Opinion ID: 1265995
Heading Depth: 1
Heading Rank: 4

Heading: Mobil's Counterclaim

Text: In its answers Mobil counterclaimed for alleged overpayments of royalties to plaintiffs from January 1, 1954, through January 31, 1958. During that period royalties were paid on a sales price of 11¢ per Mcf under both contracts between Mobil's predecessor and Northern; that price was fixed by a minimum price order of the Kansas corporation commission entered December 2, 1953. A decision of this court upholding the KCC order was reversed in Cities Service v. State Comm'n., 355 U.S. 391, 2 L.Ed.2d 355, 78 S.Ct. 381, decided January 20, 1958. The prices called for in the contracts, which would have governed but for the invalidated minimum price order, were 8.74¢ per Mcf under the A contract and 7.15¢ per Mcf under the B contract (adjusted in each case for the standardized pressure of 14.65 psia). When the KCC minimum price order was first promulgated Northern advised Mobil's predecessor that it would comply only under protest, and would expect a refund if the KCC order were found to be invalid. Mobil's predecessor in turn advised its royalty owners that the validity of the order was subject to litigation, and advised each that acceptance of royalty checks based on the 11¢ order constituted an agreement to refund any part which was later determined to be excessive. Plaintiffs accepted and negotiated the checks. After the KCC order was invalidated by the Supreme Court Northern sued Mobil's predecessor in Delaware to recover overpayments made by it under the order. That litigation was eventually settled, with FPC approval, by Mobil's refund to Northern of $2,517,522.92, or about 73% of the total paid in excess of the amount which would have been paid under the two contracts in the absence of the 11¢ order. It is the plaintiffs' royalty share of this 73% refund that Mobil seeks to recover through its counterclaim. The trial court denied the claim because the payments to the royalty owners was voluntary, because the settlement with Northern was voluntary, and because the claim was barred by the statute of limitations. The first ground was specifically rejected in Waechter, where there had also been overpayments under the KCC order. We said: ... Nor can the payments of the 11¢ price be said to be voluntary. Appellant was under compulsion of a business hazard in making them. The KCC order compelled it to pay the 11¢ minimum price `as a condition precedent for withdrawal from the common source of supply'. If it failed to comply with the commission order it was subject to criminal penalty under K.S.A. 55-708 and civil penalty under 55-710. (217 Kan. at 514-15.) Neither does the fact that the settlement with Northern was voluntary cut off Mobil's right of reimbursement. The settlement here was reached on January 4, 1963. The dispute between Amoco, the producer in Waechter, and its purchaser Cities Service, had gone to judgment in favor of the purchaser on November 19, 1962. (See Finding No. 22, Waechter v. Amoco Production Co., supra, 217 Kan. at 495.) Mobil could at that point readily foresee the outcome of its own case. If we analogize Mobil's right to reimbursement from its royalty holders to a right of indemnity, we find the general rule to be: Indemnity against losses does not cover losses for which the indemnitee is not liable to a third person, and which he improperly pays. But a person legally liable for damages who is entitled to indemnity may settle the claim and recover over against the indemnitor, even though he has not been compelled by judgment to pay the loss. The fact of voluntary payment does not negative the right to indemnity, since a person confronted with an obligation that he cannot legally resist is not obligated to wait to be sued and to lose a reasonable opportunity for compromise. (41 Am.Jur.2d, Indemnity, § 33.) See also, Cason v. Geis Irrigation Co., 211 Kan. 406, 507 P.2d 295; Fenly v. Revell, 170 Kan. 705, 228 P.2d 905. There is no contention here that Mobil had any defense to Northern's suit, or that the settlement was in any way imprudent. Plaintiffs say only that the Delaware litigation did not go to judgment, hence Mobil's liability was not determined. Under the general principle quoted above, this is not sufficient to deny to Mobil the reimbursement to which it is otherwise entitled. It simply paid what it was legally obligated to pay. As to the statute of limitations, it had no doubt run before the counterclaim was asserted. The cause of action accrued on January 20, 1958, when the Supreme Court invalidated the KCC order. See Cities Service Gas Co. v. United Producing Co., 212 F. Supp. 116 (N.D. Okla. 1960); Panhandle Eastern Pipe Line Company v. Brecheisen, 323 F.2d 79 (10th Cir.1963). Applying the statute relating to unjust enrichment (K.S.A. 60-512) the claim became barred on January 20, 1961. (See Waechter, 217 Kan. at 516-17.) This did not, however, prevent the assertion of the claim as a setoff. K.S.A. (now 1975 Supp.) 60-213 ( d ) provides: When cross demands have existed between persons under such circumstances that, if one had brought an action against the other, a counterclaim or cross-claim could have been set up, neither can be deprived of the benefit thereof by the assignment or death of the other or by reason of the statute of limitations if arising out of the contract or transaction set forth in the peitition as the foundation of plaintiff's claim or connected with the subject of the action; but the two demands must be deemed compensated so far as they equal each other. Thus, even an outlawed claim may be used as a setoff if it (a) coexisted with the plaintiffs' claim and (b) arises out of the contract or transaction on which the plaintiffs' claim is based. Here, plaintiffs' claims began accruing July 1, 1958, when the new, arbitrated market value came into play, and as actions on written contracts continued as viable claims for the next five years. (K.S.A. 1975 Supp. 60-511.) Plaintiffs' claims were thus alive from July, 1958, through July, 1963; Mobil's claim was alive from January, 1958, through January, 1961. They thus coexisted for at least some two and one-half years, and thereby met the first requirement of 60-213 ( d ). See, Tobin Construction Co. v. Holtzman, 207 Kan. 525, 485 P.2d 1276. The second requirement of the statute  that the claim arise out of the same contract or transmission  is likewise met. Both claims appear clearly to arise out of the respective leases, i. e., the same contract, even though covering different time spans. Although Mobil cannot secure affirmative relief on its outlawed claim it can use it as a matter of pure defense, i. e., as a setoff against any judgment rendered against it. See, Christenson v. Akin, 183 Kan. 207, 326 P.2d 313. The trial court therefore erred in denying the counterclaim in toto. Mobil is entitled to a setoff for its claim for overpayments, although only against that portion of the plaintiff's claims which coexisted with it ( i.e., those claims of plaintiffs accruing before January 20, 1961).