Edwards v. Phillips Petroleum Co.

• Decision Date: 04 March 1961
• Docket Number: No. 42024,42024
• Parties: Alice C. EDWARDS, Arthur Lyke and Mabel E. Kelley, Appellants, v. PHILLIPS PETROLEUM COMPANY, a Corporation, and Syndicate Oil Corporation, a Corporation, Appellees.
• Court: Kansas Supreme Court

Page 23

360 P.2d 23

187 Kan. 656

Alice C. EDWARDS, Arthur Lyke and Mabel E. Kelley, Appellants, v. PHILLIPS PETROLEUM COMPANY, a Corporation, and Syndicate Oil Corporation, a Corporation, Appellees.

No. 42024.

Supreme Court of Kansas.

March 4, 1961.

Syllabus by the Court

1. Where an oral promise is made contemporaneously with the execution of a written contract, to the promisee's knowledge directly at variance with the written contract, the oral promise is merged in the written contract, and the promisee cannot invoke the rule that fraud may be predicated upon a promise made without the intention of performance.

2. The common-law rule that excludes evidence of prior and contemporaneous oral agreements to contradict or modify a written contract is in effect a statement, in different form, of the rule that, in the absence of fraud, a valid written contract merges all prior and contemporaneous negotiations on the subject.

Charles H. Apt, II, Iola, argued the cause, and Howard M. Immel and Frederick G. Apt, Jr., Iola, were with him on the brief for appellants.

Harold G. Forbes, Eureka, argued the cause, and Thos. C. Forbes and George Forbes, Eureka, were with him on the brief for appellees.

SCHROEDER, Justice.

This is an action for damages (both actual and punitive) brought against two oil companies for alleged fraudulent representations which induced the plaintiffs to enter into a unitization agreement. A demurrer to the petition was sustained by the trial court on the ground it failed to state a cause of action, whereupon appeal was duly perfected to this court.

The controlling question is whether the petition states a cause of action for fraud.

The petition alleges in substance that the plaintiffs (appellants) own an interest in 40 actes of land in Greenwood County on which there is a valid oil and gas lease owned by the defendants, dated February 5, 1925, under the terms of which the plaintiffs are the owners of a portion of the royalty. It alleges that on May 3, 1955, the plaintiffs entered into a unitization agreement (attached to and made a part of the petition) with the defendants which unitized their 40 acres with other land; that the plaintiffs entered into this agreement because of representations made to them by the agent of the defendants to the effect that no additional wells would be drilled upon plaintiffs' land; that said representations were false and known to be false at the time they were made; that said representations were fraudulently made for the purpose of inducing the plaintiffs to enter into the unitization agreement; that subsequently the defendants assigned to one R. E. Evans the lease on the plaintiffs' 40 acres under a written agreement (attached to and made a part of the plaintiffs' petition) which required the assignee to company with the obligations imposed upon the lessee (and/or assignee) by the terms of the lease and to drill any and all wells necessary to protect the assigned premises from drainage by wells on adjacent lands; that in August, 1957, R. E. Evans commenced the drilling of a well upon the plaintiffs' 40 acres which was completed as a producing oil well, and said assignment was recorded on October 11, 1957.

The petition concludes that 'by reason of the premises' the plaintiffs have been damaged in the specific amounts set forth, and 'in doing all things herein alleged, the defendant corporations acted maliciously and with wanton disregard of the rights and feelings' of the plaintiffs and by reason thereof punitive damages in the sum of $50,000 are demanded.

Pertinent portions of the unitization agreement, which is a part of the petition, are as follows:

'This Agreement, Made and entered into by and between the undersigned 'operators' in the Brothers Unit and the undersigned 'Royalty Owners' in the Brothers Unit, Greenwood County, Kansas:

'Witnesseth:

'Article I.

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'102. It is deemed proper to enter into this Agreement in order to institute and carry out waterflooding or other secondary recovery operations on said Unit and in order to more efficiently develop, produce and operate the Brothers Unit for the purpose of preventing surface and underground waste, obtaining the greatest ultimate recovery and conservation of the unitized substances and insuring to each of the parties to this Agreement his fair and equitable share thereof.

* * *

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'Article III.

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* * *

'302. It is understood and agreed that the commencement or drilling of a well to, and the completion or continued operation of a well in any formation underlying the participating area shall be construed as the commencement, drilling, completion or continued operation of a well within the terms and provisions of each oil and gas lease covering lands within the participating area as to the entire acreage covered by each of said leases; that is, the commencement or drilling of a well to, and the completion or continued operation of a well in any formation underlying any portion of the participating area shall, for the purpose of keeping said several leases in force and effect or measuring the development obligations of the lessees in said leases, be construed and considered as the commencement, drilling, completion or continued operation of a well on the land covered by each of said leases, whether or not the well be located on the lands described in such lease.

* * *

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'Article IX.

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'903. Each party executing this Agreement acknowledges that no representations not incorporated herein have been made to him or it and that this instrument has been executed and delivered unconditionally.' (Emphasis added.)

It is clear from the provisions of the unitization agreement that the defendants, as the owners of the oil and gas leases on the lands involved, including the plaintiffs' 40 acres, were given the right and power, and had the duty as well, to commence and complete the drilling of wells for the 'operation and development' of the entire unit. The plaintiffs alleged that defendants orally agreed 'that at no time would there be drilled, [upon plaintiffs' forty acres] * * * any additional well or wells for the production of oil or gas incident thereto under the unitization agreement.' In other words, the plaintiffs have alleged that, notwithstanding the powers and obligations of the defendants under the written unitization agreement to drill wells upon the plaintiffs' land, the defendants orally agreed with the plaintiffs no such wells would be drilled. It is the plaintiffs' contention the defendants committed fraud by making this oral promise when the defendants had no intention to keep such promise.

It must be observed there is no allegation made in the petition that the unitization agreement omits the oral promise of the defendants, or that the oral promise was supposed to be inserted therein. There is no allegation that the plaintiffs did not understand the legal significance of the unitization agreement, or that they did not know its contents or have any opportunity to learn its contents. Nowhere in the petition is it alleged that the written unitization agreement does not correctly set forth the understanding of the parties at the time it was made, and nowhere in the petition do the plaintiffs seek to change the written unitization agreement in any manner or to be relieved of any obligations thereunder.

The plaintiffs claim only that the defendants orally agreed to refrain from doing what the defendants in the written unitization agreement were authorized and had the duty toward all landowners to do--develop the Brothers Unit. At the same time the plaintiffs freely and voluntarily entered into the written unitization agreement. Under these circumstances they must be presumed to know that its terms were in contravention of the alleged oral promise. See Maltby v. Sumner, 169 Kan. 417, 219 P.2d 395, and authorities cited therein.

The doctrine has been well established and frequently applied that where parties have carried on negotiations, and have subsequently entered into an agreement in writing with respect to the subject matter covered by such negotiations, the written agreement constitutes the contract between them and determines their rights. Oliver v. Nugen, 180 Kan. 823, 308 P.2d 132, and cases cited therein. Under such circumstances parol evidence to show the oral statements, representations and negotiations of the parties which led up to the contract is inadmissible, but there are well-established exceptions to this general rule. See, Maltby v. Sumner, supra; and Stapleton v. Mendoza, 174 Kan. 468, 257 P.2d 113. It has no application to written contracts procured by the fraudulent representations of one of the parties which were relied upon by the other. Griesa v. Thomas, 99 Kan. 335, 161 P. 670; Youmans v. Kansas Tel. Co., 132 Kan. 360, 295 P. 697; and State v. Handke, 185 Kan. 38, 340 P.2d 877.

In Griesa v. Thomas, supra, it was said:

'* * * From the time of Cicero until now it has been the law that fraud vitiates contracts--vitiates everything it touches, and through its perpetration no one acquires a right of action * * *' 99 Kan. at page 342, 161 P. at page 673.

Misrepresentations in order to constitute actionable fraud must relate to some material present or pre-existing fact, and cannot ordinarily be predicated on unfulfilled promises or statements as to future events. Kiser v. Richardson, 91 Kan. 812, 139 P. 373; Federal Agency Investment Co. v. Holm, 123 Kan. 82, 254 P. 391; and Pioneer Nat. Life Ins. Co. v. Hall, 145 Kan. 785, 67 P.2d 518. Where an actual...