State v. BHP Petroleum Co., Inc.

OPINION

Before URBIGKIT, C.J., and THOMAS, CARDINE, MACY and GOLDEN, JJ. MACY, Justice.

Appellants State of Wyoming and Howard M. Schrinar, State Commissioner of Public Lands, (the State, collectively) appeal from a summary judgment in favor of Appellee BHP Petroleum Company, Inc., declaring that BHP did not owe interest to the State on underpaid gas royalties which were due to the State.

We affirm.

The State raises the following issue:

[Is the State] entitled, as a matter of law, to interest before the effective date of W.S. 30-5-301 et seq. for late royalty payments made by [BHP]?

The parties stipulated to the following facts. BHP has a working interest and the State has a royalty interest in a federal oil and gas unit located in Natrona and Fremont Counties. In January 1987, BHP tendered $428,567.50 in delayed royalty payments to the State for the period of October 1979 through June 1982. BHP also tendered $318,290.25 in interest for delayed payments dating from December 1, 1982, through January 15, 1987. The interest was calculated at the rate of eighteen percent, simple interest. The State accepted the tendered interest payment but objected to the method of calculation.

In addition, the parties acknowledged that the leases and unit operating agreement did not expressly provide for interest on late royalty payments. BHP’s affidavits established that it discovered the inadvertent underpayments in the course of an independent audit conducted for a purpose unrelated to the discovery of the royalty underpayments. The State had not brought the underpayments to BHP’s attention nor had it made any demands for payment of underpaid royalties.

*672Upon cross-motions for summary judgment, the district court determined that, pursuant to Wyo.Stat. §§ 30-5-301 and 30-5-303 (1977),1 the State was entitled to statutory interest for the period subsequent to June 1, 1982, and no issue is raised in this appeal regarding that decision. However, the district court also determined that the State was not entitled to interest on the underpayments for the period of time from the date the payments became overdue until June 1, 1982, and the State appeals that decision.2

Since the facts in this case are not in dispute, we must decide whether the district court’s decision is correct as a matter of law. Provence v. Hilltop National Bank, 780 P.2d 990 (Wyo.1989). The right to interest may emanate from an expressed or implied contract, from a statute, or by way of damages. 45 Am.Jur.2d, Interest and Usury § 34 (1969). Because the parties agree the terms of the leases did not provide for interest on late royalty payments and because the legislature did not enact a statute until 1982 granting the right to interest to the State on late royalty payments, the State premises its right to recovery upon the equitable doctrine of unjust enrichment.3 We have addressed the doctrine of unjust enrichment many times. In Zitterkopf v. Bradbury, 783 P.2d 1142 (Wyo.1989), we reiterated that our standard of review in the unjust enrichment/quantum meruit cases places the burden of proof upon the party asserting that theory. Approximately one month before that decision was released, we repeated these tenets of the unjust enrichment doctrine:

“The phrase ‘unjust enrichment’ is used in law to characterize the result or effect of a failure to make restitution of, or for, property or benefits received under such circumstances as to give rise to a legal or equitable obligation to account therefor. It is a general principle, underlying various legal doctrines and remedies, that one person should not be permitted unjustly to enrich himself at the expense of another, but should be required to make restitution of or for property or benefits received, retained, or appropriated, where it is just and equitable that such restitution be made, and where such action involves no violation or frustration of law or opposition to public policy, either directly or indirectly.”

R. O. Corporation v. John H. Bell Iron Mountain Ranch Company, 781 P.2d 910, 912 (Wyo.1989) (emphasis omitted) (quoting *67366 Am.Jur.2d, Restitution and Implied Contracts § 3 at 945 (1973)).

The State principally relies upon the unjust enrichment analysis utilized in Rissler & McMurry Company v. Atlantic Richfield Company, 559 P.2d 25 (Wyo.1977). In that case, a statute granting the right to interest to the creditor on unpaid debts did not exist, and the contract between the parties was “silent with respect to interest.” Id. at 31. Thus, this Court articulated a two-part test for determining the existence of a right to prejudgment interest under the doctrine of unjust enrichment. First, we held that prejudgment “interest is recoverable on liquidated but not on unliq-uidated claims and that a claim is considered liquidated when it is readily computable by simple mathematical computation.” Id. Second, we stated that the “debtor must receive notice of the amount due before interest starts to run.” Id. at 34.4 The Rissler & McMurry Company court based its decision upon the principle that a debtor, who holds money which it should have yielded to a creditor, is unjustly enriched because the use of money has real economic value. Id.

While this case does not involve prejudgment interest, it does involve facts sufficiently analogous to those in Rissler & McMurry Company to trigger application of the Rissler & McMurry Company test. We hold that the State is not entitled to interest on the delayed royalty payments for the period of October 1979 through June 1982. The State concedes that BHP did not discover the deficiency in royalty payments until 1987 and that BHP promptly compensated the State for those underpayments. Although BHP may have been enriched by its failure to pay royalties when they became due, it was not unjustly enriched since it did not withhold payment after learning that the deficiency existed. Hence, interest did not start to run.

Affirmed.

URBIGKIT, C.J., and THOMAS, J., filed dissenting opinions.

.These statutes were enacted in 1982 and became effective on June 1, 1982. They were enacted to deal with underpayment situations, such as that at issue here. Section 30-5-301(a) provides:

The proceeds derived from the sale of production from any well producing oil, gas or related hydrocarbons in the state of Wyoming shall be paid to all persons legally entitled thereto, except as hereinafter provided, commencing not later than six (6) months after the first day of the month following the date of first sale and thereafter not later than sixty (60) days after the end of the calendar month within which subsequent production is sold, unless other periods or arrangements for the first and subsequent payments are provided for in a valid contract with the person or persons entitled to such proceeds. Payment shall be made directly to the person or persons entitled thereto by the lessee or operator or by any party who assumes such payment obligation under any legal arrangement.

Section 30-5-303(a) provides:

Any lessee or operator, purchaser or other party legally responsible for payment who violates the provisions of this article is liable to the person or persons legally entitled to proceeds from production for the unpaid amount of such proceeds, plus interest at the rate of eighteen percent (18%) per annum on the unpaid principal balance from the due date specified in W.S. 30-5-301(a).

The interest rate of eighteen percent per annum is a penalty to discourage underpayment of such royalties. 1982 Wyo.Sess.Laws Ch. 27. See also Independent Producers Marketing Corp. v. Cobb, 721 P.2d 1106 (Wyo.1986).

. The State demanded seven percent interest per annum for the period of time prior to June 1, 1982, on the basis of our decisions in O's Gold Seed Company v. United Agri-Products Financial Services, Inc., 761 P.2d 673 (Wyo.1988), and Rissler & McMurry Company v. Atlantic Richfield Company, 559 P.2d 25 (Wyo.1977).

. "The doctrine of unjust enrichment, or quantum meruit, provides for recovery of damages on a contract implied in equity.” Johnson v. Anderson, 768 P.2d 18, 25 (Wyo.1989).

. The Rissler & McMurry Company court held that, absent an agreement specifying the applicable interest rate, the interest on liquidated claims would be seven percent per annum pursuant to the predecessor of Wyo.Stat. § 40-14-106(e) (1977). Rissler & McMurry Company, 559 P.2d 25.