Sturm v. Ulrich

• Decision Date: 31 December 1925
• Docket Number: No. 7017.,7017.
• Citation: 10 F.2d 9
• Parties: STURM v. ULRICH. In re WALLACE.
• Court: U.S. Court of Appeals — Eighth Circuit

10 F.2d 9 (1925)

STURM v. ULRICH In re WALLACE.

No. 7017.

Circuit Court of Appeals, Eighth Circuit.

December 31, 1925.

Earl Q. Gray, of Ardmore, Okl. (H. C. Potterf and J. M. Poindexter, both of Ardmore, Okl., on the brief), for appellant.

F. M. Adams, of Ardmore, Okl. (T. B. Orr, of Ardmore, Okl., and Villard Martin, of Tulsa, Okl., on the brief), for appellees Levant Oil Co. and A. M. Ketch.

William Johnson, of Ardmore, Okl. (Hugh W. McGill, of Ardmore, Okl., on the brief), for appellee receiver.

Before STONE and VAN VALKENBURGH, Circuit Judges, and PHILLIPS, District Judge.

STONE, Circuit Judge.

Harold Wallace, who had been engaged in banking and in oil operations in Oklahoma, became a bankrupt. The State National Bank of Ardmore, to which he was indebted on various notes, became insolvent and was taken over by the Comptroller of the Currency. On March 2, 1922, the bank examiner, with the hope of reviving the bank, procured from Wallace a mortgage securing a portion of this indebtedness. The mortgage covered an undivded one-half in an oil lease on a described 20 acres of land. Less than 4 months later, an involuntary petition in bankruptcy was filed against Wallace, who was later adjudicated a bankrupt and appellant elected as trustee therein.

Some years prior to the above transactions, in 1917, Wallace had acquired an undivided half interest in an oil lease in 80 acres of land from F. L. Ketch. Twenty acres were disposed of and are not involved in this litigation. Of the remaining 60 acres, 20 acres formed the tract covered by the above mortgage. The 40-acre tract was developed through a contract with the Skelly Oil Company. Ketch conveyed one-half of his one-half interest in the lease on the 60 acres to his wife, A. M. Ketch. Thereafter the Ketches and Wallace developed the 20-acre tract for several years during which time A. M. Ketch advanced therefor a large sum of money which should have been advanced by Wallace. Thereafter, the Ketches transferred their interest in the entire lease to Levant Oil Company which thereafter carried on the development of the 20-acre tract. In such development, the Levant advanced a large sum of money which should have been advanced by Wallace. Mrs. Ketch and the Levant Oil Company each claimed a mining partnership lien superior to the mortgage.

The receiver of the bank brought an action to foreclose the mortgage. That suit was begun before the bankruptcy petition was filed. Thereafter, there was an amended petition bringing in the trustee and a second amended petition bringing in the Ketches and Levant Oil Company. By an amended reply, the bank sought, in event the Ketch and Levant Oil Company advancements were held to be liens superior to the mortgage, to have the two tracts marshaled so that those two sums would be paid from the 40-acre tract. The decree established the mortgage and the Mrs. Ketch and Levant Oil Company advancements as liens and required Ketch and the company to first resort to the 40-acre tract for satisfaction. From this determination only the trustee appeals.

Appellant urges here seven points which may be placed in three general groups: (I) That the mortgage is voidable; (II) that the liens allowed Mrs. Ketch and the Levant Oil Company must fail because no mining partnership between them and Wallace existed; (III) that there was no right to marshal these assets between these three liens.

I. The Mortgage.

The appellees contend that the question of the validity of the mortgage is not reviewable because a final order affirming its validity was made more than 6 months before this appeal was taken. As our view of the merits as to this matter favors appellees and as we prefer to place our determination upon that ground, we pass by this preliminary proposition without discussing or disposing of it otherwise.

Appellant contends that the mortgage is voidable because made less than 4 months before the petition in bankruptcy was filed, at a time when the bankrupt was insolvent and when the bank examiner knew or had reasonable grounds to believe that such insolvency existed. That the mortgage was executed within the four months period is unquestioned. Also, that the bankrupt was, in reality, insolvent at that time is established. It is hardly contended that the examiner had actual knowledge of such insolvency. The controversy narrows down to whether he was in possession of such information as would have caused a prudent man to doubt and, therefore, to have investigated the solvency of the bankrupt. The master found that the examiner "had reason to believe and did believe" that Wallace was then solvent. The trial court approved the findings of the master. We have painstakingly read and considered all of the evidence upon this matter. While there is a conflict in the evidence and the answer is not entirely free from doubt, yet we not only think the evidence lacks that certainty and clarity which would authorize us to overturn a finding of the master which has been approved by the trial court but we approve that finding as being supported by the weight of the evidence. Therefore, we hold that the mortgage is valid and not voidable.

II.

Appellant does not deny the general legal proposition that if the relation between the bankrupt and Mrs. Ketch and the Levant Oil Company was that denominated in law as a "mining partnership," a lien for advancements made by one for the benefit of another in connection with the particular mining venture would exist as to the proceeds and mining property. His contentions are (a) that no such "partnership" existed as a matter of fact as to either tract; (b) that it could not legally exist as to the 20-acre tract during the time the Levant Oil Company was operating because a corporation cannot be a member of a partnership; (c) that the, Levant Oil Company was never, as a matter of fact, interested, as a mining partner in the 40-acre tract, nor, as matter of law could be a partner therein.

We think the three above propositions can be settled by a statement of the law respecting "mining partnerships," as here applicable, and by a determination of the facts, in that respect, as shown by the evidence.

In working out the legal rights and liabilities arising from novel legal relationships, courts wisely strive to assimilate such to other long established and defined relationships to which the one in question is most similar. But analogy does not mean identity. It implies difference. Also, the attendant use of established terminology only adds to the danger of carrying an analogy too far.

The relationship between parties engaged in the common ownership and operation of mining property is somewhat sui generis. Where there is merely a common ownership and no joint development, the relation is, ordinarily, a tenancy in common. Where they join their efforts or means or property in the development of mining property they constitute a "mining partnership." The use of the term "partnership" in this connection is by analogy and is not to be taken as meaning, in all legal respects, the same as an ordinary business or trading partnership. Such a partnership has many of the attributes and limitations of an ordinary partnership but not all such. There are some cardinal differences. Probably, the main differences are that the death or bankruptcy of one such partner does not terminate the partnership and that one partner may convey his interest, or any part thereof, without the consent of his associates and without terminating the partnership and the transferee thereof becomes a partner, to the extent of the interest transferred, from the effective date thereof. Mining partnerships are held, generally, to be applicable to development of oil and gas properties — Pennsylvania being the exception. Such relationship in this regard is recognized in Oklahoma. Where a mining partnership exists, each partner is liable to the others for his share (depending upon his interest) of the expenses and losses incurred in the enterprise and there is a lien for such upon his interest in the property or proceeds therefrom in favor of creditors or of other partners who have made advances. Such a partnership may result from express contract or be implied by the conduct of the parties in joining in mining operation on a profit and loss sharing basis or in jointly acquiring mining property for the purpose of joint development and afterwards prosecuting such development or where persons owning a mine engage in working it for the purpose of extracting the minerals. Where a mining partnership is in existence, the purchase of an interest of a partner or the purchase of an interest of a partner in the lease being mined makes the purchaser a partner. The power of one such partner to bind the others is strictly limited to acts having a direct connection with the development of the mining venture which is the subject of the partnership. In the footnote are collected numerous cases supporting the above rules and, also, distinguishing mining partnerships from tenancies in common, agency agreements and hiring contracts.¹

There is nothing in the nature of a corporate organization, as such, which would prevent it from being a member of a mining partnership or in a joint adventure of that character. Its power in that respect would depend upon its character or organic law. 14a C. J. 291. There is no statute in Oklahoma containing such a prohibition and it seems conceded that the Levant Oil Company was, by its charter, empowered to develop oil and gas lands. While this particular matter is not determined directly in any case of mining partnership brought to our attention, yet there are cases of mining partnerships wherein corporations were partners. Kahn v. Smelting Co., 102 U. S. 641, 26 L. Ed. 266; C. D. M. I. Co. v. Bliley, 23 Colo. 160, 46 P. 633; Hawkins v. Spokane Hydr. Min. Co., 3 Idaho (Hasb.) 241, 28 P. 433; Lind v. Webber, 36 Nev. 623, 134 P. 461, 141 P. 458, ...