Northern Natural Gas Co. v. Republic Natural Gas Co., 38449

• Decision Date: 08 March 1952
• Docket Number: No. 38449,38449
• Citation: 241 P.2d 708,172 Kan. 450
• Parties: NORTHERN NATURAL GAS CO. v. REPUBLIC NATURAL GAS CO.
• Court: Kansas Supreme Court

Page 708

241 P.2d 708

172 Kan. 450

NORTHERN NATURAL GAS CO. v. REPUBLIC NATURAL GAS CO.

No. 38449.

Supreme Court of Kansas.

March 8, 1952.

Syllabus by the Court.

Under our statute, Chap. 55, Art. 7, G.S.1949, and the regulations of the state corporation commission, in its basic order of March 21, 1944, an operator of gas wells in the Hugoton gas field in Kansas, as to the amount of gas he can produce from the wells, is governed by the allowables for such wells made by the commission for the time in question and not by slightly less than three times such allowable.

George Siefkin, of Wichita (George B. Powers, Samuel E. Bartlett, Carl T. Smith, John F. Eberhardt, Stuart R. Carter, and Robert C. Foulston, Jr., all of Wichita, on the briefs), for the appellant.

Mark H. Adams, of Wichita, Lawrence I. Shaw, E. M. Petersen, and F. V. Roach, all of Omaha, Neb., Charles E. Jones, William I. Robinson, J. Ashford Manka, and Orval L. Fisher, all of Wichita (Auburn Light, of Liberal, on the briefs), for the appellee.

HARVEY, Chief Justice.

Plaintiff brought this action under our declaratory judgment statute, G.S.1949, 60-3127 et seq., seeking a binding adjudication and consequential relief respecting a contract between the parties. Defendant answered denying the interpretation of the contract alleged by plaintiff and that plaintiff was entitled to the relief sought, and prayed that the action be dismissed. It also filed a cross petition for a money judgment, and issues were joined upon the cross petition. A trial by the court resulted in judgment for plaintiff and defendant has appealed.

Plaintiff, hereinafter referred to as Northern, is a corporation organized under the laws of Delaware and authorized to do business in Kansas. It is a Natural Gas Company, as that term is defined in the Act of Congress called the Natural Gas Act, 15 U.S.C.A. § 717 et seq. Its business is to purchase or produce natural gas in one or more states and convey the same into other states for distribution and sale to ultimate consumers. Its pipe lines begin in the gas fields of Texas, extend north through the Hugoton gas fields in Kansas, and north into Nebraska and eastward to Omaha and to areas north and east of Omaha.

Defendant, hereinafter called Republic, is a corporation organized under the laws of Delaware and authorized to do business in Kansas and is a gas producing company. The sole business of Republic is to produce gas which it sells to Northern. They commenced business about the same time in 1930, Republic producing gas which it sold and delivered to Northern. In 1930 a contract was entered into between the two companies with those purposes in view. We are not concerned here with that contract. It is mentioned only as a part of the history of the dealings of the parties. It was modified from time to time, and under date of December 21, 1945, the parties executed the contract here involved. From the experiences of the parties this contract was designed to cover everything of importance with respect to their dealings. The part of it which appellant thought this court ought to have before it is set out as Appendix 'A' to this opinion.

We are concerned here primarily with the business of the parties through the fiscal year from July 1, 1947, to June 30, 1948. The trial was held before the Hon. H. W. Stubbs, a member of the bar of this court, sitting as judge pro tem., selected because of his extensive practice in the law of oil and gas. The trial was held in June, 1950, when parol testimony and documentary evidence were received in evidence. Counsel requested findings of fact and conclusions of law and desired to present briefs, which they did later. Thereafter the court filed a memorandum opinion together with findings of fact and conclusions of law. These so thoroughly treat every feature of the case that we think it pertinent to copy or summarize them quite fully, as follows:

'Memorandum Opinion.

'During the past weeks I have devoted considerable time to a study of the transcript, the exhibits, the briefs of counsel and their requested findings of fact and conclusions of law, and have noted a surprising lack of conflict in the briefs and in the requested findings of fact. This lack of conflict was also very much in evidence at the trial.

'I have again reversed myself on the matter of the duty of Republic to tender gas to Northern. This is peculiarly a contract which requires the greatest co-operation between the buyer and seller, and as is stated in one or more of the findings, Republic's duty under the contract consists in part of delivering gas to Northern as Northern requires it, and to deliver large volumes of gas during the summer months when Northern's requirements are comparatively light would, in my opinion, constitute a violation of the spirit of the contract, and if insisted upon by Republic might even constitute a breach thereof; and I have therefore reached the conclusion that it is Northern's duty to advise Republic of the amounts of gas required from day to day or from month to month, and Republic's duty to put that amount of gas at the disposal of Northern, and it is primarily Northern's obligation to see that the aggregate of the takes specified by it during the contract year at least equals the minimum amount of gas which Republic is entitled to furnish during that year.

'In my construction of this contract I have imposed upon Republic the obligation to comply with the spirit of the Basic Order applicable to the Hugoton field. In my opinion the production of a well, or series of wells, continuously to a point approximating but barely under three times the current allowable is not sanctioned by this order. The order requires that the wells be produced within the limits of the current allowable but certain violations are permitted by reason of the impossibility of producing the exact amount allowed and by reason of the fluctuations required by seasonal changes and the limit of such overproduction is specified as being three times the current allowable, at which time the well must be shut in.

'It is further my opinion that Republic's insistence during the contract year in question, of producing these wells to a point where by the end of that year the group as a whole would barely escape being shut in and early in the next contract year a large number of wells must inevitably have been shut in, was not only in violation of the spirit of this order, but also in violation of that provision of the contract which provides that the wells should be kept in good condition to produce continuously and without interruption the requirements of the buyer. The wisdom of the parties in restricting the production of the wells during the contract year in question has been justified. It is observed from the record that prior to the commencement of the contract year in question there was no friction whatever between representatives of Northern and Republic. Approximately the minimum of 60% of the requirements of Northern's Omaha District was at all times furnished prior to the commencement of the contract year in question; and it is a fair inference, from the record, if it does not so definitely appear, that for the entire period of time subsequent to the end of the contract year in question, approximately the full current allowable of Republic's wells have been produced and delivered to Northern. Had the billion and a half feet of gas contended for by Republic been produced during the contract year in question the state of confusion existing during that year must necessarily have continued to the present time; and the conclusion is inevitable that the restriction of these wells during that contract year has enabled the parties to carry out the terms of the contract amicably and without confusion and without the necessity of argument as to what the several provisions of the contract really mean.

'As previously stated, the requested findings of fact by the respective parties showed a remarkable lack of conflict. Most of the findings requested by each party could have been allowed by the court, but this would have resulted in duplication and would have prolonged the record unnesessarily. I have therefore allowed some of these findings in part, some of them in their entirety, and have also combined certain findings requested by plaintiff and defendant.

'The requested Findings and Conclusions of Law, including the interpretation of the contract, are hereto attached. * * *

'Findings of Fact:

'No. 1. Plaintiff is in the business of transporting natural gas by pipe line for sale to communities in Kansas, Nebraska, Iowa, Minnesota and South Dakota. During the period in controversy it also owned and operated its own gas wells in the Hugoton Gas Field located in the State of Kansas. In addition, it purchased gas from producers, including the defendant.

'Defendant is a producer of natural gas, and during the period in controversy owned and operated 125 to 135 gas wells in Stevens and Morton Counties, Kansas, which counties are located in the Kansas portion of the Hugoton gas field. Defendant's wells are connected together with a 14-inch loop line which constitutes what is known as its gathering system. Pipe lines comprising such system are in excess of 60 miles in length. The 14-inch loop lines of the defendant connects with plaintiff's pipe line system in the Northwest Quarter of Section 19, Township 3o South, Range 36 West, Stevens County, Kansas. That location is the point at which the gas of the defendant is delivered to the plaintiff.

'2. That on December 21, 1945, Republic and Northern entered into a Gas Purchase Contract, which for convenience will be hereafter referred to as 'Contract'; that generally under the terms thereof Republic agreed to develop approximately 75,000 acres of land therein described in Stevens and Morton Counties, Kansas (or substitutions or additions thereto) for the production of gas, to...