Gibbons v. Pan American Petroleum Corporation, 5945.

• Decision Date: 17 December 1958
• Docket Number: No. 5945.,5945.
• Citation: 262 F.2d 852
• Parties: Francis M. GIBBONS, Trustee, and Francis M. Gibbons, Individually, Appellant, v. PAN AMERICAN PETROLEUM CORPORATION, a corporation (formerly Stanolind Oil and Gas Company), Appellee.
• Court: U.S. Court of Appeals — Tenth Circuit

262 F.2d 852 (1958)

Francis M. GIBBONS, Trustee, and Francis M. Gibbons, Individually, Appellant, v. PAN AMERICAN PETROLEUM CORPORATION, a corporation (formerly Stanolind Oil and Gas Company), Appellee.

No. 5945.

United States Court of Appeals Tenth Circuit.

December 17, 1958.

Clair M. Senior, Salt Lake City, Utah, for appellant.

Clinton D. Vernon, Salt Lake City, Utah (Wayne C. Durham and Grant A. Brown, Salt Lake City, Utah, with him), for appellee.

Before PHILLIPS, MURRAH and LEWIS, Circuit Judges.

MURRAH, Circuit Judge.

Defendant Gibbons appeals from a judgment reimbursing Pan-American Petroleum Corporation for rentals on five federal oil and gas leases paid by Pan-American to the Bureau of Land Management after the leases had been assigned to the defendant.

The underlying facts are undisputed. Before February, 1956, Pan-American held these five federal oil and gas leases, and appellant Gibbons held as trustee for various beneficial owners an overriding royalty interest therein. The leases were a part of the Hill Creek Unit Agreement¹ to which both Pan-American and Gibbons were parties, the former as a working interest owner and the latter as an overriding royalty owner.

When a nearby dry hole caused Pan-American to lose interest in these leases, it gratuitously assigned them to Gibbons in his capacity as trustee pursuant to company policy to assign such leases to any overriding royalty owner desiring them. By law and regulation (30 U.S.C. A. § 187; 43 C.F.R. 192.140), assignments of federal leases are subject to approval by the Department of Interior, and Pan-American requested Gibbons to seek approval of these assignments as soon as possible. However, Gibbons never did file the assignments for approval, leaving Pan-American as the record owner so far as the Bureau of Land Management was concerned.

A few days before Pan-American assigned these leases to Gibbons, dissolution of the Hill Creek Unit Agreement was sought by various working interest owners, including Pan-American, in a request to the Director of the United States Geological Survey. A few days after the assignment of these leases, termination of the unit agreement was approved, and the unit operator (Carter Oil Company) was charged with the duty of giving notice of dissolution to all parties to the agreement, including both the appellee and the appellant. The trial court found that Carter mailed the requisite notice to Gibbons, but that he did not receive it. The effect of the unit termination on the five leases here in question was to automatically extend their primary terms for two years by operation of law, rather than permitting them to expire at the end of their original primary terms on their next anniversary dates, varying from June 1, 1956, to October 1, 1956, unless of course oil or gas had been discovered. 60 Stat. 952, 953, 30 U.S.C.A. § 226e; 43 C.F.R. 192.123.

Because of the automatic extension, however, the Bureau of Land Management, after the various anniversary dates of the leases had passed, demanded payment of rentals from Pan-American as the record owner of the leases. Pan-American transmitted this demand to Gibbons, who immediately returned it. Pan-American then paid the rentals under protest, reserving all rights against the Bureau. It then brought this suit against Gibbons for reimbursement, contending that the rentals were his obligation as the assignee of the leases.

Gibbons, on the other hand, contended at the trial, and contends here, that he was under no obligation to pay the rentals since the assignments were not approved by the Department of Interior; that despite the Bureau's demand for payment, the rentals were not due under a proper interpretation of the law, and their payment by Pan-American was therefore voluntary; and that Pan-American permitted avoidable damages to occur by failing to alert Gibbons of the automatic lease extensions through unit termination, of which Pan-American had knowledge and Gibbons did not.

In its exhaustive and convincing opinion, the trial court took the view that Gibbons' liability for the rentals "resulted from the acceptance of the assignment and did not depend upon the additional duty * * * of filing the assignments for approval." Pan-American Petroleum Corp. v. Gibbons, D.C., 168 F.Supp. 875. Pan-American could "reasonably assume" that Gibbons intended to pay the rentals under the leases or to see that the leases were terminated so as to avoid the necessity of their payment.

It is sufficient to say that we agree with the conclusions of the trial court and with its cogent reasoning. Fundamentally, an assignee of a lease takes the interest of the assignor and incurs the same obligations, including the payment of accruing rentals in the absence of agreement otherwise. See Thornton on Oil & Gas, Vol. 2, § 349.

The fact that the lease assignments were unapproved by the Bureau of Land Management is of no moment, since the assignee could not avoid their obligations by simply not offering them for approval. Rue v. Merrill, 42 Wyo. 511, 297 P. 379. See also Recovery Oil Co. v. Van Acker, 79 Cal.App.2d 639, 180 P.2d 436; Isaacs v. De Hon, 9 Cir., 11 F.2d 943; Blackner v. McDermott, 10 Cir., 176 F.2d 498; Oldland v. Gray, 10 Cir., 179 F.2d 408. We need not consider whether the result would have been different had the assignments been offered for approval and approval denied as in Oasis Oil Co. v....