In re Williams Petroleum Corp.

Opinion — Cosgrave

COSGRAVE, District Judge.

On January 12, 1935, Fred Wiese and others, the owners of the land, granted to Williams Petroleum Corporation a fee-simple title, subject to certain taxes and recorded restrictions, but “reserving unto the grantors and heirs and assigns 17%% of all gas, oil and hydrocarbon substances.” The deed was recorded a few days thereafter. Later, on March 28, 1935, and as part of the same transaction, the parties to the deed entered into a separate written agreement which, after reciting the making of the deed and the reservation mentioned, provided that the first party, the corporation, would pump, remove, and produce from the real property the 17% per cent, of oil “belonging to parties of the second part,” the grantors in the deed, without any expense to the second parties.

As a means of raising money with which to prosecute the development of the property, the Williams Petroleum Corporation determined, and so advised the grantors, that it intended to sell per cents, or undivided interests in the property, which it did. The interests thus sold were represented by grant deeds, all made after the recording of the deed to the corporation.

The Williams Petroleum Corporation, being insolvent, petitioned for reorganization under 77B of the Bankruptcy Act (11 USCA § 207). It was deemed desirable that the various interests, being those asserted by the grantors and others of similar character, the interests of the creditors of the corporation and the interests of those who had taken under the Jioo interest deeds, all be ascertained and adjusted. The matter was referred for such ascertainment to a special master. The special master held hearings, made findings, and filed the same herewith. He has found that a mining partnership existed between the grantors and the Williams Petroleum Corporation, and, as a consequence, a joint enterprise was engaged in, and that the interest of the grantors therefore is subordinate to that of the creditors; that the property was a mining claim within the meaning of the law. The matter comes before this court on exceptions to his report filed by Wiese and the other grantors.

The question to be decided is whether the master’s conclusion was ' correct.

In addition to the foregoing facts, it is shown that the corporation deposited in escrow a quitclaim deed to the property to be delivered to the grantors in the event it failed to develop the property as required by the agreement of March 28. The transactions in effect present the situation arising under an ordinary oil lease. Other than engaging in this transaction and requiring of the corporation the agreement described to produce the oil, the grantors took no part whatever in the prosecution of the enterprise. They assumed no authority with respect to the operation of the well, paid no part of the expense, but occupied a position similar to that of the owner of the property under an ordinary lease for development for oil.

*86The Civil Code of California, § 2511, provides that a mining partnership exists when two or more persons own or acquire a mining claim for the purpose of working it and extracting the mineral therefrom and actually engage in working the same. An express agreement to become partners is not necessary, but their relation arises from ownership of interests in the mine “and working the same” for the purpose of extracting the minerals. Id. § 2512. A member of the partnership shares in the profits and losses. Id. § 2513.

Tested by the plain provisions of section 2511, a necessary incident to a mining partnership is the actual working of the mine. It is evident that the grantors on the one hand and the mining corporation on the other did not join in working the mine, for the undisputed facts show that the grantors had nothing whatever to do with the actual working. They granted the land itself, reserving an undivided interest in its mineral product. The interest of the grantors does not differ materially from that of the owner in an ordinary oil lease. In no case that has been called to my attention has it been held that the owner of the land in making an oil lease, which required the drilling of a well, was held to be a mining partner of the lessee.

The actual working of the mine by the joint owners is essential to a mining partnership. 22 English Encyclopedia of Law, p. 228.

The partnership arises only when the co-owners unite and co-operate in working the mine. Dorsey v. Newcomer, 121 Cal. 213, 53 P. 557; Prince v. Lamb, 128 Cal. 120, 60 P. 689.

The element existing in Harper v. Sloan, 177 Cal. 174, 169 P. 1043, 181 P. 775, and which was the determining factor in that case; is distinctly lacking here. A mining partnership was held to exist because the defendants, although not performing physical work upon the claim, supplied money to be used for that purpose. Harper v. Sloan, supra, 177 Cal. 174, 181, 182, 169 P. 1043, 181 P. 775. The reservation has been construed by the highest court in California to he an estate in real property, and the recordation thereof gives constructive notice. Callahan v. Martin (Cal. Sup.) 43 P.(2d) 788, 797.

I think the situation presented does not constitute the parties mining partners.

The exceptions to the master’s report and findings filed by the grantors Wiese are therefore allowed.

Exception to the trustee of the debtor.