Marital Settlement Agreement Contains Implied Obligations

In an unpublished decision, the Superior Court has considered the plight of a spouse who entered into a marital settlement agreement thinking that her husband would pursue a gas/oil lease, from which she was entitled to receive a share of the royalties. The Jenkins v. Jenkins decision (No. 1025 WDA 2012, September 26, 2013) arose from a Fayette county case, in which the wife sued the husband for breach of contract. The relevant provision of the settlement agreement provided:

OIL and GAS. The parties acknowledge that they may be owners of certain oil and gas rights in connection with the ninety-three acres of undeveloped property which is distributed to Husband pursuant to paragraph twenty-four above. The parties agree that for three years from the date of the execution of this agreement any and all proceeds from any oil and gas lease shall be equally divided between the parties including but not limited to sign on bonuses and royalties. The parties further agree that for two years after the expiration for the three year period above referred to any and all such proceeds shall be divided with seventy-five percent (75%) to Husband and twenty-five percent (25%) to Wife. Thereafter, that is after a five year period from the date of the execution of this agreement, all proceeds shall be Husband’s exclusively.

The wife argued that she reasonably expected husband to negotiate a gas/oil lease, which he had begun when the settlement agreement was signed. Husband argued that the settlement agreement did not create an explicit duty to negotiate a lease at any particular time, so he was not in breach. The Superior Court considered the “doctrine of necessary implication,” which permits a court to imply an obligation that is clearly within the contemplation of the parties at the time of contracting or that is necessary to carry out the contract. The Superior Court held that it was abundantly clear that the parties intended for Husband to negotiate a gas/oil lease, so the court would imply such obligation.

Next the Court heard Husband’s argument that parol evidence should have been excluded. Parol evidence is evidence of prior or contemporaneous negotiations or agreements (basically, “side deals”) that are not explicitly set forth in the contract. Parol evidence may not be heard by a court unless the contract is ambiguous; yet, the interplay between parol evidence and the doctrine of necessary implication has not been fully explored by our courts. The Superior Court held that in this case, parol evidence was not used to imply a term of the agreement, and therefore the parol evidence rule was not violated.