where lessee fails to pursue development of the leasehold for production with reasonable diligence and in the usual course of business, the failure amounts to an abandonment which will sustain a re-entry by the lessor
How later courts described this case
- where lessee fails to pursue development of the leasehold for production with reasonable diligence and in the usual course of business, the failure amounts to an abandonment which will sustain a re-entry by the lessor
- “An unexplained cessation of [drilling] operations for the [four-year] period involved in this case gives rise to a fair presumption of abandonment, and, standing alone and admitted, would justify the court in declaring an abandonment as [a] matter of law. But it may be capable of an explanation, and is therefore usually a question for the jury on the evidence of the acts and declarations of the parties.”
Written by the judges who cited it.
The opinion
Opinion by
Mr. Justice Mitchell,
The lease to Aye and Martin being referred to in the lease from Campbell to Bailey, the appellant, as assignee of Bailey, must be held to have taken with notice. The recital of the prior lease, however, was not an affirmance by Campbell of its continuing validity, but a disclaimer by him of responsibility *455 on that subject. It was a refusal to declare or enforce a forfeiture himself, but a transfer of his right in that regard whatever it might turn out to be, to appellant, which assumed the risk. Its entry and commencement of operations on the land were an enforcement of a forfeiture for abandonment if Campbell had that right. This depends on the circumstances.
By their lease from Campbell the appellees covenanted to complete a test well in the vicinity within six months, and if oil should be found in paying quantities to complete a well on the leased premises within the next six months or pay a yearly rental per acre for the delay. The royalty reserved as rent by the lessor was one eighth of the oil produced. The lease was made July 11, 1887. The test well was put down on a farm in the vicinity, but produced no oil. A second well was drilled on another farm with like result, and operations then ceased without any well on the leased premises. On October 2,1891, Campbell leased to Bailey and on June 19, 1892, Bailey assigned his lease to the appellant.
The lease from Campbell to appellees, it will be seen, contained express covenants what the lessees should do in a certain event, but made no provision for the contingency of the test well proving dry, which is what actually happened. In such case it becomes necessary to inquire what covenants, if any, are implied.
It was held as far back as Watson v. O’Hern, 6 Watts, 362 , that a lease of a stone quarry in consideration that the lessee shall pay a certain price per perch for all stone taken out, though called by the parties a “ privilege and liberty,” is a contract by the lessee that the quarry shall be worked, and failure to do so is an actionable breach. The rule is thus stated by the present Chief Justice in Koch and Balliet’s Appeal, 93 Pa. 434, 442 , “ Where a right to mine iron ore or other minerals is granted in consideration of the reservation of a certain proportion of the product to the grantor, the law implies a covenant on the part of the grantee to work the mine in a proper manner and with reasonable diligence, so that the grantor may receive the compensation or income which both parties must have had in contemplation when the agreement was entered into.” So, in Ray v. Natural Gas Co., 138 Pa. 576, 589 , it was said by our late Brother Clark;, “ Whilst the obligation on the part of the *456 lessee to operate is not expressed in so many words, it arises by necessary implication.- ... If a farm is leased for farming purposes, the lessee to deliver to the lessor a share of the crops, in the nature of rent, it would be absurd to say, because there was no express engagement to farm, that the lessee was under no obligation to cultivate the land; an engagement to farm in a proper manner, and to a reasonable extent is necessarily implied.” That was the case of an oil and gas lease, and it has been said that the doctrine is peculiarly applicable to such leases, owing to the nature of the product: McKnight v. Manufacturer’s Natural Gas Co., 146 Pa. 185 ; Venture Oil Co. v. Fretts, 152 Pa. 451 .
The rule in regard to contracts is that where the parties have expressly agreed on what shall be done there is no room for the implication of anything not so stipulated for, and this rule is equally applicable to oil and gas leases as to other contracts. There is nothing peculiar about them in this respect. But here the parties have provided for a test well, and for what shall be done if it produces oil in paying quantities. But the other contingency, that it prove dry, is not provided for, and it is the omitted case that has occurred. The authorities are uniform that under such circumstances there is an implied obligation on the lessee to proceed with the exploration and development of the land, with reasonable diligence, according to the. usual course of the business, and a failure to do so amounts to an abandonment which will sustain a re-entry by the lessor.
Abandonment is a question of fact to be determined by the acts and intentions of the parties. An unexplained cessation of operations for the period involved in this case gives rise to a fair presumption of abandonment, and standing alone and admitted would justify the court in declaring an abandonment as matter of law. But it may be capable of explanation and is therefore usually a question for the jury on the evidence of the acts and declarations of the parties: Stage v. Boyer, 183 Pa. 560 . It should have been so left to them in this case.
Judgment reversed and venire de novo awarded.