Colgan v. Forest Oil Co. ( 1899 )

Opinion by

Mr. Justice Mitchell,

This is a bill in equity by lessor against lessee for specific performance of covenants, or in the alternative for forfeiture of the lease and also for an account. As the covenants are merely implied, and their extent depends altogether on oral evidence of opinions, the case for relief is wholly wanting in that precision and certainty of contractual duty which is necessary to sustain the ordinary chancery decree for specific performance. The jurisdiction of equity in a similar case was, however, sustained in Kleppner v. Lemon, 176 Pa. 502, and we do not now propose to question it. But that decision was on the ground of fraud, the majority of the Court being of opinion that the defendant was fraudulently evading his obligations to plaintiff while draining the oil from plaintiff’s land through wells on adjacent territory. “ The findings show,” says Williams, J., “ that it is the expressed purpose of the defendant to secure Kleppner’s oil through his wells on the Garlach and Stotler tracts of land.” The basis necessary to sustain the bill, therefore, is fraud, and that of course must be affirmatively and clearly proved.

There is no relation of special trust or confidence between lessor and lessee, in gas or oil leases, any more than in any other. Like all other contracting parties they deal at arm’s length, each for his own interest. So long as the question is one of business judgment and management, the lessee is not bound to work unprofitably to himself for the profit of the lessor, and the parties must be left, as in other cases, to their own ways. It is only when a manifestly fraudulent use of opportunities and control is shown that courts are authorized to interfere.

The defendant contracted by its lease to put down one well on the plaintiff’s land; it has in fact put down five. The bill chai’ges, however, that the five were put down on the eastern half of the farm, to the neglect of the development of the western half, and further, that, although five wells were sunk on the eastern side, yet defendant was unduly draining that part of the land by wells on adjoining territory leased from other owners. As to this latter complaint the bill asked that such outside wells “ be decreed to be wells taking and draining the oil from plaintiff’s said land,” and that an account and payment be ordered. The plaintiff’s case, however, was so absolutely wanting in merit on this branch that the learned judge below not only granted no relief, but did not even discuss it in his conclusions of law. It would not be necessary, therefore, for us to consider this part of the case at all, were it not that the evidence throws a very strong light on the main question of good faith in the defendant’s whole plan of operations for the development of the farm.

As already said defendant’s contract obligation was to sink one well. It has sunk five. One of these, known as Colgan No. 5, it was desirable in defendant’s judgment to locate very near the line of another lessor, Caldwell. Defendant accordingly consulted both plaintiff and Caldwell, who both agreed to the location chosen, with the notice from defendant to plaintiff that if it proved a paying well, defendant would in justice to Caldwell put down another on Caldwell’s side of the line as an offset. This was done. The well on plaintiff’s side of the line proved a fair producer, though it declined after a few weeks, and the other well was then sunk on Caldwell’s side and proved about an equal producer. This second well, known as Caldwell No. 4, is the chief subject of plaintiff’s complaint and request for an account. It is quite apparent, as the learned judge reports, that each of these wells draws its supply partly from the other’s territory, but this was foreseen, and an express agreement made as to the location of the first one and the necessity for the second “ as an offset.” The plaintiff’s bill, therefore, on this branch is conclusively met by his own agreement beforehand to the conduct he now complains of. In cases of this kind, arising from conflicting claims as to the territory from which the supply of any particular well is drawn, the rights and duties of the parties must be determined by their contracts. As between the parties each lease must stand upon its own terms. The obligations, for example, of the defendant to the plaintiff depend on the lease» from the latter to the former, and are not in any way increased or diminished by other leases from other parties. If the defendant derives some collateral or incidental advantages from its leases of adjoining territory, it is entitled to them just as a stranger would be. It may operate them jointly at less expense, or it may be helped in other ways by having both under one management. It is only when the wells on adjoining territory are being fraudulently used to drain the complainant’s land that courts have any occasion to interfere. The practical test is to be found in the question, are the outside wells, as for example, the Caldwell, draining the Colgan wells to such an extent that if the former were operated by a third party, the defendant, as lessee of the latter, would find it good management to put down another well to save its own leased territory from exhaustion ? If so, then good faith to its lessor would require it to put down the additional well that the lessor might get his proper royalty. But, if not, the latter has no cause of complaint. If plaintiff, as owner, would not find it profitable to put down a well to stop his neighbor’s drainage of his land, the lessee cannot be held to any'higher obligation. He is not bound to work at his own loss for his lessor’s profit. In the present case, so far from establishing any fraud, the plaintiff has clearly shown the entire good faith of the defendant.

On the other branch of the case the court below found that the western half of the farm “ would furnish at least one paying well ” and decreed that a well should be put down by the appellant. There is unfortunately no evidence whatever to support this finding. Not a single witness says so, and three experienced operators examined by defendant testify positively as to their judgment that- another well would not pay for its cost. All that the plaintiff showed was that there are several wells on farms adjoining the west half, which are producing oil. How much was not shown, nor whether any one of them had paid for its cost. On the other hand the defendant’s witnesses testified that these wells were light producers, and while they, being down, can now be worked at a profit, yet they have not paid for their cost, and are a positive disproof of the wisdom of putting down another.

The extent of plaintiff’s own testimony was that he thought he “could get plenty of other parties to take” the land, “but I will do it myself.” This is very far short of what is required. So long as the lessee is acting in good faith, on business judgment, he is not bound to take any other party’s, but may stand on his own. Every man who invests his money and labor in a-business does it on the confidence he has in being able to conduct it in his own way. No court has any power to impose a different judgment on him, however erroneous it may deem his to be. Its right to interfere does not arise until it has been shown clearly that he is not acting in good faith on his business judgment, but fraudulently, with intent to obtain a dishonest advantage over the other party to the contract.

Nor is the lessee bound in case of difference of judgment to surrender his lease, even pro tanto, and allow the lessor to experiment. Lessees who have bound themselves by covenants to develop a tract, and have entered and produced oil, have a vested estate in the land which cannot be taken away on any mere difference of judgment. It is not within the jurisdiction of any court to oust the owner and forfeit the title to estates in that way, and the- jurisdiction of equity to decree any specific act or declare forfeiture depends on fraud averred and fully proved. Experimental drilling of other wells on the western portion of this tract' may work injury to defendant’s wells already down, without any corresponding advantage to the plain-, tiff. The weight of the evidence is that such would be the probable result, but whether it would or not the defendant is not bound to submit to the experiment. It has an estate in the whole tract, has fully performed its agreement in relation thereto, and not a single fact has been shown to authorize the court to interfere with its title or possession.

Decree reversed and bill directed to be dismissed with costs.