Opinion
No. 16566
Decided April 1, 1965.
Leases — Oil and gas — "Free gas" — Rights of land owner — Rights of lessee — Land owner may not testify about rental value, when.
1. The rights of a land owner to "free gas" under an oil and gas lease are only those defined in the lease.
2. Where an oil and gas lease does not entitle the land owner to free gas but the lessee furnishes it as an accommodation, the latter will not be estopped from shutting off the supply.
3. The measure of damages for interference with a land owner's free gas privilege in an oil and gas lease is the difference in rental value of the property with a reasonable sufficiency of gas and with what was actually supplied.
4. A land owner may not testify about the rental value of his property until he has laid a satisfactory foundation for his opinion.
Mr. F. V. Ballard, for plaintiff.
Mr. T. J. Kremer, Jr., for defendant.
Plaintiff's predecessor in title owned and occupied a 77-acre farm. In 1916, he leased the land for the production of oil and gas.
The lessee, defendant's assignor, drilled wells Nos. 1 and 2 in 1918, and well No. 3 sometime later. He constructed a distribution system, which included a line near the rear of the plaintiff's house, and sold gas to consumers in the vicinity.
The lessor, in accordance with the "free gas" provision of the lease, laid a pipeline to well No. 1 and took off gas for his domestic use. There were the usual troubles with leaks and freezing, and the lessee, a close relative, suggested that the landowner connect to the distribution line near the house. He did so.
Ever since, the occupants of the house, including plaintiff, have received free gas from this connection. In addition to plaintiff, there are now fifteen customers on the distribution system who pay Three Dollars each per month. Well No. 2 has been plugged. Well No. 3 produces gas. Well No. 1 produces a very small amount. Several wells not on the 77-acre leasehold are also connected to the distribution system and contribute a sizeable fraction of the gas volume. Whether or not plaintiff receives any gas from the off-lease wells, the evidence does not make clear. The wells on the system are old, gas pressure has gone down, and neither the paying customers nor plaintiff get enough gas to heat their homes in winter.
Plaintiff seeks an injunction requiring defendant to furnish him with gas and to refrain from selling to customers until plaintiff has enough for his uses. He also asks $500 damages.
Plaintiff presented his case in chief to the court and jury and rested. Upon defendant's motion, the court found for defendant as to damages as a matter of law, and discharged the jury. Defendant rested without presenting evidence.
The "free gas" provision in the lease is as follows:
"Lessors may lay a line to any gas well on the said land to take gas free for their own use for heat and light in economical appliances in one dwelling house on said land at their own risk, subject to the use [,] operation and right of abandonment of the well by the said second party and first parties shall subscribe to and be bound by the reasonable rules and regulations of said second party or assigns, published at such time, relating to such use of gas."
Apparently no rules and regulations for the use of gas were ever published or subscribed.
A landowner has a free gas privilege or right only as it may be defined in the lease. This rule seems to be implicit in Oak Harbor Gas Co. v. Murphy (1897), 18 O. C. C. 662, 7 O. C. D. 700, the only Ohio case involving free gas to come to the court's attention. The rules for construing such a provision are found in Northeastern Reporter, Second Series, syllabus in Hein v. Shell Oil Co., Inc. (1942), 315 Ill. App. 297, 42 N.E.2d 949:
"1. A contract between parties dealing in oil and gas is subject to the same rules of interpretation as any other contract, and there is no relation of special trust or confidence between the lessor and lessee in such lease any more than any other."
"6. All clauses of oil and gas leases are to be read together and if the fair meaning of all clauses is that lessor's right to free use of gas for domestic purposes is to be limited to gas produced from gas wells, even though not expressly stated, that interpretation should be adhered to." (Emphasis added.)
The landowner was limited to the rights specifically granted in the lease in Weaver v. Graham et al. (1921), 109 Kan. 450, 199 P. 924, a Pacific Reporter syllabus stating:
"1. Where an oil and gas lease provided that `If gas be found in any well or wells, the first party is to have on demand sufficient gas for domestic purposes, on said premises free; the second party is to have the remainder, together with all gas from oil well,' held that the lessor, who was the party of the first part, was not entitled to be supplied with gas otherwise than from producing gas wells, and no obligation to supply him with gas arose from its being found in oil wells."
The lease in the instant case provides that the landowner "* * * may lay a line to any gas well on the said land to take gas free for [his] own use * * * at [his] own risk * * *."
Obviously, the lessee is not required to provide or distribute gas to the landowner. If he wants to avail himself of the free gas privilege, he must first lay his line to a well on the leasehold, and of course, he is entitled to receive gas only from that well.
There are practical advantages in this particular provision to the lessee. It places no affirmative duties upon him. All transmission problems are assumed by the lessor. When the well plays out, the landowner's privilege ceases. Nevertheless, the provision is binding on the landowner because it is part of the contract.
In Risinger et al. v. Arkansas-Louisiana Gas Co. et al. (1941), 198 La. 101, 3 So.2d 289, the lease provided:
"Lessors to have gas free of cost from any such well for all stoves and inside lines in the principal dwelling house on said line during the same time by making his own connections with the wells at his own risk and expense."
A Southern Reporter, Second Series, syllabus provides:
"3. Lessors were not entitled to cancellation of oil and gas leases on ground that lessees failed to furnish gas free of cost as required by leases, where leases placed responsibility of making the connection to well on the lessors at their own expense and risk, and it was their failure to make proper connection with the well that made gas unavailable to them."
In Pittsburgh West Virginia Gas Company v. Nicholson et al., Same v. Swisher et al. (1921) 87 W. Va. 540, 105 S.E. 784, 12 A.L.R. 1392, is found this lease provision:
"Lessors may lay a line to any gas well on said land to take gas free for own use for heat and light in one dwelling house on or off said land at own risk, subject to the use, operation and right of abandonment of the well by the said second party;"
The court said, 12 A.L.R. at 1395:
"* * * It must be borne in mind that in these cases the agreement is that the lessors shall have the right to go to the wells when they are drilled and take therefrom so much gas as may be necessary for their private use, * * *"
The landowner is entitled to free gas only if it is produced on the leasehold, so holds Harbert v. Hope Natural Gas Co. (1915), 76 W. Va. 207, 84 S.E. 770. In that case the lessee for several years furnished gas to the landowner from off the premises, and then shut him off. In contrast to the instant case, the landowner did not live on the premises, and the Harbert lease does not specify where the connection is to be made, nor where the gas is to be consumed:
"If gas is found on this farm in paying quantities, the first party shall have gas free of charge for domestic purposes by making their connections at their own risk."
The court said, 84 S.E. at 772:
"Plaintiff, of course, had not the right to demand free gas from any of defendant's wells, except the one on the Lyon tract; still as long as defendant supplied him with free gas, it was immaterial to him where it came from, provided it cost him no more to make his connection with the line or well. But his right was limited to the wells on the Lyon land; and he could demand that he be supplied with gas therefrom, on making his own connection, so long as he owned the surface of the Lyon tract, and the wells thereon produced gas * * *."
A Southeastern Reporter headnote is as follows:
"If, after a producing gas well is drilled on the lease, the lessor's grantee and assignee of the free gas right applies to the lessee's assignee of the lease for free gas for use in his dwelling house, not situate on the lease, and such assignee, through its agents, having knowledge of the facts, permits him to tap one of its gas lines in the vicinity of such well, but not connected with it, and to use gas therefrom for a long period of time, such conduct evidences a practical construction of the covenant, and is an implied admission of the covenantee's right to consume the gas elsewhere than on the lease, but not of his right to free gas from wells other than those on the leased premises." (Emphasis added.)
Where the lease does not entitle the landowner to free gas but the lessee furnishes it as an accommodation, the latter will not be estopped from shutting off the supply. In Cranston v. Miller et al. (1945), 208 Ark. 156, 185 S.W.2d 920, the following syllabus is found in Southwestern Reporter, Second Series:
"1. Where oil and gas lease required lessee to furnish lessor with free gas if gas came from a well where gas alone was found and gas so found was used off the premises, and well on premises produced oil primarily, did not produce gas in commercial quantities, and gas produced was not used off premises, lessee was not obligated to furnish lessor with free gas.
"2. Where under terms of oil and gas lease lessor was not entitled to free gas because well did not produce gas alone or in commercial quantities, the furnishing to lessor of free gas by successive lessees as a matter of accommodation did not amount to a construction of the lease by the parties that lessor was entitled to free gas so as to estop current lessee from cutting off lessor's gas."
In Kimble et al. v. Wetzel Natural Gas Co. (1950), 134 W. Va. 761, 61 S.E.2d 728, are these paragraphs of the syllabus of the Southeastern Reporter, Second Series:
"11. Equitable estoppel or estoppel in pais is applicable where one person has made a false representation or has concealed material facts, when he had knowledge of such facts, in dealing with party ignorant of truth of matter, with intention that ignorant party should act upon representation or concealment, and party being ignorant of truth is induced so to act to his damage.
"13. Application of principle of equitable estoppel or estoppel in pais requires that conduct of defendant be such as amounts to misrepresentation or concealment of material facts.
"14. Under covenant in oil and gas lease requiring lessee to furnish natural gas to lessors for heating and lighting purposes free of charge, the fact that lessee had continued to furnish free gas to successors in interest of lessors after death of surviving lessor, and after well on leased land had ceased to produce gas, would not permit invoking principle of equitable estoppel against lessee."
In the instant case, the rights of plaintiff under the lease are clear. Construction of the lease by the actions of the parties is unnecessary.
Defendant is not required to operate its wells so that plaintiff can have gas. It may plug them if that is desired. Under the lease, plaintiff's privilege of free gas is
". . . subject to the use [,] operation and right of abandonment of the well by the said [lessee] * * *"
The lease also provides:
"It is agreed that the second part ( sic) to have the privilege * * * at any time to remove all machinery and fixtures placed on said premises;"
In Hammons et al. v. Pure Oil Co. et al. (1949), 309 Ky. 495, 218 S.W.2d 22, there is this syllabus from Southwestern Reporter, Second Series:
"2. Where oil and gas lease gave lessee right at any time during life of lease or thereafter to remove all equipment placed on land, and to remove casing from well, and gave lessors right to use gas from gas wells at their own risk, lessee in abandoning well because of inability to produce oil on a commercial scale could plug well and remove casing notwithstanding lessors would no longer be able to use gas from well."
If plaintiff were to lay a line to a well on the leasehold, defendant could not sell gas from that well until plaintiff's reasonable needs were satisfied, either from that well or somewhere else. Pittsburg West Virginia Gas Company v. Nicholson et al., supra. Otherwise, defendant's operations and sales are unrestricted.
Plaintiff in the instant case is not entitled to free gas because he has not complied with the terms of the lease.
As to damages, plaintiff, the landowner, offered to testify to the cost of heating his home with coal the previous year, and also the estimated costs of other types of fuels. After stating briefly that he was acquainted with the rental value of other homes in the vicinity, he offered testimony on the rental value of the subject property. All this evidence was refused.
Evidence of actual or estimated heating costs is inadmissible because it does not take into consideration two limitations on the free gas right. The lease, supra, requires the gas to be used in "economical appliances." The law also requires that the landowner use only a reasonable amount. In Pittsburgh West Virginia Gas Company v. Richardson (1919), 84 W. Va. 413, 100 S.E. 220, 9 A.L.R. 86, the court said, 9 A.L.R. at 88:
"* * * The quantity of gas to which the defendant is entitled under this free gas clause in his lease is not unlimited, but is only such amount as is customary and reasonable for his domestic uses. Hall v. Philadelphia Co., 72 W. Va. 573, 78 S.E. 755; Harbert v. Hope Natural Gas Co., 76 W. Va. 207, L.R.A. 1915E, 570, 84 S.E. 770. It cannot be said that the plaintiff has any arbitrary right to determine such amount. Neither has the defendant the right to say that he may use the gas produced to any extent which his wants, real or capricious, may demand. He is entitled under his contract only to so much gas free of charge as is ordinarily used, and as is reasonably necessary for such domestic purposes as natural gas is usually devoted to * * *."
Rather than actual or estimated heating costs, the measure of damages in this cause is the difference in the rental value of the property with a reasonably sufficiency of gas and with what was actually supplied.
The principal case on measure of damages, cited with approval in Summers on Oil and Gas, Vol. 3A, Sec. 587, page 100, and 58 C. J. S. "Mines and Minerals," Sec. 216, page 553, is Riggsby et ux v. Swiss Oil Corporation et al. (1931), 240 Ky. 543, 42 S.W.2d 732. The lease provided:
"* * * if a gas well was produced upon the premises, then the lessor should have a sufficiency thereof `free of cost to heat and light one dwelling.'"
The court said, 42 S.W.2d at 735:
"Plaintiff testified in his deposition, following a claim made in an amended petition which he filed, that he was damaged in the sum of $100 per year on account of being deprived of the use of gas in his dwelling house, and he arrived at that sum upon the theory that it would cost him that amount to supply fuel for heating and cooking and for lights of other material, but which, we are convinced, was not the proper measure of such damage, since the true criterion would be the difference in the value of the use and occupancy of plaintiff's premises with a supply of gas for such purposes, and without it."
This court knows of no Ohio case in which a landowner has been permitted to testify as to the value of use and occupancy, or rental value, of his land. It is true a landowner may give his opinion of the market value of his land without being qualified as an expert. Brate v. McDonald (1953), 95 Ohio App. 448, 120 N.E.2d 748. A landowner usually purchases his real property and knows its cost, is familiar with its characteristics, and makes use of it. He is apt to have knowledge of its productivity and of the character and productivity of other land in the vicinity. He probably has a basis for an opinion even though he is not unbiased.
Landowners, on the other hand, frequently do not know the rental value of their property. Before the owner is allowed to give such an opinion, the knowledge and experience upon which it is based should be shown in detail. A brief, general statement that the witness is familiar with rental values in the vicinity is not sufficient. In Abbadessa v. Tegu (1962), 123 Vt. 183, 187 A.2d 56, the court said, 187 A.2d at 57:
"Since the witness [the owner] testified at one point that he was not familiar with the rental value of such property, there is no basis for questioning the discretion of the trial court on the preliminary matter of qualifications. Beyond this, moreover, we are not persuaded that the trial court was in error in holding that because 12 V. S. A. Sec. 1604 provides that `The owner of real or personal property shall be a competent witness to testify as to the value thereof,' its language can be said to convey an intention on the part of the Legislature to render an owner competent to testify as to the rental value of property as well. This, it seems to us, would be an unwarranted extension of the language of the act. Owners ordinarily acquire property by purchase; so they have some judgment of value based on cost. Rental value involves an entirely different field and we think if the Legislature had intended to include it they would have said so. The knowledge of this very witness, according to his own testimony, tends to illustrate that familiarity with the rental value of a chattel is not co-extensive in the familiarity with its value as a piece of property. No error appears in connection with the court's ruling in regard to this evidence."
A good example of the foundation which should be laid before an owner is permitted to testify as to rental value is to be found in Ryder v. Town of Lexington (1939), 303 Mass. 281, 21 N.E.2d 382, a Northeastern Reporter, Second Series, syllabus reading as follows:
"13. A landowner, familiar with various parcels of land long before he acquired them, knowing amount and value of vegetables, hay and fruit raised on those adapted to agricultural purposes, working thereon before and after becoming owner, and having management and control of land, was qualified to give opinion as to value of use thereof on trial of actions against town for damage to land by overflow of brook."
This court properly dismissed the jury which had been called to determine the amount of damages, because plaintiff had not shown damages, or that he had a cause of action. The action will be dismissed at plaintiff's costs and final judgment awarded to defendant.
Judgment for defendant.