Flowers v. Diamond Shamrock Corp.

The Flowers (plaintiffs) leased mineral rights to Diamond Shamrock Corporation (Shamrock) (defendant). The lease provided that Shamrock would pay royalties to the Flowers based on the market value of gas sold off the premises. In 1965, Shamrock entered an agreement with a buyer, providing that Shamrock would sell gas from the Flowers’ land to that buyer at a specified price over the course of twenty years. Shamrock paid the Flowers royalties based on the contractual price, which was lower than the market price. Shamrock paid the royalties by monthly check bearing a statement that the check was in full settlement of Shamrock’s account, and that endorsement of the check constituted acceptance of the check as full payment. On February 15, 1974, Shamrock sent a letter to the Flowers, offering to pay higher royalties if the Flowers signed an agreement to base royalties on Shamrock’s sales contracts rather than on the market value of the gas. On July 29, 1974, Flowers declined to sign the agreement on grounds that they were already entitled to obtain the rate increase, and requested deficit funds owed to the Flowers since February 1974. Shamrock responded that it would continue to pay royalties according to the lease. The Flowers endorsed Shamrock’s monthly checks until February 1977. The Flowers then brought suit to recover the difference between the market price and the contractual price since December 1973. Shamrock argued accord and satisfaction. The jury found in favor of the Flowers. The trial court granted Shamrock judgment notwithstanding the verdict, finding that the Flowers’ cashing of the checks constituted accord and satisfaction.