he be given an opportunity to avail himself of the benefits of the statute. Therefore, it held that until the validity of the assignment had been determined and notice, if necessary, given to the assignee, the cancellation of the lease was premature. The case was remanded for appropriate action.

Upon reconsideration, the land office reviewed an affidavit and certain documents submitted by Lowe, the assignee, and held that he was a bona fide purchaser within the meaning of the act and that consequently the leasehold interest assigned to him need not be canceled. Accordingly, the land office approved the assignment. Because the lease needed not be canceled as to the assignee's interest, the land office rejected appellant's offer on the ground that the lands were not available for leasing, being within the continuing lease. The Division of Appeals affirmed that action.

Appellant objects to this action by the Bureau, contending first that the original cancellation of the Toles' lease was correct because as a matter of law the bona fide purchaser provision is not applicable in these circumstances. Its rationale for this contention is that the 1960 act, the regulations thereunder, and the legislative history all refer to the bona fide purchaser rule, in effect, as applying only where there is a violation of a provision of the "Act," and nothing refers to a violation of a regulation. Therefore, since Toles' lease was subject to cancellation for violation of a regulation rather than any provision of the Mineral Leasing Act the bona fide purchaser provision is inapplicable. It admits that a valid regulation has the effect of law, but contends that this does not elevate a regulation to being a statutory provision and that there is definitely a distinction between a regulation and a provision of an act, citing United States v. Mersky et al., 361 U.S. 431, 437 (1960).

The Toles decision, however, pointed out that as the lease was issued to Toles in violation of the departmental regulation, Toles was not the first qualified applicant and the lease was subject to cancellation under the statutory mandate imposed by section 17 of the Mineral Leasing Act, 41 Stat. 443 (1920), as amended, 30 U.S.C. § 226 (c) (Supp. IV, 1963), that if a lease is to issue it must be issued to the first qualified applicant. Therefore, appellant's claimed right to a lease here for the lands in conflict is based upon a provision of the "Act" and a violation of the "Act." The arguments appellant has made with respect to this first contention cannot be accepted and we find that the Toles decision is controlling insofar as the applicability of the bona fide purchaser provision in these circumstances is concerned. See also Gulf Oil Cor poration et al., 69 I.D. 30 (1962), aff'd as to another issue sub nom. Southwestern Petroleum Corp. v. Udall, 325 F. 2d 633 (D.C. Cir. 1963); Boesche v. Udall, 373 U.S. 472, 484 (1963), where the Court in

May 26, 1964

upholding the Secretary's right to cancel a lease issued in violation of the 640-acre rule said:

In addition, exercise of the administrative power [to cancel] in cases of this type safeguards the statutory rights of conflicting claimants. (Italics added.) Appellant contends that the Bureau was wrong in assuming that the statements by Lowe that he was a bona fide purchaser should be accepted without granting it, the adverse party, the right to advance its arguments. Its objects to the Bureau's citing the following provision of section 27 of the Mineral Leasing Act, as amended, supra, relating to the bona fide purchaser in support of its decision:

Effective September 21, 1959, any person, association, or corporation who is a party to any proceeding with respect to a violation of any provision of this Act, whether initiated prior to said date or thereafter, shall have the right to be dismissed promptly as such a party upon showing that he holds and acquired as a bona fide purchaser the interest involving him as such a party without violating any provisions of this Act. No hearing upon any such showing shall be required unless the Secretary presents prima facie evidence indicating a possible violation of the Mineral Leasing Act on the part of the alleged bona fide purchaser. 74 Stat. 789, 30 U.S.C. § 184 (i) (Supp. IV, 1963).

This provision manifests the strong desire of Congress to protect the rights of bona fide purchasers. It is evident from reviewing the legislative history of the bona fide purchaser provisions that the immediate interest of Congress related to proceedings where the Government alone was contesting various leases because of infractions of the acreage limitations of the act by various lessees. See the Toles decision, supra. The result of that decision was that as Congress used comprehensive language and included "any violation" of the provisions of the act and as there was no evidence of statutory intent otherwise, the bona fide purchaser provision is applicable in situations, such as the present case, where a third adverse party is involved. We agree with appellant to the extent of its argument that the above-quoted provision does not deny it the right to challenge Lowe's assertion that he was a bona fide purchaser. The provision limits action taken by this Department alone against the interest of a bona fide purchaser, but it does not prevent this Department from ascertaining whether he is or is not a bona fide purchaser especially when another party who has an adverse interest claims that he is not. Although the appellant has had ample opportunity to submit whatever it desired to contradict Lowe's assertions that he was a bona fide purchaser, it has offered no countervailing evidence.

The appellant contends in the alternative that the bona fide purchaser provision is inapplicable here as the assignment to Lowe was not considered for approval until after action had been taken to cancel the lease and that the provision applies only to assignments which

have been approved. It refers to the statutory language regarding the right to "cancel or forfeit" as necessarily excluding unapproved interests by virtue of the meaning of those terms. It also states that the only type of "title" or "interest" in an oil and gas lease which is binding on the Bureau of Land Management is one that has been approved. Although this last statement is true, we do not find in the statutory language or in the legislative history the limitation which appellant would make. Indeed, the statute provides that the holdings of the person, association, or corporation from which the lease, interest, option, or permit was acquired "may have been canceled or forfeited or may be or may have been subject to cancellation or forfeiture" (italics added). The inclusion of the phrase "or may be" connotes a situation where the title or interest is still recognized as being held by the lessee. This is precisely the situation where an assignment of a lease has been made by a lessee and has been filed, but the Department still holds the assignor to the lease obligations and recognizes him as the lessee until approval of the assignment has been given. See 43 CFR 3128.2 (e), 29 F.R. 4523. The Toles decision, supra, did not expressly rule on this point as it was not raised at that time, although it was implied by the holding that the action in canceling the lease was premature until there is a determination as to whether the assignment is valid and whether the assignee is a bona fide purchaser. Note also that the Supreme Court has held in the case of patents under timber entries that a bona fide purchaser would be protected even where his interests were acquired before the patent issued for the entry. United States v. Detroit Lumber Co., 200 U.S. 321 (1906); United States v. Clark, 200 U.S. 601 (1906).

Appellant also raises other questions on this point which will be considered with its contentions that Lowe is not a bona fide purchaser. It objects to the Bureau's finding that as Lowe paid value for the assignment he was a bona fide purchaser, by claiming that Lowe cannot be a bona fide purchaser because he had either actual or constructive notice or both of appellant's prior right.

With respect to the term "bona fide purchaser," appellant states that in the absence of any limiting language it is to be presumed that Congress adopted the usual, settled and well-defined legal and equitable meaning of the term. We have no quarrel with this statement nor with its statement, insofar as it goes, that the bona fide purchaser rule requires that the purchaser

not only in good faith pay value for the thing purchased but that such be done without notice in fact or law that some third person has a right or interest or claim.

In making its contention it has cited a number of cases and also a discussion by Thomas J. Files, entitled "Recording of Instruments Affect

May 26, 1964

ing Oil and Gas Interests in Federal Lands," in the Rocky Mountain Mineral Law Institute, Third Annual, at page 553 et seq. None of the authorities cited by appellant involved factual circumstances which can be considered as comparable to those involved here, although they are informative of principles considered in other situations involving bona fide purchasers and also of several instances where parties have been held to have actual, implied, or constructive notice of land office records.

Each case to be considered under the bona fide purchaser provisions applicable here must, of course, be decided on its own merits. We do agree with a statement of appellant that in applying the bona fide purchaser provisions they must be viewed in their context with the entire system of leasing under the Mineral Leasing Act. It urges, in this connection, that unless there is held to be constructive notice of land office records, "the lessor could defeat the appeal by the offeror by making an assignment to a third person" and that the door would also be open to "dummy" and "secret male fide assignments" which could effectively destroy the right of appeal. This contention relates also to arguments made by appellant relative to its assertion that the assignment must be approved in order for the provision to be applicable as it raises the question as to what time the assignee should be considered as being a bona fide purchaser.

Hypothetical situations mentioned by appellant do pose some of the difficult problems which may arise in applying the bona fide purchaser rule. However, there are differences which suggest that a determination in one case does not necessarily mean that the same result must be attained in another case. Essentially the basic criterion is whether the person alleging to be a bona fide purchaser and who has shown that value has been paid for his interest has acted in good faith. It is this element of good faith to which doctrines regarding notice are relevant. This element was strongly lacking in the Supreme Court case which appellant cites, Krueger v. United States, 246 U.S. 69 (1918), where the alleged bona fide purchaser was the wife of the wrongdoer. In that case she was held to have constructive notice of another claimant's occupancy of a tract of land to which he had a statutory right to obtain title and also of certain facts shown on land office records of the documents used to acquire a patent from the Government by which she should have been aware that the patent was acquired fraudulently. With respect to constructive notice of land office records as affecting alleged innocent purchasers without notice, the Court at page 78 said:

* This doctrine, often asserted in this court, was summarized in Ochoa v. Hernandez, 230 U.S. 139, 164, in which it was said: "It is a familiar doctrine,

universally recognized where laws are in force for the registry or recording of instruments of conveyance, that every purchaser takes his title subject to any defects and infirmities that may be ascertained by reference to his chain of title as spread forth upon the public records."

Appellant has referred to regulation 43 CFR, 1964 rev., 240.1 et seq., now 43 CFR 1813.1 et seq., 29 F.R. 4513, as providing for notations on tract books and plats and serial registers of all applications and entries of public lands in order that the status of a tract may be readily ascertained by the officer or person examining them. It contends that Lowe knew of the existence of its pending offer because he received a title opinion about the lease from his attorneys and also examined the records, himself, and that the land office records will show that Lowe is no "neophyte" in Federal oil and gas leasing. It contends that Lowe knew or is charged with knowledge that Toles' offer had been rejected as to 400 acres leaving intact only 240 acres before the lease issued, and that there were certain lands adjoining those remaining lands applied for which were available for leasing when the offer was filed. It contends further that Lowe is charged with notice and knowledge of all the regulations, including the 640-acre rule, citing Federal Crop Insurance Corp. v. Merrill, 332 U.S. 380 (1947). Therefore, it asserts than an "inquiry by Lowe reasonably pursued would have revealed the land status and the defect in the application filed by Toles." Lowe did not respond to appellant's appeal, but in his statement to the land office stated in part as follows:

4. That a title report was prepared for the undersigned by his Roswell, New Mexico attorneys, Hervey, Dow & Hinkle, and said attorneys pointed out that the Toles Offer to Lease was filed on July 7, 1958, at 10:00 A.M. and that the Offer to Lease NM 048299 was probably filed subsequent to this time and date, and if so, "the matter will probably be satisfactory." A check of the Land Office records was made and it appeared that Offer to Lease NM 048299 was filed on July 7, 1958, at 10:16 A.M., and covered approximately 2560 acres. Upon learning that the Offer NM 048299 was filed subsequent to the Toles Offer, NM 048273, the undersigned instructed his office staff to pay the draft for the Lease. Neither the Federal or the Eddy County, New Mexico abstracts examined by the attorneys reflected any actual adverse claim by Southwestern Petroleum Corporation, the company that filed Offer NM 048299.

5. Statements by Len Mayer and J. Penrod Toles corroborating the above facts are attached hereto and made a part hereof, as is a copy of a letter addressed to the Bureau of Land Management, Land Office, Santa Fe, New Mexico by Ralph Lowe's office, dated October 20, 1959, from which it appears that on or about this date, the staff in Ralph Lowe's office discovered that the Land Office had issued a lease to Southwestern Petroleum Corporation. The undersigned states that he relied upon the fact that a lease had been issued by the United States to J. Penrod Toles.

It is thus clear that Lowe did have actual knowledge of appellant's pending lease offer before he made his agreement with Toles and filed the assignment. However, whether or not such knowledge should be