Hill Oil Gas Co. v. White , 53 Okla. 748 ( 1915 )

The opinion of the Supreme Court Commission was approved herein June 22, 1915, affirming the action of the lower court, which sustained the demurrer to the petition, but remanding the case to the district court, with instructions to take evidence upon the claim of the Hill Oil Gas Company for money advanced and improvements erected, making any judgment rendered a lien on the lands involved. The matter is now before us on petition for rehearing, and we are asked, in view of the opinion of the Supreme Court of the United States in Guffey v. Smith,237 U.S. 101, 35 Sup. Ct. 526, 59 L. Ed. 856, to reconsider the principles of law announced and to conform to the views of the Supreme Court in that case.

The original opinion is in harmony with the views of this court as previously expressed, and upon an examination of the case of Guffey v. Smith, supra, and the authorities called to our attention in briefs of counsel, we adhere to these views. The case of Guffey v. Smith was an action for injunction, brought in the United States District Court for the Eastern District of Illinois, by the holders of an oil and gas lease, to enjoin operations under a later and similar lease, and for other relief. The Circuit Court of Appeals denied the relief prayed for, and on appeal to the Supreme Court the action of the Circuit Court of Appeals was reversed; the opinion being placed upon the ground that under the decisions of the Supreme Court of Illinois the plaintiffs therein had a vested interest in the premises, which entitled them under the federal equity practice to the relief demanded. In the opinion the court said:

"It is settled by the decisions of the Supreme Court of Illinois that an oil and gas lease like that of complainants passes to the lessee, his heirs and assigns, a present vested right — 'a freehold interest' — in the premises, that this interest is taxable as real property, and that the clause giving the lessee an option to surrender the lease at any time is valid, does not create a tenncy at will, or give the lessor an option to compel a surrender, and does not make the lease void as wanting in mutuality"

— and cites in support thereof a long line of Illinois decisions, announcing this rule; and the opinion continues:

"These decisions constitute rules of property and must be accepted and applied in passing upon the complainant's rights"

— thus showing that the opinion of the Supreme Court was based upon the fact that plaintiffs under the rule in Illinois had a vested right in the premises; and the court, after calling attention to the fact that under the laws of that state plaintiffs had no adequate remedy at law, followed the well-settled rule that the remedies afforded and modes of proceeding pursued in the federal courts, sitting as courts of equity, are not determined by local laws or rules of decision, but by general principles, rules and usages of equity having uniform operation in those courts wherever sitting, and reversed the decision of the Circuit Court of Appeals.

Under the decisions in this state oil and gas, while in the earth, unlike solid minerals, are not the subject of ownership, distinct from the soil, and the grant of the oil and gas, therefore, is a grant, not of the oil that is in the ground, but of such a part as the grantee may find, and passes nothing that can be the subject of ejectment or other real action.Kolachny v. Galbreath et al., 26 Okla. 772, 110 P. 902, 38 L. R. A. (N. S.) 451; Frank Oil Co. v.Belleview Gas Oil Co. et al., 29 Okla. 719, 119 P. 260, 43 L. R. A. (N. S.) 487; Duff et al. v. Keaton et al.,33 Okla. 92, 124 P. 291, 42 L. R. A. (N. S.) 472. From the above quotation it is seen that, under the decisions of Illinois, "the clause giving the lessee an option to surrender the lease at any time is valid, does not create a tenancy at will, or give the lessor an option to compel a surrender, and does not make the lease void as wanting in mutuality," while the rule in this state is that contracts unperformed, without sufficient consideration, which are optional as to one, are optional as to both, and specific performance thereof will not be awarded. See authorities above cited.

Another distinction is observed between the rule in this state and the rule in Illinois. Under the statutes of that state the lessor could not forfeit the lease without giving notice to lessee upon default in the payment of rentals. We have no such statute. The present action is one to compel specific performance of an agreement to execute a lease, whileGuffey v. Smith was not such an action; its character being stated thus by the Supreme Court:

"Rightly understood, this is not a suit for specific performance. Its purpose is not to enforce an executory contract to give a lease, or even to enforce an executory promise in a lease already given, but to protect a present vested leasehold, amounting to a freehold interest, from continuing an irreparable injury calculated to accomplish its practical destruction. The complaint is not that performance of some promised act is being withheld or refused, but that complainants' vested freehold right is being wrongfully violated and impaired in a way which calls for preventive relief."

It is thus seen that the rule in the Guffey case was based upon the principles that the decisions in Illinois constituted a rule of property, and as such were binding upon the federal courts, while those courts sitting as courts of equity were at liberty to apply their own remedies according to their own modes of procedure. This is the rule of the federal courts, and has been the uninterrupted holding of the Supreme Court of the United States. In Elmendorf v. Taylor, 10 Wheat. 152, 6 L. Ed. 289, Chief Justice Marshall used the following language:

"This court has universally professed its disposition, in cases depending on the laws of the particular state, to adopt the construction which the courts of the state have given to those laws."

This rule has been applied to rights acquired under an oil and gas lease similar to the one under consideration, arising in states where the rule which we have adopted prevails. InOhio Oil Co. v. Indiana, 177 U.S. 190, 20 Sup. Ct. 576, 44 L. Ed. 729, Mr. Justice White, now chief justice, speaking for the court said:

"It is apparent that the cases in question [referring to the Indiana cases], in accord with the rule of general law, settle the rule of property in the State of Indiana to be as follows: Although, in virtue of his proprietorship, the owner of the surface may bore wells for the purpose of extracting natural gas and oil, until these substances are actually reduced by him to possession, he has no title whatever to them as owner; that is, he has the exclusive right on his own land to seek to acquire them, but they do not become his property until the effort has resulted in dominion and control by actual possession."

The same view, as applied to leases of this character, is also declared in the following cases: Huggins v. Daley, 99 Fed. 606, 40 Cow. C. A. 12, 48 L. R. A. 320; Foster v. Elk Fork Oil Gas Co., 90 Fed. 178, 32 C., C. A. 560;Federal Oil Co. v. Western Oil Co., 121 Fed. 674, 57 Cow. C. A. 428. In the case last cited the court say:

"The contract we are construing is a contract made and to be performed in West Virginia. * * * The cases quoted lay down a rule of property, stating the controlling doctrine peculiar to mining leases in that state. The federal courts recognize and follow the decisions of courts of last resort in the state."

The original opinion is in harmony with the opinion by this court, and with the weight of authority, and is supported by sound reason, and this rule having been declared as early as 1910, and many leases having been executed in reliance thereupon, it would require very strong and cogent reasons for us to abandon same, and adopt a new rule in direct conflict therewith. To do so would create confusion and uncertainty, and perhaps flood the courts with litigation, and the opinion inGuffey v. Smith, being simply an application of the principle that state decisions construing leases of this character constitute rules of property which will be followed in the federal courts, furnishes no reason for overturning the previous decisions of this court.

The petition for rehearing is therefore overruled.

All the Justices concur.