Sanders v. Birmingham

• Decision Date: 11 May 1974
• Docket Number: No. 47277,47277
• Citation: 214 Kan. 769,522 P.2d 959
• Parties: P. M. SANDERS, and Julia Sanders, his wife, Appellees, v. E. L. BIRMINGHAM, Jr., et al., Appellants.
• Court: Kansas Supreme Court

Page 959

522 P.2d 959

214 Kan. 769

P. M. SANDERS, and Julia Sanders, his wife, Appellees, v.E. L. BIRMINGHAM, Jr., et al., Appellants.

No. 47277.

Supreme Court of Kansas.

May 11, 1974.

Syllabus by the Court

1.To constitute an accord and satisfaction there must be an offer in full satisfaction of the obligation accompanied by such acts and declarations or under such circumstances that the party to whom the offer is made is bound to understand that if he accepts it, it is in full satisfaction of and discharges the original obligation.

2.The implied covenant to further develop an oil and gas lease is a continuing obligation during the term of the lease.The obligation of the lessee thereunder must be judged in the light of the circumstances as they might exist at various times during the term of the lease.

3.The principles of law pertaining to the duty of a lessee under an oil and gas lease to further develop the leased property and the relative rights and responsibilities of the parties in litigation involving the implied covenant to further develop are stated and applied.

4.The record is examined in an action for partial cancellation of an oil and gas lease for breach of the implied covenant to develop and it is held that the lessor's evidence was insufficient to establish a breach of the covenant.

Joseph W. Kennedy, of Morris, Laing, Evans, Brock & Kennedy, Wichita, argued the cause, and Ralph R. Brock and Ken M. Peterson, Wichita, were with him on the brief for the appellants.

Simon Roth, Jr., Hays, argued the cause, and was on the brief for the appellees.

PRAGER, Justice:

This is an action seeking partial cancellation of an oil and gas lease and for release of 40 acres from the leasehold interest.The basis of the action is the alleged failure of the lessee to carry out its obligation to comply with the implied covenant of further development.The essential facts are not in dispute and are as follows: On May 31, 1955, the plaintiffs-appellees, P. M. Sanders and Julia Sanders, his wife, executed an oil and gas lease to the defendants-appellants, E. L. Birmingham, Jr., W. N. Bartlett and Richard Hindery, a partnership, doing business as Birmingham-Bartlett Drilling Company, and Carl S. Rohwer, covering the Southwest Quarter of Section 35, Township 13 South, Range 17 West, in Ellis county.In this opinion we will refer to the plaintiffs-appellees, as Sanders or the lessor.We will refer to the defendants-appellants as Birmingham-Bartlett or the lessee.During the first half of 1956 the lessee drilled four producting oil wells on the east 40 acres of the quarter section.On December 15, 1959, Robert C. Allan, as attorney for the lessor, wrote a letter to the lessee which in substance demanded that the lessee take immediate steps to further develop the lease.On December 16, 1959, Lester L. Morris, as attorney for the lessee, wrote to Allan a letter which stated in pertinent part as follows:

'Birmingham-Bartlett Drilling Company has consulted me with reference to your letter of December 15, 1959, concerning your demand for release of the above mentioned lease as pertains to the West 120 acres of the above described property.

'I have gone over all the facts concerning this lease, and particularly with reference to the drilling program and location of the wells on the above lease, as well as the wells in the surrounding area.From the facts available I am of the opinion the Birmingham-Bartlett Drilling Company has reasonably developed the property, and that there is no implied obligation upon them to drill any additional wells at this time.However, rather than to have litigation over the matter, I would recommend to Birmingham-Bartlett Drilling Company, that they give thought to releasing the W/2 SW/4 of Sec. 35-13S-17W., Ellis County, Kansas, but I could not recommend that they release the W/2 E/2 SW/4 of said section 35.

'You might take the matter up with your client and if he is willing to consider my proposal I will then take the matter up with Birmingham-Bartlett and try to work out an arrangement whereby the lease on the W/2 SW/4 of said Sec. 35 can be released of record.I, of course, would not want to be faced with a law suit on the W/2 E/2 SE/4 of Sec. 35; if we are going to have a law suit on that, then I think client should stand by its guns on the entire quarter section.'(Emphasis supplied.)

Allan wrote in reply a letter to Morris which stated in part as follows:

'I have gone over this matter again with my client and he is agreeable to avoiding litigation If your client will release only the West Half of this Quarter Section.

'You suggested in your letter that you would recommend the same to your client and we wish that you would go ahead and discuss it with them and contact us when any decision has been reached.'(Emphasis supplied.)

On January 11, 1960, Morris wrote to Allan enclosing a release signed by the lessee releasing the west 80 acres of the quarter section covered by the oil and gas lease.This letter stated as follows:

'I acknowledge receipt of your letter of January 7, 1960 in which you state that your client would be willing to accept a release of the above mentioned lease as pertains to the W/2 SW/4 of Sec. 35-13S-17W., Ellis County, Kansas to avoid litigation.I have secured the release which was executed by all of the partners of Birmingham-Bartlett Drilling Co. and Chas. H. Keevert, as we understand Chas. H. Keevert had an interest in the lease.

'If this is satisfactory go ahead and record it and then send me statement for the amount of recording fee and I will see that you are reimbursed.'

The lessor thereupon recorded the release of the west 80 acres of the quarter section.

Approximately 12 years later on June 30, 1972, the lessor filed a petition in this action for partial cancellation of the lease as it pertained to the west 40 acres of the east half of the quarter section and for release of that 40 acres from the leasehold interest.The basis of the lessor's claim was the failure of the lessee to develop fully the property in violation of the implied covenant of further development.The lessee filed its answer in which it denied that it had failed to develop fully the leasehold interest in violation of any implied covenant in the lease and, by way of affirmative defense, alleged an accord and satisfaction relying upon the correspondence between the lessor's attorney, Robert C. Allan, and the lessee's attorney, Lester L. Morris, which is described above.On February 21, 1973, the lessee filed a motion for summary judgment based on the defense of accord and satisfaction.This motion was overruled by the trial court just before commencement of the trial.With the pleadings in this posture the parties proceeded to trial before the court on April 23, 1973.The parties filed a joint stipulation as follows:

'(1) Southwest Quarter of Sec. 35, 13 17 Ellis County, Kansas, is owned by P.M. Sanders and it is so stipulated.

'(2) It is stipulated that P. M. Sanders on May 31, 1955 executed an oil and gas lease to E. L. Birmingham, Jr., et al. covering above described property reflected as plaintiff's Exhibit 1.

'(3) It is stipulated that there are four producing oil wells in center of regular ten acre location located in E/2 of E/2 of SW/4.These wells were drilled and completed on following dates:

Sanders #1-Jan. 18, 1956

Sanders #2-Feb. ___, 1956

Sanders #3-Feb. ,1656

Sanders # 4-May 18, 1956

'(4) It is stipulated that no dry holes were drilled by defendants on SW/4.

'(5) It is stipulated defendants exhibit 1, 2 and three reflect location of all producing wells and dry holes in area shown on exhibits including Sanders SW/4 and shows elevation top of Lansing and Arbuckle producing formation.

'(6) It is stipulated that correspondence attached to defendants Answer reflect correspondence between Law Firms involved.

'(7) It is stipulated that W/2 of SW/4 was released as indicated by correspondence by release recorded Jan. 8, 1960 in Book 185page 17 in Register of Deeds Ellis Co., Ks.'

Attached to this stipulation were three maps which showed all producing wells, dry holes and the elevation tops of the Lansing and Arbuckle producing formations is section 35 and in the half sections abutting section 35 on all four sides.These maps showed the four producing wells on the east 40 acres of the southwest quarter of section 35, six producing wells in the west half of the southeast quarter of section 35, and nine producing wells in the half section directly to the south of section 35.

The lessor then called two witnesses in support of its petition.P. M. Sanders, a lessor, testified in substance that in the fall of 1959he had authorized his son Ed to exert pressure upon the lessee to either do additional drilling or release the undeveloped land.Mr. Sanders, age 80, had recently sustained an illness which caused him to be quite forgetful and he had no recollection of having had personal contact with the attorney, Mr. Allan.He did recall that the west 80 acres of the southwest quarter of section 35 were released by the lessee and that such release was probably the end result of his son's efforts.He denied any agreement as to the 40 acres involved in this case.

The only other witness called by the lessor was another son, Donald L. Sanders.The entire testimony of Donald L. Sanders, as set forth in the record on appeal was as follows:

'Direct Examination of Donald L. Sanders by Simon Roth, Jr.

'My name is Donald L. Sanders and I work for O'Neil Tank Company.I am also an electrician.My duties for O'Neil Tank Company consist of designing, building and the installing the cost automation for the company in the oil patch.My father is P. M. Sanders . . .

'Q.Have you contacted and talked to people regarding development of this acreage?

'A.Yes, sir.

'Q.And discussed with them the possibility of further developing it?

'A.Yes . . .

'Q.Don, would you yourself be...