Title Insurance & Guaranty Co. v. Hart

• Decision Date: 24 March 1947
• Docket Number: No. 11261.,11261.
• Citation: 160 F.2d 961
• Parties: TITLE INSURANCE & GUARANTY CO. et al. v. HART.
• Court: U.S. Court of Appeals — Ninth Circuit

160 F.2d 961 (1947)

TITLE INSURANCE & GUARANTY CO. et al. v. HART.

No. 11261.

Circuit Court of Appeals, Ninth Circuit.

January 8, 1947.

As Amended March 24, 1947.

Edward F. Treadwell and Luther Elkins, both of San Francisco, Cal., Arthur J. Edwards, of Los Angeles, Cal., and Thomas E. Palmer, of San Francisco, Cal. (H. R. Cooke, of Reno, Nev., of counsel), for appellants.

James T. Boyd, of Reno, Nev., for appellee.

Chester C. Kempley, of Los Angeles, Cal., for stockholders.

Roger S. Foster, Sol., SEC., Theodore L. Thau, Sp. Asst. to Sol., Aaron Levy, Atty., SEC., all of Philadelphia, Pa., and W. Stevens Tucker, Atty., SEC., of San Francisco, Cal., for Securities & Exchange Commission.

Before DENMAN, HEALY, and ORR, Circuit Judges.

ORR, Circuit Judge.

Mount Gaines Mining Company petitioned the United States District Court for the District of Nevada for reorganization and for relief under chapter 10 of the Bankruptcy Act, 11 U.S.C.A. § 501 et seq. Pursuant to said petition the said court appointed James B. Hart trustee.¹

What may be said to be the sole asset of the corporation is a lease and option to purchase valuable mining property situate in Mariposa County, State of California. The cause is before us on an appeal from an order of the District Court extending said lease for a ten-year term.²

The lease involved was executed on December 16, 1933, and provided that lessees should operate the mine and pay a 10% royalty to the owners "of all production of and from said mine, from the gross returns of ores shipped and sold, the returns from all recovery of ores milled, concentrates, amalgams, mint returns on bullion sic." Time was to be of the essence, and it was also provided that any failure by the lessors to insist on strict compliance of the lease should not be deemed a waiver by the lessor of the right to insist on such strict compliance. Provision was made for an extension of the lease in the following clause:

"In consideration of, and the faithful compliance thereto by said lessees of the foregoing agreement and covenants therein, the said owner agrees that upon written application of the lessees to grant unto said lessees a further lease upon said mine, its improvements and acquisitions, an extension of this lease for a further term of ten years under the same covenants, royalties and rights."

The lease granted lessees an option to purchase by providing:

"Said owner, for and by the considerations and agreements herein therefore grants unto the lessees an option to purchase an undivided three-fourths (¾) interest in said mine * * * for the sum of fifty thousand dollars ($50,000) at any time within the period of this lease and or any extensions of time thereof; provided this lease shall be in force and effect."

Lessee attempted to exercise this option by serving notice on May 25, 1937 that it elected to exercise the option by the application of royalty payments until such payments totalled $50,000. The matter was litigated in 1942 and the District Court held the attempted exercise of the option not to be in conformity with its terms and, hence, did not constitute an election to exercise said option.³ On appeal this court affirmed that judgment.⁴

The original lessees assigned their interest to one Ilseng, who formed the Mt. Gaines Mining Co., a Nevada corporation, and assigned to it the lease in question here, in December 1934.

At the time the lease was executed, the ownership of lessors was in dispute and the original lessees never secured possession. Ilseng entered in 1934 and found the entire mine in a state of disrepair and unworkable. The shaft had caved in and was filled with water. The hoist machinery had been removed, the mill and other buildings were in a rotting condition. The general aspect of disrepair was one natural to a property, the main part of which had not been worked since 1911.

Lessee assumed control and by intelligent and minerlike operation developed and extracted during the 10-year period of the lease, ending December 15, 1943, ore having a gross value of nearly one and one-half million dollars, and from this extensive operation over a ten year period the lower court was able to find but $93.19 due lessors as unpaid royalties.

On November 24, 1943, appellee, as trustee in bankruptcy, filed a petition asking the District Court to direct him to apply for an extension of the lease. On the granting of that petition, appellee, on December 3, 1943, applied to appellants for a further lease, "the said agreement of lease to contain the option as now contained in the present lease, and to run for the full period of 10 years as provided for in the lease."

Appellants refused to renew and appellee then instituted this proceeding by filing in the District Court a petition praying for a decree that appellee and the Mt. Gaines Mining Company be adjudged in lawful possession and that the lease and option were extended to December 16, 1953.

The Court found that appellee was entitled to a judgment quieting his title to the extended term of the lease and that appellee's written application to appellants on December 3, 1943 had extended the lease "under the same covenants, royalties and rights, including the option to purchase * * * as provided in said lease * * *."

The Court also found there had been no default or failure of faithful compliance with the covenants in the lease; that appellees owed appellants $93.19 as unpaid royalties, and that the attempt to exercise the option to buy a ¾ interest in 1937 was ineffective for any purpose and did not exhaust lessee's right to exercise this option later.

On appeal, appellants attack the judgment on three major grounds:

1. That appellee, as trustee in bankruptcy, did not assume the lease, and, hence, had no right to an extension of that lease;

2. That the attempted exercise of the option, and appellee's application for a "further lease" constituted counter-proposals and, hence, rejections of the option and renewal provisions of the lease; and

3. That the District Court erred in finding that appellee had performed all of the conditions precedent so as to entitle lessee to an additional ten year lease, and that the Court further erred in finding that only $93.19 was due appellants as unpaid royalties.

First: Appellant argues that Hart, as trustee, has never assumed the lease. While no writing is found which expressly so provides, the facts and circumstances clearly demonstrate that he did.

The District Court, on June 29, 1939, approved the filing by Mt. Gaines Mining Company, of its petition for reorganization under Chapter 10 of the Bankruptcy Act, and ordered the debtor to continue in possession of the mine under the terms of the lease involved herein.

On August 11, 1939 appellee James P. Hart was appointed trustee of Mt. Gaines, and all of the debtor's "property, money, assets and accounts" were ordered turned over to said Hart.

From August 11, 1939 to December 15, 1943, the end of the first ten year period of the lease, Hart was, by the District Court, found to be in "lawful possession as lessee under said lease of all of the property" of the mine during which time ores were extracted and milled having a gross value of $766,381.86. Hart, as trustee, paid to appellants royalties of $76,556.36.

Hart, as trustee, tendered reports to appellants covering these royalties, furnished copies of smelter returns for the same period, and sent monthly reports covering the operations of the mines to representatives of lessors, all in accordance and compliance with the terms of the lease.

Hart, as trustee, caused extensive underground development of the mine to be made and placed additional machinery and equipment on the property, which included a sorting plant, amalgam barrel, etc., all done with the full knowledge and consent of lessors.

In 1942 Hart, as trustee, litigated the question of whether the Mount Gaines Company had exercised its option, contained in the lease, to purchase a three-quarter interest in the mine. The District Court held that Hart was not entitled to the relief he asked because "such option has not as yet been complied with", and dismissed the action without prejudice, and on appeal, we affirmed.⁵

At no time was there any question raised as to Hart's qualifications to prosecute the action because he had not assumed the lease. On the contrary, in its temporary restraining order, prior to its decision in that matter, the District Court ordered that "the trustee in reorganization continue to pay 10% rent and royalties heretofore paid by virtue of the lease and option" involved herein.

In December 1943 the court also ordered the trustee to apply for an extension of the lease in the following terms:

"It is therefore ordered and adjudged that James P. Hart, the trustee of the above named debtors, Mount Gaines Mining Company and International Mining & Milling Company, immediately file his written application and make a demand for the extension of the agreement of lease with option to purchase now owned by the Mount Gaines Mining Company for the said Mount Gaines Mine, under the same terms and conditions, all as provided in the agreement of lease with option to purchase dated December 16th, 1933, and to take all steps necessary for securing such extension."

From the foregoing facts the conclusion seems inevitable, not only that Hart assumed the lease and acted under its terms, but that such assumption was recognized by the lessors and by the District Court. It would seem that lessors, by reason of their recognition of the operation of the mine by Hart, as trustee, and the acceptance of the benefits resulting from such operation are in no position to question his assumption of the lease.

A further argument made in support of appellants' contention is that because appellee as trustee in bankruptcy did not assume the lease within 60 days after the adjudication, the lease is, under § 70, sub. b of the Bankruptcy...