Rama Operating Co. v. Barker

• Decision Date: 27 July 2012
• Docket Number: No. 105,589.,105,589.
• Citation: 286 P.3d 1138,47 Kan.App.2d 1020
• Parties: RAMA OPERATING COMPANY, INC., Appellee, v. David A. BARKER, Appellant.
• Court: Kansas Court of Appeals

47 Kan.App.2d 1020

286 P.3d 1138

RAMA OPERATING COMPANY, INC., Appellee,

v.David A. BARKER, Appellant.

No. 105,589.

Court of Appeals of Kansas.

July 27, 2012.

Syllabus by the Court

1. In Kansas, there can be no breach of a covenant of title in a warranty deed unless the third party's claim is superior to the title or possessory rights of the grantee. In the typical wording of a covenant of warranty, the grantor covenants to warrant and defend the title conveyed by the deed against all lawful claims which may be asserted against it. A breach does not occur without a disturbance of possession and eviction under an adverse title which existed at the time of the conveyance. A covenantee who, voluntarily or without suit, yields to an alleged paramount title or claim assumes the risk that it might not be a valid claim.

2. Kansas law is consistent with the majority view, which holds that title defects are not actionable as a breach of the covenant of warranty unless the grantee has been compelled to yield to another with superior title or is in a situation requiring him or her to do so presently as a matter of legal duty. A covenantee cannot claim a breach of the covenant of warranty by reason of the existence of an outstanding title in a third party where such title is not paramount.

3. The general effect of the covenant of warranty is that the grantor agrees to compensate the grantee for any loss which the grantee may sustain by reason of a failure of the title which the deed purports to convey or by reason of an encumbrance on the title. In the typical wording of such a covenant, the grantor covenants to warrant and defend the title conveyed by the deed against the lawful claims which may be asserted against it. The covenant may be either expressly stated, or it may be implied by the words used or type of deed employed.

4. Under the facts of this case, we conclude and hold that in the absence of a lawful claim by a third party to the interest conveyed to the assignee of an oil and gas lease, the assignor had no duty to defend and did not breach his warranty of title.

[47 Kan.App.2d 1021]5. When opposing a motion for summary judgment, an adverse party must come forward with evidence to establish a dispute as to a material fact.

6. When a motion for summary judgment is made and supported as provided by K.S.A. 60–256, an adverse party may not rest upon the mere allegations or denials of the adverse party's pleading, but the adverse party's response, by affidavits or as otherwise provided in this section, must set forth specific facts showing that there is a genuine issue for trial. Mere conclusory denials in the face of specific facts by the moving party are not sufficient to place a factual statement in dispute.

7. When the primary term of an oil or gas lease has expired and the lease is being held upon the condition of continued production only, all rights under the lease terminate if and when production of oil or gas in paying quantities ceases.

8. After the primary term of an oil and gas lease has expired, a mere temporary cessation of production because of necessary development or operation does not result in the termination of such lease or the extinguishment of rights acquired under its terms. The burden to establish a temporary rather than a permanent cessation of production is on the lessee seeking to prove the continued validity of the lease.

9. A shut-in royalty clause in an oil and gas lease enables a lessee, under appropriate circumstances, to keep a nonproducing lease in force by the payment of the shut-in royalty. The burden to establish continued lease validity by reason of a shut-in royalty clause in the oil and gas lease is on the party seeking to prove that continued validity.

10. Under K.S.A. 58–2222, every instrument in writing, certified and duly recorded in Kansas, imparts notice to all persons of its contents, and where its validity is called into question, it will not be held invalid absent satisfactory and convincing evidence by the challenging party.

11. Under the facts of this case, the lack of production after the primary term of the lease, together with (i) no factual assertions to support its being merely temporary, (ii) no allegations that the well was a shut-in well with royalty payments being made, and (iii) at least one undisputed release of record by the prior operator/lessee, cause us to conclude that the prior leases had expired. Under these circumstances, a long-distance phone call with the individual executing the second release indicating that it was a “mistake” has little if any evidentiary value on the question of continuing lease validity.

12. The lack of a release of a lessee's right, title, and interest in an oil and gas lease is no evidence that the oil and gas lease is still in force.

13. Under the facts of this case, because of the oil and gas lease operator's failure to successfully controvert the production history on the gas production unit and the resulting 23 months of nonproduction, its failure to factually support a temporary cessation of production, its failure to support constructive production by reason of shut-in royalty payments on a well capable of producing in paying quantities, and the fact of at least one undisputed release of record by the operator/lessee of the prior lease on this acreage, we hold that there was no breach of the assignor's covenant of warranty of title and the assignor of the oil and gas lease was entitled to judgment as a matter of law at summary judgment.

14. A point raised incidentally in an appellate brief but not argued or supported there is deemed abandoned on appeal. A conclusory argument stated in a singular sentence is insufficient to avoid this rule.

Joseph H. Cassell, of Eron Law Office, P.A., of Wichita, for appellant.

Timothy R. Keenan and Addie L. Baird, of Keenan Law Firm, P.A., of Great Bend, for appellee.

Before GREENE, C.J., MALONE and ATCHESON, JJ.

GREENE, C.J.

David A. Barker, assignor of an oil and gas lease to RAMA Operating Company, Inc. (RAMA), appeals the district court's denial of his motion for summary judgment as well as the judgment against him after bench trial for damages totaling $13,356.44 for breach of his covenant to warrant and defend title to the interest conveyed. Concluding RAMA failed to establish at summary judgment that there was a lawful adverse claim against the interest conveyed, there was no actionable breach of the covenant of warranty of title. Thus, we reverse and remand with directions to enter summary judgment in favor of Barker.

Factual and Procedural Background

Barker obtained an oil and gas lease from B.F. and Eleanor Babb on May 6, 1996, covering lots 1 and 2 that are the west half of the northwest quarter of Section 30, Township 21 South, Range 8 West, in Rice County. A previous lease of this tract (the Tyrell lease) had been unitized with other leases to form a 160–acre gas unit apparently known as the “Fitzgerald Gas Unit.” The lessee of the Tyrell lease, Bear Petroleum, executed and there was recorded a release of its right, title, and interest in the Tyrell lease on October 3, 1996. A second release of its interest in the Tyrell lease was requested by Barker and executed by Bear Petroleum on March 1, 2001, and was subsequently recorded, but there is a dispute as to its validity.

Within the primary term of Barker's Babb lease and on May 6, 2001, Barker obtained an identical lease from the Babbs—except the primary term was specified as 2 years. Based on information in the record, this lease was recorded on February 7, 2001. Neither party to this litigation has noted, argued, or raised an issue in district court or on appeal surrounding the rather strange sequence of the second lease acquisition, the recordation thereof, and the assignment at issue.

After obtaining a supplemental drilling title opinion on the acreage, on April 9, 2001, Barker executed an assignment conveying to RAMA his right, title, and interest to this oil and gas lease. On that date, the records of the Kansas Corporation Commission and Rice County Assessor's Office show there had been no production by the only well on the Fitzgerald Gas Unit for at least 23 months. Although a contract between Barker and RAMA required only an assignment “without warranty,” the Barker assignment contained a covenant of warranty of title, which we quote later in this opinion.

In July 2001, when RAMA's drilling rig contractor appeared on the lease property to commence drilling operations, Robin Austin of RAMA became aware of potential adverse claims to the title through a landowner. He contacted both Barker and R.A. “Dick” Schremmer of Bear Petroleum, Inc., the operator and prior lessee of this acreage under the old Tyrell lease. Barker refused comment and claimed he told RAMA to contact his attorney, but Schremmer told RAMA that Bear Petroleum had a valid lease on “the property” and that a prior release of the oil and gas lease covering this acreage and executed by Schremmer was a mistake. Schremmer also told RAMA that he had instructed Barker not to record the mistaken release, but Barker claimed there was no fraudulent recordation.

Based on the information from Schremmer, RAMA terminated drilling operations and purportedly incurred damages “in the form of expenses in the commencement of drilling operations” totaling $13,356.44. Other facts embellished this story at time of trial, but our initial and determinative focus is on the summary judgment proceedings.

After RAMA filed its petition alleging breach of warranty of title, Barker sought summary judgment on the ground that RAMA caused its own damages when it precipitously terminated drilling operations although no lawful adverse claim was ever established to the oil and gas lease assigned to RAMA. The district court denied the motion because the court found there were two genuine issues of material fact preventing judgment as a matter of law: (1) whether...