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NEW YORK STATE NATURAL GAS CORP. v. SWAN-FINCH GAS

UNITED STATES DISTRICT COURT WESTERN DISTRICT OF PENNSYLVANIA


March 31, 1959

NEW YORK STATE NATURAL GAS CORPORATION, Plaintiff
v.
SWAN-FINCH GAS DEVELOPMENT CORPORATION and Rockton Drilling Corporation, A. H. Reitz and Keta Gas & Oil Company, Defendants

The opinion of the court was delivered by: WILLSON

In this non-jury civil action, this court must determine the ownership of the natural gas in a tract of land of approximately 1,050 acres, being Warrant 2001, Houston Township, Clearfield County, Pennsylvania.

The case was filed in this court because of the dispute between New York State Natural Gas Corporation, a corporation existing under the laws of the State of New York, and defendant Swan-Finch Gas Development Corporation, a Pennsylvania corporation, over which one had the right to drill for and produce natural gas from this warrant. Each corporation had started drilling operations. Defendant A. H. Reitz is an individual and claims to be the owner in fee of the natural gas. She leased the land for drilling purposes to Swan-Finch. Rockton Drilling Corporation is a Pennsylvania corporation claiming an interest in the gas through Swan-Finch. Keta Gas & Oil Company, a Pennsylvania corporation, claims to be an assignee of the interest of Swan-Finch. The matter in controversy exceeds the amount required for diversity jurisdiction. Six gas wells drilled to the Oriskany sands by plaintiff are now producing gas from this land. A preliminary injunction was granted against defendants, prohibiting them from drilling and completing a well commenced in January of 1957. Plaintiff was permitted to continue to drill the well it had started in December of 1956. The Court, however, imposed certain drilling conditions upon the plaintiff. In due course, this case came on for trial on the merits. Counsel have been heard at oral argument and briefs have been filed. Upon all of the evidence and the law applicable thereto, this court has concluded that the ownership of the natural gas is in the plaintiff.

 Since December 29, 1904, the surface of Warrant 2001 has been owned by the Commonwealth of Pennsylvania and, says the plaintiff, the gas estate by the heirs of Cyrus Gordon. The Gordon heirs gave an oil and gas lease covering this warrant to Godfrey L. Cabot, Inc. in 1951, which has been assigned by the lessee therein to the plaintiff in this case. It is through the Gordon title that plaintiff claims the right to produce and sell gas from this warrant. Defendants claim through a deed to the Caledonia Coal Company. For convenience, their chain of title is designated 'Caledonia Coal title.' The conveyances making up both chains of title appear in the findings of fact, but as this court holds that plaintiff has a good title to the gas, it necessarily follows that the conveyances on which defendants rely to establish their title are rejected as being insufficient in law. As no well was completed, nor was any gas produced from this warrant until 1957, and as both parties rely on paper titles, possession plays no part in the conclusion as to ownership of the gas.

 The common source of title is the ownership of this warrant on and prior to April 5, 1887, by Benjamin C. Bowman and James H. Rowland. The parties agree that the Bowman and Rowland title is good and that it was held in fee simple by the owners. On April 5, 1887, Bowman and Rowland gave a deed to the Caledonia Coal Company. The principal, if not the decisive point in this case, is whether the deed to the Caledonia Coal Company passed title to the natural gas in this warrant. The granting clause reads:

 '* * * do grant, bargain, sell, alien, enfeoff, release and convey unto the same Caledonia Coal Company its successors and assigns, All the coal, coal oil, fire clay and other minerals of every kind and character, in upon and under the following described tracts of land * * *.' (Italics are in original deed, according to the certified copy offered in evidence.)

 one of which is Warrant 2001 in Houston Township. This deed also contained the following language:

 '* * * together with the right and privilege of entering upon said land and taking away said coal, coal oil, fire clay and other minerals of every kind and character, and to erect such structures, ways, buildings, railways, and shafts thereon both up and down, to cut and fill the surface wheresoever needed for railways, for such purposes to dig ditches and channels for waste waters and to do those and such other things thereon in such manner as may be necessary in the judgment of the Caledonia Coal Company to successfully mine and take away the said coal, coal oil, fire clay and other minerals or any of them from the lands aforesaid with the right to use such timber under ten inches in diameter * * *.'

 Defendants' contentions are:

 1. That the deed to the Caledonia Coal Company passed title to the natural gas and that thereafter the 'mineral' assessments which appear in defendants' chain of title and on which certain tax sales have been based give defendants an unbroken paper title to the natural gas.

 2. That even if the Caledonia Coal Company deed does not pass title to the natural gas, then the Treasurer's deed dated September 28, 1898, granting this warrant and conveying the minerals in this Warrant 2001 to H. H. Pigott for unpaid taxes for the years 1896 and 1897, passed title to the natural gas. Subsequent to this deed, say the defendants, several tax sales based upon 'mineral' assessments and other conveyances show an unbroken chain of title in defendants' predecessors.

 Plaintiff contends that the Caledonia Coal Company deed did not pass title to the natural gas and that the 'mineral' assessments are assessments of the coal, coal oil, and other things conveyed in the Caledonia Coal Company deed, but are not assessments of the natural gas, and therefore the Treasurer's deed of September 28, 1898 to H. H. Pigott does not help defendants insofar as the gas is concerned.

 It should be stated at this point that at no time has the natural gas as such in this warrant been assessed by the Clearfield County authorities. If title to the gas passed by virtue of a Treasurer's deed, it must have passed under an assessment designated 'mineral.' It therefore becomes necessary to examine the law relative to what was conveyed in the deed to the Caledonia Coal Company and what was thereafter assessed by the authorities of Clearfield County.

 I. Caledonia Coal Company Deed and 'Mineral' Assessments Thereafter

 Defendants assert that as gas is unquestionably a mineral, title to it passed under the language or phraseology in the Caledonia Coal Company deed, '* * * and other minerals of every kind and character * * *.' The law of Pennsylvania controls the decision in this case. It appears to this court that the language used in the Caledonia Coal Company deed has been construed by the Supreme Court of Pennsylvania in a line of cases beginning in 1882, as not including the gas: Dunham v. Kirkpatrick, 1882, 101 Pa. 36; Silver v. Bush, 1906, 213 Pa. 195, 62 A. 832; Preston v. South Penn Oil Company, 1913, 238 Pa. 301, 86 A. 203; Bundy v. Myers, 1953, 372 Pa. 583, 94 A.2d 724, 725.

 The decision in Bundy v. Myers, supra, was announced by the Pennsylvania Supreme Court in 1953. The defendants there claimed the gas in a reservation in a deed reading as follows:

 'Excepting and reserving, out of this land, the oil, coal, fire clay and minerals of every kind and character with rights of entry for the purpose of removal of the same * * *.'

 It will be noted that oil was expressly included in the reservation. The Supreme Court held that the above language did not include the gas and that therefore the defendant had no right to it. The applicable principle was stated by the Supreme Court as follows:

 'In construing the reservation, two basic principles of long standing are to be borne in mind: * * * (2) that the law of pennsylvania recognizes the existence of a rebuttable presumption that the word 'mineral', when used in a deed reservation or exception, does not include oil or natural gas.' (Citing cases)

 That the word 'minerals' does not include gas has become a rule of property in Pennsylvania, which is not to be disturbed. To that effect the Supreme Court in the recent Bundy case said:

 'Dunham v. Kirkpatrick has now been the law of this State for seventy years and is still no less a rule of property which is not to be disturbed.'

 It was also held in the Bundy case that to take any case out of the operation of the rule that the word 'minerals' does not include gas requires evidence that is clear and convincing. So holding, the Supreme Court in the Bundy case quoted from Silver v. Bush, supra, as follows:

 "To take any case out of its operation the evidence should be clear and convincing that the parties used the words in a different sense."

 The defendants in Bundy v. Myers, supra, argued, just as the defendants do in the instant case that because coal oil was expressly reserved, therefore the gas was intended to be reserved also, since it is well known that natural gas and oil are usually found together. The Supreme Court rejected that argument in language which is equally applicable to the case at bar, as follows:

 'Their (defendants') contention that, under the rule of ejusdem generis, the reservation included natural gas in that it was as much a mineral as the oil which was expressly reserved, is untenable. If the oil and gas were intended to be included in the 'minerals' reserved, then why was the oil expressly reserved? Expressio unius est exclusio alterius.'

 The instant case is a weaker one for the defendants than was Bundy v. Myers, supra, on the point just considered, because the oil referred to in the deed from Bowman and Rowland to the Caledonia Coal Company was not oil generally, but only 'coal oil.' Coal oil years ago referred to an oil produced by the destructive distillation of bituminous coal: Bacon & Hamor, American Petroleum Industry, Volume 1, page 11, Footnote 5. Coal oil is therefore a more limited and restricted substance than petroleum oil, which is the type of oil usually found with gas.

 Dunham v. Kirkpatrick, 101 Pa. 36, the first case on the subject, was decided in 1882, which was before the deed from Bowman and Rowland to the Caledonia Coal Company. In that case it was held that the words 'all minerals' did not include oil. After acknowledging that all inorganic substances are technically classed as minerals, the Supreme Court said:

 'Certainly, in popular estimation petroleum is not regarded as a mineral substance any more than is animal or vegetable oil, and it can, indeed, only be so classified in the most general or scientific sense. How, then, did the parties to the contract under consideration, think and write? As scientists; or as business men, using the language and governed by the ideas of everyday life?'

 The opinion concludes as follows:

 'But if they did entertain such an idea (that there was oil under the land), and expected to reserve oil under the general term 'mineral,' they were mistaken, and should have known that they were using that word in a manner not sanctioned by the common understanding of mankind, hence, in a manner that could not be approved by the courts of justice.'

 In Silver v. Bush, 1906, 213 Pa. 195, 62 A. 832, 833, it was held that gas was not included in the words 'the mineral underlying' certain land. Again it was conceded that under the broad division of all matter into the three classes of animal, vegetable and mineral, oil and gas were minerals. After referring to Dunham v. Kirkpatrick, supra, in which it was held that the words 'all minerals' did not include oil, the Supreme Court said:

 'And, a fortiori, natural gas would not be so included. This decision was part of the law of the state when the deeds in question were made, and to some extent at least, as was said by the learned judge below, it had become a rule of property on which many titles in Western Pennsylvania rested. To take any case out of its operation the evidence should be clear and convincing that the parties used the words in a different sense.'

 At the trial of Silver v. Bush, supra, the plaintiffs, who were there claiming the gas under the word 'mineral,' offered to prove that at the time the deed in question was given (1891), land in the vicinity was already being developed for natural gas, which was known as a marketable commodity. The exclusion of these offers was held to be correct by the Supreme Court. Apropos this, the Supreme Court said:

 'These offers, however, even if proved, were not evidence that the parties used the term 'mineral' in the sense contended for. They could only be ground for inference that the parties might have so intended, while, on the other hand, the offers themselves implied that the including of gas under the term 'mineral' would be a new use of the term, and the inference would be strong that, if the parties intended to include gas, they would have said so expressly. The offers, therefore, were properly excluded.'

 In Preston v. South Penn Oil Company, 1913, 238 Pa. 301, 86 A. 203 it was held that the words 'all mineral and mining rights and the incidents thereto whatever' did not include petroleum or natural gas. The opinion concludes as follows:

 'Dunham v. Kirkpatrick has been the law of this state for 30 years and very many titles to land rest upon it. It has become a rule of property, and it will not be disturbed.'

 The same quotation is applicable to the case at bar except that the period that the rule has been the law of Pennsylvania should now be increased to over 75 years.

 It is to be noted that the above line of cases is unbroken. No case to the contrary involving a deed or other private instrument has been cited by the defendants. The foregoing cases may therefore confidently be relied upon as establishing that in Pennsylvania the word 'mineral' in a deed does not include gas.

 It is to be noticed at this point that the decisions mentioned refer to exceptions and reservations contained in deeds which sever a 'mineral' from the fee. The decisions uniformly hold that such a clause is construed most strongly against the grantor, it being his language. Defendants assert that as the Caledonia Coal Company deed is a grant of 'minerals' only, it is likewise to be construed most strongly against the grantor. This court agrees with that general construction of the phraseology, but it still does not assist defendants. Judge Pentz of the Clearfield County Common Pleas Court in an unpublished opinion filed December 19, 1958, in Highland, et al. v. Commonwealth of Pennsylvania, et al., No. 366 November Term, 1957, rejected the argument that the word 'mineral' includes gas when used in the granting clause of the deed, notwithstanding that it has been held that it does not apply to gas when used in a reserving or excepting clause of a deed. As a matter of reasoning and logic, there can be no difference in the result reached, because in both a grant and in a reservation, the instrument is construed most strongly against the grantor.

 Defendants cite Yuscavage v. Hamlin, 391 Pa. 13, 137 A.2d 242, 243, decided in 1958, as authority for the proposition that the habendum clauses in the Caledonia Coal Company deed and other deeds must be given effect and that under the conveyances mentioned in defendants' chain of title, the habendum clauses show that title to the gas passed. But this court does not believe that the decision cited goes as far as defendants assert. The language used was, 'All the surface and right of soil' in two tracts of land. But as the court says, 'It must be remembered that the coal here had already been reserved and removed, and we are convinced that the term 'surface' was employed in contemplation of that severance only.' The point to be emphasized is that the granting clauses in the Caledonia and in the other deeds mentioned in the findings of fact have been construed a certain way in the Pennsylvania decisions. Of the many decisions on this point, none favor defendants.

 It is noticed, also, with regard to the rebuttable presumption, that gas was not intended to have been included in the phraseology of the Caledonia Coal Company deed, in the clause commencing with '* * * Together with * * *' The language is, '* * * to erect such structures, ways, buildings, railways, and shafts thereon both up and down, to cut and fill the surface wheresoever needed for railways, for such purposes to dig ditches and channels for waste waters * * *.' and so forth, all of which language seems to this court appropriate to coal and clay operations rather than any drilling operations for natural gas. Other evidence indicates that the subject matter of the deed was coal. The consideration is recited as $ 16,618. The assessment records after the Caledonia Coal Company deed was executed indicate for 1889 that the Bowman interests were assessed at $ 5,445, and the Caledonia Coal Company 'minerals' at a dollar per acre, as the acreage is given as 1,089 and the valuation is fixed at $ 1,089. But in 1896 and 1897, the Bowman valuation had been reduced to.$ 3,294, and the mineral estate assessed to Caledonia Coal Company raised to $ 5,445. Thus the deed and the other evidence indicates that the parties were dealing with coal and not natural gas, which was not, of course, produced at all in that warrant until 1957.

 II. Whether the 'Mineral' Assessments and Tax Sales Followed by Treasurer's Deeds Passed Title to the Natural Gas

 Following the execution of the Caledonia Coal Company deed, the first separate assessment occurred in 1889. In that year Warrant 2001, 1,089 acres, was assessed to Benjamin C. Bowman. However, the same acreage in the warrant 'mineral' was assessed to Caledonia Coal Company. The same assessments carried through 1890, '91, '92, '93 and '94. However, in 1895, in the assessment to Benjamin C. Bowman and Company, the land was described as 'surface' and the Caledonia Coal Company assessment was 'mineral.'

 The assessments for 1896 and 1897 are especially important to note, because tax sales occurred and Treasurer's deeds were thereafter executed. The point to be observed is that in those two years the Bowman assessment did not say 'surface,' nor was there anything appearing thereon to indicate that it was less than a fee or less than all property rights in the land. The assessments for 1896 and 1897 appear as follows: The B. C. Bowman & Company assessments: For the year 1896 "Assessed To : B. C. Bowman & Co. Warrant No. : 2001 Acres : 1089 Warrantee : Robt. Fox Valuation : $ 3,294." For the year 1897 "Assessed To : B. C. Bowman & Co. Warrant No. : 2001 Acres : 1089 Warrantee : Robt. Fox Valuation : $ 3,294"

19590331

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