Opinion
Decided November 4, 1926.
Oil and gas — Termination of lease — Extension as long as gas found in paying quantities — "Found" synonymous with "produced" — Implied condition that premises will be operated with due diligence — Production in paying quantity condition precedent to extension — Lease terminated for failure to produce sufficient oil during term.
1. Under oil and gas lease for ten years and as much longer as oil is "found" in paying quantities, word "found" is synonymous with word "produced," which refers to oil when brought to surface.
2. Usual oil and gas lease implies condition that lessee will operate premises with due diligence.
3. Under oil and gas lease for ten years and as long as oil and gas are found in paying quantities, lessee was under duty to use due diligence during ten-year period to exhaust oil and gas, and must have been producing it in paying quantities for substantial or reasonable time prior to final day of term as condition precedent to extension of ten-year period.
4. Under oil and gas lease for ten years and as much longer as oil and gas are found in paying quantities, where only 36 barrels were produced in 8 years and on day lease expired only few gallons were produced for first time in 7 years, lessors were entitled to terminate lease at end of 10-year period.
APPEAL: Court of Appeals for Vinton county.
Mr. O.E. Vollenweider, and Messrs. Willis Jones, for plaintiffs.
Mr. John W. Goldsberry, and Mr. Freeman T. Eagleson, for defendants.
January 3, 1916, E.S. Tedrow and wife executed and delivered to W.B. Walton an oil and gas lease on 80 acres more or less in Knox township, Vinton county, Ohio. By the terms of the lease, lessors granted and demised to lessee all the oil and gas in and under said tract of land, and also the said tract for the purpose of operating thereon for oil and gas, for the period of ten years, "and as much longer as oil or gas is found in paying quantities."
It was also stipulated that, if a well was not completed within six months from the date of the lease, the grant should become null and void unless lessee pay lessor $20 annually, quarterly in advance, for each year thereafter that such completion is delayed. Rental was paid, and well was drilled to the Berea sand, which is the oil-bearing sand in that township, some time in 1917 or 1918. The well was pumped for several days by the oil-drilling machine, and produced a small quantity of oil, estimated at 36 barrels.
E.S. Tedrow and wife conveyed the premises to the plaintiffs Harry Tedrow and others. The lease was assigned to defendant H.S. Shaffer and one L.A. Beeghly.
December 17, 1925, Shaffer and the other defendants, who are employes of Shaffer and Beeghly, went upon the premises, made roads, placed at the well a power, and on January 3, 1926, pumped a few gallons of oil out of the well. Later on, about January 23, the well was cleaned out and pumped, and will now make an average of probably 3 barrels of oil per day, and the present lessees regard the well as producing oil in paying quantities.
January 5, 1926, this suit was brought by plaintiffs to enjoin defendants from going upon the premises and to require them to remove from the same the oil well equipment located thereon, and asking that the title be quieted, and for all further relief.
The defendant Shaffer answered, claiming the right to go upon the premises and operate the same for oil and gas by virtue of the oil lease heretofore referred to.
The other defendants answered that they were employes of Shaffer and claim no interest in the lease, but say they took possession of the premises on December 17, 1925, for the purpose of operating the same for oil and gas.
Plaintiffs, by reply, claim that the well drilled thereon had never been completed, that the lease was forfeited for failure to comply with its terms, that the lease was abandoned, and that it expired January 3, 1926.
In the view we take of the case, it will only be necessary to consider one feature of the same. The term of the lease was 10 years from January 3, 1916, and as much longer as oil or gas is found in paying quantities. The term then came to an end January 3, 1926, unless oil or gas was found in paying quantities. This phrase "found in paying quantities" is considered in the case of Murdock-West Co. v. Logan, 69 Ohio St. 514, 69 N.E. 984. The second paragraph of the syllabus says that such language "requires that oil or gas shall be actually discovered and produced in paying quantities within the term."
In the instant case a little more than 36 barrels were produced in a period of about 8 years. The day the lease expired a few gallons were produced, and that was the first for over 7 years.
What did the parties mean by this "unless" clause? It is common language in oil and gas leases. We see reason for holding that the word "found" as here used is synonymous with the word "produced," since oil in the ground cannot be said to be "found" until it is brought to the surface, and when brought to the surface is then "produced." The word "found" is used interchangeably with the word "produced" in the same "unless" clause in the case of Eaton v. Allegany G.P. Co., 122 N.Y. 416, 25 N.E. 981.
There is an implied condition in the usual and ordinary oil and gas leases, if none is so expressed, to operate the premises with due diligence. As none is expressed, there is such implied condition in the lease under consideration. It was the duty of the lessee to use due diligence during the 10-year period to exhaust the oil and gas in and under the leased premises, and then at the end of the 10-year period, if oil or gas was being found in paying quantities, the language used would extend the lease while such conditions continued, and controls such conditions and circumstances and no other. It seems to us it was never intended to extend the 10-year period in a case where no effort has been made to exhaust the oil or gas under the premises leased. However that may be, of one thing we feel confident, and that is under the terms of the lease referred to the lessee must be producing oil in paying quantities when the definite term (in this case 10 years) comes to a close. Such production or finding of oil is a condition precedent to the extension of the definite term. This does not mean that he must actually produce oil in paying quantities on the last day of the definite term, but he must have been producing it in paying quantities for some substantial or reasonable time prior to the final day of such term, so that it clearly appears, when the end of such term comes, that he is in good faith actually finding oil in paying quantities.
In the case under consideration, when the end of the 10-year period came, no oil, except a few gallons, had been found on the premises for more than 7 years, and the term of the lease expired at the end of the 10-year period.
The decree will be the same as in the court of common pleas.
Decree for plaintiffs.
MAUCK, P.J., and MIDDLETON, J., concur.