Consolidated Arizona Smelting Co. v. Hinchman

• Citation: 212 F. 813
• Decision Date: 30 March 1914
• Docket Number: 1000.
• Parties: CONSOLIDATED ARIZONA SMELTING CO. v. HINCHMAN.
• Court: U.S. Court of Appeals — First Circuit

212 F. 813

CONSOLIDATED ARIZONA SMELTING CO. v. HINCHMAN.

No. 1000.

United States Court of Appeals, First Circuit.

March 30, 1914

J Markham Marshall and Alexander B. Siegal, both of New York City (Van Vorst, Marshall & Smith, of New York City, on the brief), for appellant.

Charles H. Burr, of Philadelphia, Pa. (Benjamin Thompson, of Portland, Me., and John Chipman Gray, of Boston, Mass., on the brief), for appellee.

Before DODGE, Circuit Judge, and ALDRICH and BROWN, District Judges.

BROWN District Judge.

The decree of the District Court is in part to the effect that the appellant, Consolidated Arizona Smelting Company, a Maine corporation, now holds its title to mines in Arizona known as the 'Blue Bell Mines,' subject to two agreements of the Arizona Blue Bell Copper Company; the first, of September 15, 1906, with John L. Elliot, the second, of November 15 1906, with the Consolidated Arizona Smelting Company, a New Jersey corporation, and 'especially subject to the payment of the balance of the purchase price of $900,000, in accordance with the terms of said agreements.'

The opinion of the District Court is reported in 198 F. 907.

The New Jersey corporation, party to the second agreement, was adjudged bankrupt April 27, 1908, and under direction of the bankruptcy court its mining property was sold; the purchaser took a deed from the trustee in bankruptcy and subsequently made conveyance to the appellant, the Maine corporation.

The principal question before us is whether, by reason of its acquisition of title to the mines, the Maine corporation appellant, became chargeable with certain payments of a share of the net profits resulting from the operation of said mining properties, as provided in the said agreements of September 15 and November 15, 1906.

The case of the complainant, appellee, is put upon two grounds:

1. That said agreements contain covenants that at law run with the land.

2. That even if the covenants do not run at law they create an equitable charge.

The written agreement of September 15, 1906, was to the effect that the Blue Bell Company agreed to convey to Elliot, and Elliot to purchase certain mines and mining property in Arizona, together with the appurtenances, machinery, tools, and utensils on said premises; the conveyance thereof to be 'made by full, covenant warranty deed, and the title thereto shall be a good and marketable title and free from encumbrances,' excepting, however, a certain lease and certain claims which are not material in the present case.

In connection with the finding of the District Court that there is an unpaid balance of the purchase price amounting to $900,000, particular attention should be given to the second, third, and fourth paragraphs:

'Second. The price to be paid by Mr. Elliot for the said properties is the sum of one hundred thousand dollars ($100,000), ten thousand dollars ($10,000) of which shall be paid upon the signing of this agreement, the receipt whereof is hereby acknowledged, and the remaining ninety thousand dollars ($90,000) shall be paid upon the delivery of the deeds to the said property, as hereinafter provided. Mr. Elliot further covenants and agrees to pay, or cause to be paid to the Blue Bell Company, until it shall have received the aggregate sum of one million dollars ($1,000,000), twenty-five per cent. (25) of the net profits resulting from the operation of the said mining properties. The said payments shall be made quarterly on the first days of January, April, July and October, or as soon thereafter as the net profits for the preceding quarter can be conveniently ascertained. The net profits herein referred to shall be the net proceeds from the operation of the said mining properties after deducting the cost of mining, necessary development work (but not including purchase of new machinery), transportation, sampling, treatment and smelting, plant superintendence, and all proper charges incidental thereto, but not the rent payable under the said lease of the said mining property. Mr. Elliot will also procure, to be executed by the Arizona Smelting Company, a corporation of the state of New Jersey, operating at Humboldt, Arizona, a contract for the smelting of all the ores produced from the said mining property for a period of five years, substantially in the form hereto annexed, marked 'A.'

'Third. The deeds of the said properties shall be delivered, and the remaining ninety thousand dollars ($90,000) of the purchase price, other than the twenty-five (25) per cent. of the net profits, shall be paid at the office of John L. Elliot, No. 71 Broadway, city and state of New York, on the fifteenth day of November, 1906, at 12 o'clock noon.

'Fourth. This agreement shall be binding upon the parties hereto, their heirs, executors, administrators, successors and assigns.'

The agreement of November 15, 1906, with the said New Jersey corporation (subsequently a bankrupt) recites that on or about September 24, 1906, the contract of September 15th and all rights thereunder were duly assigned by Elliot to the Consolidated Company (of New Jersey), that the Blue Bell Company executed and delivered a deed to the said Consolidated Company, and that 'it is deemed advisable and necessary that the obligation of the Consolidated Company under said contract to make such further payments to the Blue Bell Company out of the net profits of said properties should be set forth in an agreement and form for record,' and contains the following provision:

'Now, therefore, in consideration of the execution and delivery of said deed by the Blue Bell Company, and of the sum of one dollar ($1) paid by the Blue Bell Company to the Consolidated Company, the receipt whereof is hereby acknowledged, the Consolidated Company hereby agrees to pay, or cause to be paid, to the Blue Bell Company twenty-five per cent. of the net profits resulting from the operation of the said 'Blue Bell,' 'Blue Coat' and ' Blue Buck' patented mining claims, until the said Blue Bell Company shall have received the aggregate sum of one million dollars ($1,000,000). Said payments shall be made quarterly on the first days of January, April, July and October in each year, or as soon thereafter as the net profits for the preceding quarter can be conveniently ascertained. Such net profits shall be the net proceeds from the operation of the said mining properties, after deducting the cost of mining, necessary development work (but not including the purchase of new machinery), transportation, sampling, treatment and smelting, and plant superintendence, and all proper charges incidental thereto, but not including the rent payable under the lease of said mining properties, dated twenty-ninth December, 1905, to the Arizona Exploration Company.

'This agreement shall be binding upon and inure to the benefit of the successors and assigns of the respective parties hereto.'

Upon an examination of these two agreements, it appears that it is incorrect to say that the mines were sold for the sum of $1,000,000, or that in addition to the sum of $100,000 which was duly paid there was an agreement to pay a balance of the purchase price, amounting to $900,000. The covenant is to pay 25 per cent. of the net profits resulting from the operation of the said 'Blue Belle,' 'Blue Coat,' and 'Blue Buck' patented mining claims, until the said Blue Bell Company shall have received the aggregate sum of $1,000,000.

This is an agreement for a share in the profits of mining operations. The payments are wholly contingent upon the success of these operations, and upon the earning of a profit, and are measured by the amount of profit. According to the success of the enterprise nothing may be payable, or any amount up to, but not exceeding the sum of $900,000, which is a maximum beyond which the right of the Blue Bell Company to share profits ceases. Before profits can be shared, the operating company is entitled to reimburse itself for the expense of development and of operation, and also for the expense of transportation, sampling, treatment, and smelting of ores, plant superintendence, and all proper charges incident thereto.

We must not lose sight of the very substantial difference between an agreement to pay $900,000 as an agreed value for land and an agreement to give a quarter share of profits, if there are profits, with a maximum of $900,000. The present worth at the date of the deed of such a prospective share or chance in a mining venture is wholly conjectural. The covenantor does not acknowledge that the present value of the mines which have been conveyed to it is by any specific sum more than the cash payment. In addition to a satisfactory purchase price, it gives a share in the venture. It is, however, erroneous to treat the present case as if the grantor had parted with a consideration of the value of $900,000 for which a debt of $900,000 was created.

The operation of the properties from which it is contemplated that a profit may result includes not merely the winning of ore, but also the transportation and smelting of ores and the sale of metals. The contract of September 15th provides that Elliot will procure to be executed by the Arizona Smelting Company, a corporation of the state of New Jersey, operating in Humboldt, Ariz., a contract for the smelting of all the ores produced from the said mining property for a period of five years, substantially in the form marked 'A,' which provides for the terms on which ores and concentrates are to be smelted. The covenants of Elliot and of the New Jersey corporation, his assignee, contain no express terms binding the covenantor to operate or restricting or controlling the use of the properties conveyed, and seem to us to relate rather to a...