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Contracts Keyed to Summers
Flowers v. Diamond Shamrock Corp.
Facts
The Flowers (Plaintiffs) leased mineral rights to Diamond Shamrock Corporation (Defendant). The lease provided that Defendant would pay royalties to Plaintiffs based on the market value of gas sold off the premises. In 1965, Defendant entered an agreement with a buyer, providing that Defendant would sell gas from Plaintiffs’ land to that buyer at a specified price over the course of twenty years. Defendant paid Plaintiffs royalties based on the contractual price, which was lower than the market price. Defendant paid the royalties by monthly check bearing a statement that the check was in full settlement of Defendant’s account, and that endorsement of the check constituted acceptance of the check as full payment. On February 15, 1974, Defendant sent a letter to Plaintiffs, offering to pay higher royalties if Plaintiffs signed an agreement to base royalties on Defendant’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 Plaintiffs since February 1974. Defendant responded that it would continue to pay royalties according to the lease. Plaintiffs endorsed Defendant’s monthly checks until February 1977. Plaintiffs then sued to recover the difference between the market price and the contractual price since December 1973. Defendant argued accord and satisfaction. The jury found in favor of Plaintiffs. The trial court granted Defendant judgment notwithstanding the verdict, finding that Plaintiffs’ cashing of the checks constituted accord and satisfaction.
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