Severson v. Barstow

• Decision Date: 23 December 1936
• Docket Number: 7581.
• Citation: 63 P.2d 1022,103 Mont. 526
• Parties: SEVERSON et ux. v. BARSTOW et al.
• Court: Montana Supreme Court

63 P.2d 1022

103 Mont. 526

SEVERSON et ux. v. BARSTOW et al.

No. 7581.

Supreme Court of Montana

December 23, 1936

Appeal from District Court, Fallon County; Stanley E. Felt, Judge.

Action by Kenneth H. Severson and wife against J. L. Barstow and others. From an adverse judgment, plaintiffs appeal.

Judgment modified and, as so modified, affirmed.

P. F Leonard, of Miles City, for appellants.

D. R Young, of Baker, for respondents.

MATTHEWS Justice.

The plaintiffs, Kenneth H. Severson and Mayme Severson, his wife have appealed from a judgment against them and in favor of J. L. Barstow and others, entered in a suit to quiet title to the S.W. I/4 of Sec. 20, T. 7 N., R. 60 E. M. P. R., in Fallon county and owned by them, and to that end to have a certain oil and gas lease thereon canceled as abandoned, forfeited, and terminated. Plaintiffs' specifications of error challenge each of the trial court's seven findings of fact, the correctness of the court's conclusions of law, and the judgment.

Findings of fact numbered 1 to 4, inclusive, merely follow the allegations of the complaint admitted by the answer, or the undisputed evidence adduced, to the effect that (1) on April 24, 1926, these plaintiffs executed and delivered to Barstow an oil and gas lease on the premises, to be in force for the term of five years and as long thereafter as oil or gas, or either of them, was produced from the land by the lessees, and (2) that, if no well was commenced on the land on or before August 24, 1926, the lease should terminate, unless the lessee on or before that date pay or tender the sum of $40 as rental, which payment would extend the time for the commencement of a well four months, with the privilege of further delay for like periods by like payments, and (3) under this provision delay rental was paid periodically and the time for commencing drilling operations extended to August 1, 1931. (4) Defendants commenced drilling operations in April, 1931, and completed a well on or about May 11, 1931, which well had an open flow of 415,000 feet of gas per day, a rock pressure of 114 pounds, and a volume, measured at open flow, of 430,000 cubic feet per day, sufficient to constitute commercial quantities.

The remaining three findings are in effect as follows: (5) That at the time of completing the well, defendants made inquiry as to the available market for the sale of the gas, and ever since have used reasonable diligence in an effort to find a market and have been unable to find any market whatsoever; that ever since the completion of the well there has been an entire absence of a market for the gas which the well was capable of producing. (6) That no useful purpose would have been served by drilling additional wells, and no useful purpose will be served by drilling additional wells until some further market is developed. (7) That a reasonable attorney's fee for either the plaintiff or defendants in prosecuting or defending this action is the sum of $100.

"Upon the foregoing findings the court makes the following conclusions of law: In view of the reasonable diligence of the defendants to market the gas and in view of the entire absence of a market, the lands covered by said lease have been since the 11th day of May, 1931, in legal contemplation, producing gas in commercial quantities; that said lease is still in force and effect. That the defendants are entitled to judgment dismissing the action and for the sum of *** $100.00, *** attorneys' fees and costs and disbursements in this action." Judgment of dismissal and for $100 and costs followed.

No good purpose would be served by detailing the evidence on which findings numbered 5 and 6 are based; suffice it to say that the only markets ever available to the Baker field were the Carbon Black Company, which went out of business on January 1, 1931, and was, therefore, never available as a market for the gas from the instant well, as a large concern which controlled 60 per cent. of the gas lands in the field, but which, by reason of a surplus supply from controlled wells, absolutely refused to take this gas. The proof amply supports finding of fact numbered 5, and justifies the conclusion drawn as finding numbered 6, to the effect that no useful purpose would be served by drilling additional wells until some further market is developed.

The record discloses that, there being no present or prospective market for the gas, the lessees capped the well and removed their equipment from the premises. There being no material conflict in the evidence, the question as to what the trial court should do in the light of the facts disclosed, became one of law.

The court correctly concluded that, "in the entire absence of a market, the lands *** have been since the 11th day of May, in legal contemplation, producing gas in commercial quantities; that said lease is still in force and effect."

Where as here, the principal consideration for a lease is the payment of royalty, the lease carries an implied covenant to use reasonable diligence to market the product when produced, although the lease is silent on the subject, and whatever is implied in a contract is as effectual as what is expressed; in an action to cancel such a lease, the burden rests upon the lessee to establish the fact of reasonable diligence if he would prevent cancellation. Berthelote v. Loy Oil Co., 95 Mont. 434, 28 P.2d 187. The lessees here met this requirement, and, while a different rule prevails with relation to oil wells, as oil, unlike gas, may be stored and divided, in legal contemplation, under the facts shown, this gas well was "producing" within the meaning of the lease. Mills & Willingham on Oil and Gas, 121;...