K & E Drilling, Inc. v. Warren

• Decision Date: 13 June 1959
• Docket Number: Nos. 41265,41333,s. 41265
• Citation: 185 Kan. 29,340 P.2d 919
• Parties: K & E DRILLING, INC., a Corporation, Appellant, v. Wyman M. WARREN and Morris G. Veverka, Appellees.
• Court: Kansas Supreme Court

Page 919

340 P.2d 919

185 Kan. 29

K & E DRILLING, INC., a Corporation, Appellant, v. Wyman M. WARREN and Morris G. Veverka, Appellees.

Nos. 41265, 41333.

Supreme Court of Kansas.

June 13, 1959.

Syllabus by the Court.

1. Where the court is called upon to construe a written instrument, the intent and purpose thereof are to be determined by a consideration of all the pertinent provisions and not by critical analysis of a single isolated provision.

2. In construing a written instrument, such as the one more fully set forth in the opinion, it is not within the province of the court to reform the instrument by rejecting words of clear and definite meaning and substituting others therefor. Where technical words or legal terms are used in a contract, they will be construed in their technical sense, absent a showing that they were used in a different sense.

3. The record is examined, and it is held that under the facts, as more fully set forth in the opinion, the trial court erred in failing to quiet title in plaintiff to the lease in question and to cancel of record defendants' overriding royalty assignment.

John F. Eberhardt, Wichita, argued the cause, and George B. Powers, Carl T. Smith, Stuart R. Carter, Robert C. Foulston, Malcolm Miller, Robert N. Partridge, Robert M. Siefkin, Richard C. Harris and Gerald Sawatzky, Wichita, and Alex M. Fromme, Hoxie, were with him on the briefs, for appellant.

Marvin E. Thompson, Russell, argued the cause, and George W. Holland, and Clifford R. Holland, Jr., Russell, were with him on the briefs, for appellees.

WERTZ, Justice.

This action was brought by plaintiff (appellant), K & E Drilling, Inc., a corporation, as the owner of an interest in an oil and gas lease, seeking to quiet title thereto against defendants (appellees), Wyman M. Warren and Morris G. Veverka, who are the record owners of an overriding royalty interest assigned to them by plaintiff under a prior lease, which terminated without production and was released of record before plaintiff, in good faith, acquired its interest in its new lease in controversy. The sole question in issue is one of law involving the construction of defendants' overriding royalty, i. e., whether the instrument applies only to the old lease under which it was originally granted (or any extensions or renewals thereof), or whether, by its terms, it applies to completely new leases subsequently acquired, in utmost good faith, by plaintiff. The trial court entered judgment for defendants, and plaintiff appeals.

The pertinent facts are as follows: In the fall of 1954, defendants acquired two oil and gas leases on land in Graham county, which will be referred to here as the Ford No. 1 lease and the Eichman No. 1 lease. The first Ford lease, executed September 18, 1954, covered the northeast quarter and the east half of the southeast quarter of section 29, township 9 south, range 21. It was for a primary term of one year but provided for termination if no well was commenced within 120 days. The first Eichman lease, executed October 25, 1954, covered the west half of the southeast quarter of section 29 and the north half of the northeast quarter of section 32. This lease was also for a primary term of one year, but provided for termination if no well was commenced by March 21, 1955.

On November 24, 1954, defendants assigned both leases to plaintiff, in consideration of plaintiff drilling a test well on the Ford No. 1 lease. On December 12, 1954, plaintiff executed and delivered to defendants a sliding scale overriding royalty assignment on each lease. These assignments were for one-eighth of seven-eighths of the production, except when the per-well average production was fifteen barrels a day or less, in which case the override was one-sixteenth of seven-eighths of the production. The pertinent portions of these assignments provide as follows:

'The above overriding royalty shall be paid out of all such production if, as and when produced, saved and sold from the above described land under the terms and provisions of the present oil and gas lease thereon, or any extensions or renewals thereof. It is understood that said overriding royalty shall bear its proportionate part of any and all taxes assessed against the production.

'The overriding royalty herein transferred and conveyed shall be deemed to be a covenant running with the land and shall be binding upon the successors and assigns of the parties hereto.' (Emphasis supplied.)

Plaintiff commenced a test well on the Ford No. 1 acreage December 28, 1954, and completed the same as a dry hole January 7, 1955, at which time the well was plugged and abandoned. No further drilling was undertaken under either lease. The Ford No. 1 lease expired September 18, 1955, at the end of its primary term, and was released by plaintiff October 6, 1955. The Eichman No. 1 lease terminated March 21, 1955 for failure to commence a test well, but was not formally released by plaintiff until October 25, 1955, at the end of its primary term.

On November 17, 1955, one R. A. Cook [a stranger], acquired a new oil and gas lease (referred to as the second Eichman lease) covering the north half of the northeast quarter of section 32. It will be noted that the only acreage in common under the two Eichman leases, as well as the only land involved herein, is the north half of the northeast quarter of section 32. On January 11, 1956, by assignment from Cook, plaintiff acquired an undivided one-third interest in Cook's seven-eighths' working interest in the second Eichman lease.

On March 30, 1956, a commercial well was completed on the second Eichman lease, and Mobil Crude Purchasing Company, Inc., began purchasing the oil production therefrom. On April 13, 1956, defendants recorded their original December 12, 1954 overriding royalty assigned under the first Eichman lease. As a result, Mobil refused to pay plaintiff its portion of the purchase price for oil from the new Eichman lease. Upon demand by the plaintiff, defendants refused to release their overriding royalty; whereupon, plaintiff brought this suit to quiet its title to its one-third interest in the second Eichman lease and to have defendants' overriding royalty canceled of record.

Defendants, by way of answer, admitted that the overriding royalty assignments contained the language heretofore related, but alleged that they also contained other pertinent language and the whole of the instruments should be considered by the court. Further, defendants denied their overriding royalty had expired with the termination of the first Eichman and Ford leases, and affirmatively alleged that some time after the drilling of the dry hole on the first Ford lease plaintiff conceived a scheme or plan to permit the first Ford and Eichman leases to expire in order to terminate defendants' overriding royalties and subsequently conspired with others to obtain an interest in other leases on the same properties free from defendants' overriding royalties. Defendants alleged that the interests plaintiff now holds in the second Eichman lease were acquired by wrongful conduct and bad faith on the part of plaintiff. Defendants further alleged that the geological information known to both plaintiff and defendants about the first Ford and Eichman leases was of such a nature that the ordinary, prudent operator would have done such additional drilling on said leases as would have resulted in the discovery of oil thereon during the primary term of the leases, and that plaintiff's failure to do so constituted negligence and a violation of the fiduciary relationship of the parties. Finally, defendants alleged that by reason of plaintiff's wrongful conduct, bad faith and negligence the court should construe plaintiff's existing interest in the second Eichman lease as an extension or renewal of the original Eichman lease, insofar as it covers the north half of the northeast quarter of section 32, thus subjecting it to defendants' assignment of an overriding royalty. In the alternative, defendants prayed the court, in equity and good conscience, to impress plaintiff's interest in the second Eichman lease with defendants' overriding...