Schrader, George D.

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University of Kentucky

Kentucky Law JournalVolume 44 | Issue 1 Article 101955Oil and Gas--Waste of Oil and Gas as BetweenAdjacent LandownersGeorge D. SchraderUniversity of KentuckyFollow this and additional works at: https://uknowledge.uky.edu/kljPart of the Oil, Gas, and Mineral Law CommonsRight click to open a feedback form in a new tab to let us know how this document benefitsyou.This Note is brought to you for free and open access by the Law Journals at UKnowledge. It has been accepted for inclusion in Kentucky Law Journal byan authorized editor of UKnowledge. For more information, please contact UKnowledge@lsv.uky.edu.Recommended CitationSchrader, George D. (1955) "Oil and Gas--Waste of Oil and Gas as Between Adjacent Landowners," Kentucky Law Journal: Vol. 44 :Iss. 1 , Article 10.Available at: https://uknowledge.uky.edu/klj/vol44/iss1/10KENTucxy LAw JouiNALKentucky cases up to the present date.29 The latest one, Miles v.Prott,30 was decided at the 1954 term. Recission of the sale ofa motor court was denied in part because the court found no evi-dence of any misrepresentation on the part of the vendor. How-ever, the statement was made in the opinion that actionablefraud must be proved to secure recission of a contract.31It is submitted that the Kentucky rule, denying recission of acontract when there has been an innocent misrepresentation, iscontrary to the fundamental principles of equity, which grantrelief where the law affords an inadequate remedy, and whichprevent the injustice of allowing plaintiff to retain what he hadreceived. Under the Kentucky rule, equitable relief is no sig-nificance, since the party seeking recission must prove all the ele-ments of fraud necessary in a legal action for damages. Thus,equity affords a mere duplicate remedy, and unless recission isallowed under less rigorous conditions, justice may not always beattained. Kentucky law regarding misrepresentation follows themajority view and affords an adequate remedy against fraud, butthe Kentucky doctrine of equitable relief should be overruled.ROBERT A. PALmOIL AND GAS-WASTE OF OIL AND GASAS BETWEEN ADJACENT LANDOWNERSThe preservation of our natural resources is one of the mostimportant conservation problems of modem times. The waste of"' Miles v. Profitt, 266 S.W. 2d 333 (Ky. 1954) and Hargis v. Hargis, 252 Ky.198, 66 S.W. 2d 59 (1933) (Attack on a judgment by consent of the parties, in adivorce proceeding; fraud was alleged.) Coons v. Bank of Commerce, 233 Ky.457, 26 S.W. 2d 15 (1930) (Action by a holder and endorsers of a note on anabsolute guaranty of payment; defense was that the holder fraudulently repre-sented that the security was worth the debt); Electric Hammer Corporation v.Deddens, 206 Ky. 232, 267 S.W. 207 (1924) (Action on a note due for thepurchase of stock; defense alleged false representations in the transaction); Towelset al. v. Campbell, 204 Ky. 591, 264 S.W. 1107 (1924) (Action on a covenant ofgeneral warranty of property bought by the pl. from the def.; alleged misrepre-sentation of title); Bewley v. Moreman, 162 Ky. 32, 171 S.W. 996 (1915)(Action for recission of the sale of land alleging misrepresentation on the part ofthe vendor); Taylor v. Mullins, 151 Ky. 597, 152 S.W. 774 (1913) (Counterclaimalleging fraud, which induced the making of a contract to haul logs); ChicagoBldg. & Mfg. Co. v. Beaven, 149 Ky. 267, 148 S.W. 37 (1912) (Action to setaside a contract for subscriptions to the stock of a corporation to be organized,on the ground that misrepresentations were involved in the making of the contract).266 S.W. 2d 333 (Ky. 1954).Id. at 336.NoTEs AN ComENv'rsoil and gas presents one of today's most perplexing problems, be-cause never before has there been a greater need for these twonatural resources. This discussion is concerned with only onephase of the problem, that is, waste as between adjacent land-owners.1First, it will be helpful to obtain a definition of "waste" as ap-plied to the situation under discussion. Such a definition is foundin Tiffany's REAL PRoPERTY:Waste has been defined as 'an unreasonable or improperuse, abuse, mismanagement, or omission of duty touchingreal estate by one rightfully in possession, which results inits substantial injury. 2Consideration must be given to the nature of the landowner'sright to oil and gas beneath the surface so as to better under-stand the specific problem of waste.3 From the early beginningof commercial drilling for oil and gas, the courts have been per-plexed by the problem of what rights a landowner has to thesesubstances found beneath the surface of the ground. From theirdetermination of this question come the decisions as to whatshould be done about waste of these products.Although oil and gas are classified as minerals they are unlikesolid minerals in that they are of a fugacious nature. Because ofthis difference, courts have turned to the analogies of percolatingwater4 and wild animals5 in an effort to establish oil and gas lawalong the lines of other already established principles of law.Thus, the AmE:icAN LAW OF PR PERTY discusses the analogy towild animals, where a "capture" is necessary, in these words:'This note is primarily concerned with the problem of waste as between ad-joining landowners. For a discussion of waste as it applies to tenants, co-tenantsand remainderman including their rights and duties, see SumsRns, Or. AND GAs52-56 (1st ed. 1927). The term landowner as herein used includes all those whoin the production of oil and gas derive their rights from landowners (lessees,drillers, producers, etc.).- TFFANY, RE.L PROPERTY 629 (3rd ed. 1939).'This topic has been discussed at great length. See Summers, Legal Interestin Oil and Gas, 4 ILL. L.Q. 12, 167 (1921); Hobson, Ownership of Oil and Gas inPlace, 13 Ky. L.J. 152 (1924); Veasey, Law of Oil and Gas, 18 MicH. L. REV.445, 652, 749 (1920); 19 MICH. L. REv. 161 (1920); 63 U. OF PA. L. REV. 471(1915); 29 YALE L.J. 174 (1919).'Acton v. Blundell, 12 M. & W. 324, 152 Eng. Rep. 1223 (1843).'Westmoreland and Cambria Natural Gas Co. v. DeWitt, 30 Pa. 235, 18 Atl.724 (1889).KENTucKy Lkw Jon iNAL... courts relying on the analogy afforded by the law ofwild animals, which gives the landowner the exclusive rightto reduce game to possession while on his land, came to the.. conclusion: that each landowner, apart from statute, hadthe right to drill anywhere on his land and to appropriateall the oil and gas that flowed to his well even though hedrained the oil and gas away from his neighbor. This re-sulted in the "Rule of Capture," which carried with itenormous consequences in the future development of thelaw of oil and gas.6The analogies mentioned above gave rise to the three theoriesof ownership which are significant in the field of oil and gas today.First, the theory that the surface owner has title to the oil andgas in place, a fee simple determinable (ownership theory) ;7second, the theory that he has no ownership or title in the oil andgas beneath the surface, but only the right to search for it, and, iffound, to reduce it to possession (non-ownership theory);8 andthird, that he has a common interest with others in the mineralsand holds correlative rights therein (correlative rights theory) .9The ownership theory" has sometimes led to the view thatinasmuch as the landowner has title to the oil and gas beneath thesurface he can do anything with it he desires, therefore, waste ofsuch minerals cannot be enjoined." This view is expressed in thecase of Hague v. Wheeler, 2 the leading case in favor of not en-joining waste in a state which follows that theory. The decisionis critized in Summers' OI. AND GAS. 13 It is submitted that, re-02 AMEmiCAN LAW OF PROPIETY 511 (1952).'Stephens County v. Mid-Kansas Oil and Gas Co., 113 Tex. 160, 254 S.W.290 (1928).'Hammonds v. Central Kentucky Natural Gas Co., 255 Ky. 685, 75 S.W. 2d204 (1934).'Ohio Oil Co. v. Indiana, 177 U.S. 190 (1900)." THORNTON, Onm. A GAs 94 (5th ed. 1932). "So strongly is the notion ofabsolute ownership of the gas and oil in the land by the owner of it, beneath whichit is found, embedded in our law, that without the aid of a statute the owner ofsuch land cannot be prevented from wasting it by the owner of the adjoiningpremises."U Gas Products Co. Rankin, 68 Montana Rep. 372, 207 P. 993 (1922).Hague v. Wheeler, 157 Pa. 324, 27 Ad. 714 (1893).U Hague v. Wheeler, 157 Pa. 324, 27 AUt. 714, 719 (1893). "... it is notthe public interest that is involved in this litigation. It is the interest of an ad-joining owner who seeks to appropriate to himself so much of his neighbor's gasas he cannot turn into money or use for some practical business purpose, and heasks a court of equity to hold his neighbor's hands by an injunction until this ap-propriation is accomplished. We cannot find any rule of law or any principle ofequity on which such an injunction can rest.SumnrmRs, OiL AN GAs 105-106 (1st ed. 1927).NoTEs .A CoumaA rsgardless of whether or not the Pennsylvania court made a wisedecision in 1893 when the Hague case was decided, the decisionshould certainly be questioned today, if for no other reason thanthe great need for this product in our national economy.In the second theory (non-ownership theory), the courts have,on the other hand, found ample basis for enjoining the waste ofoil and gas. Louisville Gas Co. v. Kentucky Heating Co.4 is oneof the foremost of such cases. There, the court stated that be-cause of the fact that natural gas beneath the surface cannot beowned in fee, a surface owner should not be allowed to de-liberately waste it so as to injure his neighbor. A Louisiana case 15based the enjoining of waste on the principle that although a landowner is not bound to do anything to save his neighbor from loss,he must abstain from doing anything that might cause such aloss. A Kentucky case' 6 reached the same conclusion on the basisthat a joint owner in the common field should be able to enjoinany unlawful attempts on the part of other owners to destroy thegas fields by unnecessarily or fraudulently wasting the gas.It would seem that these cases reach the right result regard-less of whether they be based on a desire for conservation orsquarely on a theory of non-ownership in the sub-surface minerals.The principle as to a common reservoir and a reasonable use ofthe supplies therefrom for the common benefit of all, which nat-urally follows from an acceptance of the non-ownership theory,is a basic argument in favor of the injunction against waste in thenon-ownership states." Louisville Gas Co. v. Kentucky Heating Co., 117 Ky. 71, 77 S.W. 368, 369-370 (1903): "Independently of the statute, the common law affords an ampleremedy for a wrong like this. While natural gas is not subject to absolute owner-ship, the owner of the soil must, in dealing with it, use his own property withdue regard to the rights of his neighbor. He cannot be allowed eliberately towaste the supply for the purpose of injuring his neighbor. While a bad motivewill not render that unlawful which is lawl.... a man is only allowed to makea reasonable use of those natural supplies which are for the common benefit ofall. . . . Every owner may bore for gas on his own ground and may make areasonable use of it; but he may not wantonly injure or destroy the reservoircommon to him and his neighbor.' This case on appeal is 132 Ky. 435, 111 S.W.374 (1908). After the plaintiff was granted his injunction he again brought suit,this time seeking damages for the gas which defendant had wasted and the courtallowed the claim holding that a suit for injunctive relief alone would not bar alater suit for damages.15 Higgins Oil and Fuel Co. v. Guaranty Oil Co., 145 La. 233, 82 So. 206(1919).'6 Calor Oil and Gas Co. v. Franzell, 128 Ky. 715, 109 S.W. 328 (1908).KENTucy LAw JounNALAlthough this argument may not be considered feasible in anownership state the same result can be reached in such a jurisdic-tion based on the following theory. Granted that the surfaceowner holds title to the subsurface minerals beneath his landand can use any lawful method of extracting them even to theextent of draining the minerals from beneath a neighbor's land,he should not be allowed to deliberately waste the minerals thuscaptured. This is because: (1) such waste will deprive adjacentlandowners of present assets which can never be regained oncethey are wasted; (2) even though he is not bound to do anythingto save his neighbor from loss, he should not do an affirmative actwhich would cause his neighbor loss;' 7 and (3) such waste de-prives the nation of much needed and valuable resources. There-fore, a surface owner should be enjoined from wasting such pro-ducts regardless of any theory of ownership, to protect his neigh-bor, himself and his nation.The third approach to the problem, known as the correlativerights theory, 8 has been stated by the Supreme Court of theUnited States in the case of Ohio Oil Co. v. Indiana as follows:But there is a coequal right in them all to take from a com-mon source of supply, the two substances which in thenature of things are united, though separate. It follows fromthe essence of their right and from the situation of thethings, as to which it can be exerted, that the use by one ofhis power to seek to convert a part of the common fund toactual possession may result in an undue proportion beingattributed to one of the possessors of the right, to the detri-ment of the others, or by waste by one or more, to the an-nihilation of the rights of the remainder. Hence it is thatthe legislative power, from the peculiar nature of the rightand the objects upon which it is to be exerted, can bemanifested for the purpose of protecting all the collectiveowners, by securing a just distribution, to arise from theenjoyment by them, of their privilege to reduce to posses-sion, and to reach the like end by preventing waste. Thisnecessarily implied legislative authority is borne out by theanalogy suggested by things ferae naturae, which it is un-questioned the legislature has the authority to forbid all' Supra note 15.' Ohio Oil Co. v. Indiana, 177 U.S. 190 (1900). Andrews, The CorrelativeRights Doctrine in the Law of Oil and Gas, 13 So. CAL. L. REv. 185 (1940).No=s Aw CommnNsfrom taking, in order to protect them from undue destruc-tion, so that the right of the common owners, the public, toreduce to possession may be ultimately efficaciously en-joyed. 19This theory as thus stated does not guarantee each owner anequal share but does guarantee him a fair opportunity to extracta reasonable share provided he acts and does not sit idly by.In addition, the Supreme Court in the Ohio Oil Co. caseupheld an Indiana statute which provided for the conservationof oil and gas, thereby establishing the power of the states toregulate the production of oil and gas.20 Thus, either by way ofthe correlative rights theory, or through a conservation statute,states have taken it upon themselves to regulate the productionof oil and gas in a manner so as to benefit all those concerned.21Conclusion: After having viewed the various possibilities, theconclusion must be reached that under either the ownership, non-ownership or correlative rights theory, and in the absence ofstatute, waste of oil and gas may be restrained in the great ma-jority of American jurisdictions. There are few decisions support-ing the minority rule and their illogical view cannot be sustainedin our present day law. As was said in Commonwealth v. Trent:The right of the owner of property to do with it [the oil andgas] as he pleases is subject to the limitations that he musthave due regard for the rights of others. To allow the store-house of nature to be exhausted by the waste of the gaswould be to deprive the state and its citizens of many ad-vantages incident to its use.22Thus, for the future of our nation and its great oil and gas re-sources, the problem of waste, as it applies to adjacent land-owners, can be solved through judicial enjoinment. And, ofcourse, the same result can be reached by statute.GEoiRGE D. ScmiADaEOhio Oil Co. v. Indiana, 177 U.S. 190, 209-210 (1900).See also Commonwealth v. Trent, 117 Ky. 34, 77 S.W. 390 (1903).Moosa and Saloom, The Oil and Gas Conservation Movement in Louisiana,16 TurLANE L. _Ev. 199 (1942)." Supra note 20 at 393.

Oil and Gas--Waste of Oil and Gas as Between Adjacent Landowners

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Oil and Gas--Waste of Oil and Gas as Between Adjacent Landowners

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