Title: Cornwell v. Jespersen
Citation: 238 Kan. 110, 708 P.2d 515
Docket Number: 57,366
State: Kansas
Issuer: Kansas Supreme Court
Date: October 25, 1985

238 Kan. 110 (1985)
708 P.2d 515
JACK CORNWELL, et al., Plaintiffs-Appellees,
v.
JERRY JESPERSEN et al., Defendants-Appellants, RICK CORNWELL, et al., Plaintiffs-Appellees,
v.
JERRY JESPERSEN, et al., Defendants-Appellants.
No. 57,366

Supreme Court of Kansas.
Opinion filed October 25, 1985.
J.D. White, of Wichita, argued the cause and was on the briefs for the appellants.
Dale J. Paulsen, of St. John, argued the cause and was on the brief for the appellees.
The opinion of the court was delivered by
SCHROEDER, C.J.:
This is an action by Rick, Joe, Jack and June Cornwell and Martha Cornwell Riddell (plaintiffs-appellees) against Jerry Jespersen, and Big J. Production Co., Inc., (defendants-appellants) for damages to the plaintiffs' crops and land alleged to have resulted from the defendants' oil drilling activities on their land. The trial court held that the plaintiffs could maintain an action against the defendants as they were third party beneficiaries to the drilling contract between defendants and plaintiffs' lessee. The court awarded actual damages totalling $3,772 and punitive damages of $1,980. The defendants' appeal claiming the trial court erred in its conclusion that the plaintiffs were third party beneficiaries to the contract, in considering parol evidence when interpreting the drilling contract, in awarding punitive damages, and in finding that a letter dated March 13, 1982, from the lessee to the defendants was not an accord and satisfaction.
Rick and Joe Cornwell and Martha Cornwell Riddell are the joint owners of a certain parcel of land in Stafford County. Jack, June, Rick and Joe Cornwell and Martha Cornwell Riddell are the owners of a separate parcel, also in Stafford County. In August of 1980, Rick, Joe and Martha entered into an oil and gas lease with Dennis Tajchman as lessee. Also in August of 1980, Jack, June, Rick, Joe and Martha leased their land to Alta, Inc. The leases  for purposes of this appeal  are identical. Each contained supplemental provisions, including the following conditions:
....
....
Eventually, both leases were assigned to Quadel Energy Corporation (hereinafter, Quadel).
On May 15, 1981, Quadel entered into a turnkey-type drilling contract with the defendant Jerry Jesperson. The contract provided that Jesperson was to: drill test wells after obtaining the necessary permits; provide all material, supplies, and labor; maintain records as required by law; obtain and maintain workers' compensation insurance; pay all charges for labor or materials incurred; prevent the filing of any liens; and have independent contractor status. The contract also contained the following provision:
Attached to, and part of, the drilling contract was a list of costs in the turnkey agreement. Specifically included in this list were the following: "Fill Pits ...; Restore Location ...; Damages." The total cost per well drilled under the contract was stated as being $90,740.
*113 Among the seven wells drilled on various leases by the defendants were two test wells drilled on both parcels of land owned by the plaintiffs. Both wells were abandoned as dry holes. Although the defendants filled the pits, they failed to remove the drilling mud from the pits or to cover them properly which resulted in mud overflowing and covering the land surface. They did not cut off the surface pipe to the six-foot depth required by the lease, nor did they restore the surface of the drill site to farmable condition. The defendants caused injury to the plaintiffs' land and crops, but they did not pay damages for either.
On March 13, 1982, Jespersen received a letter from Quadel which began by stating, "This letter sets forth the agreements we have reached as a result of our negotiations over the past several days." It further stated, "[I]t is now desired that an accord and satisfaction be agreed to with respect to all obligations and liabilities existing between you on the one hand,... and the partnerships on the other. Accordingly, we have agreed to pay you the total sum of $958,000." (Emphasis added.) The letter then recited specific obligations still to be performed by the defendants. No mention was made of "filling the pits, restoring the surface or paying damages" to the landowners in connection with their leases.
Finally, the letter included the following agreement, "all payments, assignments, bills of sales and other matters provided for herein shall be paid, made and delivered between us on or before the 19th day of March, 1982, in Wichita, Kansas or this agreement is void and of no further legal force and/or effect." (Emphasis added.) At the time of the hearing held on December 14, 1982, Jespersen admitted he had not yet performed all of his obligations as stated in the letter.
On June 24, 1982, Quadel sent a "demand" letter to the defendants stating, "We simply cannot understand why the few matters remaining to be accomplished to complete the settlement reached in March have not been done." The letter listed the defendants' remaining obligations. Included in the list was, "[defendants] must settle immediately all claims for damages outstanding with landowners and tenants."
In a reply letter from Jespersen to Quadel, Jespersen stated, "We are negotiating the claims on ... the [Cornwell lease] .... These will be settled in the near future."
*114 On October 7, 1982, Rick and Joe Cornwell and Martha Cornwell Riddell filed a petition against the defendants, requesting $1,700 actual damages and $3,000 punitive damages (Case No. 83-C-10). On the same day, Jack, June, Rick and Joe Cornwell and Martha Cornwell Riddell petitioned for judgment against the defendants in the amount of $750 actual and $1,500 punitive damages (Case No. 83-C-9).
The plaintiffs brought their actions on the contract alleging they were third party beneficiaries under the drilling contract between Quadel and the defendants. The defendants answered by denying the third party beneficiary status affirmatively pleading an accord and satisfaction by virtue of the letter dated March 13, 1982, as a bar to the plaintiffs' claims.
The cases were consolidated for trial. The cases, brought under Chapter 61 as limited civil actions, were heard by a magistrate judge on December 14, 1982. After the plaintiffs presented their evidence, the defendants moved for dismissal arguing that the plaintiffs had failed to present sufficient evidence to establish their position. The motion was overruled. Jespersen announced to the court he would stand on the questions of law raised by the motion and presented no evidence.
The magistrate judge entered judgment for the plaintiffs against the defendants in both cases. In case No. 83-C-10, the plaintiffs were awarded actual damages of $3,020 and punitive damages of $1,980. In case No. 83-C-9, the plaintiffs were awarded only actual damages of $750.
The defendants appealed to the district court. In a memorandum opinion dated February 24, 1984, the district court affirmed the decision of the magistrate judge in both cases.
The defendants then moved for a new trial alleging there was newly discovered evidence stating that all of the defendants' obligations  as set forth in the March 13 letter  had been fully performed since the trial. A hearing was held on May 24, 1984, and the motion was overruled. The defendants then duly perfected their appeal to this court.
The first issue is whether the lower court erred in finding the plaintiffs were third party beneficiaries to the drilling contract. The magistrate judge based his ruling on Exhibit A attached to the drilling contract which included the requirement that Jespersen fill the pits, restore the location, and pay the land *115 damages. The judge found that the parties, by including these requirements, intended to benefit the plaintiffs, and, therefore, the plaintiffs were third party beneficiaries and had standing to sue on the contract.
This court discussed the law of third party beneficiary contracts in Martin v. Edwards, 219 Kan. 466, 472-73, 548 P.2d 779 (1976):
The court then went on to state:
The Restatement (Second) of Contracts § 302 (1979), states:
The law on third party beneficiary contracts, as stated in Martin v. Edwards, 219 Kan. 466, was upheld in Holiday Development Co. v. Tobin Construction Co., 219 Kan. 701, 549 P.2d 1376 (1976). We adhere to the law as set out in Martin.
This case is to be distinguished from Schmeck v. City of Shawnee, 232 Kan. 11, 651 P.2d 585 (1982), where the action was brought on a tort theory. The court there relied upon Restatement (Second) of Torts § 324A (1965).
In determining the intent of the contracting parties as to rights of a third party beneficiary, we must apply the general rules for construction of contracts. The intention of the parties and the meaning of the contract are to be determined from the instrument itself where the terms are plain and unambiguous. First Nat'l Bank &amp; Trust Co. v. Lygrisse, 231 Kan. 595, 647 P.2d 1268 (1982); Anderson v. Rexroad, 175 Kan. 676, 679, 266 P.2d 320 (1954).
Regardless of the construction of a written instrument made by the trial court, on appeal the instrument may be construed and its legal effect determined by the appellate court. Hall v. Mullen, 234 Kan. 1031, 678 P.2d 169 (1984). Accordingly, we find that the terms of the drilling contract involved in this case are express, clear and unambiguous. It follows that the language in the contract must be given its plain and ordinary meaning without resort to further rules of construction.
It must be noted the trial court erred in the admission of oral *117 testimony to explain the unambiguous drilling contract, but the error is harmless because the trial court reached the correct decision as to the intent of the parties and the purpose of the contract for the reasons hereafter stated. City of Ottawa v. Heathman, 236 Kan. 417, 426, 690 P.2d 1375 (1984); Home Ins. Co. v. Atchison, T. &amp; S.F. Rly. Co., 189 Kan. 316, 319-20, 369 P.2d 338 (1962).
Were the plaintiffs intended beneficiaries of the drilling contract?
The plaintiffs argue, in support of their status as intended beneficiaries, that the "indemnity clause" contained in the drilling contract clearly shows the parties intended to benefit the plaintiffs. We disagree. In 2 Williston on Contracts, § 403 (3d ed. 1959), it is stated:
Despite this fallacious argument by the plaintiffs, we agree with the trial court's conclusion that the plaintiffs were intended beneficiaries of the drilling contract.
Since the purpose of the drilling agreement was not to make a gift to the plaintiffs, the plaintiffs were not donee beneficiaries. To find the plaintiffs were "intended" beneficiaries who are thereby permitted to enforce the contract in this case, we must find they were creditor beneficiaries. As defined in Martin, a person is a creditor beneficiary when "no intention to make a gift appears from the terms of the promise, and performance of the promise will satisfy an actual [or supposed] or asserted duty of the promisee to the beneficiary." Martin v. Edwards, 219 Kan. at 472.
The promisee in this case  Quadel  owed certain duties to the plaintiffs under the oil and gas lease. The lease provided that the lessee (Quadel) was to perform the following duties in connection with any drilling operations on the plaintiffs' land: Pay crop and surface damage, dig pits at least five feet deep, pump mud and fluid from the pit into the drill hole, cut off surface pipe to six feet below the surface, and restore the surface.
Rather than performing the drilling operations, Quadel entered into a drilling agreement with the defendants wherein the *118 defendants were to perform all drilling operations on the plaintiffs' land. Included in the contract was a breakdown of "costs included in the turnkey agreement." Among Jespersen's duties in connection with drilling the test wells was that he would fill the pits, restore the surface, and pay for any damages caused by his operations.
Clearly, if the defendants had fulfilled these duties, "the performance of the promise [would have satisfied] an actual [or supposed] or asserted duty of the promisee to the beneficiary." Since the defendants assumed duties owed to the plaintiffs by Quadel, the plaintiffs are creditor beneficiaries under the drilling contract and have a right to enforce the same.
The defendants next contend the lower court erred in finding the letter dated March 13, 1982, which was sent to Jespersen by Quadel and subsequently executed by both parties, was not an accord and satisfaction. Jespersen argues the court should have found it to be a valid accord and satisfaction or a novation, thus barring the plaintiffs from the enforcement of the original contract. The lower court found  based on the testimony at the time of trial  that while the letter was an "accord" there had been no satisfaction and, therefore, the plaintiffs were not barred from enforcing the original contract.
Regardless of the trial court's construction of the written instrument, the instrument may be construed and its legal effect determined by this court on appeal. Hall v. Mullen, 234 Kan. 1031.
In Thompson v. Meyers, 211 Kan. 26, 505 P.2d 680 (1973), we held in order for an accord and satisfaction to be effective, both the accord and the satisfaction must be established. See also Coffeyville State Bank v. Lembeck, 227 Kan. 857, 610 P.2d 616 (1980). In Manning v. Woods, Inc., 182 Kan. 640, 643, 324 P.2d 136 (1958), this court stated that, "an accord and satisfaction is the adjustment of a disagreement as to what is due from one party to another and the payment of the agreed amount." Therefore, before an accord can operate as a bar to the assertion of the original contract, it must be followed by a satisfaction. If it has not been followed by a satisfaction, it has no effect. See Lighthouse for the Blind v. Miller, 149 Kan. 165, 86 P.2d 508 (1939).
The letter of accord stated, "[W]e have agreed that all payments, assignments, bills of sales and other matters provided for *119 herein shall be paid, made and delivered between us on or before the 19th day of March, 1982 ... or this agreement is void and of no further legal force and/or effect." (Emphasis added.) It was established at trial, by Jespersen's own testimony, that he had not yet performed all of his obligations as listed in the "accord" letter. The date of the hearing was December 14, 1982. Clearly, the defendants failed to establish that these matters had been satisfied by March 19, 1982. Thus, the agreement terminated on March 19, 1982, and no longer had any force or effect.
This finding is supported by a reply letter, dated July 6, 1982, from Jespersen to Quadel in which Jespersen stated he was negotiating claims with Cornwell. The settlement agreement made no mention of the defendants' duty to settle landowners' claims. Therefore, had the defendants believed the settlement agreement was still in effect, they would not have had any reason or obligation to "negotiate claims." The June 1982 letter of Quadel to which Jespersen responded listed the things left to be done by the defendants; among those was the defendants' obligation to settle all claims with the landowners.
The defendants further contend this court should find the agreement is a novation, thus nullifying the original contract. The defendants did not raise the issue of a novation at the trial. A point not presented to the trial court may not be raised for the first time on appeal. Lostutter v. Estate of Larkin, 235 Kan. 154, 166, 679 P.2d 181 (1984); Brick v. Fire Insurance Co., 117 Kan. 44, 45-46, 230 Pac. 309 (1924).
Even if the defendants had presented this issue below, we do not find the agreement was a novation. The purpose of the March 13 letter was to extinguish the parties' existing obligations to each other. It did not create new obligations. The effects of "novation" and "accord and satisfaction" are distinguished in 1 Am.Jur.2d, Accord and Satisfaction § 3, as follows: "[A] novation implies the extinction of an existing debt or obligation and its transition into a new one between the same or other parties, whereas an accord and satisfaction relates solely to extinguishing the debt or obligation."
Accordingly, we find that the letter of March 13 did not operate as a "novation" of the original contract.
We conclude the trial court was correct in finding the plaintiffs were permitted to sue on the original contract as intended beneficiaries.
*120 The defendants next contend the trial court erred by awarding punitive damages to the plaintiff. The trial court, in its memorandum opinion, reasoned as follows:
Under Kansas law, breach of a contract, standing alone, does not call for punitive damages even if the breach is intentional and unjustified, but such damages are allowable if there is some independent tort indicating malice, fraud, or wanton disregard of the rights of others. Gonzalez v. Allstate Ins. Co., 217 Kan. 262, 535 P.2d 919 (1975). Wantonness is characterized by a realization of imminence of damage to others and a restraint from doing what is necessary to prevent the damage due to indifference as to whether is occurs. Boehm v. Fox, 473 F.2d 445 (10th Cir.1973).
This court, in Guarantee Abstract &amp; Title Co. v. Interstate Fire &amp; Cas. Co, 232 Kan. 76, 78-79, 652 P.2d 665 (1982), discussed the exception to the rule against punitive damages in breach of contract actions as follows:
This rule was recently applied in Plains Resources, Inc. v. Gable, 235 Kan. 580, 682 P.2d 653 (1984). Plains also involved an action for breach of an oil and gas drilling contract in which the trial court's award of punitive damages was challenged. In Plains, an employee of the oil drilling company had intentionally sabotaged a hole which had been partially drilled to the contracted-for depth. This court held that the employee's action clearly constituted an independent tort which caused additional injury. Therefore, the trial court had not erred in awarding punitive damages.
*121 The case at hand is readily distinguishable from Plains. All injury to the plaintiffs flowed directly from the breach of the defendants' contractual duty to fill the holes, restore the surface and pay damages. Their failure to do so  even if intentional or unjustified  was not an independent tort causing additional injury.
Accordingly, we conclude there was no independent tort upon which any punitive damages could be predicated in this case. The punitive damage award of $1,980 must be vacated.
Finally, the defendants contend the trial court erred in overruling their motion for a new trial. The defendants' motion alleged that there was newly discovered evidence to show that all of the conditions of the March 13 "accord" had been "satisfied" since the date of the trial.
Since we have held that the settlement agreement terminated by its own terms prior to trial, this issue is without merit and warrants no further discussion.
The judgments relative to actual damages are affirmed; the judgment awarding punitive damages is reversed and vacated.