Tenneco Oil Company v. Gaffney, 8879.

• Citation: 369 F.2d 306
• Decision Date: 29 November 1966
• Docket Number: No. 8879.,8879.
• Parties: TENNECO OIL COMPANY, Appellant, v. Henry W. GAFFNEY, Appellee.
• Court: U.S. Court of Appeals — Tenth Circuit

369 F.2d 306 (1966)

TENNECO OIL COMPANY, Appellant, v. Henry W. GAFFNEY, Appellee.

No. 8879.

United States Court of Appeals Tenth Circuit.

November 29, 1966.

Robert C. Hawley, of Ireland, Stapleton, Pryor & Holmes, Denver, Colo. (William C. Jensen and Richard J. Spelts, of Ireland, Stapleton, Pryor & Holmes, Denver, Colo., Millard F. Carr, Denver, Colo., and William N. Armstrong, Houston, Tex., on the brief), for appellant.

James A. Clark, of Winner, Berge, Martin & Camfield, Denver, Colo., for appellee.

Before PICKETT, SETH and HICKEY, Circuit Judges.

PICKETT, Circuit Judge.

This is an appeal from a judgment of the United States District Court for the District of Colorado, awarding damages to appellee Gaffney for the failure of the appellant Tenneco Oil Company to give notice that an oil and gas lease, which Gaffney had assigned to Tenneco, would be permitted to terminate for failure to pay rentals when due.

On November 1, 1963, Gaffney acquired a Federal Oil and Gas Lease on 1536 acres of public domain in Campbell County, Wyoming. The lease provided, in part:

"If there is no well on the lease lands capable of producing oil or gas in paying quantities, failure to pay rental on or before the anniversary date shall automatically terminate the lease by operation of law."

The lease further provided:

"The lessee may surrender this lease or any legal subdivision thereof by filing in the proper Land Office a written relinquishment, in triplicate, which shall be effective as of the date of filing subject to the continued obligation of the lessee and his surety to make payment of all accrued rentals and royalties and to place all wells on the land to be relinquished in condition for suspension of or abandonment in accordance with the applicable lease terms and regulations."

Gaffney thereafter assigned to Tenneco a portion of the lease covering 720 acres. The assignment provided:

"If Assignee or his assigns wishes to relinquish this lease at any time, he must offer reassignment to Assignor at least sixty (60) days before any rental due date or final lease expiration date, whereupon, if Assignor wishes to regain the lease, Assignor must give notice to Assignee within thirty (30) days of receipt of Assignee\'s notice."

In July of 1964, Tenneco drilled a test well to a depth of 5814 feet. No oil or gas was discovered, whereupon Tenneco determined that the area, including that portion obtained from Gaffney, was valueless. Without notice to Gaffney, Tenneco allowed the lease to terminate on November 1, 1964 for non-payment of annual rentals. Upon demand from Gaffney, Tenneco unsuccessfully attempted to regain a lease on the property for Gaffney. Thereupon Gaffney brought this action, alleging damages caused by Tenneco's failure to give the 60 days notice required in the assignment. There was no issue of fact as to Tenneco's liability, and the trial court sustained plaintiff's motion for summary judgment, holding that the notice of relinquishment provided for in the assignment, as a matter of law obligated Tenneco to give notice that the lease would be permitted to terminate for failure to pay annual rentals.

Tenneco argues that in determining its contractual duty to give notice, the meaning of the word "relinquish", as used in the assignment, should be the same as that in the lease and the Federal Regulations where relinquishment of a lease requires affirmative action on the part of the lessee and is distinguished from automatic termination because of failure to pay rentals. We agree with the trial court that the provision in the assignment should not be so narrowly construed.

Ordinarily, the construction of a contract presents a question of law. United States v. Continental Oil Co., 10 Cir., 364 F.2d 516. It is the court's duty to construe the instrument "so as to effectuate the manifest intention of the parties — to give life and vitality to the language the parties have used to express their agreement." Ryder Truck Rental, Inc. v. Central Packing Co., 10 Cir., 341 F.2d 321, 323-324, cert. denied 382 U.S. 827, 86 S.Ct. 60, 15 L.Ed.2d 71. "It is well established * * * that in interpreting a written contract, the court should, as far as possible, place itself in the position of the parties at the time of its execution, and then, from a consideration of the instrument itself, its purposes, and the circumstances surrounding its execution, ascertain the intention of the parties. * * *" United States v. Essley, 10 Cir., 284 F.2d 518, 520. When the lease and the assignment are considered together, along with the surrounding circumstances at the time of the execution of the assignment, it appears that the only reasonable interpretation to be given the notice requirement is that it included the failure to pay rentals. It is clear that the time requirement of the notice was designed to give the parties adequate time to perfect a reassignment to Gaffney before the lease would terminate, should Tenneco intend not to keep it alive. The notice provision in the assignment refers specifically to the rental due date of the lease or the final lease expiration date. While only the word "relinquish" is used in the assignment, if its meaning therein were limited to that of the lease, it would appear to serve little purpose in the assignment and would destroy the reference to rental due date. "(A) contract should not be so narrowly or technically interpreted as to frustrate its obvious design or so loosely construed as to relieve a party of an obligation or liability fairly within its scope or spirit." Nevada Half Moon Mining Co. v. Combined Metals Reduction Co., 10 Cir., 176 F.2d 73, 75, cert. denied 338 U.S. 943, 70 S.Ct. 429, 94 L. Ed. 581. Accordingly, we construe the term "relinquish" to have been employed in the sense of "abandon" or "give up." See, Webster's Third New International Dictionary.

The trial court held that Gaffney's damages were "not limited to the value of the leasehold interest and overriding royalty at the date of defendant's breach of contract, but are based upon the highest value of the leasehold interest from the date that plaintiff acquired the lease from the United States Government to the date of the commencement of this action." Shortly after the termination on November 1, 1964, a noncompetitive lease was issued to Jack G. Ladmer, effective January 1, 1965. Ladmer assigned it to Hal A. McVey on December 2, 1964, effective January 1, 1965, for a consideration of $8.00 per acre and a 3% overriding royalty. On December 4, 1964, McVey assigned the lease to HLM Drilling Company, effective January 1, 1965, for $8.00 per acre and...