In re Rhine

• Decision Date: 24 January 1963
• Docket Number: No. 24691.,24691.
• Parties: In the Matter of Arnold R. RHINE, also known as A. R. Rhine, Bankrupt. MOUNTAIN IRON & SUPPLY COMPANY, Petitioner and Cross-Respondent on Review, The Halliburton Company, Petitioner and Cross-Respondent on Review, John W. Shireman, Trustee in Bankruptcy, Respondent and Cross-Petitioner on Review, v. VALLEY STEEL PRODUCTS COMPANY, Sauder Tank Company, Inc., Eugene V. Smith, Richard H. Day, Harley Sales Company of Kansas, Inc., Merril C. Temmer and Other Reclamation Petitioners, Respondents on Review.
• Court: U.S. District Court — District of Colorado

213 F. Supp. 527

In the Matter of Arnold R. RHINE, also known as A. R. Rhine, Bankrupt.

MOUNTAIN IRON & SUPPLY COMPANY, Petitioner and Cross-Respondent on Review, The Halliburton Company, Petitioner and Cross-Respondent on Review, John W. Shireman, Trustee in Bankruptcy, Respondent and Cross-Petitioner on Review, v. VALLEY STEEL PRODUCTS COMPANY, Sauder Tank Company, Inc., Eugene V. Smith, Richard H. Day, Harley Sales Company of Kansas, Inc., Merril C. Temmer and Other Reclamation Petitioners, Respondents on Review.

No. 24691.

United States District Court D. Colorado.

January 24, 1963.

Norma L. Comstock and Norman H. Comstock, Denver, Colo., for John W. Shireman, Trustee in Bankruptcy.

Jimmie E. Grey, Wichita, Kan., and Robert P. Kelly, Pawhuska, Okl., for Mountain Iron & Supply Co.

Eugene F. Costello, Denver, Colo., for Halliburton Co.

Thomas M. Burns, Wichita, Kan., for Richard H. Day and Eugene V. Smith.

James W. Buchanan, Denver, Colo., for Sauder Tank Co., Inc. Charles M. Stoddard, Denver, Colo., for Harley Sales Co. of Kansas, Inc.

Carl H. Selliger, Jr., Denver, Colo., for Valley Steel Products Co.

Thomas M. Sullivan, Denver, Colo., for Merril C. Temmer and others.

DOYLE, District Judge.

MOUNTAIN IRON AND SUPPLY COMPANY

Involved herein is a review of orders of the Bankruptcy Court allowing claims, secured and unsecured, and disallowing certain claims. Before the Court is a Petition for Review of Mountain Iron and Supply Company, a creditor, which has asserted secured claims, the cross-petition of John W. Shireman, Trustee, and the cross-petition of the Halliburton Company, another creditor. The transactions here in question occurred in the latter part of the year 1959. During that year and prior thereto, the bankrupt, Arnold R. Rhine, had been engaged in a secondary waterflood recovery project in Washington County, Oklahoma. He held extensive oil and gas leases in that county.

In June, 1959, bankrupt negotiated with Mountain Iron and Supply Company seeking to obtain a line of credit looking to the purchase of materials and supplies for use in a waterflood project of all of the leases owned by him in Washington County, Oklahoma. In connection with this line of credit a written memorandum was executed on or about June 15, 1959.¹ In it Mountain Iron and Supply Company approved bankrupt for credit and in the course of the agreement it was stated that the line of credit was for the equipping of a waterflood project known as the "water flood unit in Oklahoma." A further provision of this memorandum was that the equipment purchased would constitute a continuous contract and that the Mountain Iron and Supply Company would be allowed to treat the entire unit as one project and the equipment sold to be used thereon as being used on the entire flood project regardless of descriptions set forth on the countercharges. A further provision was that Mountain Iron could file liens, if necessary, on the entire unit to secure all of the equipment sold to the bankrupt; and finally, the contract provided that the continuous contract and line of credit would remain in effect until expressly revoked by Mountain Iron & Supply Company.

At the time of entering into the memorandum agreement, the bankrupt owed Mountain Iron $12,804.69 for materials and supplies which had been furnished him in 1954 and 1955. Mechanics' liens had been filed and foreclosure suits were pending in Washington County, Oklahoma, with respect to the Davidson, Lucas A and Bailey leases. In addition, interest was owing; that is, according to Mountain Iron, on this old account.

Our major concern here is with the "new" account, that which was created as a result of the memorandum agreement. On or about July 24, 1959 the Credit Manager for Mountain Iron had a discussion with the bankrupt and obtained an agreement from him whereby he would increase his payments on the old account to $2,000.00 a month beginning with the payment due on July 30, 1959. Thereafter, payments were made by the bankrupt as follows: July 31, 1959, $718.95; September 4, 30 and November 6, 1959, payments in the amount of $2,000.00 were made. On or about November 6, 1959, the Credit Manager had a further discussion with Rhine. At this time he agreed to pay $30,000.00 on the new account on or before November 15, 1959; he further agreed (according to Mountain Iron) that if he failed to make such payment the payment which he did make could be used first to pay the principal sum of the old account in full. Instead of sending $30,000.00 as agreed, the bankrupt sent $14,000.00 on November 15, and of this sum Mountain Iron applied $6,085.74 to close out the principal amount owing on the old account. However, Mountain Iron at first applied the $14,000.00 to the new account and it is noteworthy that the check of the bankrupt specified on its face that it should be applied to the old account; and it is also noteworthy that the referee did not find an agreement of November 1, 1959 allowing Mountain Iron to apply part of this November 15 payment to the old account.

It seems undisputed that as of December 2, 1959, the amount which had accrued on the new account was an amount in excess of $91,000.00. The claim was for $91,238.09 and Mountain Iron says the exact balance is $91,150.22, as of December 2, 1959, the date when the mechanics' lien was filed in the office of the District Court of Washington County, Oklahoma. This lien statement in its entirety was filed in the Bankruptcy Court on January 28, 1960, as a secured claim. The claim itself is quite extensive: it asserts a claim to "the following-described real estate in Washington County, Oklahoma," to wit: "the Rhine Petroleum Industries and A. R. Rhine Waterflood Unit covering the properties set forth in Exhibit `B' attached hereto." Also attached to the lien statement in Oklahoma and, of course, the claim here, is the memorandum agreement to which reference has been made hereinabove. Exhibit "B" failed to describe all of the Rhine properties and an attempt was made after the four-month period to expand the descriptions to include leases which were not originally designated, and one of the major problems here is whether this amendment is appropriate.

In addition to claim No. 72, filed January 28, 1960, there are additional claims:

Claim No. 48, filed January 28, 1960, in the amount of $6,784.35 (unsecured);

Amended claim No. 1151, filed July 21, 1960, in the amount of $98,089.11. (This was to amend claim No. 72 and was tendered as a secured claim);

Amended claim No. 1064, in the amount of $7,782.28, an unsecured claim filed March 31, 1960.

The specific questions which have been certified by the referee are set forth as follows:

"Questions with respect to petition to review filed by Mountain Iron & Supply Co.:

"1. Did the Referee err, upon the evidence before him and the applicable law, in reducing the allowance of claim No. 72 from $91,238.09 to $85,064.48?

"2. Did the Referee err in denying the motion of Mountain Iron & Supply Co., for leave to amend claim No. 72 when it was tendered (a) on January 29, 1962, and (b) at the time of the hearing, or both?

"3. Did the Referee err, upon the evidence before him and the applicable law, in disallowing claim No. 1151?

"4. Did the Referee err, as a matter of law, in making the conclusions of law found in the second and third paragraphs of Conclusions of Law III made as a part of the findings, conclusions and orders entered June 4, 1962?

"5. Did the Referee err, as a matter of law, in making the conclusions of law found in the second and third paragraphs of Conclusions of Law IV made as a part of the findings, conclusions and orders entered June 4, 1962?

"6. Did the Referee err, as a matter of law, in making the conclusions of law found in Conclusions of Law V made as a part of the findings, conclusions and orders entered June 4, 1962?

"Questions with respect to cross-petition to review filed by John W. Shireman, Trustee:

"7. Did the Referee err, upon the evidence before him and the applicable law of Oklahoma, in finding, holding and concluding that Mountain Iron & Supply Co., acquired and has a valid mechanics' lien on the property described in Lien No. 6076 filed in the District Court of Washington County, Oklahoma?

"8. Did the Referee err, upon the evidence before him, and the applicable law of Oklahoma, in finding, concluding and holding that Mountain Iron & Supply Co. had sustained the burden of proof and established its right to security on the properties described in Exhibit B of the Mechanics' lien statement of December 2, 1959?

"9. Did the Referee err, upon the evidence before him and the applicable law of Oklahoma, in finding, concluding and holding that a single lien statement covering specifically described leaseholds creates a lien upon all of the leases, in the manner and to the extent set forth in the Referee's Conclusion of Law II made as a part of his findings, conclusions and orders of June 4, 1962?

"10. Did the Referee err, considering the evidence then before him and the applicable law of Oklahoma, in denying the motion of the trustee, made at the conclusion of the evidence of Mountain Iron & Supply Co., to dismiss the affected claim of said Company?

"11. Did the Referee err, upon the evidence before him and the applicable law of Oklahoma, in denying the Trustee's motion to dismiss under Federal Rule 41(b) (1)? sic

"Questions with respect to cross-petition to review filed by The Halliburton Company:

"12. Did the Referee err, upon the evidence before him and the applicable law of Oklahoma, in allowing claim No. 72 as secured in any amount in excess of $6000.00?

"And these questions are certified to the Judge for his decision thereon."

DISCUSSION OF THE ISSUES

1. The major controversy arises here because of description deficiencies in claim No. 72. Although Mountain Iron evidenced intent to file its lien against all of the Rhine projects in ...