Good Hope Refineries, Inc. v. Belia R. Benavides, 602 F.2d 998, 1st Cir. (1979)
Good Hope Refineries, Inc. v. Belia R. Benavides, 602 F.2d 998, 1st Cir. (1979)
2d 998
5 Bankr.Ct.Dec. 620, Bankr. L. Rep. P 67,193
The facts giving rise to this appeal are fairly simple. On November 8, 1974,
appellant refining company entered into an oil and gas lease with appellees.
Under the terms of the lease, appellant as lessee was to begin drilling
operations within one year, and, if drilling was not begun, the lease
automatically terminated unless appellant paid a delay rental prior to the
anniversary date of the lease. On October 30, 1975, appellant tendered a check
for the delay rental. The next day, appellant filed a Chapter XI petition.
As an initial matter, appellant argues that the district court erred in reaching the
merits of the dispute after deciding that the bankruptcy court did have
jurisdiction to determine the rights involved. This argument breaks down into
two contentions, that some as yet unspecified factual allegations remain to be
proven to the fact finder and that appellant was unfairly surprised because it
had no opportunity to argue the merits of the Texas law involved. As far as
facts are concerned, appellant's complaint sets forth such information that "it
appears to a certainty that the Plaintiff is entitled to no relief under any
statement of facts which could be proved in support of the complaint." Ballou v.
General Electric Co., 393 F.2d 398, 400 (1st Cir. 1968). Appellant had ample
opportunity to amend its pleadings before the bankruptcy court and failed to do
so. More important, in both the district court and in this court, appellant failed
to mention any relevant facts that might be added to the complaint, preferring
instead to rely upon the general assertion that it is entitled to be heard on the
facts. Such a bald demand, without more, is simply not enough when the facts
alleged in the complaint affirmatively preclude relief.
merits in the district court, it has had ample opportunity to argue Texas law to
this court. Even if appellant were excused from raising legal arguments below
because of the unusual procedural history of this case, there is no excuse for not
putting its legal cards on the table at this point. Cf. Slotnick v. Straviskey, 560
F.2d 31, 33 (1st Cir. 1977) (court of appeals will affirm dismissal entered on
erroneous ground if record reveals suit is without merit).
6
Turning to the merits, Texas law leaves no room for doubt about the effect of
failure to make good tender of delay rentals. The form of conveyance used here
is commonly called an "unless" lease. If the lessee fails to drill, his rights in the
lease automatically terminate unless timely payment of delay rentals is made.
The Texas courts characterize the conveyance as creating a determinable fee
interest in the minerals in place, which interest reverts automatically to the
grantor upon failure to drill or pay. W. T. Waggoner Estate v. Sigler Oil Co.,
118 Tex. 509, 19 S.W.2d 27, 28 (1929); Waggoner & Zeller Oil Co. v. Deike,
508 S.W.2d 163 (Tex.Civ.App.1974). Tender of a bad check is not sufficient
tender to forestall the reverter. Nelson Bunker Hunt Trust Estate v. Jarmon, 345
S.W.2d 579, 581 (Tex.Civ.App.1961). This rule applies even if the lessor
knows that the delay rental check has been dishonored prior to the anniversary
date of the lease and fails to inform the lessee. Id. Thus, if appellant has any
continuing rights in the oil and gas lease, such rights must spring from some
change that federal bankruptcy law imposes upon normal Texas property rules.
Appellant argues that section 11(e) of the Bankruptcy Act, 11 U.S.C. 29(e),
changes the result that would be reached under Texas law. The first sentence of
that section sets a two year statute of limitations for suits by a trustee and is
concededly not applicable here. The second sentence provides a special 60 day
period for the trustee (or debtor-in-possession) to perfect certain rights of the
debtor, as follows:
Appellant argues that the statutory language allowing the trustee to "take any . .
. action or do any act" necessary to preserve the debtor's rights within 60 days
of adjudication allowed appellant to make the delay rental payment within 60
days of the date of filing of the Chapter XI petition. If this argument is correct,
then appellant's tender of delay rentals on November 18, 1975, preserved its
rights in the lease.
10
The parties agree that the act appellant sought to perform within the 60 day
period may be fairly analogized to exercising an option to extend an option to
purchase property. There is precedent for so viewing the function of a delay
rental payment. Empire Gas & Fuel Co. v. Saunders, 22 F.2d 733 (5th Cir.
1927), Cert. dismissed, 278 U.S. 581, 49 S.Ct. 184, 73 L.Ed. 518 (1928). Thus,
appellant would have us read section 11(e) as providing an automatic extension
of an option contract for a period of up to 60 days from the date of adjudication.
We cannot do so.
11
Although not a model of clarity, we think the statute can only be read as
affecting two separate types of limitations derived from two different sources,
both types being extended for 60 days upon filing. First, there are "period(s) of
limitation" created "by an agreement". Such periods are extended only if they
set a limit on the time available "for instituting a suit or proceeding upon any
claim, or for presenting or filing any claim, proof of claim, proof of loss,
demand, notice, Or the like . . . ." (Emphasis added.) Second, there is a broader
category of types of limitations, giving the trustee an extra 60 days "for taking
any action, filing any claim or pleading, or doing any act . . . ." This broader
category of limitations extended by section 11(e) only comes into play,
however, "where in any Proceeding, judicial or otherwise, a period of limitation
is fixed, either in such proceeding or by applicable Federal or State law . . . ." 3
(Emphasis added.) The instant case does not involve any "proceeding". Rather,
if the time limit on appellant's option to drill can be viewed as a "period of
limitation" at all, it is a limitation created by agreement.
12
14
mainly with suits and claims by the trustee, could be used to alter contractual
rights substantially where time is of the essence and the debtor or the trustee
has defaulted. It would be even more anomalous if, in the case of an option
contract, section 11(e) allowed the trustee to procure a right that never existed
and for which no consideration has ever been paid, i. e., the right to exercise an
option long after its termination date.
15
16
17
Affirmed.
As the district court noted, the grounds for the bankruptcy court's decision were
somewhat unclear. Appellees had argued both that the court lacked jurisdiction
because the asset involved had evaporated and that appellant's complaint
should be dismissed on the merits because neither Texas law nor the
bankruptcy act enabled the debtor-in-possession to revive a moribund mineral
lease. The bankruptcy court's "jurisdictional" decision was based on a ground
that could also support a decision on the merits, i. e., that the debtor had no
rights in the lease
2
The land and minerals involved are situated in Texas and the parties agree that
Texas law provides the initial ground rules for determining the extent of
appellant's property interests in the lease
We think this reading the only logical parsing of the admittedly complex
sentence involved. The key to the logical breaks in the sentence is the use of
the word "where". As we read it, the sentence can be simplified as follows:
"Where an agreement limits the time to make a claim against the promisor, Or
where the rules of a proceeding limit the time for taking a procedural step in
that proceeding, And where such a time limit has not expired at the time of
filing, the trustee has a minimum of 60 days from filing to make a claim or take
a procedural step."