BROWN, District Judge.
The decree of the District Court is in-part to the effect that the appellant, Consolidated Arizona Smelting-Company, a Maine corporation, now' holds its title to mines in Arizona known as the “Blue Bell Mines,” subject to two agreements of the Arizona Blue Bell Copper Company; the first, of September 15, 1906,. with John L. Elliot, the second, of November 15, 1906, with the Consolidated Arizona Smelting Company, a New Jersey corporation, and “especially subject to the payment of the balance of the purchase price-of $900,000, in accordance with the terms of said agreements.”
The opinion of the District Court is reported in 198 Fed. 907.
The New Jersey corporation, party to the second agreement, was adjudged bankrupt April 27, 1908, and under direction of the bankruptcy court its mining property was sold;' the purchaser took a deed from- the trustee in bankruptcy and subsequently made conveyance- to the appellant, the Maine corporation.
. The principal question before us is whether, by reason of its acquisition of -title to the mines, the Maine corporation, appellant, became chargeable with certain payments of a share of the net profits resulting from the operation of said mining properties, as provided in the said agreements of September 15 and November 15, 1906.
The case of the complainant, appellee, is put upon two grounds:
1. That said agreements contain covenants that at law run with the land.
2. That even if the covenants do not run at law they create an equitable charge.
The written agreement of September 15, 1906, was to the effect that the Blue Bell Company agreed to convey to Elliot, and Elliot to pur[815]*815chase, certain mines and mining property in Arizona, together with the appurtenances, machinery, tools, and utensils on said premises; the conveyance thereof to be “made by full, covenant warranty deed, and the title thereto shall be a good and marketable title and free from encumbrances,” excepting, however, a certain lease and certain claims which are not material in the present case.
In connection with the finding of the District Court that there is an unpaid balance of the purchase price amounting to $900,000, particular attention should be given to the second, third, and' fourth paragraphs :
“Second. The price to be paid by Mr. Elliot for the said properties is the sum of one hundred thousand dollars ($100,000), ten thousand dollars ($10,: 000) of which shall be paid upon the signing of this agreement, the receipt whereof is hereby acknowledged, -and the remaining ninety thousand dollars ($90,000) shall be paid upon the delivery of the deeds to the said 'property, as hereinafter provided. Mr. Elliot further covenants and agrees to pay, or cause to be paid to the Blue Bell Company, until it shall have received the aggregate sum of one million dollars ($1,000,000), twenty-five per cent. (25) of the net profits resulting from the operation of the said'mining properties. The said payments shall be made quarterly on the first days of January, April, July and October, or as soon thereafter as the net profits for the preceding quarter can be conveniently ascertained. The net profits herein referred to shall be the net proceeds from the operation of the said mining properties after deducting the cost of mining, necessary development work (but not including purchase of new machinery), transportation, sampling, treatment and smelting, plant superintendence, and all proper charges incidental thereto, but not the rent payable under the ■ said lease of the said mining property. Mr. Elliot will also procure, to be executed by the Arizona Smelting Company, a corporation of the state of New Jersey, operating at Humboldt, Arizona, a contract for the smelting of all the ores produced from the said mining property for a period of five years, substantially in the form hereto annexed, marked ‘A.’
“Third. The deeds of the said properties, shall be delivered, and the remaining ninety thousand dollars ($90,000) of the purchase price, other than the twenty-five (25) per cent, of the net profits, shall be paid at the office of John L. Elliot, No. 71 Broadway, city and state of New York, on the fifteenth day of November, 1906, at 12 o’clock noon.
“Fourth. This agreement shall be binding upon the parties hereto, their heirs, executors, administrators, successors and assigns.”
The agreement of November 15, 1906, with, the said New Jersey corporation (subsequently a bankrupt) recites that on or abo.ut September 24, 1906, the contract of September 15th and all rights thereunder were duly assigned by Elliot to the Consolidated Company (of New Jersey), that the Blue Bell Company executed and delivered á deed to the said Consolidated Company, and that “it is deemed advisable and necessary that the obligation of the Consolidated Company under said contract to make such further payments to the Blue Bell Company out of the net profits of said properties should be set forth in an agreement and form for record,” and contains the following provision:
“Now, therefore, in consideration of the ex<cution and delivery of- said deed by the Blue Bell Company, and of the sum of one dollar ($1) paid by the Blue Bell Company to the Consolidated Company, the receipt whereof is hereby acknowledged, the Consolidated Company hereby agrees to pay, or cause to be paid, to the Blue Bell Company twenty-five per cent, of the net profits resulting from the operation of the said ‘Blue Belle,’ ‘Blue Coat’ and [816]*816‘Blue Buck’ patented mining claims, until the said Blue Bell Company shall have received the aggregate sum of one million dollars ($1,000,000). Said payments shall be made quarterly on the first days of January, April, July and October in each year, or as soon thereafter as the net profits for the preceding quarter can be conveniently ascertained. 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 (but not including the purchase of new machinery), transportation, sampling, treatment and smelting, and plant superintendence, and all proper charges incidental thereto, but not including the rent payable under the lease of said mining properties, dated twenty-ninth December, 1905, to the Arizona Exploration Company.
“This agreement shall be binding upon and inure to the benefit of the successors and assigns of the respective parties hereto.”
[1] Upon an examination of these two agreements, it appears that it is incorrect to say that the mines were sold for the sum of $1,000,-000, or that in addition to the sum of $100,000 which was duly paid there was an agreement to pay a balance of the purchase price, amounting to $900,000. The covenant is to pay 25 per cent, of the net profits* resulting from the'operation of the said “Blue Belle,” “Blue Coat,” and “Blue Buck” patented mining claims, until the said Blue Bell Company shall have received the aggregate sum of $1,000,000.
This is an agreement for a share in the profits of mining operations. The payments are wholly contingent upon the success of these operations, and upon the earning of a profit, and are measured by the amount of profit. According to the success of the enterprise nothing may be payable, or any amount up to, but not exceeding the sum. of $900,000, which is a maximum beyond which the right of the Blue Bell Company to share profits ceases. Before profits cán be shared, the operating company is entitled to reimburse itself for the expense of development and of operation, and also for the expense of transportation, sampling, treatment, and smelting of ores, plant superintendence, and all proper charges incident thereto.
We must not lose sight of the very substantial difference between an agreement to pay $900,000 as an agreed value for land and an agreement to give a quarter share of profits, if there are profits, with a maximum of $900,000. The present worth at the date of the deed of such a prospective share or chance in a mining venture is wholly conjectural. The covenantor does not acknowledge that the present value of the mines which have been conveyed to it is by any specific sum more than the cash payment. In addition to a satisfactory purchase price, it gives a share in the venture. It is, however, erroneous to treat the present case as if the grantor had parted with a consideration of the value, of $900,000 for which a debt of $900,000 was created.
The operation of the properties from which it is contemplated that a profit may^result includes not merely the winning of ore, but also the transportation and smelting of ores and the sale of metals. The contract of September 15th provides that Elliot will procure to be executed by the Arizona Smelting Company, a corporation of the state of New Jersey, operating in Humboldt, Ariz., a contract for the smelting of all the ores produced from the said mining property for a [817]*817period of five years, substantially in the form marked “A,” which provides for the terms on which ores and concentrates are to be smelted. The covenants of Elliot and of the New Jersey corporation, his as-signee, contain no express terms binding the covenantor to operate or restricting or controlling the use of the properties conveyed, and seem to us to relate rather to a share of the profits of Ihe business to be conducted by the covenantor than to the lands or mines themselves.
The parties contracted upon the supposition that the business would in fact be carried on; nevertheless, it does not appear that the grantee was willing to bind either itself or its assigns that it should be carried on. There is a clear distinction between the expectation of' the parties and the duty imposed by the contract, and the court would not be justified in going farther than the expressions used in the contract. Maryland v. Railway Co., 22 Wall. 105, 112, 22 L. Ed. 713.
If from the agreement to share profits could be implied a further agreement to make reasonable efforts and reasonable expenditures for the development of the mines, this would be in its nature a personal agreement pure and simple. Ownership of mining land does not involve as a mere incident the ability to raise capital and to furnish machinery and labor for developing it.
If' it can be said that these covenants “touch and concern the land” at all, it is but indirectly and partly. The covenants certainly do not wholly touch and concern the land, but relate immediately to a business to be conducted not only by the use of the mine, but by the use of personal property, and both on and off the land conveyed.
The contention that the contemplated profits will be the proceeds of the land, or issue out of the land, £.nd that therefore an agreement concerning these profits concerns the land and runs with the land, involves a disregard of the proper scope of the terms of the agreement. What seems to us the error of this contention is made clear by the decision of' the Supreme Court of the United States in the case of Stratton’s Independence, Ltd., v. Howbert, 231 U. S. 399, 34 Sup. Ct. 136, 58 L. Ed. -. In that case it appears to have been argued that the proceeds of mining operations conducted by a mining corporation do not represent values created by or incident to the business activities of such a corporation, and therefore cannot be a bona fide measure of a tax levied at such corporate business activities; that the proceeds of mining operations result from a conversion of the capital represented by real estate into capital represented by cash, and are in no sense income. The court said, however:
“It is not correct, from either the theoretical or the practical standpoint, to say that a mining corporation is not engaged in business, but is merely occupied in converting its capital assets from one form into another. The sale outright of a mining property might be fairly described as a mere conversion of the capital from land into money. But when a company is digging pits, sinking shafts, tunneling, drifting, stoping, drilling, blasting, and hoisting ores, it is employing, capital and labor in transmuting a part of the realty into personalty, and putting it into marketable form. The very process of mining ¿s, in a sense, equivalent in its results to a manufacturing process. And, however the operation shall be described, the transaction is indubitably ‘business’ within the fair meaning of the act of 1909; and the gains derived from it are properly and strictly the income from that business; for ‘income’ [818]*818may be defined as the gain derived from capital, from labor, or from both combined, and here we have, combined operations of capital and labor.”
The error of attributing to the mine itself the entire profits of mining operations is sufficiently pointed out in that opinion. The observation that “the very process of mining is, in a sense, equivalent in its results to a manufacturing process,” has a special application to the contemplated operations in the present case, which included not alone the winning of ore, but the production of metals from ore, and a profit from what is “rather a manufacture of art and labor resulting from the use and application of minerals” than proceeds of the realty. See King v. Pomfret, 2 M. & S. 139, 143; Burdick v. Dillon, (C. C. A. First Circuit) 144 Fed. 737, 741, 75 C. C. A. 603; In re Chandler, 1 Lowell, 478, 479, Fed. Cas. No. 2,591.
The uncertainty of the obligation is a strong indication that no present lien or security on the land was intended. If the parties understood they were merely to share profits, and profits were dependent upon success, it was natural not to contract for security.
,The chief reliance of the complainant is the provision in the agreement of November 15th:
“This agreement shall be binding upon and inure to the benefit of the successors and assigns of the respective parties hereto.”
It is argued that this shows an intention that one who should succeed the covenantor in the title to the mines should assume the obligation of paying a quarter of the net profits from their operation, and also that this shows an intention that the land should stand as security for the payment of the quarter share of profits.
This provision contemplates a succession or substitution of .parties by the voluntary act of either of the contracting parties. We think, however, that no intention to enlarge the previous terms of the agreement can be deduced from it.
As the original covenantor has not expressly agreed that it will not alienate or incumber the land, and has not restricted its use, and has not expressly agreed that the land should stand as a security for the performance of the covenant, we are of the opinion that a voluntary conveyance of the mine by the original grantee, while it might have defeated the expectation of the grantor, would not have violated any right of contract and would not have released the cove-nantor from its personal obligations.
Successors and assigns were to be bound only as the original cove-nantor was bound, and it was contemplated that one who should succeed through voluntary assignment from the covenantor to the business from which the profit was to result should be placed in the same contractual relations as to that business.
The appellant is not in the proper sense a successor and assign of the bankrupt corporation so as to become, as its representative, substituted generally upon its obligations. It has merely succeeded in the title to a portion of the bankrupt’s assets. It is by no means evident that it was intended that one to whom the mines alone might be leased or sold should be required to assume any obligation to the complain[819]*819ant. Both Elliot and the bankrupt corporation agreed “to páy or cause to be paid" 25 per cent, of the net profits resulting from the operation of the said properties. This is not confined to operations conducted by any particular person. Alienation is not expressly prohibited, and in fact seems to be contemplated, and would not defeat the personal obligation of the covenantor.
The contract, having regard both to its express terms and to its nature, is one that is capable of performance by the original cove-nantor, although it may have leased or sold the mines for others to operate, and is one not capable of performance merely because of ownership of the mines.
The argument that because successors and assigns are to be bound as the original covenantor is bound, therefore the original covenantor has agreed that the land while in its hands shall be security for the performance of the personal covenant, seems unconvincing. We cannot infer from a provision for a substitution of parties to the contract an intention to enlarge the obligation of the original covenantor or to impose a burden on the land.
The use of this conventional phrase concerning successors and assigns is of slight significance, since that part of the agreement specifically setting forth the obligation to make payments makes no provision that the land is bound as a security. This phrase would be quite as appropriate in an agreement between two corporations touching a business entirely disconnected from the land as in an agreement relating only to land. It does not savor of the realty more than of personalty, and therefore does not prove an intention to charge the land as a security. It may be given the same significance as in an agreement concerning personalty or services.
The common sense of the matter is that if it had been intended to charge the land while in the covenantor’s possession the lawyers who drew the agreement would have provided for this in plain language, and would not have left it to depend upon a doubtful inference from a clause whose purpose was not to state the terms of agreement, but merely to provide for substitution of parties.
Furthermore, it is very doubtful if in this contract we can interpret the words “successors and assigns” as including other than voluntary assigns, or as having any application when the bankrupt’s estate passes by operation of law. Gazlay v. Williams, 210 U. S. 41, 28 Sup. Ct. 687, 52 L. Ed. 950.
In accepting as part consideration a contract for a share of profits from an enterprise which involved the investment of large capital in machinery and labor, and was not confined to the winning of ore, but included its reduction to metal at the expense of the operator, the grantor relied rather upon its hopes or upon its confidence in the ability of the grantee to furnish the necessary capital and to successfully develop the mine, and upon.its interest in so doing, than upon any security afforded by the mine itself. It is difficult to so interpret these documents as to find an intention that the grantee should charge its land as security for the success of its own mining» venture or the venture of successors in title who might be able to furnish further cap[820]*820ital and conduct, under new superintendence, additional mining operations. It is equally difficult to infer such intention from the documents interpreted in the light of the circumstances. The grantee was vested with a full record title (a marketable title) to the mines. The grantor deliberately made choice between giving a/ deed conferring such title and a deed showing on its face a reservation of rights. It expressly elected not to reserve rights in the deed, and to withhold from record agreements containing the covenants upon which the present complainant now relies.
While the New Jersey corporation was operating the mines, it expended very large sums of money, and, while it was the owner of an unqualified title, it obtained loans from various bankers aggregating upwards of $740,000. Having a share in the profits of the mining venture to an amount which was doubtless much larger than the purchaser would have agreed to pay in cash, it was for the interest of the grantor, as well as of the grantee, that the grantee should have the means of borrowing, and this was inconsistent with a lien. In re Brentwood Brick & Coal Co., 4 Ch. D. 562, 565.
The defendant contends that the deliberate withholding of the agreement from record and giving to the New Jersey Company the credit of being the owner of an unqualified title estopped the Blue Bell Company from setting up the agreement as against creditors.
Without now considering the question of estoppel, we think these facts may be legitimately considered as showing that there was no intention to charge the land as a security, and that it was for the mutual interest of the parties interested in the success of the mining venture that the land should stand unencumbered in order that the business of operating the mines, to which in terms the covenant relates, might be developed with capital acquired on the faith that the true ownership was the record ownership.
We should prefer to find that the grantor intended to take no security rather than that it intended to aid the development of the mines by holding out the grantee as owner while it was borrowing money for development and to first disclose a claim for security after the public had advanced its monies. As was said by Chief Justice Marshall, in Bayley v. Greenleaf, 7 Wheat. 46, 51 (5 L. Ed. 393) concerning a vendor’s lien:
“A vendor relying upon this lien ought to reduce it to a mortgage, so as to give notice of it to the world. If he does not, he is, in some degree, ac-cessary to the fraud committed on the public, by an act which exhibits the vendee as the complete owner of an estate on which he claims a secret lien.”
The defendant cites many cases, among them Jackson Brick & Tile Co. (D. C.) 189 Fed. 636, 649; and In re Bothe, 173 Fed. 597, 97 C. C. A. 547, to support its contention that there is estoppel.
We find it unnecessary, however, to consider at length the questions of estoppel and constructive fraud, though these are important, for we are of the opinion that upon the terms of these documents interpreted both literally and in the light of circumstances we must find that there is no sufficient evidence of an intention' to create a security.
We have also to consider what seems a somewhat artificial argument [821]*821based upon implications and fictions from the ancient and technical law of real estate, whereby it is sought to charge the appellant as by a covenant at law running with the land.
In order that a covenant may run with the land, it must “touch and concern” the land.
This covenant as to its benefits to the covenantee is entirely personal; it benefits no lands of the grantor. As to its burdens, the land of the covenantor is not subjected to any restriction nor limitation as to use or mode of' occupation, and no active duties are expressly imposed upon the covenantor to develop or operate the mines.
To show that the covenant “touches and concerns” the land, the complainant, appellee, argues as follows:
The complainant is vested with the title to a royalty; a payment of a royalty out of the profits of land is rent; & covenant in a lease to pay rent touches and concerns land, because rent is regarded as something rendered for the possession of land. If a covenant to pay money rent touches and concerns the land, a fortiori this covenant touches and concerns the land.
This argument seems in some particulars misleading. It is an historical fiction that rent issues out of land. Holmes, Common Taw, 388, 391. But it will hardly be contended that purchase money to be paid for land issues out of land or is rent.
If rent be regarded as something rendered for the possession of land, it does not follow that what is rendered for the title to land is rent, though this seems to be implied in appellee’s argument. In a vague sense both purchase money and rent may be said to be rendered for the possession of land; but this does not make them so identical that the fiction which attaches to rent must also attach to agreed purchase money, or to an additional sum conditionally payable for the same consideration for which the defined purchase money was paid.
Furthermore, the proposition that a payment of a royalty out of the profits of land is rent seems both inexact and inapplicable. Rent may assume the form of a royalty, or be determined in amount by a royalty; but a covenant to share the profits of land does not necessarily create a rent. Here, however, as we have seen, the covenant was not to share the profits of land, but of operations which the parties treated as the source of profit rather than the land.
Nor can we accept the statement that the complainant has the title to a royalty in the sense in which the term is ordinarily used. The typical illustration of a royalty is a fixed sum per ton for ore mined, or a fixed sum per patented article manufactured, used or sold. Where a royalty is agreed upon there is a contract as to value per unit, which affords a definite basis for computing proportionately to use a sum which may become due for the acquisition or use of a number of units.
An agreement for a royalty upon each ton of ore might possibly be said to touch and concern the land, not because it is in the nature of rent, but because the ore itself in place is part of the realty, and payment to the landowner for the ore per ton as removed is payment for precisely what comes out of the ground. When, however, the contract is not for a price for ore taken out, but for a share of the profits from [822]*822the operator’s business of developing three different mines, the profits of one of which may be required to meet the losses of another, then the payments cease to be proportionate to the parts of the realty removed from place.
The appellee’s proposition that “an obligation to pay the value of twenty-five per cent, of the ore taken out of the land touches and concerns the land” erroneously interprets the covenant.
With a typical royalty the grantor’s income is computed upon the ore itself; in this case such computation is impossible, for what is to be shared is the profit of the operator from dealings with the ore, and products of the ore, as personalty, after deducting the expenses of excavating and all other expenses incident to dealing with the ore as personalty.
The nature of the ore in place, and considered as a part of the realty, is, of course, an important factor; but the ore when brought to the surface, severed from the realty, is the proceeds not of land alone, but of capital and labor as well, and as it is transported, smelted, and its metals extracted the whole operation is more and more characterized by its business features rather than by the character of the raw material in place as a part of the realty.
While the term “royalty” is sometimes used in a loose sense to denote merely a share, yet upon the -question before us it tends to error, and is much less accurate than the expression used by the parties to express their intention — “twenty-five per cent, of the net profits resulting from the operation.”
In seeking for the actual intention of the parties we must give their language a natural interpretation, and cannot attribute to them an understanding that a share of profits of a business is a royalty; that a royalty is a rent; that rent by legal fiction issues out of land; and that by like fiction the profits of the business of mining issues solely out of land, or is to be regarded as the proceeds of land because it is to be rendered for the title to land.
' The appellee also proposes as a test the following :
“Where tlie nature of the covenant is such that naturally it can only be performed by the owner of the land, the covenant is one which touches'and concerns the land, and therefore one which binds the successive assignees of the land.”
This general proposition is not supported by authority, and we think it unsound. It does not follow because a covenant touches and concerns the owner of land that it touches and concerns the land itself. It is not enough that a covenant is to be performed by him who owns the land; it must affect the mode of occupation or enjoyment of the land. Nor is mere intention that a covenant shall run enough to make a covenant touch and concern the land. This must be determined from the subject-jnatter. It must be “capable in its own nature” of running with the land. 1 Smith’s R. C. (7th Am. Ed.) pp. 217, 221, 226, 190, 191; Sims on Real Covenants, 115. The error of the appellee’s proposition is pointed out,- and well illustrated, in the appellant’s brief in reply.
[823]*823The learned counsel for the appellee have failed, we think, to find any case that supports its contention that a covenant like that before us creates at law an obligation which attaches to those who succeed to the title of the covenantor.
The appellant cites the following cases to support its contention that the covenant does not touch or concern the land, and that the use of the word “assigns,” however clearly it may show an intention that the agreement should run with the land, is insufficient to accomplish this, or to make the covenant touch or concern the land: Mygatt v. Coe, 147 N. Y. 456, 467, 42 N. E. 17; Brewer v. Marshall, 18 N. J. Eq. 337, 341; Wilmurt v. McGrane, 16 App. Div. 412, 417, 45 N. Y. Supp. 32; American Strawboard Co. v. Hal ciernan Paper Co., 83 Fed. 619, 625, 27 C. C. A, 634; Kettle River Railroad Co. v. Eastern Railway Co. of Minnesota, 41 Minn. 461, 471, 43 N. W. 469, 6 L. R. A. 111; Rogers v. Hosegood, 2 Ch. D. 388, 395; Keppel v. Bailey, 2 Myl. & Keen, 517, 537; Reid v. McCrum, 91 N. Y. 412, 417, 418; Wells v. Benton, 108 Ind. 585, 8 N. E. 444, 9 N. E. 601; Glenn v. Canby, 24 Md. 127, 130, 131; Clement v. Willett, 105 Minn. 267, 270, 117 N. W. 491, 17 L. R. A. (N. S.) 1094, 127 Am. St. Rep. 562, 15 Ann. Cas. 1053; Scholten v. Barber, 217 Ill. 148, 75 N. E. 460; Dolph v. White, 12 N. Y. 296, 301, 302; Dickey v. Kansas City, etc., Railway Co., 122 Mo. 223, 231, 26 S. W. 685.
We think the true view of this covenant is that it does not touch or concern the land, but does concern a personal business. Mr. Sims, in his book on Real Covenants, at page 109 et seq., refers to this topic, and collects the decisions. But even should it be found that this covenant does in fact touch and concern the land, there would still remain the question whether in any event the burden of the covenant can run so as to charge the assigns of the covenantor.
The real contention of the complainant in this case appears to be, not that the covenant runs with the land, but that the covenant of the bankrupt runs with the business of the appellant.
It seems to be well settled in England that a covenant of the character of that now before us does not run with the land, and is not enforceable at law or in equity in such a way as to require a successor in title to the covenantor, who has entered into no covenant, to expend sums of money in accordance with what the original covenantor bound himself to do. In the following cases are valuable statements of the effect of the English cases upon these topics: Hayward v. Brunswick Building Society, 8 Q. B. D. 403; Austerberry v. Oldham, 29 Ch. D. 750. The latter case is cited on the appellee’s brief to the effect that it is now settled in England that the burden of covenants will not run where there is no tenure; that is, where there is no reversion. The case, however, seems to have a much broader bearing.
Mr. Sims, in “Sims on Real Covenants,” p. 148, says that the weight of American decisions seems to follow the contrary view. It should be noticed, however, that Mr. Sims, in his definition of a covenant which runs with the land, observes that the principle is the linking of properties together, so as to make one piece more useful by the obligation of the owner of the other. Sims on Real Covenants, 17, 19. In a note. [824]*824page 17, he states that the definition may cover incorporeal as well as corporeal hereditaments, and the appellee here argues that it has an incorporeal hereditament. We are, however, unable to accept the contention that the right to these conditional payments out of the profits of operation is an incorporeal hereditament.
' In view of our opinion that the covenant does not run because it does not meet the primary requirement that such a covenant shall touch and concern the land, we need not further consider the question of the running of the burden of a covenant with a fee estate. We may observe, however, that no case has been cited to show that under the law of Arizona, where the land iá situated, the burden of a covenant can run with" a fee estate.
[2] In the District Court the question whether the covenant ran with the land was not decided, but the’case was determined for the complainant on the ground that an equitable charge existed even if the covenant did not run with the land.
We are unable to see any ground upon which a court of equity can charge the appellant unless there was a legal covenant which ran with the land, or an agreement expressly charging the land. Equity cannot intervene on the ground of a vendor’s lien for an unpaid purchase price.
By the law of Arizona (where the land is situated), as stated in Baker v. Fleming, 6 Ariz. 418, 59 Pac. 101, 2 Ann. Cas. 370, there is no implied lien for unpaid purchase money. In other words, the creature of equity, known as a vendor’s equitable lien, which is based upon the fact that the purchaser has not paid for what he has received, does not exist in Arizona and is regarded as contrary to the policy of that state. This is conceded by the appellee, who contends that this decision is inapplicable, because in the present case we have an express lien; but, as no lien exists merely because there is an unpaid purchase price, or unpaid consideration,- it necessarily follows that no lien arises either at law or in equity from the mere fact that there is a document in writing evidencing the agreement to pay a further price or consideration. To create such a lien there must be something more than a declaration that the purchase money to a certain amounts remains unpaid; the amount must be expressly charged upon the land. Hiester v. Green, 48 Pa. 96, 86 Am. Dec. 569; Jones on Diens, vol. 2, § 110.
[3] We must give due effect to the decision in Baker v. Fleming, and this precludes us from raising upon equitable principles a charge for which .the parties have not contracted.
The case of Walker v. Brown, 165 U. S. 654, 17 Sup. Ct. 453, 41 L. Ed. 865, emphasizes the requirement of an agreement showing an intention to create a lien, charge or security.
The parties contracted not for security, for there was no fixed obligation to secure, but for a share in a fund that never was created, and. for whose creation the contract itself can no longer avail.
1 It would establish a most dangerous rule of property were land to be charged with liens or in effect mortgaged by an instrument containing not a single definite expression of such intent.
[825]*825But even were we to adopt the complainant’s contention that it was intended that the land itself should be a security for the performance of the contract, we should still have to inquire whether in view of the bankruptcy and of the rights of the bankrupt under the contract that security was of any actual value. In other words whether the value of the land as a security was not exhausted by rights of the bankrupt to which the trustee in bankruptcy succeeded.
December 4, 1907, a petition was filed upon which, on April 27, 1908, there was an adjudication of bankruptcy. Its effect was to.defeat the mining operations of the bankrupt and to destroy its ability to carry out the contract. If it be true that there was a contract for security, then the grantor could look only to the land itself, as it then stood, for such security; but the contract by its terms clearly créated no present debt, and nothing was then due from the bankrupt. Therefore it was then impossible to prove any definite pecuniary charge against the land. Had the land been sold by the bankruptcy court, free from liens, with liens transferred to proceeds, complainant would have been unable to prove a definite pecuniary value, if any, of its right to a share of the profits.
The complainant could not derive from the bankrupt what was essential in addition to the mines to carry out the terms of the contract, and obviously could not expect a stranger to do so without consideration.
The personal assets of the bankrupt became immediately available for the payment of its creditors. If, as the complainant suggests, a trust was imposed which went with all successors in title to the land, it was an active trust that could not have been executed by sale of the land, but required the operation of the mines, in order to create the funds in which complainant was to share, and a trust that after the bankruptcy necessarily must have been carried out with funds supplied by the complainant, or raised upon the land itself. If by any possibility a receiver or trustee could have been appointed to carry out the supposed trust with funds so raised, then, after paying interest on the new funds supplied for development and a suitable compensation for the services of a receiver or trustee, if a profit resulted it would be first wholly applicable to the reimbursement of the bankrupt or its estate for all the charges for development and operation of the property, including transportation, sampling, treatment, and smelting, plant superintendence, etc., which were apparently some three-quarters of a million dollars. After such payment the complainant might have one-quarter of the profits, three-quarters going to the bankrupt’s estate, until the complainant had received $900,000, after which the entire property would be reconveyed to the bankrupt’s estate.
As we understand the effect of the decree appealed from, it is that the purchaser of the mines at the bankruptcy sale is in equity bound to assume all of the obligations of the bankrupt under the contract,, and, irrespective of the value of the land which it purchased, to furnish its capital and services as a voluntary successor to this obligation of the bankrupt as a condition of doing business.
[826]*826Under the direction of the bankruptcy court, the mining property was put up at public auction, and, without notice of any claim that there was’ a charge upon the land or upon the profits of operation, it was sold, with other property, for the amount of the highest bid, $200,000 — presumably a fair price. In any event, after making all due allowances, this is a strong indication that the value of- the security subject to the prior charges for reimbursement was of no substantial amount.
Subsequent to its sale at public auction, and before paying over to the trustee in bankruptcy'the amount of the bid, the purchaser had notice which, for present purposes only, we may assume to be sufficient notice of the agreements of September 15 and November 15, 1906. After such notice counsel for the purchaser made an examination of the law of Arizona, and ’ especially of the case of Baker v. Fleming, 6 Ariz. 418, 59 Pac. 101, 2 Ann. Cas. 370, which holds that the equitable doctrine of a vendor’s lien for unpaid purchase money" has no application in that state.
The purchase price as fixed, before notice, at the sale by the trustee in bankruptcy was paid over despite the notice. The purchaser and the appellant, however, have from the first consistently refused to recognize or be bound by the contract of the bankrupt. So far as the title to the real estate - is concerned, they may be so affected by notice as to make irrelevant the fact that the instrument had not been recorded. We may assume that they took the bankrupt’s actual title as distinguished from the record title. To hold, however, that their acts and conduct have been such as to amount to a voluntary adoption of a contract which they have always consistently contended did not bind the land, and was of no legal effect against them, would be a grave injustice and a perversion of the rule that one who is not an original party to a contract may become such by voluntary adoption, and that such voluntary- adoption may appear from acts and conduct as well as from express verbal agreement.
The case of Wiggins Ferry Co. v. Ohio & Mississippi Railway Co., 142 U. S. 396, 12 Sup. Ct. 188, 35 L. Ed. 1055, cited in the opinion of the District Court, though not cited upon appellee’s brief and apparently not now relied upon, turns upon the voluntary adoption of a contract by conduct which was found only consistent with its adoption. The conduct of the appellants and their predecessor in title is consistent only with their repudiation of the contract.
By taking the land it is very 'clear that they assumed no legal, equitable, or moral obligation to advance new money and make new efforts for the benefit of the grantor; and a court of equity cannot justly appropriate values derived from the development of the mines through business activities and capital not derived from the bankrupt.
[4] It is true that the trustee in bankruptcy took the property with all the equities impressed upon it by the bankrupt, but it is likewise trae that we must consider the equities from both sides, and not from the side of the complainant alone. The trustee takes with the equities in the bankrupt’s favor as well as with the equities against him.
After its very large expenditure we think that the bankrupt itself [827]*827might have elected to cease its investment of. capital and its business efforts without breach of any express or implied covenant. Regarded as a personal covenant, it was practically discharged by full performance by the bankrupt of all duties implied in it. No new' personal obligation of a purchaser could exceed the original obligation of the bankrupt.
According to the complainant’s view there has been attached to tins la^id for an indefinite period (perhaps in perpetuity) an obligation which attaches as a condition of doing business to all persons succeeding the bankrupt in title and to the proceeds of their new capital and business activities. But this disregards the rights .of the bankrupt under the contract. If, following the complainant’s argument, we ignore the personal character of the covenant and say that it relates to the proceeds of land, and therefore to the land, then it follows, as both covenantor and covenantee, are to have rights in the proceeds, that the land represents not only the grantor’s share of profits, but the bankrupt’s right to reimbursement. The right of the cove-nantor to all the proceeds of the land until repaid the amount expended in development and working is primary, and should it exhaust 'the value of the land as a security at .the time of the bankruptcy the complainant stands merely in the plight of a second mortgagee when a first mortgage is foreclosed and brings less than the amount of the debt.
We fail to see the application to this case of the doctrine of Legard v. Hodges, 3 Bro. C. C. 531, 4 Bro. C. C. 421, in which the covenantor, having bound himself to pay a certain sum, covenanted to set apart and appropriate one-third part of the clear yearly rents arising from several estates until such sum was paid. This created a debt with a contract to appropriate the rents to pay it, and was held to impose a trust upon the land which bound purchasers with notice — a trust which could be administered through a receiver.
The difficulty in the complainant’s case is that the grantor took in addition to a satisfactory purchase price merely a chance in a mining venture, and took no security that this venture should last longer than the ability or interest of the coadventurer, the bankrupt.
As was said by the Circuit Court of Appeals for the Ninth Circuit, in Synnott v. Tombstone Consolidated Mines Company, 208 Fed. 251, 125 C. C. A. 451:
“Manifestly there could be no lien to secure something for which no liability existed. The case showing that there never were any surplus earnings of the company, and that as a consequence, the funds out of which the instruments” were alone “payable were never created,” etc.
The case of Portland Chemical & Phosphate Co. v. Blodgett, 152 Fed. 929, 82 C. C. A. 77, is said by the appellee to be on all fours with the present case. That case, however, is in very substantial particulars different from the present case. There was an express agreement for the purchase price of $100,000; there was an agreement that the balance of the purchase money should be paid by a royalty per ton; rhere was an agreement binding the purchaser to operation, and especially an agreement in terms prohibiting the conveyance or in-[828]*828cumbrance of the land until the full amount should be paid. The effect of this was expressly to charge the land with a fixed and agreed purchase price. The case is of no value as an authority in the present case, except as it well illustrates by contrast the deficiencies of the complainant’s contracts.
There are in the case many other important questions, some affecting the complainant’s rights under the assignment by the Blue Bell Company of proportional shares of the prospective profits and their reassignment to the present complainant.
The question of estoppel by failure to record the instruments while the bankrupt 'corporation was borrowing large sums from bankers, and was employing such sums for an enterprise in whose profit the Blue Bell Company and the bankrupt were both interested, is a very serious question, as is also- the question of the equitable 'status of this complainant as against creditors who advanced their money for the development of the mines, and succeeded to the bankrupt corporation’s right of reimbursement, and who are now, through reorganization proceedings, interested as stockholders in the Maine corporation, the defendant.
Without determining these questions, we prefer to rest our conclu- • sion upon the ground that the contracts referred to create no legal or equitable charge upon the land or upon the defendant corporation, the appellant.
The decree of the District Court is reversed, and the case is remanded to that court, with directions to enter a decree dismissing the bill with costs; and the appellant recovers its costs of appeal.