Jackson v. Farmer

• Citation: 225 Kan. 732,594 P.2d 177
• Decision Date: 05 May 1979
• Docket Number: No. 49955,49955
• Parties: Donald W. JACKSON, Appellant, v. Richard A. FARMER and Carolyn Sue Farmer, Appellees.
• Court: Kansas Supreme Court

Page 177

594 P.2d 177

225 Kan. 732

Donald W. JACKSON, Appellant, v. Richard A. FARMER and Carolyn Sue Farmer, Appellees.

No. 49955.

Supreme Court of Kansas.

May 5, 1979.

Syllabus by the Court

1. The only dwelling house on land included in an oil and gas lease is the "principal dwelling house" within the meaning and intent of the lease, even though the house was erected long after the lease was executed.

2. Free gas may be transferred from one dwelling house to another so long as the use is limited to one principal dwelling house.

3. The covenant of a lessee to furnish free gas for domestic heating and lighting may be technically called a rent. This agreement is a covenant running with the land, the benefit thereof passing to the assignee of the lessor and the burden to the assignee of the lessee.

4. On the theory that the use of gas under a free gas clause actually benefits only the surface owner, the authorities agree that this covenant runs with the Surface estate, not the mineral estate.

5. The right to unitize oil and gas leases inures principally to the benefit of the lessee.

6. Unitization makes for economy in production: fewer wells need be drilled, equipped, and serviced, and there is less chance for waste.

7. Rules governing the construction of oil and gas leases include these: the intent of the parties is the primary question; meaning should be ascertained by examining the documents from all four corners and by considering all of the pertinent provisions, rather than by critical analysis of a single or isolated provision; reasonable rather than unreasonable interpretations are favored; a practical and equitable construction must be given to ambiguous terms; and any ambiguities in a lease should be construed in favor of the lessor and against the lessee, since it is the lessee who usually provides the lease form or dictates the terms thereof.

8. A court should avoid unreasonable interpretations whereby a contract provision is reduced to an absurdity and the parties' intent vitiated.

9. In an action between the owner-operator of unitized gas leases and the owners of the surface only of a part of the leased premises, the N 1/2 NW 1/4 of § 3, the record is examined and it is Held : the landowners' home is "the principal dwelling house" on the NW 1/4 of § 3, the land included within one of the leases; and under the particular terms of that lease, and under the facts of this case, the landowners are entitled to "free gas" with which to heat their home, though the only gas well on the unit is located on the SW 1/4 of § 3.

Richard Jones of Hershberger, Patterson, Jones & Roth, Wichita, argued the cause, and J. Michael Kennalley, Wichita, and Gene H. Sharp of Vance, Hobble, Neubauer, Nordling, Sharp & McQueen, P. A., Liberal, were with him on the brief for appellant.

Eugene L. Smith of Smith, Greenleaf & Brooks, Liberal, argued the cause and was on the brief for appellees.

MILLER, Justice:

The "free gas" and "unitization" clauses in a standard Form 88 Producers (Kans., Okla. & Colo., 1942 Rev., Bw form) oil and gas lease give rise to the dispute presented in this action between the owner and operator of four unitized leases, on which there is one producing gas well, and the owners of the surface only of a part of the land included in the unit. Donald W. Jackson, plaintiff-appellant, is the owner and operator of the leases and the well. Richard A. Farmer and Carolyn Sue Farmer, husband and wife, defendants-appellees, are the surface owners.

The ultimate issue is whether the Farmers, the owners of the surface only of the N 1/2 NW 1/4 § 3, are entitled to take "free gas" to heat their home from the unit well on the SW 1/4 of § 3, under the terms and conditions of the lease and the unitization declaration, and under all of the facts and circumstances of this case.

The facts are stipulated. Section 3-34S-33W, in Seward County, Kansas, was leased for oil and gas in the 1940's. Each quarter section was under separate ownership, so four separate leases were executed, those on the NW 1/4, the NE 1/4 and the SE 1/4 being on Bw Form 88 producers leases as described above, and the SW 1/4 being on an L. B. 88 Revised form. The leases on the NW 1/4, the NE 1/4 and the SE 1/4 contain the following provisions:

"4. . . . the lessor to have gas free of charge From any gas well on the leased premises for stoves and inside lights in the principal dwelling house on said land by making his own connections with the well, the use of such gas to be at the lessor's sole risk and expense.

"7. In case said lessor owns a less interest in the above described land than the entire and undivided fee simple estate therein then the royalties and rentals herein provided for shall be paid the said lessor only in the proportion which his interest bears to the whole and undivided fee. . . .

"9. If the estate of either party hereto be assigned (and the privilege of assigning in whole or in part is expressly allowed), the covenants hereof shall extend to the heirs, devisees, executors, administrators, successors and assigns . . .

"16. The unitization of this lease or any portion thereof with any other lease or leases or portions thereof shall be accomplished by the execution and filing by lessee in the recording office of said county of an instrument declaring its purpose to unitize and describing the leases and land unitized, which unitization shall cover the gas rights only and comprise an area not exceeding approximately 640 acres. The royalty provided for herein with respect to gas from gas wells shall be apportioned among the owners of such royalty on minerals produced in the unitized area in the proportion that their interests in the minerals under the lands within such unitized area bear to the minerals under all of the lands in the unitized area. Any well drilled on such unit shall be for all purposes a well under this lease and shall satisfy the rental provision of this lease as to all of the land covered thereby; provided, however, lessee shall be under no obligation, express or implied, to drill more than one gas well on said Unit." (Emphasis supplied.)

The lease on the SW 1/4 contains similar provisions. Pursuant to the authorization for unitization contained in each of the leases, the four leases covering all of § 3 were unitized in 1953. The four leases and the unitization agreement remain in full force and effect.

A gas well (known as the Thompson well), producing from the Hugoton pay zones, was completed in 1953. Production from this well, located in the SW 1/4 of section 3, has been continuous ever since. There are no other gas wells on section 3. There are now only two houses on the section. One house on the SW 1/4 has been supplied with "free gas" for heating purposes since 1953; there was one house on the SW 1/4, the only house on section 3, when the well was drilled; apparently that house was destroyed, but the replacement of this house is still connected to the well and is still using "free gas" from the well.

The appellant, Jackson, has owned, produced, and operated the Thompson well since 1971. Lowene O. Priefert is the owner of the minerals underlying the NW 1/4; James R. Yoxall is the owner of the surface only of the S 1/2 NW 1/4 and the appellees, the Farmers, are the owners of the surface only of the N 1/2 NW 1/4 of section 3. Yoxall and the Farmers own no mineral interest.

The Farmers erected a residence on their 80-acre tract in 1974, and they now occupy it as their home. It is the only house now existing on the NW 1/4 of section 3. Farmers asked Jackson to make an outlet available at the wellhead in order that they might utilize their "free gas" privileges; Jackson denied that the Farmers had any such privileges, and refused to provide an outlet. The Farmers then applied for and obtained a gas service contract from People's Natural Gas Company, and in January, 1975, commenced purchasing natural gas from People's to heat their home. Between January, 1975, and March, 1976, Farmers paid People's the sum of $525.54 for gas.

By a conveyance dated February 9, 1976, Lowene O. Priefert and her husband, as owners of the minerals under the NW 1/4 of section 3, assigned to the Farmers all of the Priefert's right to use free gas for domestic purposes, using the following language:

"The enjoyment of Grantors' right, if any, to the free use of gas for domestic purposes under the terms and provisions of a certain oil and gas lease dated February 26, 1948, between Ross Fraim and Opal B. Fraim, his wife, as lessors, to Earl M. Knighton, as lessee, or any future oil and gas lease of record, on the NW/4 of Section 3-T34S-R33W of the 6th P.M., Seward County, Kansas. For the sum of $10.00 and other valuable considerations.

"EXCEPT AND SUBJECT TO oil and gas leases, unitization agreements and easements of record, if any, insofar as the same are valid."

In March, 1976, the Farmers laid a pipeline from their home to the well, welded a connection to the wellhead casing, and commenced using gas from the well to heat their home; they continue to do so. They shut off the gas from People's, but retained the connection and continued to pay the minimum charge in order to have a standby fuel source.

Jackson discovered the connection in June, 1976. He demanded that Farmers disconnect the line. Upon their refusal to do so, Jackson commenced this action for a mandatory injunction requiring removal of the line, and for an accounting for the reasonable market value of all gas appropriated. Farmers answered, denying that plaintiff was entitled to any relief, and they filed a counterclaim for damages in the amount of $525.54, and for a permanent injunction prohibiting the plaintiff from interfering with their use of gas from the well.

The trial judge denied plaintiff any relief, and he granted Farmers a money judgment for $525.54 and the injunctive relief they sought. Jackson appeals.

The first issue is whether defendan...