Court Opinion

ID: 8791569
Source: CourtListenerOpinion
Date Created: 2022-11-26 13:53:07.887525+00
Date Added: 2024-06-11T17:03:23.129577
License: Public Domain

ALDRICH, District Judge
(dissenting). It seems to me that this case discloses a plain equity in the appellee.
The majority opinion proceeds upon the idea that the agreements do not disclose any definite purchase price; that there was no actual agreement or liability beyond the payment of the $10,000 and the $90,000; and that the transaction does not disclose an intention- to bind an interest in the land, or to touch 25 per cent, of the net profits as security for the remaining $900,000.
If the provision, in the agreement of September 15, 1906, which declares that “this agreement shall be binding upon the parties hereto, their heirs, executors, administrators, successors and assigns,” which was reiterated in the final agreement of November 15th, was not intended as security through touching 25 per cent, of the product of the mine after deducting expenses of mining, etc., to what possible end could it have been used? It did not express the idea that profits in a business are a technical royalty, or that royalty is rent. It did, however, plainly and unmistakably express the idea that the grantor should hold to himself 25 per cent, of the ore product, less operating and other contemplated incidental expenses, until the aggregate sum of $1,000,000 is received, and that the agreement is binding upon successors and assigns. If, as said by Mr. Justice Holmes, in Barnes v. Alexander, 232 U. S. 117, 34 Sup. Ct. 276, 58 L. Ed. -, decided January 12, 1914, we are to start “with the principle that an informal *829business transaction should be construed as adopting whatever form, consistent with the facts, is most fitted to reach the result seemingly desired,” there is no difficulty whatever in reaching the conclusion that the parties intended security. It is obvious that there could be no security unless the agreement touched the mine itself. It is quite true that the profits and the security were contingent upon operations and contingent upon success; but these contingencies were obviously contemplated, as was the contingency of success in the contingent fee case with which the Supreme Court was dealing in the opinion just quoted.
It is perfectly true, and there is no contention against the idea, that the agreement of September 15th, and that of November 15th as well, contemplated business operations, and that the,business of mining and preparing the product under the terms of the agreement was left altogether to the grantee and its successors, the situation to be subject, of course, to such considerations of good faith as the relations established by the agreement might require.
It is impossible for me to see that the case of Stratton’s Independence, Limited, v. Howbert, 231 U. S. 399, 34 Sup. Ct. 136, 58 L. Ed. -, decided December 1, 1913, which related to the question whether the gains of a mining operation were the income of a business within the meaning of the act of 1909, has any application whatever to the questions or the principles involved in the case at hand, while the reasoning in the case of Barnes v. Alexander, which related to a contingent fee, with eyes toward the future and to the division of fruits if and when they should be received, is very close to the question which we are now considering.
The case at bar was decided by the District Court for the District of Maine in August, 1912, and the decision and the reasons for it were stated in an elaborate and well-considered opinion, which is reported in 198 Fed. 907. The opinion of Judge Hale contains a careful and comprehensive history of the titles in question, the issues raised by the pleadings, and the questions of law and fact involved; and there is no occasion for restating them here.
The properties to which the rights in question relate consisted of copper mines and mining rights situated in Arizona, and known as the Blue Bell Mines. The mines were sold for $1,000,000, and were conveyed by deed executed in connection with certain agreements as to the purchase price.
There were two agreements in connection with the transaction, one on September 15, 1906, which stated the terms of the bargain or agreement of sale between the Arizona Blue Bell Company and one John L. Elliot and the terms of the contemplated conveyance. Upon the execution of this agreement $10,000 of the purchase price was paid. This agreement and the rights under it were subsequently assigned to the New Jersey Consolidated Arizona Smelting Company.
On November 15, 1906, in conformity with and in furtherance of the agreement of September 15th, the Arizona Blue Bell Company conveyed to the New Jersey Consolidated Arizona Smelting Company. At the tíme the deed was delivered, the $90,000 which was stipulated *830for by the agreement of September 15th was paid by the grantee. On the same day — that is to say, November 15th — and as a part of the transaction involved in the execution and delivery of the deed, the grantee executed a written agreement to the grantor which, in conformity with and in furtherance of the agreement of September i5th, provided for the payment of the remaining $900,000 out of the net earnings of the properties. The agreement was not recited in the deed, nor was it referred to, but in express terms it was made binding upon the respective parties, their successors and assigns, and its benefits under express terms were to inure accordingly.
The fair import of the agreement is that the sale was for $1,000,-000. The $10,000 and the $90,000 were definitely described as advance payments. The agreement of September 15th recites that the Blue Bell Company agrees to sell and Mr. Elliot agrees to purchase, etc., the .price to be paid by Mr. Elliot for the properties to be the sum of $100,000, $10,000 of which was to be paid when the agreement was signed, and the remaining $90,000 upon' delivery of the deeds; and there is a further covenant and agreement to pay, or cause to be paid, to the Blue Bell Company, until it shall have received the aggregate sum of $1,000,000, 25 per cent, of the net profits. The agreement of November 15th recites that the consideration is $100,-000 in cash and the payment to the Blue Bell Company of 25 per cent, of the net profits resulting from the operation of the mining properties until the Blue Bell Company shall have received the aggregate sum of $1,000,000. Again, it is provided that, in consideration of the execution and delivery of the deed, the Consolidated Company agrees to pay, or. Cause to be paid, 25 per cent, of the net profits resulting from operations until the Blue Bell Company shall have received the aggregate sum of $1,000,000, and that such payments shall be made quarterly. It is, of course, true that the right of the grantor, or its successors, to receive the $900,000 was contingent upon success of operations to be carried on under the relations which were created by the agreements. This was something contemplated by the parties at the time they made the trade and created the security.
The questions are:
First, whether the agreement for the payment of the purchase price from the net earnings of the mining properties constitutes a covenant at law which runs with the land, with or without regard to the question of notice; and,
Second, if not technically that, whether it becomes a charge upon the land which will be enforced in equity against parties holding with notice.
It must be borne in mind as a leading and quite controlling consideration that the values involved were not in any substantial measure based upon the land in the sense in which land values are popularly and generally accepted, but upon an inherent product of the land whose value and availability were dependent upon working and mining operations. Indeed, the agreement of November 15th recites that the quarterly payments are to be made from the net profits of the *831preceding quarter, and that the profits shall be calculated upon the net proceeds of the operations of the mining properties. It is difficult to conceive of a situation which would more clearly warrant a conclusion that the right sought to be established by the agreement touched and concerned the land, because the right had reference to an imbedded and hidden resource whose value depends upon operating development, every phase of the right being thus incident to. and consequent upon the right of possession and control. An agreement of this character touches and concerns the land, because it is primarily founded upon and attaches to the product which is the sole or principal element of value therein. A question'of this kind is largely controlled by the nature and character of the property and the intention of the parties.
The nature of the interest covered by the agreement in this case is apparently such as to bring the covenants unquestionably within that class of cases which hold the most restricted view as to covenants which touch the land. From the very nature of the interest and the character of the right sought to be established, the covenants, if they were to be at all potential, necessarily attached to an undeveloped product which must, if anything did so, produce the profit out of which the purchase payments were to be made, and whether profits were to be realized was necessarily dependent upon possession and development. It touched an interest which, as expressed in Camp v. Boyd, 229 U. S. 530, 558, 33 Sup. Ct. 785, 57 L. Ed. 1317, in speaking of “ground rents,” represented a part of “the substantial fruits,” and “the entire fruits, of ownership.”
The interest and the right in question necessarily inhered in and attached to the land, or, to be more exact in a situation like this, it attached to the inherent fruit which was the chief element of the land value. It is palpable that the parties intended that the agreement should touch the land and its imbedded product, because by express terms, it was stipulated that “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,” etc., and because, by the express terms of the agreement, the rights thereunder were to inure to the benefit of successors and assigns, and its burdens were to rest upon successors and assigns.
While the appellant contends that the terms of this agreement do not touch and concern the land, it is apparent that its chief contention is based upon the idea that, if the terms of the agreement do touch, they do not run with the land, because there is no reversionary right in the grantor. Upon this question whether an interest which so essentially inheres as this does in the sole element of undeveloped land resource is dependent upon a reversionary interest in the grantor, and upon the question whether privity of estáte means tenure, or easement, or succession to title, the briefs and the arguments present an interesting and valuable discussion of the English and American cases, with the result of apparent demonstration that, if the question whether the covenant runs is contingent upon the existence of a reversionary right, the contingency is not founded upon'reason, and, *832if applied to a situation like this, that the denial of a meritorious right would be based upon grounds of fiction, rather than upon grounds of reason.
If persuaded, however, that the potentiality of covenants, which cut so deeply into an inherent land resource as-, these do, should not be made contingent upon a technical reversionary interest, still there might well be hesitancy in placing the decision upon that ground, because it is with reluctance that courts seize upon difficult questions— questions confronted with confused conditions under the authorities and with divergent reasonings of varying weight; and it is only when a determination of such controverted questions is necessary for the decision of the case that they are inclined to assume the responsibility of attempting a proper solution. Such a necessity does not exist here, because the second position of the appellee, which is, that even if the covenant does not run technically at law it créates a charge or a burden upon the land which should be enforced in equity against a purchaser with notice, presents an adequate ground for establishing and enforcing the rights of the covenantee.
This case is one of equitable cognizance, because it is for an accounting and an injunction, and under a familiar rule that when equity assumes jurisdiction for any purpose with .respect to a given subject relief will be granted with respect to all questions between the parties relating to the same situation, the complainant has an adequate and complete remedy in equity. Thus, it follows that this case is not at all embarrassed by the rule which exists in some jurisdictions, subject to many exceptions, that courts of equity will not deal with questions of covenant where they run at law. Therefore the establishment of this right, upon the ground that the covenant operates as an equitable charge upon the land, is not at all dependent upon the question whether the covenant does or does not technically run at law, and, even if the question whether the covenant technically runs at .law is to remain undetermined, still the views already expressed in respect to the nature of the property covered by the agreement, and the sense in which the agreement attaches itself to the inherent property value, are pertinent upon the question involved in the proposition that the agreement becomes an equitable charge enforceable against parties having notice.
The opinion of the District Court deals with the agreement in respect to future payments, as though it involved a royalty. This is 'perhaps not strictly true; but, as the payments are necessarily involved in the operation of development and use, and as they are based upon a certain percentage of the benefits, the obligations are in a very considerable sense like those with respect to royalties. Indeed, the covenants relate to an interest so inherent in the land resource as to bring them nearly if not quite within the requirements of the more exacting rules which obtain under the principles governing the subject of ground rents.
The propositions that the nature of the property is such as to make the undertakings and obligations nearly if not quite like those in respect to expressed royalties; and such as to bring the right nearly if *833not quite within the principles which govern that class of rights involved in “ground rents”; that the agreement,relates to a property-interest so inherent in the land as to make the undertakings and obligations correspond with the undertakings and obligations which obtain in respect to covenants which run at law with land, unless defeated by a possible technical or fictional rule in respect to reversion — • involve* considerations which bear 'upon the question whether the agreement at issue should be accepted as one which constitutes a charge or burden upon the land which equity will enforce as against a successor in title with notice.
The exigencies of this case do not require an analysis and reconciliation of the decisions in this country and England since Legard v. Hodges, 3 Brown’s Chancery, 531, and Tulk v. Moxhay, 2 Phillips, 774, upon the subject of covenants which do or do not run at law; in respect to equitable relief and its scope; under what circumstances enforceable; and why in some jurisdictions it is afforded only-in respect to restrictive covenants or agreements.
While there has been diversity of reasoning and of authorities upon the general question as to what constitutes an equitable charge upon land, and as to the application of the equitable doctrine to particular cases, it may now, at least, be accepted as settled and established by the weight of judicial authority that where an agreement covers interests which inhere in the land, and particularly in situations where the interest covered by the agreement depends upon something to be produced from the land, where the agreement is executed for the purpose of securing the purchase price, and where it is clear that the intention was to bind successors and assigns, that the land itself will be affected by an equitable burden or charge enforceable in equity upon proceedings for an accounting against purchasers with notice.
It is not understood that the wide American discussion, and the very considerable diversity of judicial opinion in respect to the subject of implied equitable liens and implied equitable charges, nor the case of Baker v. Fleming, 6 Ariz. 418, 59 Pac. 101, 2 Ann. Cas. 370, which deals only with the question of implied equitable liens, has any application whatever to a situation in which the charge or security is sought to be established under a distinct express agreement in respect to an unpaid purchase price, and upon notice to the parties against whom remedy is sought.
It would seem that, without much regard for particular words or particular form, express agreements which relate to values inherent in land, and which are executed for the purpose of securing the payment of the purchase price, where the intention of the parties is plain, have generally been accepted in situations where covenants do not technically run at law as creating an equitable charge. This proposition is sustained by text-writers and by numerous authorities, which it is not necessary to review. Upon the question as to the existence and effectiveness of such a rule in a proper situation, it is deemed sufficient to refer to the case of Walker v. Brown, 165 U. S. 654, 17 Sup. Ct. 453, 41 L. Ed. 865, and the authorities cited in support of the following paragraphs as to notice.
*834Now,. as to notice to the appellant, the Consolidated Arizona Smelting Company of Maine (not the Arizona Smelting Company of New Jersey), which holds its title as a purchaser at a bankrupt sale.
The question in respect to notice is doubtless one of law and fact, and the court below held and found that the purchaser’s connection with the title and its actual notice of the agreement before confirmation of the bankruptcy sale, a time at which, upon the ground *of surprise, it could have receded from its attitude as purchaser, amounted to notice, or was sufficient at least to put it upon inquiry as to the state of the title and of the grantor’s'agreement for security. I see no reason for disturbing that conclusion. Coal Company v. Doran, 142 U. S. 417, 427-442, 12 Sup. Ct. 239, 35 L. Ed. 1063; Luke v. Smith, 13 Ariz. 155, 108 Pac. 494; Luke v. Smith, 227 U. S. 379, 33 Sup. Ct. 356, 57 L. Ed. 558.
' I pass by discussion in respect to the operativeness of agreements not in deeds and not recorded, as well as the point of the appellant’s that the agreement securing the purchase price was purposely and wrongfully withheld from the record, as immaterial, .because my position is grounded upon the idea that the purchaser is chargeable with notice of the security and of the burden on the land.
The purchaser at the bankrupt sale took the title of the trustee in bankruptcy, which was that of the bankrupt, and no more. Company v. Cassell, 201 U. S. 344, 26 Sup. Ct. 481, 50 L. Ed. 782; Murphey v. Brown, 12 Ariz. 268, 100 Pac. 801; Hewit v. Berlin Machine Works, 194 U. S. 296, 24 Sup. Ct. 690, 48 L. Ed. 986.
I do not perceive any equitable considerations which, against the obvious purposes of the parties, can operate, not only to defeat the plain terms of their agreement, but to cause the grantor to lose the price of his land. Paying to the grantor, under an agreement, not 25 per cent, as an arbitrary and fixed rate, but 25 per cent, from the net profit of operations upon land for which the grantor has not been paid, is neither an oppression nor an inequitable burden upon successors or purchasers with notice.