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Hughes v. Ford

OPINION FILED MAY 18, 1950.

J.O. HUGHES, APPELLEE,

v.

WM. P. FORD ET AL., APPELLANTS.



APPEAL from the Circuit Court of Richland County; the Hon. CASWELL J. CREBS, Judge, presiding.

MR. JUSTICE FULTON DELIVERED THE OPINION OF THE COURT:

This is an appeal by the defendant Wm. P. Ford, from a decree of the circuit court of Richland County, which cancelled a certain oil-and-gas lease given by J.O. Hughes, the plaintiff, to said defendant, and ordered the City National Bank of Dixon to deliver to Hughes two checks in the amount of $500 each and ordering the Olney Trust & Banking Company to pay to Hughes the proceeds of each of said checks.

On May 17, 1948, Hughes filed a suit against the defendant Ford, and against the banks above named and alleged that he was the owner of 80 acres of land except one half of the minerals in and under the same, and which said one-half of the minerals were owned by O.C. Borah and Carrie L. Winter, who were each the owners of one fourth thereof. He alleged that on January 22, 1948, he and his wife executed an oil-and-gas lease to Wm. P. Ford which was for a term of four months or as long thereafter as oil and gas might be produced from said premises, and that said lease provided that if no well was commenced on the land within two months it should terminate as to both parties and that if a second well was not commenced within four months of the date of the lease, the lessee should surrender the undeveloped acreage except as to the 20-acre tract on which the first well was drilled. He also alleged the lease provided that if the lessee commenced a well within the term of the lease he should have the right to drill such well to completion with reasonable diligence and dispatch, and if oil or gas were found that the lease should continue as if such well had been completed within the term.

The complaint further alleged that the defendant Ford had failed to commence a well within the two months from the date of the lease, and that he did not continue thereafter with reasonable diligence and dispatch to drill a well, and that by reason thereof he forfeited his right to the lease. It was likewise alleged that on January 22, 1948, the defendant Ford entered into an escrow agreement with the plaintiff by the terms of which he was to deposit $1000 with the City National Bank of Dixon, and that the same was to be forfeited to the plaintiff in the event the said Ford failed and neglected to commence wells in accordance with the terms of said lease. It was alleged that the City National Bank of Dixon held two checks, each in the amount of $500 issued by the Olney Trust & Banking Company, pursuant to this agreement.

The plaintiff by his complaint likewise alleged that the drilling of the well was not, in fact, commenced as required by the lease and escrow agreement, and that the defendant Ford refused to execute a release of the oil-and-gas lease and refused to authorize the escrow agent to deliver to the plaintiff the cashier's checks, and that, therefore, the plaintiff was compelled to resort to a court of equity for the purpose of securing an order for the delivery of the checks and for the cancellation of the lease.

The defendant Ford answered the complaint and denied that the oil-and-gas lease was for a term of four months and averred that the lease was to continue after the term of four months so long as operations for drilling were continued as provided in the lease. He denied that he had failed to comply with the terms of the lease and alleged that neither the lease nor the escrow agreement contained any provision requiring continuous drilling or drilling operations within the period of two months.

The matter was tried before the chancellor and it appears that there was no dispute about the execution of the lease and escrow agreement; likewise there was no dispute that on March 20, 1948, three individuals made a statement before a notary public that they had witnessed the commencement of the drilling of a well on the leasehold on that date, and that the hole was more than 10 feet deep at 2:45 P.M. It was likewise undisputed that a letter was addressed to the defendant Ford, requesting a release of the lease and a turning over of the checks and that he refused to do so.

It appears from the evidence that this leasehold was located about 13 miles southwest of Olney, near the Big Muddy and Little Wabash Rivers. The defendant Ford had been engaged in drilling oil wells throughout his lifetime and sometime shortly before March 19, 1948, he employed one John Lowery, who had a portable cable tool drilling rig, to commence the drilling of the well on the north 40 acres of the 80 acres involved. It appears that the well site was very low and muddy. Lowery was primarily a water-well driller and the type of rig which he had and used on this well was the type commonly used for water wells. It appears that the defendant Ford applied for a permit to drill this particular well at a higher location but that the permission was denied by the Department of Mines and Minerals. It appears that with considerable difficulty, because of the muddy condition of the terrain, Lowery pulled his rig onto the site and, using an eight-inch bit, drilled to the approximate depth of 20 feet, and that he inserted a length of 5 1/2-inch diameter casing therein, which projected about 13 feet out of the ground, and that he then pulled off the site with his equipment and nothing further was done thereafter to continue drilling up to the time suit was instituted.

It also appeared that a rotary rig was the customary machine used for drilling oil wells in this vicinity, and that it was practically the uniform practice to use 10 5/8-inch surface pipe, and that in this vicinity a well using a 5 1/2-inch casing was not commonly found. A geologist also testified that the strata which was to be drilled into at this location would have necessitated a well of approximately 3000 feet in depth, and that the machine used by Lowery was incapable of drilling a well to that depth.

It also appeared from the evidence that the defendant Ford had drilled wells in this vicinity, and that he had drilled a well immediately north of this site, and that he had an interest in such well, and that the well in question here would have been an offset to that well.

The trial court found that no oil well had been, in fact, commenced within 60 days as required by the lease and held that the plaintiff was entitled to the cancellation of his lease and that the $1000 which had been deposited in escrow should be delivered to him, and this appeal followed.

The appellants contend that the decree of the trial court is contrary to the manifest weight of the evidence and to the law of Illinois, and that the trial court should have entered a decree finding that the defendant had, in fact, commenced the drilling of an oil well.

The oil-and-gas lease provided as follows: "It is agreed that this lease shall remain in force for a term of four months from this date and as long thereafter as oil, gas, casing-head gas, casing-head gasoline or any of them is produced from said leased premises or operations for drilling are continued as hereinafter provided, or operations are continued for the injection of water, brine and other fluids into subsurface strata. Provided, however, that for injection purposes this lease shall continue in full force and effect only as to well or wells so used and the ten acres contiguous thereto. * * * If no well be commenced on said land within two months from date hereof this lease shall terminate as to both parties and shall be null and void. If a second well has not been commenced within four months from date hereof, the lessees shall surrender the undeveloped acreage except the twenty-acre tract on which the first well was drilled."

The escrow agreement contained the following provision: "You are directed to hold this sum of One Thousand Dollars ($1,000.00) for a period of sixty (60) days from the date hereof and in the event satisfactory proof is presented to you showing that the drilling of a well has been actually commenced on either one of these tracts of land, then you are authorized and directed to hold the said sum of One Thousand Dollars ($1,000.00) for an additional sixty (60) days, making one hundred twenty (120) days in all from the date hereof, and in the event that within one hundred twenty (120) days from the date hereof, you are furnished with satisfactory proof showing that a second well has been commenced on either of said tracts of land, you are authorized and directed to refund the said sum of One Thousand Dollars ($1,000.00) herein referred to the said William P. Ford. However, in the event you do not receive proof satisfactory to the commencement of the actual drilling of the first well within sixty (60) days from the date hereof, then you are authorized and directed to pay said sum of One Thousand Dollars ($1,000.00) to the said J.O. Hughes. In the event you have received proof of the actual commencement of ...


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