Young v. Forest Oil Co. , 194 Pa. 243 ( 1899 )

Opinion by

Mr. Justice Mitchell,

This is a bill by the lessor of oil land to declare a forfeiture of the lease for failure to develop the land and for damages for draining it from wells on neighboring leaseholds, or in the alternative for a decree of specific performance of the implied covenant, by sinking additional wells. The jurisdiction in cases of this kind is discussed in Colgan v. Forest Oil Company, opinion filed herewith, ante, p. 234, and we need only say now that it must be based and sustained on the ground of actual fraud. The bill is a striking example of the danger of dragging a controversy of this kind into a court of equity, where ordinarily it has no proper place. The bill joins as defendants the original lessee, who had parted with all his title more than seven years before 'bill filed, and all the successive assignees down to and including the Forest Oil Company, appellant, the only one now in possession or claiming title as lessee. No joint title, possession or liability is averred or shown, and all the alleged trespasses, defaults and breaches of covenant by the different assignees of the lease for a period of seven or eight years are pitched together into hotchpot, and each lessee made liable for the sum total, without regard to the statute of limitations, and whether the alleged injury was done before, or during, or after his interest or possession under the lease. As against the oil company, the principal defendant, it is nothing more than an ejectment bill for breach of covenant, and as to the other defendants it is a personal action for damages. It was demurred to for multifariousness and for want of equity. The demurrer should have been sustained on both grounds.

But without reference to the form of the remedy the case is wholly destitute of merit on the facts. The learned judge below found that “ the west end of plaintiff’s farm has been sufficiently developed, but we do not think the one well No. 5 was a sufficient test for the north and east portion of the farm, especially as there was not a trace of oil or gas in it. . . . There remains a large portion of plaintiff’s farm which .... ought to produce oil in paying quantities with a reasonable degree of certainty.” And further, “ in view of the foregoing findings we conclude that under the circumstances of this case, the defendant’s refusal to sink additional wells on plaintiff’s farm is a wrongful act, amounting to a fraudulent use of the lease to plaintiff’s injury.” It is manifest that this conclusion proceeds from an erroneous view of the law, probably due to a misapprehension of the scope of the case of Kleppner v. Lemon, 176 Pa. 502. That decision was not meant to stretch the jurisdiction of equity beyond its regular and established limits, nor to blaze out any new path for proceedings on oil or gas leases differing from ordinary remedies between lessor and lessee. It rested on fraud, alleged and proved, and fraud in fact, not merely inferred from a difference of judgment between the defendant and the court as to the profitable development of the leased premises. In the present case the conclusion of the court rests on nothing else than such difference of judgment. There is not a scintilla of evidence for any other basis. The lessee contracted to put down one paying well; he did in fact put down five, four of which produced oil for a time. Even considering the plaintiff’s side alone, the weight of the evidence in favor of the court’s conclusion is exceedingly light. Passing over the plaintiff’s extraordinary reasoning that, because one well put down in the alleged insufficiently tested part of the farm, proved to be a dry hole, therefore another hole in the same portion would produce a paying well, we have looked in vain for any testimony that even the experts are willing to stake their judgments on any such result. Not a single witness says so. They say, and most of them on hypothetical questions, without personal acquaintance with the locality, that the indications are that it is “ good oil territory.” Mr. Carnahan, the witness best acquainted with the land, and apparently the most intelligent and competent expert examined, says “ the chances are that the 100 foot sand” (the one from which all the oil has so far been produced) “ is pretty well drained, but the 100 foot in all probability .is not all the sand that is there.” He therefore considered the property as having a value for development for the lower sand. But even he does not venture the opinion that it would be sound business judgment to spend $4,000 or $5,000 in sinking an additional well on the present prospects of its even repaying the cost. Even if he and all the others had said so with sufficient positiveness to convince the court as a matter of. judgment, it would not have been enough. The undisputed facts were that on the plaintiff’s farm of fifty-three acres five wells had been sunk, being as favorable a showing (see judge’s seventh finding of facts) in proportion of wells to acreage as much the greatest part of the surrounding territory. Four of the wells, however, were on or near the western portion of the farm, and only one on the other side, which proved dry. There was therefore a considerable intervening part of the farm on which no well had been sunk. The real question in the case was whether the omission to put a well in that portion of the land was fraudulent. There was not a scintilla of evidence to sustain any such conclusion, and without it there was nothing on which the bill could be supported. The operator, who has assumed the obligations of the lease, has put his money and labor into the undertaking, and is now called upon to determine whether it will pay to spend some thousands of dollars more in sinking another well to increase the production of the tract, is entitled to follow his own judgment. If that is exercised in good faith, a different opinion by the lessor, or the experts, or the court, or all combined, is of no consequence, and will not authorize a decree interfering with him.

The plaintiff claimed that the lease had expired because oil was no longer produced “ in paying quantities.” The learned judge, while not deeming it necessary to determine the exact meaning of this phrase, nevertheless refused to decree any relief on this ground. In this he was clearly right. The phrase, “found or produced in paying quantities,” means paying quantities to the lessee or operator. If oil has not been found, and the prospects are not such that the lessee is willing to incur the expense of a well (or a second or subsequent well as the case may be), the stipulated condition for the termination of the lease has occurred. So, also, if oil has been found but no longer pays the expenses of production. But if a well, being-down, pays a profit, even a small one, over the' operating expenses, it is producing in “ paying quantities,” though it may never repay its cost, and the operation as a whole may result in a loss. New wells except the very largest x-epay cost under a considerable tixne; many never do, but that is no reasoxx why the first loss should not be reduced by profits, however small, in continuing to operate. The phrase, “paying quantities,” therefore is to be construed with reference to the operator, and by his judgment when exercised in good faith.

Decree reversed, and bill directed to be dismissed with costs.