Western Penna. Gas Co. v. George , 161 Pa. 47 ( 1894 )

Opinion by

Mr. Justice McCollum,

The land described in the summons was leased for “the purpose of drilling and operating for petroleum, oil and gas.” The lease was for a term of two years, and it contained a provision for its continuance for a longer period on certain conditions which will be hereinafter considered. The lessor, in consideration of the right granted to the lessee, was to receive from the latter one eighth of the oil produced from the premises, and five hundred dollars per annum for each well from which gas should be obtained in paying quantities, and so long as it should be sold therefrom. The lessee was to commence a well on the premises within thirty days and to complete it within ninety days from the date of the lease, and in case of his failure to do so, he was to pay to the lessor sixty dollars per annum quarterly in advance. This sum was called a rental, but it was in the nature of a penalty for the lessee’s default in the performance of his covenant to commence and continue operations in execution of the purpose expressed in the lease. It was not a sum to be paid quarterly in advance to the lessor after the development of the property and while he was receiving one eighth of the oil produced therefrom, or the rent from the gas wells drilled thereon. It was manifestly intended to hasten the performance of the lessee’s covenant to drill the well, and whether it is called a rental, a penalty for the lessee’s default, or compensation to the lessor for the delay occasioned by it, is of no consequence. The lessor could not exact it beyond the period covered by the lessee’s default, because, after the covenants of the latter in respect to the development of the property were performed, there could be no accruing rental under this provision of the lease.

The appellant company has succeeded, by assignment, to the rights and obligations of the lessee, and its contention is that it may continue the lease in full force so long as it pays or tenders to the lessor quarterly in advance the sum of fifteen dollars. In other words it claims to have the right, on payment of this comparatively insignificant rental or penalty, to postpone indefinitely all operations for the development of the property, and thus defeat the expressed purpose of the parties and render inoperative the principal covenants of its assignor. This is an extraordinary claim, and it is based on a construction which makes the lease a mere option and the so-called rental the price of it. The five words relied on to accomplish this result are found in and conclude the habendum clause of the agreement. The learned judge of the common pleas thought these words did not warrant the construction contended for; and that they were applicable only to the definite term of two years within which it was manifestly intended by the parties that the property should be developed. He therefore held that the failure of the lessee and his successor to complete a well upon the premises within that term enabled the lessor to terminate the lease on the expiration of it, and in this conclusion we concur. A provision obviously designed to hasten the development of the property should not be allowed to prevent such development, if it admits of a construction which harmonizes with the other provisions of the agreement and gives effect to the controlling intention of the parties to it.

The continuance of the lease beyond the definite term was contingent upon the finding of oil or gas in paying quantities, and on the payment to the lessor in such case of his share of the oil produced, or the stipulated sum for each well from which gas was obtained and sold. The primary and essential condition to any extension of the lease after the lapse of two years from its date was the finding of oil or gas in paying quantities within that time, aud the secondary condition was that the rent reserved for the oil or gas found should be paid in conformity with the covenants in relation thereto. If we were at liberty to substitute “ and ” for “ or ” in the concluding words of the habendum clause, as we might well do if we were construing a will or statute, there would be no room nor basis for the appellant’s contention, because, on such substitution, the rental mentioned therein would plainly refer to that which the lessor would be entitled to receive after the development of the property and while oil or gas was found thereon in paying quantities. But fortunately the lease as written fairly admits of a construction which gives effect to all of its provisions and to the intention of the contracting parties. This construction was adopted by the learned judge of the common pleas and it referred the rental mentioned in the habendum clause to the definite term of two years, within which it was possible for the lessee to continue the lease, without commencing operations thereunder, by paying the rental or penalty prescribed for his delay in the performance of his covenant to drill a well on the premises.

We are satisfied that the construction placed on the lease in the court below was fully warranted by its provisions and the dominating purpose of the parties to it. We therefore overrule the specifications of error.

Judgment affirmed.