Harris v. Morris Plan Co.

• Decision Date: 07 November 1936
• Docket Number: 32919.
• Citation: 144 Kan. 501,61 P.2d 901
• Parties: HARRIS et al. v. MORRIS PLAN CO. (MILLS OIL CO., Intervener).
• Court: Kansas Supreme Court

61 P.2d 901

144 Kan. 501

HARRIS et al. v. MORRIS PLAN CO. (MILLS OIL CO., Intervener).

No. 32919.

Supreme Court of Kansas

November 7, 1936

Syllabus by the Court.

Under implied covenants of oil and gas lease, work of development and production must be continued with reasonable diligence and along such lines as are reasonably calculated to make extraction of oil and gas of mutual advantage and profit to lessor and lessee.

Forfeiture of oil and gas lease for failure to develop under implied covenants of lease will not be decreed where less drastic remedy is available.

Assignee of oil and gas lease held not entitled to complain of forfeiture of lease for failure to develop under implied covenants where demand for future development had been ignored, and assignee made no pretense that further development would be made if opportunity were afforded.

Failure of assignee of part of acreage of oil and gas lease to develop such part under implied covenants of lease held not excused because of failure of lessee to develop unassigned acreage or because of development of small part of acreage which was assigned.

Assignee of oil and gas lease held not warranted in not developing leased realty under implied covenants of lease because development might not prove presently profitable to him where there was market for oil and gas which could be produced and production and sale thereof would be to advantage of lessor.

Evidence held to support judgment forfeiting assigned part of oil and gas lease for failure of assignee to develop under implied covenants of lease.

1. Forfeiture of an oil and gas lease for failure to develop under the implied covenants of the lease will not be decreed where a less drastic remedy is available, but where demand for further development has been ignored, and at the trial of an action seeking forfeiture the lessee makes no pretense he would further develop if given the opportunity, he is not in a position to complain of a decree of forfeiture.

2. Where an oil and gas lease is executed covering 360 acres of land, and as to 200 acres is assigned to a third person failure of such third person to develop his 200 acres under the implied covenants of his lease is not excused because there has been development on the unassigned 160 acres, nor because of development of a small part of the assigned 200 acres. Under the implied covenants, the work of development and production must be continued with reasonable diligence and along such lines as are reasonably calculated to make extraction of oil and gas from the leased lands of mutual advantage and profit to the lessor and lessee.

3. The lessee is not warranted in not developing the leased real estate under the implied covenants of an oil and gas lease because it may not prove presently profitable to him, where there is a market for the oil and gas which may be produced and the production and sale thereof will be to the advantage of the lessor.

4. The record in an action to forfeit an oil and gas lease examined and held, that the evidence on which the trial court ordered its judgment and the equities inherent therein are sufficient to sustain a judgment of forfeiture.

Appeal from District Court, Butler County; George J. Benson, Judge.

Action by Harry C. Harris and others against the Morris Plan Company and another, wherein the Mills Oil Company intervened. Judgment for plaintiffs, and the intervener appeals.

L. J Bond, of El Dorado and W. D. Jochems, J. Wirth Sargent, and Emmet A. Blaes, all of Wichita, for appellant.

Stanley Taylor and K. M. Geddes, both of El Dorado, for appellees.

THIELE Justice.

This appeal is from a judgment canceling a part of an oil and gas lease because of failure to develop under the implied covenants of the lease.

The petition alleged that in August, 1925, the plaintiffs and Mattie Harris executed and delivered to one Christy an oil and gas lease for a term of five years and as much longer as lessee produces oil and gas from the land or the premises are being developed or operated. The lease covered the south half of section 14 and the northeast quarter of the northeast quarter of section 23, in township 27, range 7, Butler county, Kan. Various assignments of the lease were made, and at the time the petition was filed, Phillips Petroleum Company had the lease on the southwest quarter of section 14. The records of Butler county showed that title to the lease on the southeast quarter of section 14 and the northeast quarter of the northeast quarter of section 23 was in the Morris Plan Company and the Liberty National Bank. It is with the 200 acres last mentioned that this action deals. In July, 1927, Christy drilled a well in the southwest corner of the southeast quarter of section 14 which produced oil in paying quantities until in 1933; that thereafter oil was not produced regularly and during 1933 the well and production therefrom were not handled in a good and workmanlike manner and that in June, 1934, the well was abandoned, and since plaintiffs have received no income therefrom. It also alleged that since the drilling of the above well, oil and gas were produced and marketed from lands adjoining the leased premises on the north, south, and west, and that Christy and his assigns permitted drainage of plaintiffs' lands and failed and refused to develop plaintiffs' lands with ordinary diligence and failed to protect these plaintiffs by drilling offset wells, etc., although request and demand were made, and that neither Christy, the defendant company, nor the bank made any effort whatsoever to develop the leasehold except as to the one well mentioned; that by reason of the failure to develop defendants breached and violated the express and implied covenants of the lease; that by reason of the premises the lease was expired and terminated, but constituted a cloud on plaintiffs' title. The prayer was for cancellation of the lease, for quieting of plaintiffs' title, and for equitable relief.

The Mills Oil Company intervened and filed its answer and alleged its ownership of the lease as to the southeast quarter of section 14 and the northeast quarter of the northeast quarter of section 23; that the well drilled in 1927 produced approximately 40,000 barrels of oil, and that for some months prior to September, 1933, the average daily production was 7 1/2 barrels; that in September, 1933, trouble occurred at the well and it had since spent about $2,000 to overcome the trouble and was continuing its efforts. There are allegations as to developments on nearby leases, including costs and income; that since April, 1930, there was surplus oil production in Kansas; that the price was as low as 30 cents a barrel; that proration by the state and nation limited production, and that a well on the above lease would cost about $17,500 and in conjunction with other wells would cost $50 per month to operate, and that under present conditions a well drilled on the portion of the lease in controversy would not be a profitable investment. It prayed that its title under the lease be quieted and that it have equitable relief. We here observe that at no place in the answer is there any allegation that defendant intends to presently further develop the leased premises or any part thereof, nor that if the court should so decree, further development would be undertaken and prosecuted.

At the trial, there was no contention about the ownership of the land nor of the lease. Plaintiffs' evidence showed the drilling of the well by Christy in the southwest corner of the southeast quarter of section 14, in 1927, and that there had been no further development, and that they had received no returns from the lease since June, 1934, and that repeated demands for development had been made, and that plaintiffs had informed Christy, the manager of the Mills Oil Company that other persons were willing to develop immediately if the existing lease was released. We need not set...