Gas Co. v. Ledsome

This is a suit by the lessee of oil and gas property to en join the operation of the premises for oil or gas by the lessors or their assigns. From a decree denying relief the plaintiff has appealed.

June 11, 1914, the defendants, William Ledsome and D. Ledsome, as owners of two adjoining tracts of land in Roane County containing 106 and 14 acres, respectively, leased each parcel, by separate writing (in which their wives joined), to the plaintiff, United Fuel Gas Company, for oil and gas; and the said William Ledsome, as owner thereof, by similar writing (in which his wife joined), leased to the Gas Company, for like purposes, a parcel of land adjoining the 106 acres tract, containing 3 1/2 acres. Each of the lease contracts fixed the term of letting at ten years "and as long thereafter as oil or gas is produced from" the demised premises; and required the lessee (1) to deliver to the lessors in tanks or pipe line, a royalty of one-eighth of all oil produced or saved from the premises, (2) to pay for each gas well while gas is sold therefrom the sum of $75 each three months, and upon failure to drill a well on the demised premises within three months from the date of the lease, (3) to pay the lessors a stipulated sum quarterly until such well shall have been drilled or the lease surrendered. There was also a provision in each lease that "the increased payments herein provided are in full of all damages by reason of all wells now drilled on adjoining property."

November 24, 1915, J. E. Springston, as counsel for the lessors, wrote the Gas Company: "Sometime since I was in your office at Charleston, at the request of Mr. Wallace representing the lessee in regard to the claim of W. M. Ledsome, for off-set wells and damages for failure to develop, and while there Mr. Wallace told me he thought he could arrange for Mr. Ledsome to get pay for three wells at the rate of $250.00 per year for each well whether drilled or not, as compensation for failure to off-set and develop, or words to that effect, or a total sum of $750.00 annually and free gas for domestic purposes. I have advised him, and he authorized me to accept that proposition if acted upon by you promptly. He feels that he would accept the proposition rather than to engage in a litigation which would be expensive and annoying to him and the company also, and that if you wish to make that arrangement. within a reasonable time, he will accept it by way of a compromise of the differences between himself and the Company, but that he must be given some assurance that the proposal was made in good faith by some action being taken to perfect the same within a short time. Please let me hear from you in regard to the matter at once, that I may know what course to pursue." On August 29, 1916, the lessors and lessee entered into a written contract, reciting the execution of the three several leases, the demand of the lessors upon the lessee to commence operation "upon said land in development of the gas thereunder and for the purposes of off-setting gas wells on other lands," and that "the demand so made" had been compromised. The agreement then provides: That the lessee shall commence a well upon the 106 acres within 90 days and complete the same with reasonable diligence; that the quarterly rentals on the 14 acres and, 3 1/2 acres of $50 and $39, respectively, shall each be increased to $62.50; that the lessee shall not be required to drill any well "at any time upon the 14 acres or 3 1/2 acres," but "shall not have the right to surrender either ofsaid leases until it shall have completed a well thereon,unless it shall at the same time surrender and abandon" thelease on the 106 acres. The contract further provides that, except as therein expressly modified, each of the three leases shall remain in force and effect. The lessee promptly thereafter drilled a well on the 106 acres which has since been producing gas in paying quantities.

By deed dated January 21, 1920, William Ledsome and wife conveyed to E. R. Reed the oil and gas underlying the 3 1/2 acres, with convenient mining rights, and the benefit of the lease to the United Fuel Gas Company and the modification contract. By deed dated May 10, 1928, E. R. Reed and wife conveyed to William Ledsome, H. C. Geary, H. A. Geary, and E. A. Robertson the oil and gas underlying the 3 1/2 acres and convenient mining rights, subject to said contract. On May 15, 1928, William Ledsome notified the Gas Company in writing that the lease on the 14 acres had, by its terms, expired, and that he would decline to receive or accept any further payments under the lease or the modification contract. About the same time, William Ledsome, H. A. Geary, H. C. Geary, and E. A. Robertson also declined to accept further rentals on the 3 1/2 acres. By deed dated May 16, 1928, William Ledsome and wife conveyed to H. C. Geary the oil, gas, and other minerals in and underlying the 14 acres, and convenient mining rights. The quarterly rentals on the 14 acres and 3 1/2 acres, as provided in the modification agreement, were paid and accepted in advance to June 11, 1928.

The question for determination is whether payment and acceptance of rentals on the 14 acres and 3 1/2 acres under the modification contract extended the leases covering the same beyond the ten-year term. Defendants deny and plaintiffs affirm the proposition. The said modification contract, which was executed at the instance and for the benefit of the lessors, consolidated the three leases by requiring the lessee to pay an annual rental of $250 or drill a well on each of the small tracts as a condition precedent to its right to operate the oil or gas on the 106 acres. This obligation, under the very terms of the agreement, was to continue until the lessee should surrender and abandon the lease on the 106 acres. Its purpose evidently was to prevent the lessee from draining the small tracts by the operation of a gas well on the large one without paying the lessors sums of money substantially equivalent to the rental or royalty of a well on each of the small tracts. The parties recognized the continuance of the small leases under the force of the contract for four years after the expiration of the ten-year period by the payment and acceptance of the quarterly rentals in accordance with its terms. The annual payment of $250 on each of the small tracts is shown to have been the usual rental or royalty for a gas well in the locality of the property at the date of the agreement.

"Where a new contract is made with reference to the subject-matter of a former contract, containing provisions clearly inconsistent with certain provisions of the original contract, the obligations of the earlier contract, in so far as they are inconsistent with the later one, will be abrogated and discharged, and the two contracts will be construed together, disregarding the provisions of the original which are inconsistent with those of the latter." Myers v. Carnahan,61 W. Va. 414, 57 S.E. 134.

The decree of the circuit court will be reversed, and the relief prayed for granted.

Reversed.