Oil Co., 112 F. 376; Reese v. Zinn, 103 F. 97; Foster v. Oil Co., 90 F. 173.) If a single well demonstrates that there is no oil or gas, the contract is at an end as soon as the first well is abandoned as unsuccessful. (Thornton, p. 129; Oil Co. v. Fretts, 25 A. 752; Oil Co. v. Gas Co., 42 S.E. 255.)

It is immaterial what the lessee's intention was if he actually left the premises with his drilling outfit. (Thornton, p. 198 and note, and Secs. 137, 158; Oil Co. v. Gas Co., 42 S.E. 655.) The evidence is sufficient to show abandonment by the lessee, especially as nearly all the work was done by the assignee of the lease after its annulment, with full knowledge of the facts. (Rawlins v. Armel, (Kan.) 79 P. 685.) After the lessee ceased operations and removed from the premises the lessor could not have compelled him to return and renew drilling, and the lessee having, therefore a mere optional right of entry, that right could be terminated by either party at his will. (Thornton, Sec. 71; Trees v. Oil Co., 34 S.E. 933; Steelsmith v. Gartlan, supra.) Oil and gas leases are to be construed strongly against the lessee. (Thornton, Sec. 78.) A lease for the purpose of securing prompt and diligent development containing no provision for an alternative payment of cash rental in case of suspension of...