G. W. Youngs Mining Co. v. Courtney

DENISON, Circuit Judge (after stating the facts as above). 1. The contract involved is not free from ambiguity as to whether it contemplated a minimum annually of 60,000 or 100,000 tons. The construction put upon it by the parties clearly shows that they treated it as calling for the 100,000 minimum. We do not find it necessary to determine the question, but assume that the construction of the parties is the one which should be adopted. [1] 2. The minimum royalty or the rental payable to the Youngs Company for the third quarter was due and payable October 20th; that for the fourth quarter would not be payable until January 20th. The Youngs Company’s forfeiture and rescission became effective December 22dl Nothing was then due, excepting the payments for the third quarter; and the 30-cent royalty ($13,200) to the Youngs Company upon the ore taken out or carried away during the third quarter was less than the minimum royalty ($15,000) which had actually been paid to it on its own account for the first two quarters, and against which the Huron Company had taken out no ore. So there was nothing that, would, on December 22d, give the 30-cent royalty for the last quarter any aspect, save that of a rental then partly accrued, but not due or payable. Under such circumstances the forfeiture and re-entry be [871] tween rental periods forfeits every payment not fully earned. Speaking for the Circuit Court of Appeals of the Eighth Circuit, and citing authorities, Judge Sanborn said, in American Co. v. Pueblo Co., 150 Fed. 17, 30, 80 C. C. A. 97, 110 (9 L. R. A. [N. S.] 557, 10 Ann. Cas. 357): “The termination of a lease during its term by surrender, by re-entry, or by eviction, without more, discharges the lessee from liability for rents that have not accrued, but leaves him liable for all the rents which have accrued and become due. * * * But a surrender, re-entry, or eviction between rent days, or at any time before the rent has fully accrued, releases the lessee from liability therefor, and defeats an action for its recovery.” And see Nicholson v. Munigle, 6 Allen (Mass.) 215. The same principle applies here, if we consider this contract as a lease. There is nothing to indicate that the forfeiture, completed in December, was held open for the benefit of the trustee, or that his abandonment in February was operative to forfeit any existing right. It follows that neither the minimum for the last quarter of 1913 nor the fractional amount accruing in 1914 can survive the forfeiture; and the Youngs Company claim, prima facie provable, if the contract is one of lease, was $7,500, the third quarter’s minimum. [2] 3. The above-stated balance of $8,586, coming over from 1912, cannot operate to offset the $7,500 minimum rental for the third quarter of 1913. The error in assuming that it works such payment or offset comes from overlooking its contingent character. It did not represent ore which the Huron Company had paid for and was absolutely entitled to take in 1913, but only that which it was entitled to take in 1913, if and after it had taken, or at least paid for, the minimum for 1913; and this point never was actually reached, nor do we see that it was precipitated by the forfeiture in October and December, and so to be thought of as reached constructively. 4. Notwithstanding the conclusion of the next preceding paragraph, it is not to be doubted that the Huron Company had an equity, represented by this $8,586 advance payment. It stood for ore in the ground, which, judging from the average of the elapsed years of the term, the Huron Company would, sooner or later, become entitled to remove without payment; and this right was arbitrarily cut off and its maturity made impossible by the Youngs Company’s election to forfeit the lease. The Youngs Company now seeks the aid of a court of equity to enforce a lien which, except for this forfeiture, might not have required enforcement; in other words, by its own action in forfeiting the lease, it has caused a loss or forfeiture of the Huron Company’s contingent, but valuable, right to take free ore, and this contingent right, had it not been arbitrarily destroyed, might well have proved of value equal to the defaulted rental. Under familiar principles, the court will not be inclined to give its aid, even in this collateral way, to the enforcement of a penalty or forfeiture; but in the view we take of the case we do not need to decide whether this consideration alone would lead to the denial of the lien. [3] 5. The contract here involved, and which we have so far for convenience called a lease, was of a peculiar and a mixed character. Its substantial result was to sell and assign the rights of the Youngs [872] Company as lessee under and pursuant to the two underlying leases. It conveyed all the existing assets of the so-called lessor, including ore, stock piles, mining machinery, accounts receivable, etc. It recited that it was for a consideration of $50,000 cash payment, in addition to the agreed future royalties, and in addition to the assumption and payment of $75,000 existing debts of the lessor. The total agreed royalty of 55 cents per ton is conceded to be a much higher royalty than had ever been paid in the district. Whenever 1,500,000 tons should have been mined, and the royalty thereon (which would be $450,000) should have been paid, the lessee’s — or grantee’s — obligations were ended, and it would hold the property for the remainder of the term free from royalties. As these payments were required to be at the rate of at leasf $30,000 per year, the rent — or royalties, or purchase price — would be paid in full in 15 years, and the remaining 14 years would be rent free. Assuming that the operations would be evenly distributed over the whole term, this would mean that each royalty payment of 30 cents per ton would operate, one-half as payment for what had been mined, and one-half in advance. Taking the whole transaction together, it tvas in effect a sale and assignment of the Youngs Company’s leasehold rights and its entire business and assets for a total consideration of $575,000, $125,000 to be paid at once and $450,000 in equal annual installments fob 15 years — or, perhaps, more rapidly — and the postponed payments, for security and for convenience, took the shape of royalties or rentals. While, for many purposes, the contract was one of lease,' yet we cannot doubt that, in its general aspect, it was, at least equally, if not predominantly, an executory contract of sale. It is settled law in Michigan that the vendor in an executory sale contract, exercising his contractual right of forfeiture for the. vendee’s nonperformance, cannot at the same time thus rescind the contract and also enforce its matured provisions. Specifically, it is held that such a vendor, either of real estate or personalty, who has forfeited the contract and taken back possession because the vendee failed to make a payment when it was due, cannot maintain an action to recover that payment. The cases as to personalty are reviewed and applied in Perkins v. Grobben, 116 Mich. 172, 74 N. W. 469, 39 L. R. A. 815, 72 Am. St. Rep. 512; and as to real estate Judge Christiancy said, in Goodspeed v. Dean, 12 Mich. 352: “The plaintiff elected to treat the contract as void, and gave defendant a notice to quit. By this election we think he must be understood as having also relinquished his right to the amount then due upon the contract. He could not treat it as void in respect to the rights which it secured to the defendant and valid in respect to those which it secured to himself. Having declared it void as to the land, it was void also as to the payments which it had bound the defendant to make for the land. There was nothing, therefore, upon which plaintiff could base a right of action for either the principal or the interest which had become due upon it.” When we consider both this principle, with its necessary application to this case, and also the fact that to enforce and foreclose the lien would be, in some measure, aiding to enforce a forfeiture, as pointed out in paragraph 4 above, we are satisfied that the court rightfully dis • missed the petition. [873] 6. Whether the contract be regarded as a sale or a lease, the compensation promised to these underlying lessors, at the total rate of 25 cents per ton (and which, for the third quarter, amounted to- about $9,-500 above the minimum which the Huron Company had paid to them during the year), partakes of the character of a purchase price of items severed from the realty and carried away; and whether the right to recover such $9,500 was lost to these lessors by the forfeiture of the lease would present a question not within any issue here decided. There was no direct contract relationship between them and the Huron Company. The petition herein, filed by the Youngs Company, does not allege that there had been any novation, or that it was complaining for and in the interest of and in the right of these lessors. On the contrary, it alleges that it had paid to them their total royalty earned for the third quarter, whereby it was entitled in its own right to recover from the Huron Company this amount as well as its own royalty. It follows that whatever claim it has thus merged with its own and thus asserts on its own account must be treated as an integral part of its own claim. The unit of accounting is not the quarter, but the year; and we find that, during the year 1913, the total royalties earned at 55 cents per ton were $24,250, and that upon this the Huron Company had paid $16,500. The total amount of earned royalty unpaid was therefore less than the total minimum for the third quarter; and the controversy in the only aspect in which it can now be considered— as one between the Youngs Company and the Huron Company — thus appears to relate substantially to nothing except a minimum and unearned roj'alty, a pure rental, and is fully covered by what has been said. 7. At the hearing, the purchaser of the property at the sale which the trustee, before any appeal was taken, had made pursuant to the order, applied for a further bond which would protect him against damages arising because he had been enjoined from removing the property pending appeal. The motion suggested that the present bond running to the trustee would not protect the purchaser. Our disposition of the appeal makes it unnecessary to decide this motion. If it could have been presented long enough in advance of the hearing on the merits to permit an effective order for a further bond, it would have required decision. The order appealed from is affirmed, with costs.