Court Opinion

ID: 5078942
Source: CourtListenerOpinion
Date Created: 2021-10-01 11:50:46.400352+00
Date Added: 2024-06-11T08:20:07.711437
License: Public Domain

SPAIN, Justice,
dissenting.
Respectfully, I dissent. The trial court was correct when it held that the lease terminated on its expiration date of January 7, 1982, as no production had resulted during its primary term. The decision of the majority has the effect of rewriting the contract and adding a condition which the lessor and lessee did not intend to include in their agreement at the time of their entering into the lease.
The oil and gas lease form utilized by the lessee in his drafting of the agreement was a Kentucky 88-Gas Provision Agreement. This lease varies from the Producer’s 88 lease form widely used throughout the oil and gas industry. See A.W. Walker, Defects and Ambiguities in Oil and Gas Leases, 28 Tex.L.Rev. 895 (1950). The most significant difference, for our purposes, is the “drilling” or “commencement” clause which is commonly found in a Producer’s 88 lease. The drilling clause generally states that “... if a ... well is not commenced on said land within twelve months from the expiration of the last period which rental has been paid this lease shall terminate as to both parties.... ” McVicker v. Horn, Robinson and Nathan, Okla., 322 P.2d 410, 412 (1958). The effect of the clause on an oil and gas lease is to extend its primary term so that the lessee shall have the right, once a well is commenced, to continue to drill such well to completion with reasonable diligence and dispatch, and if oil and gas, or either, is found in paying quantities, the lease is then continued in force. See, e.g., Gasaway v. Pendergrass, Ky., 350 S.W.2d 460 (1961). However, the lessee, in his drafting of the Kentucky 88 gas lease, did not include such drilling clause. The Little-Kessler lease provided solely that the lease would remain in force for one year “and as long thereafter as oil or gas ... is produced from said land by the lessee.” (Emphasis ours.) Thus, by its expressed terms, no extension of the lease beyond its primary term was permitted unless production was had by the lessee or his assigns during the primary term.
The Oklahoma Supreme Court stated in McVicker that “[t]he great weight of authority ... appears to be in harmony with the view that actual production during the primary term is essential to the extension of the lease beyond that fixed term. This, at least, is true unless the lease contains some additional provisions indicating an intent to extend the right to produce beyond the primary term.” McVicker, supra at 413. (Emphasis in original.)
*343Summers, Oil and Gas, Vol. 2, p. 128, comments and addresses the issue before the Court of whether drilling on the property during the primary term extends the term of the lease where the lease does not contain a drilling clause and no production is found:
A great majority of the courts have ... held that where a lease provided that it shall continue for a definite term of years, and as long thereafter as oil or gas is found, discovered, obtained or produced, using these terms singly or in combinations, to continue the lease beyond the definite term the lessee must actually find and produce oil or gas in paying quantities during the definite term. (Emphasis added.)
Support for lessors’ argument that production, and not drilling, is the essential condition required to extend the term of this lease beyond its primary term, can be found in Brown, The Law of Oil and Gas Leases, section 5.04 (1987):
Most of the courts in different states have held that where a lease provided that it shall continue in force for a certain term of years and as long thereafter as oil or gas is produced from the land, production must be obtained before the expiration of the primary term in order to continue the lease in force. (Emphasis added.)
A written contract is to be construed from the standpoint of the parties and the terms employed must be given effect from that standpoint. Collings v. Scheen, Ky., 415 S.W.2d 589 (1967). The fairness of the contract is of no concern to the court, which has no power to make a new contract for the parties. Columbia Gas Const. Co. v. Holbrook, 81 F.2d 417 (6th Cir.1936) (applying Kentucky law). It is not the function of this Court to change obligations of a contract which the parties have made, nor to add a condition which was not written into the original contract. White v. Winchester Land Development Corp., Ky. App., 584 S.W.2d 56 (1979). In construing a contract, the court must find out the intention of the parties and ascertain how they meant the contract to operate at the time they entered into it. Wilcox v. Wilcox, Ky., 406 S.W.2d 152 (1966). Finally, an instrument should be construed against the party who drafted it. Southern Bell Tel. & Tel. Co. v. Chappelle, Ky., 415 S.W.2d 826 (1967).
By applying these principles, it is apparent that the parties intended that production be had during the primary term of the lease, and that the mere act of drilling on the property would not extend the lease beyond its primary term. The failure of the assignee to produce oil or gas during the primary term of the lease was fatal to his right to remain and drill on the Little property. Finally, the delay of the Littles to request the assignee to stop drilling until three weeks after the expiration of the lease did not rise to the level of estop-pel because there was no detrimental reliance or damage to the assignee. Bailey v. Thompson, Ky., 300 S.W.2d 235 (1957).
LAMBERT, J., joins in this dissenting opinion.