Opinion
October 4, 1950.
November 13, 1950.
Landlord and tenant — Gas and oil leases — Termination — Abandonment — Evidence.
In a proceeding in equity to cancel a gas and oil lease, in which it appeared that the lease contained no provision for its automatic termination in the event of the failure of the lessee to drill or to pay the delayed rental, nor made express reservation of the power of forfeiture, it was Held that (1) the lease was subject to rescission only upon clear proof of its abandonment by the lessee; (2) in the absence of such intent, the case was not one of abandonment, however remiss the lessee may have been in the performance of its obligations; and (3) the evidence did not establish any intention of lessee to relinquish its rights.
Before DREW, C. J., STERN, STEARNE, JONES, LADNER and CHIDSEY, JJ.
Appeal, No. 137, March T., 1950, from judgment of Court of Common Pleas of Fayette County, in Equity, No. 1878, in case of Joseph Girolami et al. v. The Peoples Natural Gas Company. Judgment affirmed.
Bill in equity.
The facts are stated in the opinion, by CARR, P. J., of the court below, as follows:
This is an action in equity brought to cancel a gas and oil lease and to obtain an accounting for gas removed from the leased premises. It is alleged that before the defendant proceeded to drill it had failed for approximately two years to pay the stipulated delay rentals, thereby manifesting its intention to abandon the lease. The defendant admits withholding payment of the rentals during that period, but avers that it did so because the local taxes due by the lessor had been returned unpaid and the County Commissioners, having bought in the property at a tax sale, had demanded that the rentals be paid to them. The plaintiffs are the original lessor, his son and successor in title, and the holder of a subsequent lease from the latter.
Findings of Fact1. On February 17, 1931, Pietro Girolami, one of the plaintiffs, and Filomena, his wife, now deceased, being the owners by entireties of a tract of 73.735 acres of land in German Township in this county, leased it to Lloyd E. Pollock for the purpose of drilling and operating for gas and oil, for a period of ten years and as long after the commencement of operations as the premises were operated for the production of oil or gas or as oil or gas was found in paying quantities. By the terms of the lease the lessee was to pay the lessor $300.00 a year for each well that produced sufficient gas to convey to market, and it was stipulated that unless a well was completed by April 1, 1931, the lessee was to pay, beginning on that day and continuing until a well was completed, or the lease was abandoned and surrendered, the sum of $18.50 quarterly in advance as a "carrying rent." The lease contained express provisions permitting the lessee voluntarily to abandon or surrender it, but none reserving to the lessor any power to terminate it upon failure of the lessee to drill or to pay. On February 24, 1931, Lloyd E. Pollock, the Lessee, assigned it to Peoples Natural Gas Company, the defendant, and on November 9, 1940, Pietro and Filomena Girolami, the lessors, extended it for an additional term of ten years to February 17, 1951.
2. Not having previously drilled, the defendant on April 1, 1931, paid to the lessors the sum of $18.50, and a like sum thereafter on the first day of each quarter to and including the quarter beginning on April 1, 1942, and ending on June 30, 1942.
3. On May 26, 1942, the defendant received a letter from the Commissioners of Fayette County informing it that the leased premises had been sold to them at a County Treasurer's sale held on May 23, 1940, for delinquent taxes, and notifying it to pay all future rentals to the county and not to the former owners. Upon receipt of the letter the defendant referred it to its land agent, geologist, and counsel for their opinion upon the advisability of protecting the lease, and upon being advised by them to do so, determined to take all necessary steps to that end. On June 26, 1942, while the matter was still under consideration, the defendant paid to Pietro and Filomena Girolami the installment of the delay rental for the quarter beginning on July 1, 1942, and ending on September 30, 1942; and on July 16, 1942, after the decision had been reached to protect the lease, the defendant wrote a letter to Pietro Girolami informing him of the communication from the County Commissioners and of its intention to withhold payment of future rentals pending investigation of the county's claim of title.
4. The defendant then directed its counsel to investigate and ascertain the tax liens against the leased premises and the respective rights under existing law of the lessors and the county and to advise it as to the action it should take in order to prevent its title from being divested. He conferred on a number of occasions with the County Commissioners, but was not able to reach an agreement with them that he regarded as satisfactory, and he came to the conclusion that until the defendant was ready to drill, the rentals should be withheld for the benefit of the lessors in case they should desire to arrange with the taxing authorities to redeem the property.
5. On February 20, 1943, Pietro and Filomena Girolami conveyed the premises to their son, Joseph Girolami, of which conveyance, however, the defendant did not learn until about a year and a half later.
6. On November 8, 1943, the defendant again wrote to Pietro Girolami asking to be advised whether he had made any settlement with the County Commissioners on account of the delinquent taxes, but received no reply.
7. On April 22, 1944, Pietro and Joseph Girolami leased the premises for oil and gas to Thomas P. Moore, for which he was to pay them the proceeds of one-eighth of the gas and oil produced and a delay rental of $18.50 quarterly in advance. Thomas P. Moore subsequently sold and assigned undivided interests in said lease as follows: an undivided one-thirty second interest to Thomas A. Zimmerman, an undivided one-sixteenth interest to Emma M. Barnhart and Ray W. Barnhart, her husband, and an undivided one-sixty-fourth interest to Stella Palko. This lease did not become known to the defendant until August 1, 1944.
8. On or about August 22, 1944, the defendant learned that Pietro and Joseph Girolami had informally arranged with the County Commissioners to avail themselves of the benefits of the installment system for the payment of their delinquent taxes provided by the Act of May 21, 1943, P. L. 323, although they did not pay the initial installment thereof until September 21, 1944, and on August 29, 1944, the defendant mailed its check to Pietro Girolami for $148.00 as payment of all accrued delay rentals from October 1, 1942, to September 30, 1944. Under date of September 1, 1944, this check was returned to the defendant in a letter to it from counsel for Joseph Girolami in which he informed the defendant that the owner of the premises considered the lease cancelled by reason of the failure of the defendant to pay the rentals in accordance with its terms. To this letter the defendant replied on September 12, 1944, stating that on its part it regarded the lease as in full force and effect, and that it would hold the check "subject to further orders of the lessors' interest" until the next current rental period, when it would again tender the whole amount due. Thereafter it made similar tenders each quarter to Pietro and Joseph Girolami of the rentals currently due them, respectively, all of which they refused.
9. On or about March 21, 1945, the defendant notified Pietro and Joseph Girolami and Thomas P. Moore of its intention to drill within fifteen days thereafter, and at the expiration of that time entered upon the premises, and on September 25, 1945, completed a producing well at a cost of $14,420.47. Following its completion the defendant tendered to Pietro and Joseph Girolami the sum of $75.00 as royalty due from September 25, 1945, to December 25, 1945, which they refused.
10. On December 11, 1945, the defendant, learning that Pietro and Joseph Girolami after paying an initial installment of $100.00 had failed to pay the second or any subsequent installment due on their delinquent taxes as required by the Act of 1943, itself paid over to the County Treasurer the balance due thereon, amounting to $207.14. It then mailed the tax receipts to Joseph Girolami and tendered to him the balance of the royalties accrued to that date, which he refused. The defendant has since tendered to him quarterly all the royalties due him under the terms of the lease, which he has likewise refused.
11. Although the County Treasurer sold the leased premises to the County Commissioners on May 23, 1940, at public sale, the Treasurer never actually delivered a deed to the Commissioners. The record in the office of the Treasurer is as follows: "Sale No. 406, District German Township, Property assessed to Pietro Girolami, Box 146, Hibbs, Pennsylvania, County 1933, $33.60, School 1933, $75.60, Borough or Township 1933, $16.80, Interest $18.90, Costs $2.00, Totals $146.89; Sale costs $4.25, Totals $151.14. Description, House and 73 Acres near Dearthtown. Sold May 23, 1940, Amount $151.14, to County Commissioners, Address, Uniontown, Pennsylvania, `Redeemed 12-11-45,' `Paid.' "
12. The defendant never intended to abandon the lease.
DiscussionThe lease in suit contains no provision for its automatic termination in the event of the failure of the lessee to drill or to pay the delay rental, nor any express reservation of the power of forfeiture. It therefore leaves the lessors to an action at law for the rentals and is subject to rescission only upon clear proof of its abandonment by the lessee: Thompson v. Christie, 138 Pa. 230; Marshall v. Forest Oil Co., 198 Pa. 83; Smith v. Peoples Natural Gas Co., 257 Pa. 396.
The essential element that distinguishes abandonment from other grounds for divesting the rights of the holder of an oil and gas lease of the type here involved is the intention of the holder to give up the lease. If he did not so intend, the case is not one of abandonment, however remiss he may have been in the performance of his obligations: Aye v. Philadelphia Co., 193 Pa. 451; Baglin v. Cusenier Co., 221 U.S. 580, 55 L.Ed. 863; Merrill, Abandonment of Oil and Gas Leases, 11 Cornell L. Q. 499.
In the present case we view the circumstances under which the defendant withheld the rentals during the period in question as plainly negativing any intention on its part to relinquish its rights. For eleven years it had paid the rentals punctually each quarter, and ceased doing so only after notice that the property had been sold to the County Commissioners and they had demanded that future payments be made to the county. Though, as it turned out, the Commissioners had not yet received a deed from the Treasurer, the good faith of the defendant and its concern to protect the lease is abundantly shown by its urgent letters to the lessors, its repeated conferences with the Commissioners, the examinations of the tax dockets it caused to be made from time to time, and its ultimate payment to the Treasurer of the balance of the taxes due after the owners had failed to comply with the informal agreement they had made under the terms of the Abatement Act of 1943. In addition there is positive and convincing testimony that the officers of the defendant in charge of its field operations regarded this lease as among the most valuable it held and had advised that measures be taken to protect it.
At the hearing, we permitted the plaintiffs to show that in 1942 one M. C. Brumage, of Waynesburg, had drilled two wells in the vicinity of the land embraced in the defendant's lease, the first of which was completed on June 9, 1942, and the second a few months later, both of which were unproductive, but that on April 12, 1944, a third well, drilled by H. K. Porter Company, Inc., approximately 1300 feet from the first put down by Brumage, came in with a profitable flow; and from the close correspondence of the dates of these events with the beginning and end of the period during which the rentals due the Girolamis were withheld by the defendant, the plaintiffs argue that the failure of Brumage to find gas or oil had satisfied the defendant that the field was dry, in consequence of which it determined to withdraw, and persisted in that determination until the Porter Company's well was brought in. This, however, is too obvious a fallacy to require serious discussion; there is nothing to indicate that the defendant was any more impressed by Brumage's activities than was the Porter Company.
Conclusions of Law1. The lease is not subject to cancellation.
2. The plaintiffs are not entitled to an accounting.
3. The defendant is entitled to have the bill of complaint dismissed.
4. The plaintiffs should pay the costs.
Plaintiffs appealed.
W. Robert Thompson, with him Adams Hutson and Montgomery, Thompson Baily, for appellants.
Jos. W. Ray, Jr., with him Herman M. Buck, Ray, Coldren Buck and G. Kirby Herrington, for appellee.
The judgment is affirmed on the opinion of President Judge CARR.