(c.) Covenants to sink Wells and IV. The Subject of the Lease and the Right of the Lessee to Minerals not enumerated in his Lease.

conduct Oil Operations.

I. EFFECT UPON THE LEASE OF THE NON-EXISTENCE, EXHAUSTION, OR THE UNMERCHANTABILITY OF MINERALS.

THERE is no implied contract in a lease of land that it is fit for the purpose for which it is let, neither is there any implied warranty in a lease of a mine that it contains the mineral which is supposed to be in it, either as to amount or as to quality. The non-existence or exhaustion of mineral, therefore, is, as a rule, no defence to an action for the rent, since the lessor is not to be considered as having guaranteed its existence, and the lessee gets all that he has contracted for. Likewise, when the ore proves unmerchantable, this fact is not material in an action. for the rent, and will not be considered as a defence to the same, unless the lessor expressly guarantees that the mineral does exist or that it will be merchantable; these are risks which are, and should be, properly speaking, assumed by the lessee. This rule, of course, has its application only in the absence of special contracts to the contrary, of mistake, fraud, or misrepresentation. Where there is a stipulation that the mineral shall be merchantable, the burden of showing its quality is on the lessee.

There is, however, an exception to the general rule, a class of cases in which the non-existence or exhaustion of mineral is a defence to an action for rent.

Circuit Judge Dallas in a recent case (Ridgely v. Conewago Iron Co., 53 Fed. Rep. 988) lays down the rule that where there is a covenant in a lease to pay rent irrespective of product, the lessee must pay though he gets no mineral; but if he covenants to take out a stipulated quantity of mineral, or upon failure to do so, to pay royalty upon such quantity, his obligation is to pay for that quantity whether mined or not, and not whether it exists or not, and he is not bound to make payment after the exhaustion of the mineral.

This statement, although it gains some support from Boyer v. Fulmer, is much broader than the Pennsylvania cases justify. In many cases where the lease contains a covenant to mine a certain quantity or pay royalty thereon, exhaustion has been held to be no defence to an action for rent. The test is to ascertain from the terms of the particular lease and the circumstances surrounding its execution whether the lessee took the risk of the exhaustion of the minerals. It is believed that no fixed rule of construction can be laid down for the determination of this question. In Timlin v. Brown the rule was laid down that when there is an absolute grant of all the minerals, and the existence of mineral is an ascertained fact, the lessee takes the risk of its quantity. Where the existence of mineral is left in doubt, the risk is not assumed by him. When, therefore, by the terms of the lease, or the circumstances, it is apparent that the existence of mineral is to be determined by the operations under the lease, then the non-existence or subsequent exhaustion of the mineral terminates the lessee's liability thereunder. On the other hand, if the existence of mineral in the land has already been determined, the lessee is bound to pay royalty in strict accordance with his contract, although the mineral be exhausted. amount of mineral in a tract of land can be known to no one before it is mined, and it is the lessee's own folly if he does not by covenant protect himself from the result of possible exhaustion. Where, however, the existence of the mineral is not actually known, either the contract is made for the purpose of determining whether or not it does exist, or it is made upon the assumption that it does exist; and if it does not, there is a case of

The

mutual mistake, against which equity will relieve. The difficulty of applying such an artificial test as is laid down in Timlin v. Brown is apparent in Boyer v. Fulmer. In this case, the court, while in terms applying the rule in Timlin v. Brown, resorted to all the circumstances to ascertain the intention of the parties, with little regard for the narrow distinction contained in that rule.1

But while non-existence or exhaustion may thus relieve a lessee from the covenants of his lease, unmerchantability or unprofitableness, it is submitted, in the absence of special contract, mistake, or fraud, never does.

Where a lease provides for a test or other means of determining the existence of mineral, that means must be pursued, otherwise the non-existence of mineral may not be set up. Oil leases generally contain a provision that a well shall be drilled within a certain time, and until this is done the lessee may not set up the unproductiveness of the land established in any other way, however perfect.

In Pennsylvania it is provided by statute (act 26 May, 1893, P. L. 144) that where iron mines have been exhausted, and persons having the right to mine have abandoned that right for twenty-one years, it may be extinguished by judicial decree. Aside from the statute, it would seem that where the absolute owner of minerals in place had mined them to exhaustion, his estate would be at an end, and the owner of the soil would assume entire ownership to the centre of the earth.2

United States.

Lehigh Z. & I. Co. v. Bamford, 150, 665 (1893), affirming Bamford v. Lehigh Z. & I. Co., 33 Fed. 677 (1887), C. C. S. D. N. Y. By the terms of a lease, the lessee acquired the exclusive right for ten years to mine all metals and minerals to be found on the premises at a certain royalty. It was provided that if the royalties in any year should fall below $1,000, the lessee should pay an additional sum to make the royalty amount to $1,000: “Provided always, that if sufficient ores cannot be found to yield said minimum payment, and said party of the second part shall in consequence thereof fail to pay said minimum sum of $1,000 yearly, then said party of the second part shall, if required by said parties of the first part, relinquish this lease and the privileges hereby granted, and the same shall cease thereupon."

It was not a defence to an action for the minimum royalty that there

1 See article by Lucius S. Landreth, Esq., in Am. Law Reg. and Rev. for Jan., 1897. 2 As to whether, upon the exhaustion of minerals, the mineral estate is terminated, see Chap. IV., Div. II., B.

was not sufficient ore to produce that amount. The above proviso did not have the effect of terminating the lessee's liability.

It was said by the court below: "There is no implied contract in a lease of land that it is fit for the purposes for which it is let, neither is there any implied warranty in a lease of a mine that it contains the mineral which is supposed to be in it. In the absence of a special contract, or of misrepresentation or fraud, or of the injurious and wrongful acts or omissions of the landlord, a tenant of land or unfinished buildings cannot properly refuse to pay rent on the ground that the land or the buildings became untenantable." Nor is the defence good if rested upon the theory of a failure, not of beneficial occupation of the premises, but of consideration. The consideration was the use of a mining property and works of large cost and doubtful value, but which might become of profit," and the lessee received that which he had contracted for.

66

Ridgely v. Conewago Iron Co., 53 Fed. 988 (1893), C. C. E. D. Pa. A mining lease requiring the lessee to mine at least four thousand tons annually, and to pay therefor a fixed sum per ton, or failing to take out such quantity to pay therefor, imposes no obligation to pay for such quantity after the ore in the demised premises has become exhausted.

Dallas, C. J.: "Mining leases commonly include, in addition to the usual undertaking to pay for what may be actually mined, a covenant that some fixed or ascertainable sum, at least, shall be annually paid. These covenants are not all the same or to the same effect. They may be divided into two classes: first, those which require the payment of rent irrespective of product; second, those which require that upon failure to take out a stipulated quantity, royalty with respect thereto shall nevertheless be paid. When the covenant is of the first class the tenant is liable for the rent, even if nothing could be got by mining." "Where the covenant is of the second class his obligation is to pay for the stipulated quantity whether mined or not, not whether it exists or not. He contracts for promptitude and thoroughness in mining, not for the productiveness of the mine."

Illinois.

Walker v. Tucker, 70, 527 (1873). Lessee of land for mining purposes contracted" to work said coal mine during the continuance of this lease and agreement in a good and workmanlike manner." In an action for breach of contract it was alleged that lessees had suspended their operations and abandoned the working of the mines. "The plea alleges that on the said 15th day of September, 1871, the mines became wholly exhausted and incapable of yielding, when worked in a good and workmanlike manner, and with reasonable skill, care, diligence, and energy, sufficient coal to pay for working said mines,' etc. If the plea had stopped short, after alleging that the mines became and were wholly exhausted, it would have been good, but the subsequent qualifications show that these words do not mean exhausted of coal, but only exhausted of such coal as was capable of yielding, 'when worked in a good and workmanlike manner, and with reasonable skill, care, diligence, and energy, sufficient coal to pay for working said mines.' This might be, and yet the most valuable portion of the mine remain untouched. It might be the result of the

peculiar state of the market, and in nowise attributable to the difficulties to be encountered in mining; but from whatsoever cause the result, it is a sufficient answer that the courts must enforce contracts as the parties make them. . . . There is nothing in this instrument which authorizes a suspension or abandonment of mining because it had become unprofitable."

"Where from the nature of the covenant it is apparent the parties contracted on the basis of the continued existence of a given person or thing, a condition is implied that, if the performance became impossible from the perishing of the person or thing, that shall excuse such performance. If, therefore, the coal mine was exhausted, the appellants were excused from further working it. Whether a coal mine is exhausted or not is a question of fact to be determined by the jury, from the evidence; and in determining this question, since the parties are always supposed, in entering into a contract, to have reference to the known usage and custom which enters into and governs the business or subject to which it relates, it would be proper to hear evidence of any known usage or custom relating to this question and showing when a mine is deemed exhausted."

Sylvester v. Hall, 47 Ap. 304 (1893). In an action on contract, the second count of the declaration averred the leasing of certain lands for the purpose of mining coal thereunder, and that prior thereto the coal had been removed therefrom, whereby said land was a loss to the plaintiff for the purpose for which it was leased.

This did not aver any covenant that the coal had not been mined from said land, and hence stated no covenant the breach of which was alleged. A demurrer thereto was consequently sustained.

Mc Dowell v. Hendrix, 67, 513 (1879). Where a lease of

Indiana. land for the sole purpose of mining coal provides that lessee

shall pay a certain sum for each ton mined, and that after the first year the amount of rent shall not be less than a specified sum, it is no defence to an action for the rent, so long as lessee continues in possession, that sufficient coal could not be mined to make the royalty amount to the minimum rent, although it might be ground for abandonment.

Carl v. Granger Coal Co., 69, 519 (1886). Defendant, as Iowa. lessee of coal land, agreed to commence work as soon as practicable, and to mine coal from plaintiff's land by June 1, 1885, provided there was found a workable vein of good merchantable coal, and in that case to pay an agreed royalty.

No coal was in fact found, defendant never making the effort to find any; and whether there was a workable vein of coal upon the land, though alleged in the petition, was, in the nature of the case, a matter of conjecture. Held, that there could be no recovery of royalty, as defendant had mined no coal; and for his failure to prospect for coal, the existence of which was not known, only nominal damages could be recovered.

Fritzler v. Robinson, 70, 500 (1886). Where a lease of supposed coal lands for mining purposes was executed, delivered, and received under the mutual belief that there was coal underlying the land, and that the same could be mined, and it is clear from the testimony in