Conner v. Koch Oil Co., a Div. of Koch Industries, Inc., 62658
| Decision Date | 14 July 1989 |
| Docket Number | No. 62658,62658 |
| Citation | 245 Kan. 250,777 P.2d 821 |
| Parties | Wilda Frances Young CONNER, Appellant, v. KOCH OIL COMPANY, A DIVISION OF KOCH INDUSTRIES, INC.; Darrel Patteson; Frank Patteson; and Patteson Brothers, Inc., Appellees. |
| Court | Kansas Supreme Court |
Syllabus by the Court
1. Reformation of instruments is an equitable remedy available in cases of mutual mistake of fact by the parties.
2. Reformation of an instrument relates back to, and takes effect from, the time of its original execution and binds all entities except innocent purchasers for value.
3. Statutes of limitation do not bar matters in defense of an action.
4. In an action to collect for oil and gas runs from a lease mistakenly released, it is held that the release was a mutual mistake of the parties and subject to reformation to reflect their intent and understanding.
Robert Hall, Wichita, argued the cause and John W. Wall, of Sedan, was with him on the brief for appellant.
James B. McKay, Jr., of McKay & McKay, El Dorado, and Tim Brazil, of Henshall, Pennington & Brazil, Chanute, argued the cause and David A. Brace, of Moline, and Debra Haifleigh, Wichita, were with them on the brief for appellees.
This is an action for recovery of money and to quiet title to real estate. Appellant Wilda Conner claims to have purchased an unleased, undivided one-half mineral interest in certain property as well as a cause of action against appellees Koch Oil Company, Darrel Patteson, Frank Patteson, and Patteson Brothers, Inc. (Pattesons). Conner seeks to recover money for oil produced, saved, and marketed by recovery on open account through a theory of conversion or by the imposition of a constructive trust.
The property in question was previously owned by E.H. and Burneta Adair. Burneta is Wilda Conner's sister. The property was leased for oil and gas to the Pattesons under a standard lessee's 7/8 royalty. The Pattesons developed oil and gas production on the land, perpetuating the lease. Upon E.H. Adair's death, Burneta sold the land and one-half of the minerals to Nile and Jessie McNee, reserving unto herself one-half the minerals. Her executrix's deed was filed April 5, 1965. Burneta and the McNees each thus received one-half of the 1/8 landowners' royalty under the Patteson lease from Koch Oil Company, purchaser of the production.
In 1972, the Pattesons incorporated their business with the title of Patteson Brothers, Inc., and desired to consolidate their leases to effect a savings in storage and production equipment expense. They chose to release the leases and take new leases in the corporate name. This technique is difficult to understand since assignment of the leases by the lessees accomplishes the same result without the hazard of losing the developed leases.
The inevitable happened. The Pattesons mistakenly believed the McNees owned all the property involved in this dispute, overlooking Burneta's reservation of an undivided one-half interest in the minerals. No title search was made.
On May 11, 1972, the Pattesons executed standard forms entitled "Release of Oil & Gas Lease." The forms described the subject property and noted the original lessors and lessees in 1936 and 1960. The McNees, not being the original lessors, were not mentioned in the releases. The leases were for a primary term and so long thereafter as production in paying quantities continued. The leases were perpetuated by production in paying quantities and were thus in their secondary term. After the standard printed language of the releases, the Pattesons typed the following caveat: "for the consideration of being granted a new lease covering the above described land and other lands." The McNees granted the Pattesons a new oil and gas lease covering the subject land. Burneta did not, as no new lease was requested from her. She continued to receive her royalty payments as before, which she accepted.
The new McNee lease, dated August 5, 1972, contained the following provision:
The Pattesons filed the releases October 4, 1972. They continued production as usual, and Koch continued to make royalty payments to both the McNees and Burneta Adair, one-half of one-eighth interest to each.
Burneta Adair died on May 9, 1983, and on April 9, 1984, Wilda Conner made a written offer to purchase the estate's "oil and gas royalties " for 75% of their appraised value. This amounted to $27,267 for the royalty interest in the subject property. The offer did not include an offer to purchase any choses in action owned by the estate. The sale was approved "as set forth in the formal written offer" by the district court on April 18, 1984. The court's order stated that "title to and right of possession to all assets of the estate not specifically identified and referenced in the written offer to purchase of April 9, 1984 shall remain in the Co-Executors subject to further order by this Court."
The next day, one of the estate's attorneys wrote Mrs. Conner's attorney, stating in part:
On April 23, 1984, the estate executors continued to act as if the estate's share of the minerals was under lease. They notified Koch they had sold the estate's interest and requested payments be held in suspense pending legal documentation.
On May 14, 1984, another attorney for Burneta's estate notified Conner's attorney there was a possibility the leases had been released. An executor of the estate notified Koch on February 12, 1985, that "legal technicalities" were delaying transfer of title to Conner. He expected further delays and therefore rescinded the estate's request of April 23, 1984, and asked that accumulated funds in suspense be paid to the estate, and regular monthly payments of royalties be resumed. Again, the estate acted as if there were a valid oil and gas lease on the property. Koch complied.
The executors finally conveyed the "mineral interests" of Burneta Adair to Wilda Conner on June 19, 1985. On June 28, 1985, Conner wrote Koch asking that "royalty payments" be sent to her. Koch again complied.
On June 10, 1986, Conner filed this suit, claiming the Pattesons produced and sold oil from the subject property after May 11, 1972, without a valid oil and gas lease on one-half of the minerals. She claimed Koch illegally paid the share of proceeds due Burneta and her after May 11, 1972, to the Pattesons. From May of 1972 to April of 1986, Koch had paid the Pattesons $1,645,499.16 as payments for their 7/8 interest in the oil produced from the subject land. Conner seeks to recover one-half of this amount, less costs of operations.
While the action was pending, Conner became aware the executor's deed did not convey any causes of action Burneta's estate may have had against the Pattesons. She therefore obtained an order on November 23, 1987, correcting the conveyance to include "all choses in action and causes of action which the Co-Executors have had, now have or may have against all persons or entities, occurring, arising, created or which became vested in the Co-Executors by reason of failure to account and pay the Co-Executors and their predecessors in title for oil, gas, and other minerals heretofore produced, saved and marketed from said lands above described."
On June 24, 1988, the trial court found Conner should take nothing for her claims and quieted the title in the Pattesons' favor. The court reformed the documents in question to carry out the actual intentions of the parties--to consolidate, rather than release, the leases.
In order to evaluate the trial court's decision in deciding the case on equitable grounds, let us examine additional facts. Burneta Adair employed Jerry Schaplowski as her accountant in 1964. He became her business manager in 1972. This position entailed managing her oil interests, including the leases in question. In his position as business manager for Burneta, Schaplowski had become aware of the releases filed by Patteson by November 14, 1980. He made copies of the releases and put them in the Adair Oil Company files. Schaplowski knew Burneta had not executed a new lease to Patteson. In spite of that, he did not inform her of the releases,...
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