Brannon v. Gulf States Energy Corp.

In 1973, Clara Martin executed an oil and gas lease to Mary Elliot. The lease provided that it would terminate on November 20, 1974, unless construction of a well began before that date or Elliot paid a delay rental on or before that date annually. Gulf States Energy Corporation (Gulf) (defendant) purchased the Martin lease, as well as an adjoining lease (the Evans lease) from Elliot. Gulf then executed an agreement with Master Drillers, Inc. (Master Drillers). In October 1974, the Internal Revenue Service (IRS) seized both leases to enforce a tax lien against Master Drillers. The first delay rental on the Martin lease was not paid by November 20, 1974. On January 17, 1975, Gulf wrote Martin a letter entitled “Lease Rental” and enclosed a check in the amount of the delay rental, which was also designated as a lease rental. Martin received, accepted, and cashed the check. On May 27, 1975, Otis Thompson and M.J. Brannon (plaintiffs) purchased at an IRS at auction all Master Drillers’s rights in the two leases. On July 9, 1975, Martin executed a new oil and gas lease on the same tract of land to Gulf. The plaintiffs sued for a declaratory judgment that the 1973 lease was still in effect and that the new 1975 lease was void. Gulf argued that the 1975 lease was valid, claiming that the check it has submitted in January 1975 was not a rental payment, but an advance bonus payment for the 1975 lease. Martin testified to the same, as she had reached an oral agreement to that effect with Gulf after she had received the January 1975 check. Over the objection of the plaintiffs, the trial court permitted this testimony. The trial court ruled in favor of Gulf. The plaintiffs appealed.