W. W. (William Wheeler) Thornton.

The law relating to oil and gas, including oil and gas leases and contracts, production of oil and gas, both natural and artificial, and supplying heat and light thereby, whether by private corporations or municipalities online

. (page 1 of 148)
Online LibraryW. W. (William Wheeler) ThorntonThe law relating to oil and gas, including oil and gas leases and contracts, production of oil and gas, both natural and artificial, and supplying heat and light thereby, whether by private corporations or municipalities → online text (page 1 of 148)
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UNIVERSITY

OF CALIFORNIA

LOS ANGELES



SCHOOL OF LAW
LIBRARY



THE LAW RELATING



TO



OIL AND GAS



INCLUDING



Oil and Gas Leases and Contracts, Production of Oil and Gas, both Natural

and Artificial, and Supplying Heat and Light therel)y, whether

by Private Corporations or Municipalities

With Statutes pertaining to Natural Gas and Oil



SECOND EDITION



BY

W. W. THORNTON

Author of Gifts and Advancements, Lost Wills, Railroad Fences and
Private Crossings, etc.



CINCINNATI

THE W. H. ANDERSON CO.

LAW BOOK PUBLISHERS
1912



Copyrighted 1904
THE W. H. ANDERSON CO.

CINCINNATI.

Copyrighted 1912
THE W. H. ANDERSON CO.

CINCINNATI.






PREFACE TO SECOND EDITION.



It is more than eight years since the first edition of this work
appeared. It was then the most comprehensive work on Oil
and Gas that had ever been issued ; and it remains so today.
No other work has combined the subjects of Oil, Natural Gas,
and Artificial Gas, and discussed all the questions decided by
the courts which have arisen by reason of their production,
and their use as fuel and for lighting purposes.

During the last eight years many questions on the subject-
matter of this work have been before the courts, especially
questions concerning Oil and Gas Leases, and it has been
thought that another edition of the work ^should be offered to
the legal profession. Efforts have been made to cite every
case in this country, in England, and in her provinces, bearing
upon the subject of Oil and Gas, until the date of going to
press, July 1, 1912.

W. W. THORNTON.

Indianapolis, Ind., July 1, 1912.



^y^C^C\r^^



PREFACE TO FIRST EDITION.



The production of petroleum in this country annually
amounts to millions of barrels, and in value to millions of
dollars. It is one of the greatest industries of this country.
The value of natural gas annually flowing from the earth is
of almost inestimable value. Since i>etroleum and natural
gas became commercial products, thousands of cases concerning
their production, sale and transfer, involving new and unusual
questions, have been decided in our courts, many of which have
been reported in official and unofficial publications. These
" new and unusual questions " have, at times, sorely tried
the courts to determine and settle the rights of the contending
parties according to legal principles and in accordance with
justice. Cases have come before the courts involving many
questions of so unique a character that no precedents could be
found. Necessarily, there has grown up quite a body of law,
unknown to the past generations. To collate and discuss the
many cases involving questions concerning p<^troleum and nat-
ural gas, and the rights and liabilities involved in their produc-
tion, sale and transportation, has been one of the objects of
the author in the preparation of this volume.

The subject of oil contracts has also been discussed at length.

Much prominence has been given to the subject of oil and
gas leases, — by Avhich is meant leases of lands for the purpose
of developing them to secure petroleum and natural gas, — and
questions growing out of that subject. Early in the prejiara-
tion the author perceived the impossibility to reconcile all the
cases upon this subject, and to harmonize them in a satisfactory
manner. What he has attempted to do has been to state the
questions decided, at times giving his own views for whatever

iii



IV PREFACE.

they may be worth. lie has cited many cases, where he thought
them applicable, upon the subject of mining of solid minerals,
• — coal mining cases, — believing that those using this work
would find such cases of value and aid tliem in their practice.
In this he has gone far beyond the line adopted by writers upon
the subject of oil and gas. Especial care has been taken to
secure citations of all cases upon this subject.

The work is not confined merely to the subject of petroleum
and natural gas, and their production. The production and
supplying of artificial gas has been treated at length, — much
more so, it is believed, than can be found elsewhere either in
this country or England. The duty of a gas company to furn-
ish gas to the consumer, its liability for failure to furnish him
gas, and its liability to him for neglect whereby he or others are
injured by leaking or exploding gas has been treated at con-
siderable length.

Particular attention has been given to the powers of munici-
palities to light their streets, to furnish gas to their inhabitants,
and their relations to gas companies, and the right of these com-
panies to use streets and highways for the laying of their pipes
or mains therein. It is believed that nowhere else has the
subject of exclusive or monopolistic grants, — the right to oc-
cupy the streets, to the exclusion of all other competitors, —
been treated as exhaustively as in the present work.

The right of a municipality or a legislature to regulate gas
companies and to control their rates to customers has received
particular attention.

Upon these subjects electric lighting and street railway cases
have been frequently cited, as well upon the subject of the right
of electric and street railway companies using the streets of
a city.

A chapter has been devoted to the subject of insurance in
connection with use and storage of oil and gas in the building
insured.

The aim has been to not only make this volume a useful
and convenient work for the practitioner having an oil or gas
lease or contract under consideration, but also for attorneys of



PREFACE. V

municipalities and artificial and natural gas ■companies who
are investigating the rights and duties arising between munici-
palities and gas companies, as well as tlie rights and duties of
gas companies to the inhabitants of such cities and to their
patrons or customers.

Forms of oil and natural gas leases and contracts used in
Pennsylvania, West Virginia, Ohio, Indiana, Kansas and Texas
have been inserted in the Appendix, which it is believed will
be found to be useful.

W. W. Thornton.
Indianapolis, Inch

January 1, lOOJf.



CONTENTS.



CHAPTER I.
HISTORICAL SKETCH.

SEC. PAGE.

1. Petroleum known to ancients 1

2. Early discoveries of petroleum in United States 3

3. Early account of a western New York oil spring 5

4. Washington county, Ohio, oil well 8

5. The first oil well in United States 9

6. Other first oil wells in United States 12

7. In what countries petroleum found 13

8. Natural gas was known to ancients 15

9. Early natural gas in America 16

10. Sources and composition of petroleum and gas 18

11. 'Composition of petroleum 21

12. Composition of natural gas 23

13. Early attempts at distilling or refining petroleum 24

14. Early use of petroleum as a medicine 25

15. Transportation 20

16. Tlie first oil lease 28

17. Early use of artificial illuminating gas 29

CHAPTER II.

LEGAL STATUS OF OIL ^VND NATURAL GAS.

18. Oil and natural gas a mineral 31

19. Part of realty 32

20. Ownership in earth 33

21. Compared with animals farie naturae 33

22. When title vests in owner 34

23. 0^vnership of oil difi"ers from that of water 35

24. Owner of land has only a qualified ownership 38

25. Qualified ownership in oil — power of legislature 40

25a. Depriving owner of soil of right to oil and gas beneath surface. . 43

26. Severance of oil or gas from realty 43

27. Recovery of severed product — Trover 44

27a. Ejectment for possession of oil 45

28. Wasting gas — Injunction 45

29. Increasing flow of gas by pumping well 46

vii



VIU CONTENTS.

SKC. PAGE.

30. Pumping oil wells 49

31. Exploding nitroglycerin in well to increase flow 50

32. Maliciously boring well to injure another 50

33. Measure of damages for unlawfully taking oil and gas from

the soil 50

34. When lessee acquires title to oil 51

35. Waste — Part of realty 53

36. Partition 54

37. Oil and gas not synonymous 54

38. "Other valuable volatile substances" 54

39. Natural gas not heat 55

40. Gas and oil articles of commerce 55

4 1. Judicial notice 55

42. Judicial knowledge of oil and gas properties 57

43. Plugging wells 57

44. Not subject to tariff law of 1890 58

45. Entry of government oil lands 58

46. Property in oil tanks or pipe-lines 58

CHAPTER III.

OIL AND GAS LEASES.

47. Peculiarity 63

48. Name applied to instrument does not determine its legal effect. . 65

49. Lex loci governs 65

50. License and incorporeal hereditaments 66

51. Interest of lessee is a chattel real 66

52. 'Contract giving interest in real estate 67

53. Estate does not vest if oil or gas not found 71

54. Vesting title subject to condition precedent — Diligence 73

55. Tenancy from year to year or at will 74

66. Unilateral contract 76

57. Legal interest of lessee in various leases — Digest 77

57a. Digest of cases continued 81a

58. Sale of oil and gas, and not a lease 87

59. Presumption as to ownership of oil or gas is ground 88

60. Administrator's right to lease or contract — Presumption 88

61. Lease and not a license 89

62. License 90

63. License — Consideration — Revocation 93

64. License, revocation 94

65. Merger 95

66. Consideration 96

67. . Option to purchase after development 99

68. Option to extend lease 100

69. Acceptance of second lease by lessee in first lease 101



CONTEXTS. IX

SFC PACK.

70. Extension of time of lease may amount to a new lease ll)3

70a. Effect of payment of rent upon extension in point of time 104

71. Options — Revocation 10(5

72. Options continued 110

73. Option to pay rent or drill well 112

74. Appurtenances, wiiat will pass as such 112

75. Statute of frauds 113

76. Description of leased premises 114

77. Right of lessor to use surface 110

78. Construction 1 1^

79. Construction of instrument by parties 110

80. Unfilled blanks — Written and printed clauses 120

81. Execution of lease 120

82. Defective execution or acknowledgment 121

83. Parol change of written lease 121

84. Acceptance — Estoppel 121

85. Lessee need not sign lease — deed 122

86. Separate owners giving joint lease 122

87. Notice to one of several lessees 124

88. Second lease — Notice 124

88a. Right of way of railroad 125

88b. Enjoining trespass on adjoining land 127

89. Agent of lessee may take lease after forfeiture 127

90. Exclusive right of licensee of lessee — Solid mineral oil 127

91. Implied covenant 129

92. Covenant running with land 131

93. Personal covenants 132

94. Assignment of contract giving interest in land — Incorporeal

hereditament — Lease — Surrender 133

95. Lessee liable after assignment on express covenants 135

96. When work must be begun 136

97. Diligence in operating leased premises after development 137

08. Agreement as to what constitutes due diligence 130

99. Unprofitable lease 130

100. Lessor cannot impair value of lease by drilling wells on his own

land 140

101. Lessee draining premises by operations on adjoining territory. .. 142

102. Drilling well near boundary line 143

103. Injunction — Quieting title 145

104. Damages 147

105. Damages for failure to keep covenant 148

106. Damages for neglect to develop or operate leased premises 140

107. Damages for neglect to operate — Res judicata 151

108. Damages for taking oil or gas 151

109. Boundaries — Location of wells 152

110. Selection of site 154

111. Number of wells 155



X CONTENTS.

SEC. Px\GK.

112. Number of wells — Protecting lines 159

1 j3. Test wells — Excuse for not drilling 161

114. Test well, when need not be drilled 163

1 15. Test well— Depth 105

IIG. Lessor and lessee by mistake locating well on stranger's land. . . 166

1 1 7. "Shooting" well 1 07

118. Oil lease, who entitled to gas 167

119. Oil lease gives no right to gas if oil bo not found 170

120. Eviction— Ejectment 171

121. Failure of title, reimbursement of operator 172

122. Lessee denying tenancj^ 174

123. Uncertainty on lease — Unconscionable 174

124. Diameter of wells 174

125. C!ontract to drill wells "in the vicinity" 175



CHAPTER IV.

DURATION OF LEASE.

126. Ordinary leases 180

127. Diligent search — Implied covenant 181

128. Holding for speculation purposes 182

129. Non-development of leased premises where no limit fixed — For-

feiture 183

129a. Time for termination of lease fixed therein 186

130. Greater diligence required in developing oil than coal lands 188

130a. What is reasonable time — Question of fact 189

131. Acquiescence in delay — unavoidable accident 190

132. Acquiescence in abandonment — damages 191

133. Actual mining operations must be commenced 191

134. In paj'ing quantities 192

135. Paying quantities, continued 192d

136. Gas in paying quantities 196

136a. Gas used for manufacturing purposes 198

136b. Paj'ment as a renewal of term 199

136c. Non-paying well as a termination of the lease — Abandonment —

Drilling or completing well 200

1 37. Abandonment 202

138. Lessee may abandon non-productive premises 202b

138a. No express forfeiture clause necessary for an abandonment 203

13Sb. Abandonment under mutual mistake of law concerning rifjhts to

hold leased premises 205

139. Completion of non-productive well — Title 206

140. . Instances of abandonment 206

14 1. Cessure of work after operations begim 210

142. Surrender 212



CONTENTS. XI

SEC. PACK.
142a. Surrender of premises which are not definitely described — Selec-
tion by lessee 214a

143. Surrender by substitution of tenants or assignment of lease.... 214

144. Parol surrender 217

144a. Reservation of right to surrender lease — Completion of surrender..218

145. Payment of rental instead of developing premises 219

146. Rescission for fraud 220a

CHAPTP]R V.

FORFEITURE OF LEASE.

147. Forfeiture not a favorite of the law 222

148. Rule in gas or oil leases 222

149. History of change in rule giving lessor exclusive right to declare

a forfeiture 225

150. Forfeiture favored by equity when it will promote justice 22S

151. Lessor only can declare forfeiture 228

152. Heirs or assignees of lessor may declare forfeiture — Assignee. . .228c

153. Stranger cannot avail himself of forfeiture 22Sd

154. Lease may Be voidable at election of lessee on his default, sur-

render 229

155. Lessee cannot insist on forfeiture to escape rent 231

156. Forfeiture clause omitted 232

157. Implied covenants do not authorize forfeiture 232

158. Notice of election to declare forfeiture 234

159. Waiver of forfeiture 236

100. Waiver of forfeiture by accepting payment 239

160a. Waiver of forfeiture by receipt of gas 240c

160b. Acceptance of rent for definite period — Waiver of right to

declare forfeiture 240c

161. Eviction of lessee 240d

162. Failure to operate and not for failure to develop 24()d

163. Continuance of operation 241

164. Production of gas will not prevent forfeiture of an oil lease.... 243

165. Covenant uncertain 243

166. Re-entry 244

167. Release of premises equivalent to a re-entry 245

168. Surrender after assignment — Forfeiture 247

169. Forfeiture of only part of lease 247

170. Partial development — abandonment 250

171. Lessee draining leased premises by wells on adjoining territory. .252

172. Lessee draining away oil by sinking wells on adjoining premises. .253

173. Inability to complete work 253

174. Mortgage of leasehold may work a forfeiture 254a

175. When work must be completed 254a

176. Excavating for oil means bringing it to the surface 2541)



Xll CONTENTS.

SEC. PAGE.

177. Failure to pay royalty or report them 254b

178. Payment of rent will not prevent forfeiture for neglect to

develop 254c

179. Must pay rent althougli no oil on premises 254d

180! Lessee must pay past rents — Damages 25'.'}

181. Lessor consenting to abandonment 256

182. Estoppel of lessor 257

183. Demand for compliance with lease 258

184. Abandonment a question of intention 258

185. Forfeiture a question for jury 259

186. Suit to cancel lease for non-development of territory 260

187. Relief from forfeiture 262

188. Time to avoid forfeiture 262b

189. Lessee cannot recover premises after forfeiture 262c

190. Reimbursement for expenses 262c

191. Removal of fixtures and machinery 262c

192. Damages instead of declaring a forfeiture 263



CHAPTER VI.

ASSIGNMENT AND SUBLETTING OF LEASE.

193. Lessor — Lessee 264

194. Interest assignee secures 265

195. Assignee cannot take advantage of default in lease 266

196. Refusing consent to assignment 207

197. Sublease — Division 268

198. Assignment carries option 268

199. Transfer of lease by judicial sale 26S

200. Equitable assignee in possession 270

201. Lease unassignable 270

202. Assignment of royalties 271

203. Assignee of lessee bound by agreements in lease — Privity of

estate 274

204. Ground of assignee's liability to lessor 274a

205. Assignee's liability broadened by terms of assignment or by

outside contract 274d

206. Extent of assignee's liability 274d

207. Liability of assignee of a part interest in lease 277

208. Liability of occupier imder unassigned lease 277

209. Assignee not taking possession liable 278

210. Several successive assignees 279

211. Lease not executed by lessee, but possession taken under the

lease, eflTect 279

212. ■ Lessee released by substitution of assignee 280

213. Trustee of lessee and not his cestuis que trustent liable 282

214. Cestuis que trustent may be liable 283



CONTENTS. XI 11

SEC. PAGE.

215. Liability of assignee to his assignor 283

216. Assignor liable on account of lease as a surety 284a

217. Sublease — Liability of sublessee 2,S4b

217a. Ejectment 284d

217b. Lessee denying landlord's title 284d

217c. Liability of a trustee assigning a lease 284d

CHAPTER VII.

. RENTS AND ROYALTIES.

218. Limitations of chapter 286

219. Construction of leases 286

220. Various methods of fixing rents or royalties 2S7

221. A royalty is rent — "Mining rent" 28S

222. Definition of rent and rent charges 289

223. Payment so much per well 290

224. Royalty, percentage of profits or income 292

225. Payment of operating expenses first — Free gas 294

226. Free gas 294a

227. Royalty in gas or oil used to operate leased premises 295

228. When royalty due — Removal of oil from premises 296

229. When rent is due for failure to develop land 297

230. To whom payable — Joint lessors 300

230a. Payment of rent to preserve right to mine — Tender 301

231. Damages for failure to deliver lessor his share 302a

232. Interest on royalties 302a

233. W^aiver — Parol evidence 302a

234. Surrender — Tract "retained" 302a

235. Interdependent conditions 302b

236. New lease 302c

237. Termination of lease by failure to keep its terms 302c

238. Lessee cannot avoid payment by taking advantage of forfeiture

clause 303

239. Forfeiture clauses and liability for rent 305

240. Surrender of lease necessary to escape liability for rent 307

241. Eviction 308

242. Rent to be paid if well not drilled 308

243. Minimum production allowed 310(;

244. Consideration for lease may be purchase money 310d

245. Consideration for grant part of minerals, creates an exception. .31 1

246. One well draining two tracts of land 311

247. Oral change of lease discharging or changing rents 312

248. Failure of oil, royalty ceases 313

249. Rent for exhausted well — Flooded well 313

250. Instances of lessee's liability 314

25L Account rendered 315



XIV CONTENTS.

SEC. PAGE.

252. How collected 315

253. Lien of royalty accruing during receivership 317

254. Assignment of lease does not carry oil in tank on premises 317

CHAPTER VIII.

WHO MAY MAKE A LEASE.

255. Owner of land may grant 318

256. Infants — Lunatics 318

257. Married women 318a

258. Wife joining husband in lease — Homestead 319

258a. Administrator or executor 320

2o8b. Indian lands 320

CHAPTER IX.

TENANTS FOR YEARS.

259. May work open mines 323

260. When may open new mines 323

2(i0a. Tenant by curtesy 324-

CHAPTER X.

TEXANCTES FOR LIFE— DOWER.

201. May work mines or oil wells already open 325

2G2. Rule concerning life tenants applies to oil leases 326

263. May not open new mines or bore new wells 326a

264. Curtesy estate of husband 326b

265. When mines may be opened or wells bored 326b

266. Mineral lands unfit for any other purposes than mining 32Cd

267. Reversioner or remainderman opening wells 326d

268. Life tenant must account for waste 327

269. Title to mineral or oil severed 327

270. Destruction of corpvis of the estate 327

271. Oil or gas may be exhausted 328

272. Estoppel of remainderman 328

273. Assignment of dower in mines 329

273a. Remainderman enjoining extraction of oil or gas 330

273b. Interest on royalties 330

CHAPTER XI.

CO-TENANTS.

274. One co-tenant may operate land of co-tenancy for oil or gas 331

275. Lease of license granted by co-tenant 332



CONTENTS. XV

SEC. r\(;\:.

276. Partition of minca or mineral lands XV.i

277. Partition of oil or gas lands 334a

278. Accounting between co-tenants 334b

279. Accounting wlien tenant excludes co-tenant 33H

280. Owner of surface not co-t<'nant willi owner of mineral beneatli

surface 339

2S1. Purcliase by tenant of co-tenant's interest 339

282. Equity jurisdiction of an accounting 339

283. Expense of worl<ing joint property 340

284. When a tenant l)onnd by co-tenant's act 340a

2S5. Injunction 340a

286. Surrender of lease by co-tenant 340a

287. Payment of rent or royalties 340b

288. Fidelity relation between members of a mining partnership .... 340b

CHAPTER XII.
COXTRACTS FOR A LEASE.

289. Xot often drawn into controversies 342

290. Indefiniteness 342

291. What is a sufficient writing 313

292. Effect of taking possession under contract 346

293. Specific performance of contract for lease 347

294. Damages for breach of contract to give lease 349

CHAPTER XIII.

ADVERSE POSSESSION— STAITJTE OF LniTTATIONS.

295. Peculiarities of oil and gas — Possession of surface 3.50

296. Rule as to oil and gas 350a

297. Possession of surface not adverse to owner of oil or gas 3r)(lb

298. Possession of oil operator not adverse to owner of surface 350d

299. Acquiring right to oil or gas under statute of limitations 3i.)0d

300. Receiver — Title in dispute — Injunction 351

301. Accounting 352

CHAPTER XIV.

RESERVATION AND EXCEPTION.

302. Distinction between reservation and exception 353

303. Severance of mineral by reservation or exception 354

304. Reservation of "all minerals" includes oil and gas .354

305. Reservation of right to drill for oil restricted 35tJl)

306. Ownership of gas or oil lieiieatli |)ulilic highways, rivers or sea.. 356c

307. Reservation or exception subject to lien of judgment 356d

308. Wife's interest in reservation — Construction 35(M

309. Location of oil claim on public lands 3.')7



XVI CONTENTS.



CHAPTER XV.

PARTNERSHIPS.

SEC. PAGE.

310. Mining partnerships applicable to gas and oil operations 361

31 1. Tenants in common not partners 362

312. By agreement a mining association becoming an ordinary part-

nership 363

313. ^Mining agreements that create onlinary partnerships 364

314. Working a mine together creates a mining partiiersliip 364a

315. Selection of a partner — Sale of interest 364b

316. Tenants in common usually do not become partners 364c

317. Illustration of what makes a mining partnership 364d

318. Promoters — Prospectors 3(56

319. Life of mining partnership — Dissolution 367

320. Partition and accounting works a dissolution 368

821. Majority control 368

■ 322. Power of partner in mining or oil enterprise 368

323. Partner's lien 371

324. Liability of incoming partner 372

325. Each partner liable for all partnership debts 372

326. Limited partnerships 372

326a. Division of royalty — Damages 373

326b. Accounting — Dissolution 374



CHAPTER XVI.

MECHANICS' LIENS.

327. Lubricating oil 375

328. Labor or material must be furnished under a contract 375

329. For what material furnished a lien may be obtained 376

330. For what labor a lien may be obtained 376b

331. Overseer, custodian or superintendent entitled to a lien 370c

332. Upon what interest in land lien may be acquired 377

332a. Oil or gas leased premises 378

333. Lien on oil well 378

334. Forfeiture of lease 379

335. Pvetroactive effect 380

336. Priority of liens 380

337. Notice of claim of lien — Description of land 381



Online LibraryW. W. (William Wheeler) ThorntonThe law relating to oil and gas, including oil and gas leases and contracts, production of oil and gas, both natural and artificial, and supplying heat and light thereby, whether by private corporations or municipalities → online text (page 1 of 148)