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Gillette v. Pepper Tank Co.

Court of Appeals of Colorado, Division Two

September 20, 1984

No. 80CA0232


 [*371]  From a judgment entered after trial to the court in an action for determination of the validity of an oil and gas lease held by defendants, both defendants and plaintiffs appeal. We previously remanded for further findings, and now consider the appeal upon resubmission.

The lease provides for a 4-month primary term and as long thereafter as oil or gas is produced. The principal saving clause, relied on by the trial court, provides:

"It is agreed that this lease shall never be forfeited or cancelled for failure to perform in whole [**2]  or in part any of its implied covenants, conditions, or stipulations until it shall have first been finally judicially determined that such failure exists, and after such final determination, lessee is given a reasonable time therefrom to comply with any such covenants, conditions, or stipulations."

Also, a unitization agreement, executed in 1963, affects certain portions of the leased lands. The lease in question was first executed in 1951 by Donald P. and Miles T. Gillette, and was assigned, principally, to defendant, Pepper Tank Company (Pepper) in 1959. The lease covers approximately 3,360 acres of land.

Prior to the assignment, a number of successful wells were drilled in 1952-1953, and one well was drilled thereafter in 1957. After the assignment, one well was drilled in 1972; it was plugged and abandoned the same year. There have been no drilling efforts of any nature on the leased property since that time. The major development effort of Pepper was a water-flood operation commenced in 1963 and abandoned in 1971. Presently, all the wells have been abandoned with the exception of Gillette well #10, which continues to produce at a marginal rate.

Lessors alleged the lease [**3]  had been terminated during its secondary term because of defendants' failure to produce oil or gas in paying quantities. They further alleged that defendants had breached certain implied covenants of the lease and requested a decree cancelling the lease and quieting title in the lessors.

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694 P.2d 369 *; 1984 Colo. App. LEXIS 1284 **; 83 Oil & Gas Rep. 271

Miles T. GILLETTE, individually and as Trustee for the Vera F. Jennings Trust, Jack W. Gillette, Vera F. Jennings, Lydia Dunbar, as personal representatives of the Estate of Edward L. Dunbar, Deceased, Lydia Dunbar and Charles A. Underwood, Plaintiffs-Appellees and Cross-Appellants, v. PEPPER TANK COMPANY, a corporation, Morton M. Pepper, and Eloyce D. Pepper, Defendants-Appellants and Cross-Appellees

Subsequent History:  [**1]   Opinion Modified and as Modified Rehearing Denied October 18, 1984.

Prior History:  Appeal from the District Court of Weld County, Honorable Robert A. Behrman, Judge.

Disposition: Judgment Affirmed in part, Reversed in part, and Cause Remanded with directions.


lease, implied covenant, Oil, drilled, cancellation, lessor, unitized, trial court, exploration, decree, lessee, abandoned, prudently

Business & Corporate Compliance, Contracts Law, Types of Contracts, Covenants, Contracts Law, Lease Agreements, General Overview, Energy & Utilities Law, Discovery, Exploration & Recovery, Exploration Obligations & Rights, Oil, Gas & Mineral Interests, Implied Covenants, Drilling Agreements, Further Exploration, Prudent Operators, Reasonable Care & Diligence, Reasonable Development, Leases & Licenses, Implied Duties, Civil Procedure, Appeals, Standards of Review, Clearly Erroneous Review, Breach, Breach of Contract Actions, Preliminary Considerations, Equity, Pooling & Unitization, Voluntary Unitization, Remedies, Rescission & Redhibition, Equitable Relief