2015 NMSC 004
N.M. Ct. App.2015Background
- Yates Petroleum sent a standard form division order to royalty/payee owners that required proof of marketable title before payment and included a clause permitting Yates to withhold payments "without payment of interest" while title claims were resolved.
- Petitioners signed the division orders in 2003; Yates withheld initial proceeds in suspense accounts and later paid principal without interest (about three years later).
- Petitioners sued, seeking compensatory interest on suspended funds under the Oil and Gas Proceeds Payment Act, NMSA 1978 §§ 70-10-1 to -6, specifically § 70-10-4.
- The district court held § 70-10-4 unambiguously requires interest on suspended funds and ruled the division-order interest-waiver clause unenforceable; the Court of Appeals reversed, allowing contractual waiver.
- The New Mexico Supreme Court granted certiorari, reversed the Court of Appeals, affirmed the district court, and held that § 70-10-4 creates a public policy right to interest that cannot be contracted away.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether payees can contractually waive statutorily mandated interest on suspended oil & gas proceeds under § 70-10-4 | § 70-10-4 unambiguously mandates interest on suspended funds and expresses a public policy protecting payees; waivers in division orders are unenforceable | The parties may contract around statutory payment terms; § 70-10-3 allows contracting on payment timing and § 70-10-4 is silent about waivers so waiver should be permitted | Held: § 70-10-4 is unambiguous and reflects a strong public policy granting payees interest on suspended funds; contractual waivers (like Yates') are unenforceable |
| Whether Murdock permits waiver of interest here | N/A (distinguish Murdock) | Murdock permits contractual waiver of compensatory interest during title disputes, so division-order waivers are valid | Held: Murdock is distinguishable — it interpreted a general commercial-interest statute (§ 56-8-3), not the Act's specific mandatory scheme; does not control here |
Key Cases Cited
- Murdock v. Pure-Lively Energy 1981-A, Ltd., 775 P.2d 1292 (N.M. 1989) (held contractual waiver enforceable under a general commercial-interest statute; distinguished here)
- Berlangieri v. Running Elk Corp., 76 P.3d 1098 (N.M. 2003) (discusses New Mexico's strong public policy favoring freedom to contract but recognizes contracts conflict with positive law are unenforceable)
- Bank of New York v. Romero, 320 P.3d 1 (N.M. 2014) (recites statutory interpretation principles: text is primary indicator of legislative intent)
- Sims v. Sims, 930 P.2d 153 (N.M. 1996) (courts will not judicially add language omitted by the legislature)