Hinchman v. Consolidated Arizona Smelting Co.

• Decision Date: 03 August 1912
• Docket Number: 672,Eq. C.C.
• Citation: 198 F. 907
• Parties: HINCHMAN v. CONSOLIDATED ARIZONA SMELTING CO.
• Court: U.S. District Court — District of Maine

198 F. 907

HINCHMAN v. CONSOLIDATED ARIZONA SMELTING CO.

No. 672, Eq. C.C.

United States District Court, D. Maine.

August 3, 1912

Charles H. Burr, of Philadelphia, Pa., and Benjamin Thompson, of Portland, Me., for complainant.

J Markham Marshall, of New York City, for respondent.

HALE District Judge.

This case comes before the court upon bill, answer, replication and proofs. The complainant is a citizen of Pennsylvania the defendant, a citizen of Maine. The complainant states the case substantially as follows: On September 15, 1906, the Arizona Blue Bell Copper Company, a Delaware corporation owned certain mines in Yavapai county, Ariz., which are known in this case as the 'Blue Bell' mines. On that date the Delaware Company made an agreement with one John L Elliott for the sale of these mines. The price was to be $1,000,000-- $10,000 on the execution of the agreement, $90,000 on delivery of the deed, and the balance of $900,000 to be paid out of the net earnings of the property, in the manner and on the terms provided in the agreement of sale. On September 24, 1906, Elliott assigned the agreement of sale to the New Jersey Consolidated Arizona Smelting Company, a New Jersey corporation of which he was the vice president. On November 15, 1906, the Arizona Blue Bell Copper Company conveyed the Blue Bell mines to the Consolidated Arizona Smelting Company, a New Jersey corporation. At the same time the Arizona Blue Bell Copper Company received from Elliott, or from the Consolidated Arizona Smelting Company, the additional sum of $90,000, and the deed was recorded in Yavapai county. It contained, however, no reference to the $900,000, the balance of the purchase money. On the same day the New Jersey Consolidated Smelting Company made a written agreement with the Arizona Blue Bell Copper Company, providing for the payment of the $900,000 in accordance, as it is claimed, with the terms of the agreement of sale. The agreement of September 15, 1906, and the agreement of November 15, 1906, were, by the complainant, recorded in the Deed Book of Yavapai county, Ariz., on January 4, 1910. Each of the agreements contained a provision that it should be binding upon the successors and assigns of the parties. In the Elliott agreement, namely, of September 15, 1906, was the following clause:

'Mr. Elliott 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. of the net profits resulting from the operation of the said mining properties. The said payments shall be made quarterly on the 1st 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 net proceeds from the operation of the said mining property 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. Eliott will also procure to be executed by the Arizona Smelting Company, a corporation of the state of New Jersey, operating at 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 hereto annexed.'

The agreement between the Blue Bell Company and the Consolidated Arizona Company, namely, of November 15, 1906, contained the following clause:

'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 Bug' 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 1st 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 29th December, 1905, to the Arizona Exploration Company.'

The complainant says that under these agreements, the covenants providing for the payment of the 25 per cent. of the net profits arising from the operation of the mining properties constituted a covenant running with the land, and are, in accordance with the express provisions of the agreement, binding upon the defendant corporation, which is the successor corporation to the property and assets of the Consolidated Arizona Smelting Company, the New Jersey Company. On April 27, 1908, the Consolidated Arizona Smelting Company, the New Jersey Company, was declared bankrupt in the District Court for the District of New Jersey. On October 6, 1908, an order of sale was entered in said court directing that all the bankrupt's right, title, and interest in and to the Blue Bell mine, a copper mine situated in Mayer, Yavapai county, Ariz., be sold by the trustee in bankruptcy. On November 10, 1908, pursuant to the order of sale, the Blue Bell property was sold to Edwin S. Hooley and another, for and on behalf of such stockholders and creditors of the Consolidated Arizona Smelting Company as might join in a plan of reorganization of said company, issued under date of December 19, 1908, and was subsequently conveyed to the Consolidated Arizona Smelting Company, the defendant corporation, the same having been organized by Hooley and another to carry out the plan of reorganization. The complainant says that Hooley and another and their associates knew of the provisions in the agreements of September 15, 1906, and November 15, 1906, and were fully notified and informed as to such provisions. On December 17, 1908, a rule to show cause was issued upon a petition presented in behalf of the Arizona Blue Bell Copper Company to the District Court in New Jersey, asking to have a decree entered that the sale was subject to the right of said company, as assignees, to receive the $900,000, the balance of the purchase money. On December 17, 1908, the sale was confirmed by the referee. On December 19, 1908, the court refused the petition because it appeared 'that the trustee is selling only his right, title, and interest in and to property against which the petitioner, the Arizona Blue Bell Copper Company, asserts a claim. ' On December 21, 1908, a settlement was made, and a quitclaim deed was delivered by the trustee to Hooley and another; also a quitclaim deed from the reorganization committee to the defendant corporation, this latter deed being indorsed by the defendant corporation as 'a quitclaim deed.' The complainant says that all the rights of the Arizona Blue Bell Copper Company to the $900,000, balance of purchase price passed to him by virtue of the assignments and legal proceedings recited in the bill; that by the decree of the Circuit Court of the United States for the District of Delaware, entered March 29, 1911, the clerk of the Circuit Court of the United States for that district on the same day conveyed to him all the right, title, and interest which the Arizona Blue Bell Copper Company had to receive the balance of the $900,000 purchase money.

It is not necessary to state all the allegations of the answer. No serious question is made over the facts...