Washington N. Gas Co. v. Johnson

Opinion,

Mu. Justice Williams :

This action is brought to recover for a breach of covenant contained in an oil-lease dated August 5, 1885. By the terms of the lease Guffey & Co., the lessees, acquired the exclusive right to drill and operate wells for oil and gas on about seventy-five acres of land for the term of twenty years. In consideration of this grant they undertook to commence operations on the premises, and complete one well within six months from the date of the lease. They were also to commence a second well four months after the time for the completion of well No. 1. The royalty to be paid was fixed by the terms of the lease at one fourth of all oil produced if oil was found, and eight hundred dollars per annum for each gas well operated, if gas was found in sufficient quantities to be utilized. The lessees took possession and drilled one well in accordance with their covenant, which produced gas in sufficient quantities to be-utilized. Three months before the time for putting down the second well Guffey & Go. assigned the lease to C. D. Robbins, who held it from March 18, 1886, till January 20, 1887, and then assigned to the Washington Natural Gas Co. The second well should have been drilled, allowing three months to be a reasonable time in which to complete it, during the time when Robbins was the holder of the lease. The action, however, is against the assignee of Robbins, whose title was acquired some two months after the time when the well should have been completed, and at least five months after it should have been begun.

The liability of the assignee was brought to the attention of the court by the sixth "point submitted on the part of the defendant below, as follows: “ It being a conceded fact that a reasonable time for drilling said second well had elapsed before defendant became assignee of the lease, the defendant cannot be held liable for a failure to drill said well.” This point was refused. The seventh point asked the further instruction that. “ it being shown by the plaintiffs themselves that the covenant in the lease .... to commence the second well .... was broken before the.defendant acquired any interest in the lease, the proper remedy for such breach was an action against the original lessee, or the holders of the lease at the time of the breach.”' This was also refused; and the learned judge told the jury in his general charge that the breach of the covenant to drill a second well was not complete until the end of sixty days after the well should have been finished, because that was the time when the rent for the second well would fall due. “ The commencement of the breach,” said the learned judge to the jury, “ was the failure to begin a second well on or before October, 1886, and the consummation was in not paying the eight hundred dollars when it ought to have been paid had a paying well been struck.” The answers to the points and the foregoing instruction are assigned for error.

The covenant sued on is as follows: “And it is further agreed the second well shall be commenced four months after May, 1886, the time stated for the completion of Well No. 1.” The plaintiffs allege a breach of this covenant, and state tbeir canse of action to be that the defendant “has failed to commence a second well upon said leased premises within the time mentioned in said lease, to wit, within four months from May 1, 1886, or at any other time.” The instruction of the learned judge, that a covenant to commence a well at a fixed time was only partly broken by a failure to commence it, is not in harmony with the plaintiffs’ claim as stated in their narr., nor is it justified by the terms of the covenant. If the well had been drilled at the proper time the covenant would have been fully performed, though neither gas nor oil had been found, and in that event no rent would have been domandable. The duty to pay rent for the second well, as for the first one, was conditioned upon actual production, and it ceased when the production ceased, or when the quantity of gas was too small to be utilized. The object of the covenant was to secure the development of the lessor’s land by the putting down of two wells upon it, for which rent was to be paid if the wells were successful. The breach was complete when the lessee failed to drill as he had agreed. Loss of rents and profits might or might not follow, depending on the productiveness of the field. This subject might have been considered by the jury in fixing the damages after the plaintiffs’ right to recover was settled, but bad no relation whatever to the question on which the liability of the defendant depended.

Turning then to the question raised by the points, we find the facts to be as assumed therein, and the liability of the gas company to depend upon the extent to which the covenants of Guffey & Co. ran with the land. That they continued liable, notwithstanding their assignment to Robbins, is very clear. The covenant was their own, and their privity of contract with their lessors continued, notwithstanding their assignment of the lease. Their assignee, Robbins, who was in possession when the time for performance arrived, was also liable, because of the privity of estate which arose upon his acceptance of the assignment. Acquiring the leasehold estate by an assignment of the lease, he is fixed with notice of its covenants, and he takes the estate of his assignor cum onere. But as his liability grows out of privity of estate, it ceases when the privity ceases. If he had assigned before the time for performance, his liability would have ceased with his title, and liability would have attached to Ms assignee by reason of privity of estate, and so on, toties quoties. Each successive assignee would be liable for covenants maturing while the title was held by him because of privity of estate; but he would not be liable for those previously broken, or subsequently maturing, because of the absence of any contract relations with the lessor. While he holds the estate and enjoys its benefits, he bears its burdens, but he lays down both the estate and its burdens by an assignment,-even though, as is said in some of the cases, his assignment be to a beggar: Negley v. Morgan, 46 Pa. 281; Borland’s App., 66 Pa. 470.

It is clear, therefore, that when Robbins made his assignment to the Washington Natural Gas Co., the time fixed in the lease for the sinking of the second well had gone by, and the covenant was broken. Guffey & Co. were liable upon their contract, because although their assignment had divested them of the lease, it could not relieve them from their contracts. Robbins, who was the owner when the covenant matured, was liable because of the privity of estate; but the gas company had no relations with the lessor or the leasehold until after the covenant was broken. The covenant ran with the land until the breach. It then ceased to run, because it was turned into a cause of action.

The case of the Bradford Oil Co. v. Blair, 113 Pa. 83, has been cited as sustaining a contrary doctrine, but an examination of it will show that it is clearly distinguishable from this case.

The covenant which it was sought to enforce in that case was not for the completion of successive wells at successive dates, but it was for the commencement of the work of developing Blair’s farm at a time certain, and to “ continue with due diligence and without delay to prosecute the business to success or abandonment, and, if successful, to prosecute the same without interruption.” Two wells were completed, and were successful oil wells. The assignee of the lease owned adjoining lands upon which it was operating, and it stopped work on the Blair farm. The action rested on the breach of the covenant to prosecute the business of producing oil from the land of the lessor with due dilligence and “ without interruption.” The obligation of a covenant to prosecute the business of developing the land of the lessor without delay and without interruption, is a continuing one. The breach for which the Bradford Oil Co. was held liable was not that of some previous holder of the title, but its owner.

There is another reason for reversing this case, brought to our attention by the eighth assignment of error. The check for $650, sent by the treasurer of the gas company to the attorney of the lessors, was expressly stated to be in full for the Johnson lease from May 1, 1887, to May 1, 1888. A receipt was returned for the amount, stating that it was received for rental of well No. 1, on Johnson lease. The treasurer promptly returned the receipt, saying, “The $650 was sent, and so stated, in full for Johnson lease,” and -requesting its return if not accepted as sent. It was not returned. The party paying money has the right to direct its appropriation. It was the plain duty of the lessor to accept the check for the purpose for which it was offered, or to return it. Attention was again drawn to the subject by the treasurer in a note dated July 21st, asking the return of the check unless accepted as in full payment of all rents due on the lease. The refusal to return it after this explicit direction ought to be regarded as an election to accept it for the purpose for which it was offered, viz.: as payment in full for all rents-due upon the lease.

Judgment reversed.