Southwest Kansas Oil & Gas Co. v. Argus Pipe Line Co.

• Decision Date: 26 January 1935
• Docket Number: 32095.
• Citation: 141 Kan. 287,39 P.2d 906
• Parties: SOUTHWEST KANSAS OIL & GAS CO. et al. v. ARGUS PIPE LINE CO. et al.
• Court: Kansas Supreme Court

39 P.2d 906

141 Kan. 287

SOUTHWEST KANSAS OIL & GAS CO. et al. v. ARGUS PIPE LINE CO. et al.

No. 32095.

Supreme Court of Kansas

January 26, 1935

Syllabus by the Court.

Contract whereby gas producers agreed to sell, and distributor agreed to purchase, all of gas produced to extent of distributor's requirements in serving towns and customers which it should supply in the future, held not void for want of mutuality, where parties construed contract as requiring distributor to find market for producers' gas.

Contract whereby producers agreed to sell, at fixed price, and distributor to buy, all gas produced from producers' wells up to requirements of distributor, held not void as suppressing competition (Rev. St. 1923, 16-- 112, 50--101).

The proceedings considered in an action to compel performance of a gas purchase contract and to recover damages for nonperformance, and held: The contract was not void for lack of certainty or mutuality, and was not void as contrary to public policy.

Appeal from District Court, Cowley County; Oliver P. Fuller, Judge.

Action by the Southwest Kansas Oil & Gas Company and others against the Argus Pipe Line Company and others. Judgment for plaintiffs, and defendants appeal.

Robert C. Foulston and George Siefkin, both of Wichita, S. C. Bloss of Winfield, H. J. Foster, of Garden City, and George W Burton and N.W. Behrens, both of Chicago, Ill., for appellants.

J. A McDermott and Richard B. McDermott, both of Winfield, for appellee Southwest Kansas Oil & Gas Co.

W. L Cunningham, D. Arthur Walker, Fred G. Leach, and Wm. E. Cunningham, all of Arkansas City, for appellee Stevens County Oil & Gas Co.

G. J. Neuner, of Kansas City, Mo., for appellee Texas Interstate Pipe Line Co.

BURCH Justice.

The action was one to compel performance of a gas purchase contract, and to recover damages for nonperformance. Plaintiffs prevailed, and defendants appeal.

The district court made extended findings of fact, based on voluminous evidence, introduced in support of issues formed by pleadings, the framing of which consumes 88 pages of the abstract. The meritorious questions are just two, and are very simple. Was there a contract, and, if so, was the contract against public policy? The court will make only a brief statement of the case, utilizing established facts, inferences from established facts, and conclusions of law indiscriminately, as may be necessary for purpose of condensation and abridgment.

W. H. McKnab and W. L. Sidwell went into wildcat territory and discovered a natural gas field in Stevens county. Wel's were very difficult to drill and very expensive. The discoverers began to market gas in a small way in vicinity of the field, and began to look about for other markets. An engineer was employed, who made a survey to determine possibility of substantial marketing of gas from the field. Without an engineer's report, a glance at a map will show that the profitable markets accessible from the field were Dodge City and Garden City. There is a sugar factory just outside Garden City, which would likely be, and in fact became, the largest consumer of natural gas in Southwestern Kansas. Along pipe line routes were small places which could be served, and there was a possibility pipe line extensions might reach other markets. To supply city markets, it would be necessary to obtain franchises, build pipe lines, and install distributing sys?ems. To keep up production and maintain reserves, new wells must be sunk, and existing leases must be kept alive. One not in the gas game can see that profitable gas business involves two reciprocal and mutually dependent branches, production and distribution. Large profits come from large production and large distribution, which require expenditure of large sums of money.

Sidwell obtained a franchise at Hugoton, in Stevens county, built a short pipe line, and put in a distributing system there. McKnab negotiated for a franchise at Dodge City, in Ford county, but consummation of the grant was delayed to see what the grantee would be able to do by way of assured production. About this time, with actual production small, but potentially great, and actual distribution small, but potentially great, A. J. Hardendorf appeared, and negotiated with McKnab and Sidwell, who lacked capital to carry on both branches of their business in a profitable way. The result was separation of distribution from production by two contracts, whereby McKnab and Sidwell confined themselves to production, and Arthur K. Lee, trustee, became distributor. The first contract was dated December 29, 1928, and provided for the other contract, which was dated January 18, 1929.

Pursuant to the contracts, production and distribution began in earnest. The Dodge City franchise was consummated. A pipe line to Dodge City was completed, a distributing system was installed there, and towns along the pipe line were supplied with gas. In construction of the Dodge City pipe line, provision was made at Copeland Junction, the nearest point to Garden City, for connection of a pipe line to Garden City.

Other persons and companies in the gas business took notice, and a ruth'ess contest was on for the prizes, Garden City and the sugar factory. Ultimately a franchise was granted to the Garden City Gas Company. A pipe line was built connecting with the Dodge City pipe line, and, by means of the two pipe lines, Garden City and the sugar factory were supplied with gas from the McKnab and Sidwell wells.

A corporation is a means to an end of great social value, but the corporate method of doing business may be overdone. In some instances, in recent times, it has become a social menace. In this instance, the simple McKnab and Sidwell-Lee, Trustee, enterprise became involved in a corporate structure, the units of which were as plentiful as blackberries in season. The Lee, Trustee, distributing interests, including benefi?s and burdens, passed to the Argus Pipe Line Company. The Argus Pipe Line Company is owned by the Northern Gas & Pipe Line Company, which is a tool of other corporations, involved in one way and another in a network of corporations having to do with production and distribution of gas extending from Texas to Minnesota.

In order to get a franchise in Garden City, it was necessary that the grantee be a Kansas corporation. So the Garden City Company was organized under Kansas law, with 5,000 shares of non-par stock, but the shares were issued to the Northern Gas & Pipe Line Company. Abbreviating law and facts, the Argus Company and the Garden City Company constitute a single concern, under one management, for distribution of gas from the McKnab and Sidwell wells, pursuant to the contracts of December, 1929, and January, 1930.

The contracts were performed on both sides for a while, and then the power which wiggles the tentacles of the corporate octopus, which has been referred to, deliberately and arbitrarily discontinued taking gas from the McKnab and Sidwell field.

The McKnab and Sidwell interests passed to plaintiffs, the Southwest Kansas Oil & Gas Company, a corporation, the Stevens County Oil & Gas Company, a corporation, and the Texas Interstate Pipe Line Company, a corporation.

The initial contract between McKnab and Sidwell on one side and Lee, Trustee, on the other, embraced several subjects. It provided for purchase by Lee, Trustee, of the existing Hugoton franchise, pipe line and distributing system, and purchase by Lee, Trustee, of the Dodge City franchise, if it became effective. Among still other provisions, the contract contained the following:

"6. It is further agreed that in event the franchises above referred to or either of them are conveyed, assigned and delivered to the party of the second part, then the party of the second part agrees to buy and the parties of the first part agree to sell, all gas produced from any and all of the gas wells developed by first parties or their assigns in the vicinity of their present holdings in Stevens county, Kansas, up to the requirement of second party in serving the cities of Dodge City, Hugoton and all other towns and customers served by him or his assigns, up to the reasonable capacity of such wells on property now owned by first parties or hereafter acquired, the said first parties however, to develop their property so as to produce, if possible, a minimum of ten million feet per day before completion of gas line to Dodge City.

"In the event of failure of first parties to so develop the properties held by them to meet the requirements of second party, and to maintain a production under test exceeding by sixty (60) percent. the peak load purchased by second party or his assigns, then the second party or his assigns shall have the right to enter on such property and drill additional wells, taking the cost of such wells out of the gas purchased, or the second party shall have the right to obtain additional gas from other sources, but without liability on the part of first parties.

"7. The second party or his assigns agree to pay to first parties or their assigns, a sum of money equal to eight cents per thousand cubic feet of gas distributed by second party for domestic consumption and six cents per thousand cubic feet of gas distributed by second party for industrial consumption, such gas to be measured at the well at 14.4 pounds atmospheric pressure, and the price at the well prorated on the basis of the percentage of gas distributed for each of such purposes.

"The term of such gas-purchase contract shall be for the term of the franchises held by second party, or the life of the field.

"8. A gas-purchase contract

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