## Facts

- Vera Shaw owned approximately 438.5 acres (described in multiple parcels) and in 1959 executed an oil-and-gas lease to John Jefferson.
- The lease had a three-year primary term and a secondary term continuing so long as oil or gas was produced from the leased premises (or drilling operations were continued).
- Jefferson assigned portions of the leasehold, and those interests were later subdivided through additional assignments to multiple working-interest owners.
- Wells were drilled and production continued on some parts of the leased premises, but many of the specific assigned tracts remained undeveloped for years.
- Shaw sued to cancel the lease as to certain undeveloped tracts and sought related relief; after Shaw’s death, her executor, Shubrick T. Kothe, continued the case.
- Some defendants failed to appear and were defaulted; other defendants appeared and contested the claims.
- The trial court granted summary judgment for the plaintiff and ordered cancellation as to certain undeveloped parcels.
- Defendants appealed. The appellate court reversed, concluding the complaint did not state a cause of action because the implied covenant to further develop under a single lease is not enforced on a tract-by-tract basis.
- The plaintiff sought review in the Illinois Supreme Court.

## Issues

1. Under a single oil-and-gas lease covering multiple parcels, is the implied covenant to reasonably develop divisible by tract, allowing cancellation only as to undeveloped tracts?
2. Did a complaint that alleged nondevelopment only as to selected parcels (while production continued elsewhere on the leased premises) state a cause of action for breach of the implied covenant to further develop?
3. Does the default of some assignee-defendants operate as an admission that binds other defendants who appeared and contested the case?

## Decision

- The Illinois Supreme Court held the implied covenant to reasonably develop (or further develop) a single lease covering multiple parcels is indivisible; production sufficient to maintain the lease on any part maintains it as to all described land, absent lease language providing otherwise.
- The Court held the plaintiff’s complaint, which targeted only specific undeveloped parcels rather than alleging failure to reasonably develop the leasehold as a whole, did not state a cause of action as pleaded.
- The Court held a default by one defendant does not constitute an admission of issues or facts against nondefaulting defendants.
- The Court affirmed the appellate court’s judgment reversing the trial court’s grant of summary judgment and remanded to permit the plaintiff an opportunity to amend the complaint.

## Legal Principles

- In a single oil-and-gas lease covering multiple parcels, implied covenants tied to development are treated as a single lease-wide obligation unless the lease provides for separate treatment.
- A lessor seeking forfeiture or cancellation for breach of the implied covenant to reasonably develop must plead and prove unreasonable development in relation to the entire leasehold, not merely nondevelopment of selected tracts.
- Continued production (or operations that keep the lease in force) on one portion of the leased premises generally prevents tract-by-tract termination of the lease on other portions under an indivisibility theory.
- A default by one defendant does not admit issues or facts against co-defendants who appear and litigate; liability and relief against nondefaulting parties must rest on the pleadings and proof applicable to them.

## Conclusion

*Kothe v. Jefferson* holds that, for a single oil-and-gas lease covering multiple parcels, the implied covenant to further develop is not enforced on a tract-by-tract basis; because the plaintiff sought cancellation only as to selected undeveloped parcels without alleging failure to reasonably develop the entire leasehold, the complaint failed as pleaded, and the Illinois Supreme Court affirmed the appellate reversal and remanded with leave to amend.


Kothe v. Jefferson, 455 N.E.2d 73 (1983)