Court Opinion

ID: 8915727
Source: CourtListenerOpinion
Date Created: 2022-11-27 04:56:57.153664+00
Date Added: 2024-06-11T17:08:57.885721
License: Public Domain

BARRETT, Circuit Judge,
concurring:
I fully concur in the opinion authored by Judge Holloway. I write separately to express my views on the issues of reformation and cancellation.

Reformation

The trial court refused to cancel the leases outright as.requested by the Tribe, even while recognizing that the actions of the Secretary were in “technical” violation of federal statute and regulations. The technical violation involved inadequate notice which primarily affected the amount of bonus payments. It did not, however, affect the leases per se. It is for the above reason that the court ordered that “the Secretary cancel a lease unless, within 60 days from entry of final judgment, the particular lessee pays plaintiff Jicarilla Apache Tribe an adjusted bonus equal to the difference between the bonus actually paid and 60% of the bonus payment recommended by Val Reese in his evaluation of lease bonuses.” [R., Vol. II, p. A-277],
I do not agree with the interpretations that the trial court’s action must be treated as a reformation of the leases; that the trial court’s action is impermissible because a court of equity cannot change the terms of a contract in the absence of fraud, accident or mistake; and that because the lease contract here is void because it is not in compliance with an express statutory provision, a court of equity cannot validate the contract.
I do not view the trial court’s action as a reformation of the leases. Reformation of a lease or contract by a court of equity is proper where, through fraud or mutual mistake, the instrument fails to express the intention of the parties. Bosse v. Crowell Collier and MacMillan, 565 F.2d 602 (9th Cir. 1977); Chevron Oil Company v. Barlow, 406 F.2d 687 (10th Cir. 1969); Ohio Casualty Ins. Co. v. Callaway, 134 F.2d 788 (10th Cir. 1943). There is no contention in this case that the leases do not embody the intentions of the parties.
The position of the Tribe is that, due to the failure by the Secretary of the Interior to comply with notice requirements contained in the regulations, the leases are invalid on their face. However, and significantly, the trial court pointed out that the *1348inadequate notice affected only and singularly the amount of the bonus payments. Bonus payments are consideration in terms of tender for execution by the lessor of the lease agreement. Bonus payments are not lease terms. The cash bonus has always been the acknowledged consideration from the lessee to the lessor for execution of the lease. While the standard oil and gas lease contains an acknowledgment by lessor of receipt of one dollar or other nominal sum as consideration for the lease, the actual bonus payment has been competitive and substantial in areas of proven oil and gas lands. Thus, bonus is generally defined as any consideration given for a lease (whose terms and covenants are negotiated) in addition to the usual royalties reserved in the lease. Generally the bonus is paid on the execution of the lease. Summers, Oil and Gas, 3A, § 586, pp. 70-89. The cash bonus, then, represents the market value of the lease apart from royalties to be paid on production and other considerations of the lease (delay rentals, for example) and is a sum generally paid on execution of the lease, or agreed to be paid at some later date, usually out of the lessee’s share of the first oil produced from the land. Summers, Oil and Gas, Vol. 3A, § 571, p. 3. Thus, none of the terms of the leases in this case would have been affected had the notice requirements been strictly complied with. Therefore, I conclude that the court’s action cannot be considered that of reformation.
The trial court intended to compensate the Tribe for any losses sustained by the Secretary’s failure to comply with the notice requirement. The judge found that the inadequate notice affected only the bonus payments. Thus, the court ordered the lessees to pay the difference between what was actually paid and 60% of the expert witness Reese’s “estimate of amount of bonus payment each lease should have generated.” Reese’s estimate was discounted 40% to arrive at the figure the Tribe would have received had the notice been adequate. The order was couched in classical damages terminology, and, I believe, may be accurately construed as a damages award to the Tribe. It is generally accepted that a court in equity may award damages if necessary to do complete justice. Minnis v. Intern. U., United Auto., Aerospace, etc., 531 F.2d 850 (8th Cir. 1975). This remedy was adequate and complete. There is no contention that any of the covenants in the lease agreements proper would have been any different had the proper notice been given.

Cancellation of the Leases

The Tribe contends that the leases should be cancelled because the lease sales were conducted in violation of the regulations, thus rendering the leases invalid. As previously noted — and as found by the district court — while the notice requirements were not technically fulfilled, the leases were not affected by the violations. The bonus payments solely were affected by the inadequate notice. Because bonus payments are not included in the terms and covenants of the lease, they have no relationship to operating covenants. Thus, case law which deems a contract made in contravention of statutory provisions to be void is not applicable here. Moreover, it has been held that the technical breach of a gas lease does not necessarily require the cancellation of that lease by the Secretary of the Interior. Jicarilla Apache Tribe v. Supron Energy Corp., 479 F.Supp. 536 (D.N.M.1979) (involving the breach of a lease and not the violation of a pre-lease regulation).