Opinion
January, 1916.
Allen J. Hastings, for plaintiff.
George W. Cole, for defendants Enright.
John B. Richards, for defendant Forman.
On September 21, 1889, defendant George V. Forman was the owner of a tract of land on lot 46, town of Carrollton, Cattaraugus county, twenty-five chains wide north and south, one hundred chains long east and west, containing two hundred and fifty acres, bounded on the south by the state line, and was also the owner of 19 acres on the north, ten chains wide east and west and nineteen chains long north and south, the east boundary being a continuation of the east boundary of the two hundred and fifty-acre tract, all of which real estate was known as the William Beardsley farm, a wild, unimproved and unoccupied tract of land. On that day Mr. Forman signed and delivered to J.M. Shearon and Charles De Hart a paper reading:
"OLEAN, N.Y., Sept. 21, 1889.
"I hereby agree to lease 50 acres of land at one-eighth (1/8) royalty on the west of the William Beardsley farm near state line either north or south of said line from the tracts of land I own to J.M. Shearon and Charles De Hart on condition that they will commence and drill an oil well thereon. In case they are successful in obtaining oil they shall have fifty acres more on same terms. The rig for said well to be built within thirty days and the well to be put down as soon as practical, otherwise this agreement to be utterly null and void.
"GEORGE V. FORMAN.
"In case said parties should obtain paying wells and the balance of the property should prove to be valuable I agree to let them have the first chance to lease the same at its value.
"GEORGE V. FORMAN."
Shearon and De Hart drilled an oil well on the extreme east end of the two hundred and fifty-acre tract and about seventeen chains north of the state line during the fall of 1889, finding oil in paying quantities.
In 1891 Shearon and De Hart assigned a one-quarter interest in the above-mentioned agreement or option for a lease to one John Denman, together with a like interest in an oil well and its fixtures, etc., "now on said lands and belonging thereto;" and on June 19, 1891, John M. Shearon assigned a one-quarter interest in the above-mentioned agreement or option for a lease to the said John Denman, together with a like interest in the oil well and fixtures "thereon situate."
In 1891 Shearon and De Hart assigned a one-quarter interest in the Forman paper of September 21, 1889, to Ferdinand Kreiner, together with one oil well and its fixtures "on said land and belonging thereto," and on March 20, 1892, the said Kreiner assigned to J.W. and T.E. McCray one-quarter of the leasehold estate created in the above mentioned Forman paper of September 21, 1889, together with a like interest in an oil well thereon and a certain additional well that had been drilled by Shearon, De Hart and Kreiner on such leasehold. This last mentioned well had been drilled on the easterly end of the two hundred and fifty-acre tract about twelve chains north of the state line and about twenty-five chains west of the east end of the tract. These two oil wells were of small production, yet were paying wells, one-eighth of the oil from each of them being run into the pipe line to the credit of Mr. Forman as royalty.
In this condition of the title De Hart, Denman and the McCrays were in possession and claimed to own two oil wells located on the east end of the two hundred and fifty-acre tract under an agreement by Mr. Forman to lease fifty acres off the west end of the tract at one-eighth royalty. Such was the situation in June, 1894, when John Denman interviewed Mr. Forman upon the subject of the giving of an oil lease as provided in the paper of September 21, 1889. Mr. Forman stated to Denman that the lessees could have all the time they wanted to drill another well or two. After the interview Mr. Forman had prepared a lease which was dated back to July 10, 1890, of seventy-five acres of the east end of the two hundred and fifty acres and the nineteen acres located to the north and east thereof to Denman, De Hart and McCray Brothers for oil operations, to drill for and gather all oil, etc., for twenty-five years from July 10, 1890, at one-eighth royalty and providing for the drilling of four wells a year. In case, however, the lessees should drill only one or two or more wells and operations be suspended, then there should be set apart ten acres next to and adjoining each well drilled for the lessees, and the balance of the lease should revert to the lessor. This proposed lease was never signed by Mr. Forman. He mailed it to Denman in Ohio, accompanied by a letter dated June 14, 1894, in which he stated that the forfeiture would not be insisted upon, using the following language: "You need not feel anxious about further drilling unless you have ample notice from me." Mr. Forman also stated in the letter: "I send you herewith the lease in duplicate spoken of when here * * * I would like you to return me the original memorandum for this lease, given to De Hart Shearon; inasmuch as the lease itself is made to a different party it is proper I should it surrendered."
It is very evident from the foregoing letter that the proposed lease accompanying it was not to be signed by Mr. Forman until the letter or paper of September 21, 1889, was returned to him.
Upon receipt of the proposed lease and accompanying letter by Denman, Denman signed his name in the appropriate place as one of the lessees and mailed the proposed lease to the McCrays at Bradford, Penn., who evidently placed the same among their private papers and it was not discovered until after this action was commenced in 1914. It is not known whether Charles De Hart ever saw the proposed lease and it is not known whether De Hart, Denman and the McCrays drilled any oil wells relying upon or depending upon the proposed lease being actually signed in the future by Mr. Forman. De Hart, Denman and the McCrays did drill two additional oil wells upon the 250-acre tract, each about 150 feet from the east boundary, one about seven chains and one about ten chains north of the south boundary. The fact that Denman testifies that Mr. Forman told him in 1894 that "We would have all the time we wanted to drill another well or two, and we drilled another well or two," is accepted as proof that these two additional wells were drilled after the letter of June 14, 1894, and the proposed lease was sent to Mr. Denman by Mr. Forman.
From the date of the completion of the two additional oil wells in about 1895, no other wells were drilled by De Hart, Denman and the McCrays, and no attempts were made by them to operate any portion of the premises for oil purposes for nearly twenty years, and no notice was ever given by Mr. Forman requiring further drilling. De Hart, Denman and the McCrays, or their successors in interest, the plaintiffs herein, however, have continuously operated the four oil wells, delivered one-eighth of all oil produced therefrom to Mr. Forman and have been in the possession of such four oil wells up to the present time.
In 1904 Mr. Forman executed and delivered to Hooker Brothers an oil lease of the 19 acres described in the proposed lease above referred to, such lessees drilling two oil wells thereon more than ten years ago without any objection on the part of De Hart, Denman and the McCrays, and on April 4, 1911, the defendants purchased the lease and the two oil wells of Hooker Brothers. On June 22, 1911, Mr. Forman conveyed by quit-claim deed to the defendant "all the crude oil, petroleum, gas, mineral and other rights that I possess in or under the surface of" the 250- and 19-acre tracts above referred to, "subject to any lease for oil and gas purposes heretofore made by the said George V. Forman covering any portion of the said above described premises." At the time of and prior to this last mentioned conveyance the bookkeeper of Mr. Forman exhibited to the defendants a book kept by him relative to the 250-acre tract wherein it was written: "East 75 acres of above tract leased to De Hart S. from which G.V.F. receives a royalty of one-eighth." The said bookkeeper stated to the defendants that there could be no lease found executed to the plaintiffs or their predecessors in interest and there was no such lease on record. Thereafter the defendants called upon the plaintiff De Hart, inquired as to what right the plaintiffs had to operate its four oil wells for oil and was shown a copy of the paper of September 21, 1889, and told that the plaintiffs claimed under it. Thereafter and on or about April, 1913, the defendants located and drilled an oil well 384 feet to the east of the first well drilled by the plaintiffs' predecessors in interest, and commenced the drilling of a second well more than 400 feet to the northeast of the said first well drilled by plaintiffs' predecessors in interest, when the plaintiffs commenced this action, alleging that upon execution and delivery of the paper of September 21, 1889, the said Shearon and De Hart entered upon the premises therein described and drilled two oil wells, complying with the conditions of such paper, in good faith believing that Mr. Forman would execute a formal oil lease of the 100 acres to them, that the said Forman refused to make such lease, that the defendants purchased such oil rights with full knowledge of plaintiffs' rights, had been forbidden to drill for oil on said premises, and demanded judgment that plaintiffs be adjudged to be the owners of the oil right in the 100 acres, that defendant Forman be compelled to execute an oil lease to them of 100 acres, and that defendants be restrained from further operations for oil on said premises. After the defendants had answered, denying that plaintiffs acquired any rights under the paper of September 21, 1889, to the premises on which the four oil wells drilled by plaintiffs' predecessors in interest were located, the plaintiffs evidently then discovered the existence of the proposed lease of June 14, 1894, for they later procured an order permitting an amendment of the complaint, alleging as a second cause of action the execution and delivery by defendant Forman to Denman, De Hart and McCrays of an oil lease of said premises at one-eighth royalty which was intended by said Forman to be performance of the said agreement of September 21, 1889, and that plaintiffs and their predecessors in interest had been in open possession of said premises, producing oil therefrom and delivering royalty thereof to defendants.
The contention of the plaintiffs is that they are entitled to a judgment decreeing that the facts and circumstances of the case constitute in law and in equity an executed oil lease to them of the east 75 acres of the 250-acre tract, securing to them the paramount and exclusive right to operate the same for oil purposes at one-eighth royalty; that the defendants are entitled simply to such royalty; that the drilling of the four oil wells by plaintiffs' predecessors in interest secured the exclusive right to occupy not only sufficient land surrounding each well to reasonably operate the well, but also the right to all of the 75 acres.
It is quite satisfactory to be able to reach a conclusion that the plaintiffs are rightfully and equitably entitled to the four oil wells they possess and operate, together with the exclusive possession of the adjacent land thereto within a radius of 200 feet, restricting their future operations to the oil wells already drilled. Performance of any kind of a contract that can be spelled out of all the facts will give them those wells. It is a far different matter, however, to undertake to work out a theory which will be in harmony with law and equity, whereby plaintiffs can be awarded possession of the oil wells drilled by the defendants, as well as possession of the entire east 75 acres of the 250-acre tract. The objections to such a theory can not be overcome. The paper of September 21, 1889, has no reference whatever to the east 75 acres of the 250-acre tract; it refers solely to the west 50 acres; there never was a well drilled on the west 50 acres, so as to entitle the holders of the paper to a second 50 acres. If it was intended that the proposed lease of June 14, 1894, was to be in fulfillment of the option of September 21, 1889, that intention was rendered ineffectual by the fact that the proposed lease was never signed by the owner of the fee. To hold that an oil lease can be adjudged to have been executed so as to create an exclusive, permanent and definite tenure of lands beyond the narrow limits of actual occupation and possession, without actual signing, would be to ignore the plain provisions of the Real Property Law applicable to such instruments. Section 259 of that law provides that a contract for the leasing for a longer period than one year of any real property is void unless the contract or some note or memorandum thereof expressing the consideration is in writing, subscribed by the lessor. There has been no proof offered of any compliance with the requirements of this provision. Whatever writing, subscribed by defendant Forman, there has been produced has reference to lands more than one-half mile to the west of the lands in controversy. If it be claimed that the letter of September 21, 1889, the letter of June 14, 1894, the proposed lease accompanying the last mentioned letter, the drilling of the four wells upon the east end of the 250-acre tract, the acceptance of the one-eighth royalty by Mr. Forman from the four oil wells, the entry in the books of Mr. Forman, in about 1910, that the east 75 acres of the 250-acre tract had been leased to De Hart and Shearon, constitute an executed oil lease for the 75 acres providing that the drilling of one or four oil wells thereon shall hold and effectually tie up the whole 75 acres, the answer is that there has been no proof whatever of such an important and vital provision. Whatever proof there is upon the subject of how much land can be claimed by the drilling of each well is limited to the provision in the proposed lease that each well shall hold ten acres. Even that provision was not known to any party to this action until the summer of 1915, years after the leasing by Mr. Forman to Hooker Brothers of the 19 acres and some time after the defendants had drilled their wells that the plaintiffs now claim to own. If it be said that the exhibiting to the defendants, before their purchase, of the entry in Mr. Forman's book that the east 75 acres of the 250-acre tract had been leased to De Hart and Shearon was notice to defendants that there was then in existence a valid lease securing the whole 75 acres, the answer is that there was no such lease in existence. The entry in Mr. Forman's book had reference to transactions in 1889 to 1894. For seventeen years there had been no further operations for oil except the pumping of the four wells. No attempt had been made to further drill the property. The plaintiffs had acquiesced in the right of Mr. Forman to lease to Hooker Brothers the 19 acres, a part of the lands described in the proposed lease. Such acquiescence by the plaintiffs in 1904 in the assumption by Mr. Forman of the right to lease the 19 acres is some evidence that they recognized his right to convey the oil right in the balance of the 94 acres, excepting what land was reasonably needed for the operation of the four oil wells, and is some evidence of the abandonment by the plaintiffs of all claim thereto under the paper of September 21, 1889, or the transactions which they now claim constitute an executed lease of the 75 acres.
While it is true that the right to operate for oil under a lease, contract or other right or license to operate for oil shall be deemed personal property by virtue of section 39 of the General Construction Law, yet it has never been held that the perpetual, exclusive right to operate lands other than those occupied could be created except as provided by section 259 of the Real Property Law.
The drilling of the four oil wells did not create the right to exclusively possess the entire fifty, seventy-five, ninety-four or one hundred acres of the Beardsley farm, whichever of these parcels plaintiffs may claim. There has been proved no contract to this effect. In the absence of proof of the creation of the right to operate the entire tract of seventy-five acres in accordance with the requirements of section 259 of the Real Property Law, the finding must be that the plaintiffs are not the owners of the oil wells drilled by the defendants, and are not entitled to possess the entire seventy-five acres and to restrain defendants from operating thereon.
While the Statute of Limitations has run against the claim for a specific performance of an alleged contract to lease, founded upon the paper of September 21, 1889, and all the facts and circumstances established, yet it can equitably and reasonably be held that the plaintiffs should be permitted to continue the operation of the four oil wells drilled by them, retain what oil they will produce, less one-eighth thereof as royalty to the defendants, exclusively possessing for such purpose all the land within a radius of 200 feet from each well; that such operation of such oil wells continue by plaintiffs as long as oil is produced in paying quantities, and be limited to the four oil wells already drilled; that upon abandonment of such oil operations the plaintiffs be permitted to remove their fixtures and appurtenances, and for the purpose of such operation and removal plaintiffs have ingress to and egress from said premises. The plaintiffs having drilled these four wells, their ownership of the same and the right to operate having been acquiesced in by the owner of the fee for more than twenty-five years, their acts must be deemed to have been in performance of some contract therefor, and their possession thereof will not be disturbed.
The plaintiffs failing to establish title to the right to exclusively operate any of the 250-acre tract in the possession of the defendants, and failing in their claim to the ownership of the oil wells drilled by the defendants, would be subject to costs of this action were it not for the fact that the defendants in their answer denied plaintiffs' right to the four wells and demanded judgment that the defendants' rights in all the lands in controversy were superior to those of the plaintiffs. Neither party succeeding upon the issues raised by the pleadings, costs are not awarded.
The complaint will be dismissed as against defendant Forman, without costs.
Judgment accordingly.