Case Title: Sorum v. Schwartz

Citation: 344 N.W.2d 73

Docket Number: 10467

State: north-dakota

Court: North Dakota Supreme Court

Date: 1984-02-06T00:00:00Z

Document:
344 N.W.2d 73 (1984) Marvin SORUM, Plaintiff and Appellee, v. Earl SCHWARTZ, Defendant and Appellant. Civ. No. 10467. Supreme Court of North Dakota. February 6, 1984. *74 Gary R. Wolberg [argued], of Fleck, Mather, Strutz & Mayer, Ltd., Bismarck, for defendant and appellant. Bruce O. Bekkedahl [argued] and Frederick E. Whisenand, Jr., of McIntee & Whisenand, Williston, for plaintiff and appellee. GIERKE, Acting Chief Justice. This is an appeal by the defendant, Earl Schwartz, from a judgment of the District Court of Burke County decreeing cancellation of a portion of an oil and gas lease. The district court also entered a conditional decree of forfeiture as to the remainder of the lease. We reverse and remand for further proceedings. This case involves an oil and gas lease executed June 10, 1949, by M. Sorum and Anna Sorum of Flaxton, North Dakota, to whom Marvin Sorum is a successor in interest. The lease specifically covers the South Half of Section Twenty-three (23), in Township One Hundred Sixty-three (163) North, Range Ninety-one (91) West, Burke County, North Dakota, and contains 320 acres. The lease was acquired by the defendant, Earl Schwartz, in 1962 and he began operating it in 1969. Three wells were drilled and completed within the ten-year primary term of the lease: Sorum # 1 in the Southeast Quarter of the Southwest Quarter; Sorum # 2 in the Northwest Quarter of the Southwest Quarter; and Sorum # 3 in the Northwest Quarter of the Southeast Quarter. The East Half of the Southeast Quarter remains undeveloped. The Sorum # 1 well has not produced since approximately 1969 when the well site was flooded. Sorum Nos. 2 and 3 have been shut in since December of 1980 because of bad casing. On January 25, 1982, Sorum served upon Schwartz a summons and complaint. The complaint requested cancellation of the lease at least as to the undeveloped portions. This case was consolidated for trial with four other cases involving similar issues of fact and law. Following trial the district court issued a single memorandum opinion in lieu of findings of fact, conclusions of law, and order for judgment. A separate judgment was issued in each case. Three of these judgments were appealed from and were consolidated for oral argument before this court. Two of these appeals have been discussed in a separate opinion.[1] *75 Much of the difficulty in this case arises from the district court's use of a single memorandum opinion rather than separate findings of fact and conclusions of law for each case. It is apparent, however, that the court's cancellation of the lease as it pertained to the undeveloped spacing unit was based on the theory of abandonment. In regard to the remaining spacing units contained in the lease, the court stated as follows: The court did not state the theory on which it based this conditional decree of forfeiture. Schwartz has raised two issues on appeal: The trial court found an abandonment of the undeveloped 80-acre spacing unit. The court based its conclusion on the following undisputed facts: The district court found that these facts proved by preponderant circumstances that Schwartz intended to abandon the undeveloped portion of the lease. The court also held that in North Dakota there can be "abandonment without physical relinquishment if the intention to abandon can be seen from the attendant circumstances". As authority for this statement, the court cited Hermon Hanson Oil Syndicate v. Bentz, 77 N.D. 20, 40 N.W.2d 304, 306 (1949), wherein this court stated that: We disagree with the district court's interpretation of our holding in Hermon Hanson Oil Syndicate. Our statement that an oil and gas lease will not be terminated on the ground of abandonment, "Unless it appears ... that the lessee intended to abandon his lease" does not give rise to the conclusion that an oil and gas lease will be terminated if such intention does appear. We merely stated that intention is one of the requisites of abandonment. Indeed, in that case, we went on to affirm the district court's finding that there had been no abandonment on the ground that "The evidence does not show either a physical relinquishment or an intention to abandon." Id. 40 N.W.2d at 307 [emphasis added]. In Feland v. Placid Oil Company, 171 N.W.2d 829, 835 (1969), we quoted with approval from 3 Summers, Oil and Gas, § 468, p. 365, wherein the remedies of lessors in North Dakota were summarized as follows: The record in the instant case is devoid of evidence of physical relinquishment. The trial court's finding of abandonment is therefore reversed as to the undeveloped spacing unit. Schwartz argues that the trial court also based its conditional decree of forfeiture of the developed spacing units on the abandonment theory. We agree that the memorandum opinion is unclear in this regard. We conclude, however, after a careful perusal of the record that the court based its decree on breach of the express terms of the lease. The lease in question contains a habendum clause, which states as follows: The breach of such provision will work a termination of the entire lease. The undisputed testimony reveals that no oil or gas has been produced on the Sorum lease since December of 1980. Schwartz made no attempt to get the wells back into production until 1981. It is the general rule that a temporary cessation of production will not automatically terminate an oil and gas lease. Feland v. Placid Oil Company, supra, 171 N.W.2d at 836. The equities dictate that, in the ordinary case, the operator be allowed a reasonable time to bring the lease back into production. In Reynolds v. McNeill, 218 Ark. 453, 236 S.W.2d 723, 725 (1951), the Arkansas Supreme Court stated: In the instant case, the problems with the Sorum wells are common in the industry. Schwartz has expended approximately $170,000 in his attempts to correct these problems and bring the wells back into production. In view of these expenditures, the district court determined that it was equitable to allow Schwartz a reasonable time to rework or redrill the wells. Schwartz's first contention regarding this theory of relief is that Sorum's complaint did not allege termination by express provision of the lease and that the trial court, therefore, committed error if it based its conditional decree on that theory. Rule 8(a) of the North Dakota Rules of Civil Procedure provides that a party's claim shall "contain (1) a short and plain statement of the claim showing that the pleader is entitled to relief, and (2) a demand for judgment for the relief to which he deems himself entitled". The purpose of this Rule is to place the defendant on notice as to the general nature of the plaintiff's claim. Gowin v. Hazen Memorial Hospital Association, 311 N.W.2d 554, 556 (N.D.1981). Rule 8(a) does not require that the complaint recite all of the facts which will be used to prove the cause of action, nor does it ordinarily require the allegation of particular laws or theories under which relief is sought. Id. Paragraph IV of Sorum's complaint states as follows: We conclude that the above-quoted paragraph was sufficient to apprise Schwartz of the general nature of Sorum's claim and is consistent with the theory upon which relief was granted. Although we agree with the district court that Sorum is entitled to relief under the facts of this case, we cannot agree with the particular relief afforded. The district court's decree required Schwartz to bring all three wells into production within seventy days or suffer forfeiture of those spacing units not in production at that time. The habendum clause, however, requires only that the lessee produce oil or gas from the leased premises.[2] Thus, under the express terms of the lease, Schwartz need only bring one of the wells into production to hold the entire lease. The remainder of the premises continues to be subject to the implied covenants for reasonable development. In this case, however, that relief is unavailable to Sorum because of the lack of notice and demand for further development. For the reasons stated in this opinion, the judgment of the district court is reversed and remanded for further proceedings in accordance with this opinion. SAND and PEDERSON, JJ., and DENNIS SCHNEIDER and JOEL D. MEDD, District Judges, concur. MEDD and SCHNEIDER, District Judges, sitting in place of ERICKSTAD, C.J., and VANDE WALLE, J., disqualified. [1] Olson v. Schwartz, ___ N.W.2d ___ (N.D. 1984). [2] Although the habendum clause at issue in this case does not expressly state that production must be "in paying quantities", the courts have quite generally held that production within the primary term, to extend the lease, must be in paying quantities. See 2 Summers, Oil and Gas, § 298 (Permanent Edition) and cases cited therein. If the lessee has satisfied this contingency upon which the lease is to continue beyond the primary term, the courts have held that it is the plain intent of the "thereafter" clause that the lease shall continue as long as oil or gas continues to be produced in paying quantities. Id., at § 305.