Opinion ID: 2751756
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Heading: Mining Partnerships

Text: Mining partnerships are creatures of the common law. To understand how mining partnerships operate requires an understanding of why they were created. To understand why they were created requires a basic understanding of the ancient, common law rules surrounding the creation of ordinary, general partnerships. For the sake of clarity, we will hereafter refer to the ordinary, general partnership as a “general partnership.” This will distinguish the rules for common-law, ordinary, general partnerships from the legal precepts of mining partnerships. Further, this opinion will not attempt to comprehensively discuss the common law rules of general partnerships, for a simple reason: most of those common law rules have been augmented or supplanted by statute. As we discuss in the next section, partnership law in West Virginia is now guided by the Revised Uniform Partnership Act. Hence, much of the following discussion on the common law of general 15 partnerships is purely historical and academic.11 But understanding the primordial rules of general partnership law leads to an understanding of how mining partnerships came to exist, and why real property ownership by the partners is critical to the formation of a mining partnership. A general partnership is an association of two or more persons who agree to carry on as co-owners a trade, occupation, or profession for profit. At common law, we defined a general partnership as: a contract relation between two or more competent persons who have combined their money, effects, labor and skill, or some or all of them, in a lawful joint enterprise, or business, for the purpose of joint profit. Syllabus Point 4, Hi Williamson & Co. v. Nigh, 58 W.Va. 629, 53 S.E. 124 (1906).12 11 Marcus Aurelius advised that we should “look narrowly into things,” to always ask, “This thing, what is it in itself, in its own constitution?” By carefully analyzing “everything that presents itself unto thee, to consider what the true nature of it is, and to unfold it, as it were, by dividing it,” we may ultimately ascertain “the true use or end of it.” Marcus Aurelius, Meditations, Book VI, paragraph 3; Book VIII, paragraph 11; Book XII, paragraph 14 (Arc Manor, 2008). 12 See also, Syllabus Point 1, Setzer v. Beale, 19 W.Va. 274 (1882) (“A partnership as between the parties themselves is a voluntary contract between two or more persons for joining together their money, goods, labor or any or all of them under an understanding, that there shall be a communion of profits between them and for carrying on a legal business.”); Syllabus Point 7, Murphy v. Fairweather, 72 W.Va. 14, 77 S.E. 321 (1913) (“A contract between the owner of timber and another person, under which the former is to furnish the timber for manufacture and sell the product and collect the proceeds, and the latter is to cut, log, and manufacture the timber and receive twothirds of the proceeds of the lumber, creates a co-partnership between them.”); Tyler v. Teter, 75 W.Va. 217, 219, 83 S.E. 906, 906 (1914) (the “ordinary tests for the existence of a partnership relation between two or more persons” include “a community of interest; a sharing of the profits and losses; mutuality in the management and control of the social assets; a uniting in the prosecution of a common enterprise for their joint benefit. . . . Or, . (continued . . .) 16 A mining partnership is not a general partnership. However, there are three basic tenets of general partnerships necessary to understanding mining partnerships. First is the rule that general partnerships are personal; they are created by voluntary agreements between two or more people, each agreeing to become a partner with the others. At common law, the rule was known as delectus personae or “choice of the person.”13 It is the “rule that when personal relations are important, a person cannot be compelled to associate with another person,” specifically “that one has the right to select the person or persons with whom one might form a partnership.” Black’s Law Dictionary 518 (10th Ed. 2014). “Those forming an ordinary partnership select the persons to form it, always from fitness, [and] worthiness of personal confidence[.]” Childers v. Neely, 47 W.Va. 70, 73, 34 S.E. 828, 829 (1899). Because of delectus personae, the law gives “wide authority of one member [of a general partnership] to bind another by contracts, by notes, and otherwise. One is the chosen agent of the other.” Id. Hence, under the common law, when a person left a general partnership association the partnership was instantly dissolved and ceased conducting its ordinary . . to constitute such relation there must be a contract, express or implied, to place money, effects, labor and skill, or some of them, in lawful commerce or business, and to divide the profits and bear the loss in certain proportions.”); Syllabus Point 1, Duffield v. Reed, 84 W.Va. at 284, 99 S.E. at 481 (“The voluntary association of two or more persons for the purpose of uniting their means, skill and labor to carry on a legal business, or perform a legitimate work, constitutes them a partnership.”). 13 It is sometimes also called delectus personarum, Latin for “choice of persons.” 17 business.14 The reason the person left was irrelevant. It might have been by personal choice to leave, or the choice to sell the person’s interest in the partnership to a stranger; by the person’s expulsion by other partners; or by the person’s death or bankruptcy. Whatever the reason, dissolution of the partnership was required at common law.15 By the same token, at common law a stranger to the general partnership (like a bankruptcy trustee) could not join the enterprise without the unanimous assent of all of the partners.16 “It is only by the unanimous consent of all the persons concerned that they become partners.” Blackmarr v. Williamson, 57 W.Va. 249, 253, 50 S.E. 254, 255 (1905). “[W]hen one member dies or is bankrupt, or sells his interest to a stranger, even to an associate, the partnership is closed, one chosen member is gone, the union 14 The partnership continued to exist, however, until its assets were distributed and debts were settled, a process called “winding up.” See Syllabus Point 4, Smith v. Zumbro, 41 W.Va. 623, 24 S.E. 653 (1896) (“Until the affairs of the partnership are settled, and outstanding engagements made good, the partnership must, in contemplation of law, have a continuance, so far as respects the winding up of its affairs.”). 15 See, e.g., Syllabus Point 3, McMahon v. McClernan, 10 W.Va. 419 (1877) (any partner may withdraw from a general partnership “at a moment’s notice, when he pleases and dissolve the partnership.”); Syllabus Point 3, Conrad v. Buck, 21 W.Va. 396 (1883) (“The assignment by one partner of all his interest in the partnership and its property to trustees for the payment of debts operates, ipso facto, as a dissolution of partnership.”); Hooper v. Hooper, 32 W.Va. 526, 9 S.E. 937 (1889) (death of a partner dissolves a general partnership); Flynn v. State Comp. Com’r, 141 W. Va. 445, 450, 91 S.E.2d 156, 159 (1956) (“A general partnership at will is dissolved by the withdrawal in good faith by any partner whenever he desires to withdraw from the partnership.”). 16 Setzer v. Beale, 19 W.Va. at 288 (“It is well settled, that no stranger can be introduced into a firm as a partner without the concurrence of every member of the firm.”) 18 broken, because he may have been the chief dependence for success, and the newcomer may be an unacceptable person, who would entail failure upon the firm.” Childers v. Neely, 47 W.Va. at 73-74, 34 S.E. at 829. The second rule of general partnerships we should remember is this: at common law, a partnership required some form of contractual agreement between the partners. No formal writing or act was required to create a general partnership, but nonetheless, there must have been some explicit or implicit evidence of a contractual relationship. As we said in Syllabus Point 1 of William Deering & Co. v. Coberly, 44 W.Va. 606, 29 S.E. 512 (1898): No particular form or solemnities are required to constitute a partnership between parties. It is sufficient that it is formed by the voluntary consent of the parties, whether that be expressed or implied; whether it be by written articles or unsolemn writings; or whether it be by tacit approbation, or by parol contracts, or even by mere acts.17 Third and finally, at common law, the mere shared ownership and use of property by two or more individuals (including a joint tenancy, tenancy in common, tenancy by the entireties, etc.) was not enough to create a partnership. One example given by this Court involves personal property: “Where two partners own a chattel, and 17 See also, Syllabus Point 2, Setzer v. Beale, 19 W.Va. at 274 (“A partnership among the parties themselves results from the intention of the parties, to be gathered from the contract or from their relations to and dealings with the property of each other.”); Syllabus Point 2, Duffield v. Reed, 84 W.Va. at 284, 99 S.E. at 481 (“A partnership, as to the parties thereto, springs from their intention, which need not be expressed in writing, but may be by oral agreement, or may be implied from their conduct and dealings with one another.”). 19 make a profit by the use of it, they are not partners without some special agreement which makes them so.” Childers v. Neely, 47 W.Va. at 72, 34 S.E. at 828 (citation omitted). Another example involves real property: “Two heirs or other co-owners of a farm, jointly farming it for profit, are not partners.” Id. Even if the property owners shared the profits from the use of the property, that alone was insufficient to form a partnership.18 With these three common law rules for general partnerships in mind, we now consider the common law rules for mining partnerships. In the mid- to late-1800s, largely in the American West, mining enterprises “were organized and operated before the establishment of any firm governmental authority and long before the widespread application of any body of commercial law.” David Sive, 2 Rowley on Partnership 688 (2nd Ed. 1960). There is great expense, and great uncertainty, in mining operations, and few individuals “are willing to risk all their means in such undertakings[.]” Skillman v. Lachman, 23 Cal. 198, 206 (1863). Further, much of the expense occurs at the beginning of the enterprise, opening the mine or drilling the well, when the enterprise does not (and may never) produce any income. So, as a general rule, individuals are impelled to associate with others and pool their 18 See, e.g., Mankin v. Jones, 68 W.Va. 422, 69 S.E.2d 981 (1910) (buying land for purpose of speculation does not create a partnership); Syllabus Point 1, Tyler v. Teter, 75 W.Va. 217, 83 S.E. 906 (1914) (“Mere sharing of profits is not a decisive test of the existence of a partnership. To constitute the relation, so far as this element is essential, it must appear the parties were to share and control the profits as common and joint owners thereof, and not merely as a measure of compensation to one of them for agreed services.”). 20 resources, time and skills to work the mine. Many times, in the 1800s, these individuals tried to work together under the legal framework of a general partnership. The problem came when one individual died, went bankrupt, or just wanted to sell or convey his interest in the mining operation. “[I]n ordinary partnerships, such sale would dissolve the partnership, and compel a winding up and settlement of the business, which would be most disastrous to a mining enterprise.” Id. “Unlike a factory, service profession, or grocery store, an oil well or a coal mine cannot sensibly be shut down and closed each time a joint owner wants to withdraw from the venture. . . . The capital outlay necessary for most mining ventures is so heavily front-loaded that it is inherently unfair to allow or force the venture’s termination before affording [all of the partners] a legitimate opportunity to recoup the investment.” Harry L. Mathison, Jr., “Mining Partnerships, a New Perspective on an Old Theory,” 2 Journal of Min. Law & Pol. 319, 321 (1987). Additionally, a creditor or supplier who had “provided materials or services to the mining venture could easily have his legitimate claim defeated if one of the partners withdrew and the mineral property was not liquidated at a price sufficient to satisfy his claim. This scenario would obviously work an injustice on the supplier, but it would also deter creditors from extending credit to mining ventures[.]” Id. at 322. To avoid the conundrum caused by the common law rules of general partnerships, various customs developed “because of the need of the mining community for a type of association not subject to the same rules that applied to the ordinary partnership.” Meister v. Farrow, 92 P.2d 753, 757 (Mont. 1939). In this chaotic legal 21 environment, the mining partnership was adopted as a legal device used “by the courts when all other theories have failed to fit the pattern that justice requires.” Clarence A. Brimmer, “Mining Partnerships,” 15 Rocky Mtn. Min. L. Inst. 4 (1969).19 The mining partnership theory is a “legal fiction” that “affords a solid foundation for resolving some of the thorniest issues which arise among joint owners of mineral properties and third parties directly affected by the activities of those joint owners.” Mathison, 2 Journal of Min. Law & Pol. at 319-20. Generally speaking, a “mining partnership is governed by all the rules applicable to ordinary partnerships, except such as flow from [the] fundamental difference[s] in the two associations.” Manufacturers Light & Heat Co. v. Tenant, 104 W.Va. 221, 225, 139 S.E. 706, 707 (1927) (citation omitted). The common law rules of mining partnerships evolved out of necessity, “differing from those [rules] regulating ordinary partnerships,” to protect individual members of a mining enterprise “and at the same time properly secure the claims of creditors and insure the successful working of the mine.” Skillman, 23 Cal. at 206-207.20 “A mining partnership is a hybrid concept 19 To be clear, mining partnerships were not entirely creatures of the American common law. Courts in England first tinkered with the concept of a common law of mining partners. See, e.g., Crawshay v. Maule, 36 Eng.Rep. 479 (Ch. 1818); Fereday v. Wightwick, 39 Eng.Rep. 18 (Ch. 1829). 20 Most states, except Pennsylvania (see Bell v. Johnston, 281 Pa. 57, 126 A. 187 (1924)), now recognize common law mining partnerships. California, Idaho, Montana, and Nevada later incorporated the common law of mining partnerships into statute. Brimmer, 15 Rocky Mtn. Min. L. Inst. at 4; Nancy Saint-Paul, 4 Summers Oil & Gas § 48:5 (3rd Ed. 2004). 22 designed to facilitate the development of mineral properties in a commercially reasonable manner.” Mathison, 2 Journal of Min. Law & Pol. at 320. This Court has defined a mining partnership in this way: “Where tenants in common or joint tenants of an oil lease or mine unite and co-operate in working it, they constitute a mining partnership.” Syllabus Point 1, Childers v. Neely, 47 W.Va. at 70, 34 S.E. at 828. A similar definition is found in Syllabus Point 1 of Manufacturers Light & Heat Co. v. Tenant, 104 W.Va. at 221, 139 S.E. at 706: “While co-owners or joint owners of a mining lease, before they operate for oil or gas, are tenants in common or joint tenants, when they unite and co-operate in working the lease, they constitute a mining partnership.” Encompassed under this definition are three characteristics of mining partnerships which differentiate them from general partnerships. The first, and most obvious, difference is the absence of delectus personae. The members of a mining partnership lack any control over the individuals who are associated with the enterprise; “any person may become a member by virtue of an inter vivos conveyance or even inheritance, against the other members’ consent.” Bob Kiesling, “Mining Partnerships,” 12 Baylor L. Rev. 103, 105 (1960). “If death, insolvency, or sale were to close up vast mining enterprises, in which many persons and large interests participate, it would entail disastrous consequences.” Childers v. Neely, 47 W.Va. at 74, 34 S.E. at 829.21 21 In Kahn v. Central Smelting Co., 102 U.S. 641, 645-46 (1880), the U.S. Supreme Court noted the unique problems of applying delectus personae to mining enterprises: (continued . . .) 23 Hence, members of a mining partnership may come and go without forcing the dissolution of the partnership and the interruption of the mining business. Unlike a common-law general partnership, a mining partnership “is not terminated by the death, lunacy, or bankruptcy of a partner, nor by the transfer of his interest to a stranger.”22 Associations for working mines are generally composed of a greater number of persons than ordinary trading partnerships; and it was early seen that the continuous working of a mine, which is essential to its successful development, would be impossible, or at least attended with great difficulties, if an association was to be dissolved by the death or bankruptcy of one of its members, or the assignment of his interest. A different rule from that which governs the relations of members of a trading partnership to each other was, therefore, recognized as applicable to the relations to each other of members of a mining association. The delectus personae, which is essential to constitute an ordinary partnership, has no place in these mining associations. There are other consequences resulting from this peculiarity of a mining partnership, particularly as to the power of individual members to bind the association, upon which there is no occasion now to express any opinion. 22 Syllabus Point 3, Childers v. Neely, 47 W.Va. at 70, 34 S.E. at 828 (“A sale of his interest by a member of a mining partnership to another member or a stranger does not dissolve the partnership, as in ordinary partnerships.”); Syllabus Point 1, Blackmarr v. Williamson, 57 W.Va. at 249, 50 S.E. at 254 (“One of the partners in a mining partnership may convey his interest in the mine and business without dissolving the partnership.”); Wetzel v. Jones, 75 W.Va. 271, 275, 84 S.E. 951, 952 (1914) (“Though a sale or assignment by one member effects a dissolution of a general partnership, it does not have that effect on a mining partnership.”); Syllabus Point 1, Park v. Adams, 114 W.Va. 730, 173 S.E. 785 (1934) (“A mining partnership is not terminated by the death of a partner”). One commentator noted that “the mining partnership resembles the tenancy in common, in that one associate may transfer his interest in the common property, placing the transferee in the same position, in relation to the others, as he himself was before the transfer.” Lester C. Hess, “Student Note: Mining Partnerships: Power of One (continued . . .) 24 Stephen Ailes, “Student Note: Mining Partnerships in West Virginia,” 41 W.Va.L.Q. 144, 145 (1934). Put concisely, “a mining partner relationship continues until the time the mine or the lease ceases its existence, since this relationship’s very nature involves the existence of a mine.” Kiesling, 12 Baylor L. Rev. at 106. Second, a mining partnership may form without any express agreement between the members of the association. While a mining partnership “may be the product of a formal agreement,” Brimmer, 15 Rocky Mtn. Min. L. Inst. at 4, it can also be created purely by operation of law, inferring a partnership from the conduct of the parties. A mining partnership “arises by operation of law when cotenants of mining lands unite and cooperate for the purpose of extracting minerals, whether coal, oil or gas from the land.” Ailes, 41 W.Va. L.Q. at 144. Accord, Wagner Supply Co. v. Bateman, 118 Tex. 498, 505, 18 S.W.2d 1052, 1055 (1929) (“The rule is that a mining partnership arises by operation of law where co-owners work a mine.”). “Mere co-working makes them partners, without special contract.” Childers v. Neely, 47 W.Va. at 73, 34 S.E. at 829. “In fact, even an express contract provision stipulating that the parties do not intend to form a mining partnership will be held immaterial, if in fact their acts and conduct constitute that relationship as a matter of law.” Brimmer, 15 Rocky Mtn. Min. L. Inst. at 4 (citing Meister v. Farrow, 92 P.2d at 760 (“the action of the parties . . . creates all of the elements of a mining partnership”). Partner to Bind other Partners in Dealings With Third Persons,” 34 W.Va. L.Q. 199, 200 (1927). 25 Finally, and most important to the instant case, is the issue of shared ownership of the real estate being mined. While a common law general partnership cannot arise solely by sharing ownership of property, shared ownership is the keystone of a mining partnership. “It is well settled that a mining partnership cannot exist in the absence of co-ownership of a mineral interest. Some form of concurrent ownership is an indispensable requisite.” Brimmer, 15 Rocky Mtn. Min. L. Inst. at 4. A common law mining partnership cannot exist without there being two or more people sharing ownership of a mineral interest. Some form of concurrent ownership is an indispensable requisite. Whether a fee simple title to an entire tract or a lease of one seam of one mineral below the surface, the members of a mining partnership share ownership of the mineral rights. As we stated in one of our earliest cases defining mining partnerships, “Ownership of shares or interests in the mine is an essential element of a mining partnership.” Blackmarr v. Williamson, 57 W.Va. at 253, 50 S.E. at 256. Our other cases similarly have required partners of a mining partnership to have an ownership interest in the minerals. See, Syllabus Point 1, Childers v. Neely, 47 W.Va. at 70, 34 S.E. at 828 (“Where tenants in common or joint tenants of an oil lease or mine unite and co-operate in working it, they constitute a mining partnership.”); Syllabus Point 1, Wetzel v. Jones, 75 W.Va. 271, 84 S.E. 951 (1914) (“Where joint owners of an oil and gas lease unite in operating the demised premises thereunder, without any special agreement as to the character of their relation to each other, they constitute a mining partnership.”); Syllabus Point 1, Manufacturers Light & Heat Co. v. Tenant, 104 W.Va. at 221, 139 S.E. at 706 (“While co-owners or joint owners of a mining lease, before they 26 operate for oil or gas, are tenants in common or joint tenants, when they unite and co­ operate in working the lease, they constitute a mining partnership.”). To be clear, however, a mining partnership does not arise simply by reason of two or more people having a cotenancy or co-ownership of an interest in minerals. Instead, a mining partnership “arises only when the co-owners or cotenants unite in working the same for the purpose of extracting mineral therefrom.” John P. Gray, “Mining Partnerships,” 3 Wis. L. Rev. 13 (1924). “Until the ground is worked . . . [t]he owners are merely cotenants and their rights and duties are to be determined as such.” Id. at 15. “If two or more owners of a mine unite in working it, without any partnership agreement, the act of working it together creates a mining partnership; and the same is true of two or more holding interests in a lease of mining property.” Syllabus Point 1, Kirchner v. Smith, 61 W.Va. 434, 58 S.E. 614 (1907). “Cessation of the firm’s business will return the parties to the status of” cotenants or co-owners of the mineral estate. Ailes, 41 W.Va. L.Q. at 146. We now turn to the question certified by the Court of Appeals, but rephrase the question (pursuant to our authority to do so).23 The Court of Appeals asks this: Whether the proponent of his own working interest in a mineral lease may prove his entitlement thereto and enforce his rights thereunder by demonstrating his inclusion within a 23 “When a certified question is not framed so that this Court is able to fully address the law which is involved in the question, then this Court retains the power to reformulate questions certified to it under . . . the Uniform Certification of Questions of Law Act found in W.Va. Code, 51-1A-1, et seq.[.]” Syllabus Point 3, in part, Kincaid v. Mangum, 189 W.Va. 404, 432 S.E.2d 74 (1993). 27 mining partnership, without resort to proof that the lease interest has been conveyed to him by deed or will or otherwise in strict conformance with the Statute of Frauds. Our thorough examination of the common law leads us to the firm conclusion that each member of a mining partnership must hold an ownership interest in the mineral estate that is being mined. Because a mineral interest is an estate in lands which “may be taken, destroyed, or consumed,” any ownership interest in a mineral estate must be created or conveyed by a deed, will, or similar written conveyance under the Statute of Frauds. See Syllabus Point 1, in part, McCullough Oil, Inc. v. Rezek, 176 W.Va. 638, 346 S.E.2d 788 (1986) (“An oil and gas lease (or other mineral lease) is . . . a conveyance[.]”); Syllabus Point 2, Lawson v. Kirchner, 50 W.Va. 344, 40 S.E. 344 (1901) (“An oil lease for oil and gas purposes is a conveyance or sale of an interest in land conditional and contingent on the discovery and reduction to possession of the oil or gas.”). We therefore conclude that, for a person to establish an ownership interest in a mining partnership, the Statute of Frauds requires that the person show their interest was created or conveyed by a deed, will, or similar written conveyance. See W.Va. Code § 36-1-1.