Virginia Iron, Coal & Coke Co. v. Graham
Virginia Iron, Coal & Coke Co. v. Graham
Opinion of the Court
delivered the opinion of the court.
The briefs herein filed are unique in that (either purposely or inadvertently) counsel have observed Rule II (120 Va. v, 94 S. E. vi). This rule requires the briefs to contain a concise abstract or statement of the facts admitted and controverted, which are disclosed by the record. When fairly observed, the precise questions involved are manifest and much subsequent labor for the court and counsel will be thereby avoided.
*695 The facts here to be considered are: that by indenture of December 31, 1897, David P. Graham and wife demised unto Carter Coal and Iron Company for forty years from January 1, 1898, that certain iron ore property in Wythe county, Virginia, known as “Cedar Bun,” theretofore granted to Graham by Franklin Carter and wife, said to contain about 3,600 acres, with the right during the term to mine and remove all the iron ore which the lessee might or could mine on these lands, with certain easements and privileges fully set forth in the instrument. By deed of January 27, 1899, Carter Coal and Iron Company conveyed unto Virginia Iron, Coal and Coke Company (appellant, hereinafter called the lessee), together with other property the rights and privileges granted by the said lease. Theretofore, on October 1, 1898, the Carter Coal and Iron Company executed a deed of trust to the Continental Trust Company of the city of New York, conveying the leased property and privileges to secure a bond issue of $2,000,000. The New York Trust Company has succeeded the Continental Trust Company as trustee in that conveyance. On February 23, 1899, the lessee (Virginia Iron, Coal and Coke Company) conveyed the leased estate, together with much other property, to the Manhattan Trust Company, trustee, to secure a bond issue of $10,000,000. David P. Graham, the original lessor, having died, his successors in title, Nannie M. Graham, his widow, and others (hereinafter called the lessors), on May 13, 1903, modified the lease so as to reduce the minimum quantity of ore required to be shipped from 20,000 tons to 12,000 tons per annum. A partial' partition of the real estate of the original lessor has been made, whereby the rights of his widow and heirs to participate in royalties under the lease are fully set forth and established by conveyance of August 20, 1904.
The original lease fixed a royalty of fifty cents per long ton (N. & W. Ry. Co. or its successor’s weight) for each *696 ton of good merchantable ore mined and shipped from the leased premises, to be paid to the lessor on or about the 25th days of April, July, October and January of each year for the ore shipped the preceding three months, with the following provisions as to minimum :l“Not less than twenty thousand tons to be shipped each year. ‘If less is shipped, ^royalty is to be paid on twenty thousand tons., and if more '■¡than twenty thousand tons are shipped in one year, and less ^than that quantity in the next preceding or succeeding year, the surplus of the one year, and the royalty paid thereon, may be carried to the credit of the other .year, either preceding or succeeding, to make the required minimum. If the minimum quantity is not shipped in any_ year or paid for | in sixty days after the expiration of the year, or if the ore 'shipped is not paid for in sixty days after the rent there;for is due, the said David P. Graham, his heirs, representatives, or assigns, may terminate this lease on ten-days’ ‘notice of intention so to do.” 5 And the following clause: “The said David P. Graham, his representatives, heirs or assigns, or their agent, may enter the property at any time for the purpose of inspecting the mining operations and of requiring’ the same to be carried on in a proper way, and with due regard to the rights of each party.” The lessee is given the right to remove, at the end of the term, all tramways, machinery and appliances, all pipes, sluices and troughs, and everything used in connection with the mining and washing operations, except the houses and the timber used as supports in the mines, and except pipe lines, tramways and washing plant which were there prior to October 1, 1897. Provided, however, that nothing put on the property by the lessee for use in mining and washing operations shall be removed until the rents are paid; and the privileges and easements granted are to be enjoyed in the operation of the mines leased. • The mine had been in operation prior to the date of the lease, and was operated at that time.
*697 The Carter Coal and Iron Company took possession and continued to operate the mine until it conveyed its rights to the Virginia Iron, Coal and Coke Company, and thereafter the last-named company continued to operate it until July 25, 1916, upon which date it gave written notice to Nannie M. Graham and others, the lessors, of the cancellation or surrender of the original lease of December 31,1897, to become effective as of September 1, 1916. The reason therefor stated in the notice ¡Ivas that iron ores could no longer be found on the leased premises, either of the quality or . in the quantity that could be profitably mined, the cost of such tonnage as could be gotten out being altogether prohibitive^ The lessors replied to this notice August 29, 1916,- advising that they intended to hold the lessee strictly to the terms of the contract, and conceded no authority to cancel it. j
The lessee, in accordance with such notice, ceased operations upon the leased premises, has abandoned possession thereof for all the purposes of the lease, though it has not removed its property therefrom, has paid all royalties accrued up to the date designated for the cancellation and surrender to become effective, and has not since that time occupied the property or exercised any of the privileges granted by the lease. After the attempted cancellation and surrender, the lessee undertook to remove from the leased premises the machinery, rails and equipment placed thereon by its predecessor, which, under the terms of the lease, it had the right to remove upon its termination, but under threat of proceedings by the lessors to secure an injunction, has for the present abandoned its claim of right to remove such property. It seems that this allegation of threatened injunction proceedings is made in an amendment to the bill, and that this threat was made after the institution of this suit. The cancellation and surrender of the lease has been ratified by the board of directors of the lessee, *698 and the deed of release tendered to the lessors with the bill and amended bill.
The lessee, on January 30, 1917, filed its original bill, and thereafter filed an amended bill against Nannie M. Graham and others, successors in title to the original lessor, and the trustees in the deeds of trust referred to, setting forth these facts land'praying for a decree canceling the lease, permitting it to remove its personal property from the premises, enjoining the lessors from prosecuting any actions for the recovery of royalties under the lease and for general relief . j The lessors, defendants, filed their demurrer and answer, and the trial court sustained the demurrer and dismissed the bill. Of this action the lessee is here complaining.
''Fairly stated, the demurrer is based upon two grounds:
1. That the bill and exhibits filed show that the contract between the parties is a contract of hazard, that the risk as to the quantity and quality of ore was assumed by the lessee, and that this appears from the lease itself; that it also appears therefrom that it„is a definite contract, under seal, for the rental of the property for forty years, including the right to the lessee to mine ore and do certain other things on the land; that the consideration of the lease is a sum certain as rent reserved; and that there is no warranty on the part of the lessors that the ore will be found of any particular quantity or quality, and, hence, that the existence or non-existence of such ore in any quantity or of any quality is immaterial.
2. That even if the lessee is entitled to be relieved from paying the royalty on account of exhaustion of the ore in the premises, a court of equity has no jurisdiction to .grant such relief upon the ground that the complainant has a complete and adequate remedy at law.
The trial court sustained the demurrer upon the ground last stated.
*699 (a) Taking up these grounds in the order in which we have just stated them, we come to consider, whether the bill is demurrable upon the ground that the contract was one of hazard as to the lessee.
The question is quite an interesting one, and we have been greatly enlightened by the exhaustive briefs of the learned counsel on both sides. While no precisely similar question has ever been decided in Virginia, we have been referred to many cases in other jurisdictions, and the principles involved seem to be fairly well established. .
A most interesting and instructive note upon the subject of the intervening impossibility of performance of a contract as a defense, is found in Lawyers’ Reports Annotated, 1916F, at p. 10. Ancient and modern cases involving both mining leases and other contracts are there gathered and analyzed.
In a comparatively recent English case, Krell v. Henry (1903), 2 K. B. 740, 72 L. J. K. B. N. S. 794, 89 L. T. N. S. 328, 19 Times L. R. 711, 52 Week. Rep. 246, this language, which seems to be particularly pertinent to the case in judgment, is used: “But, on the other side, it is said that the condition or state of things need not be expressly specified, but that it is sufficient if that condition or state of things clearly appears by extrinsic evidence to have been assumed by the parties to be the foundation or basis of the contract, and the event which causes the impossibility is of such a character that it cannot reasonably be supposed to have been in the contemplation of the contracting parties when the contract was made. In such a case, the contracting parties will not be held bound by the general words, which, though large enough to include, were not used with reference to a possibility of a particular event rendering performance of the contract impossible. I do not think that the principle of the civil law, as introduced into the English law, is limited to cases in which the event causing the impossibility of performance is the destruction or non-existence of something which is the subject matter of the contract, or of some condition or state of things expressly specified as a condition of it. I think that you first have to ascertain, not necessarily from the terms of the contract, *701 but, if required, from necessary inferences, drawn from surrounding circumstances recognized by both contracting parties, what is the substance of the contract, and then to ask the question whether that substantial contract needs for its foundation the assumption of the existence of a particular state of things. If it does, this will limit the operation of the general words, and in such case, if the contract becomes impossible of performance by reason of the non-existence of the state of things assumed by both contracting parties as the foundation of the contract, there will be no breach of the contract thus limited. * * * Each case must be judged by its own circumstances. In each case one must ask one-self, first, what, havng regard to all the circumstances, was the foundation of the contract? Secondly, was the performance of the contract prevented? Thirdly, was the event which prevented the performance of the contract of such a character. that it cannot reasonably be said to have been in the contemplation of the parties at the date of the contract? If all these questions are answered in the affirmative. * * * I think both parties are discharged from- further performance of the contract.”
The case of Muhlenberg v. Henning, 116 Pa. 138, 9 Atl. 144, is strikingly like this case. There was a five-years lease in which the lessees covenanted to pay thirty-five cents a ton *702 for every ton of merchantable ore mined, and to mine at least 1500 tons annually during the term, or, in default thereof, to pay a royalty of $525 annually; and that the lease should be forfeited at the option of the lessors, if at the end of each year at least $525 as rent or royalty had not been paid. In an action to recover unpaid royalty for two years, an affidavit of defense was filed, averring that, though the defendants had operated the mines in a workmanlike and skillful manner for about nine months, yet, on account of the non-existence of sufficient ore and its inferior and unmerchantable quality, they were unable to continue. It was held that the affidavit exhibited a good defense to the action, and the court there distinguished such a lease from those involved in the cases which were there and are here relied- upon to support a contrary view, notably Jervis v. Thompson, 1 Exch. (H. & H.) 195, and Marquis of Bute v. Thompson, 13 M. &. W. 486, in both of which cases the contracts were construed to import an absolute covenant to pay the rent whether the mines could be made to produce the mineral or not.
In Williston on Sales, sec. 661, it is said: “It is probable that the tendency of the law is towards an enlargement of the defense of impossibility, and in any case where it may fairly be said that both parties assumed that the performance of the contract would involve the continued existence of a certain state of affairs, impossibility of performance due to a change in this condition of affairs will be an excuse.” And,this, in Bishop on Contracts (2d ed.), sec. 588: “Where, by the intent of the parties, the continued existence of a specific subject matter is essential to the performance of the contract, its destruction will operate as a discharge where neither of the parties have assumed such risk.” In Mineral Park Land Co. v. Howard, 172 Cal. 289, 156 Pac. 458, L. R. A. 1916 F, 1, it is said that “Where performance depends upon the existence of a *703 given tiling, and such, existence was assumed as the basis of the agreement, performance is excused to the extent that the thing ceases to exist, or turns out to be nonexistent.” Citing Beach Contr., sec. 217; 9 Cyc. 631.
This is said in Boyer v. Fulmer, 176 Pa. 282, 35 Atl. 235: “It is perfectly manifest that the parties contracted entirely vrith reference to iron ore which was supposed to exist, and did exist, on the land demised. The lessee was to use all proper efforts to find ore, and, if found, to mine and take it away, and to take out at least enough in each year to yield $400.00 annually, and if he did not take out that much lie was bound to pay $400.00 annually in any event; but, of course, this obligation proceeded upon the assumption that the ore was there, and continued to be there, in sufficient quantities to enable the lessee to perform his contract in this respect. If the ore was not there at all, so that it could no longer be taken out in such quantity, the lessee was not bound to pay for it. He could not do an impossible thing, and, therefore, could not be held liable for not doing it. Neither the lease nor the contract is a sale of the ore in place for a definite minimum sum, as was the case in Timlin v. Brown [158 Pa. 606, 28 Atl. 236]
Ridgley v. Conewago Iron Co. (C. C.), 53 Fed. 988, construes a mining lease which required the lessee to mine at least four thousand tons annually, and to pay therefor a fixed sum per ton, or, in case he failed to take out such quantity, to pay therefor. It was held that the lease imposed no obligation to pay the minimum royalty after the ore in the premises had become exhausted. There Dallas, circuit judge, said: “Mining leases commonly include, in addition to the usual undertaking to pay for what may be actually mined, a covenant that some fixed or ascertainable sum at least shall be annually paid. These covenants are not all the same, or to the same effect. They may be divided into two classes—first, those which require the pay- *704 merit of rent irrespective of product; second, those which require that .upon failure to take out a stipulated quantity, royalty with respect thereto shall nevertheless be paid. When the covenant is of the first class, the defendant is liable for the rent, even if nothing could be gotten by mining. When .the covenant is of the second class, his obligation is to pay for the stipulated quantity whether mined or not, not whether it exists or not. He contracts for promptitude and thoroughness in mining, not for the productiveness of the minej Lord Clifford v. Watts, L. R. 5, C. P. 577; Muhlenberg v. Henning, 116 Pa. 138, 9 Atl. 144. This covenant is of the second class.”
The general rule, substantially as stated by Judge Dallas, is recognized in the following cases: Diamond Iron Mining Co. v. Buckeye Iron Mining Co., 70 Minn. 500, 73 N. W. 507, 19 Mor. Min. Rep. 197; Brooks v. Cook, 135 Ala. 219, 34 So. 960, 22 Mor. Min. Rep. 456; Blake v. Lobb’s Estate, 110 Mich. 608, 68 N. W. 427, 18 Mor. Min. Rep. 462; Hewitt Iron Mining Co. v. Dessau Co., 129 Mich. 590, 89 N. W. 365, 22 Mor. Min. Rep. 111; Gribben v. Atkinson, 64 Mich. 651, 31 N. W. 570, 15 Mor. Min. Rep. 428; Muhlenberg v. Henning, 116 Pa. 138, 9 Atl. 144, 15 Mor. Min. Rep. 423; McCahan v. Wharton, 121 Pa. 424, 15 Atl. 615, 16 Mor. Min. Rep. 239; Bannan v. Graeff, 186 Pa. 648, 40 Atl. 805; Scioto Fire Brick Co. v. Pond, 38 Ohio St. 65; Adams v. Washington Brick, Lime & Mfg. Co., 38 Wash. 243, 80 Pac. 446; Hiller v. Walter Ray & Co., 59 Fla. 285, 52 So. 623, 20 Ann. Cas. 1162; Fritzler v. Robinson, 70 Iowa 500, 31 N. W. 61; Bloomfield Coal & Min. Co. v. Tidrick, 99 Iowa 83, 68 N. W. 570; Edwards v. Trinity B. v. Ry. Co., 54 Tex. Civ. App. 334, 118 S. W. 572; St. Louis S. W. Ry. Co. of Texas v. Johnston, 58 Tex. Civ. App. 639, 125 S. W. 61; Williams v. Miller, 68 Cal. 291, 9 Pac. 166; Min. Park Land Co. v. Howard, 172 Cal. 289, 156 Pac. 458, L. R. A. 1916-F, 1; Carr v. Whitebreast Fuel Co., 88 Iowa 136, 55 N. W. 205.
*705 There are other cases which cannot be reconciled with this view, though some of them may be distinguished. There is a line of cases in which the lessee has been required to pay the minimum royalty, notwithstanding the exhaustion of the mine, if he continues in possession of the leased premises claiming under the lease. Vandalia Coal Co. v. Underwood, 55 Ind. App. 99, 101 N. E. 1047; Lehigh & Wilkes Barre Coal Co. v. Wright, 177 Pa. 387, 35 Atl. 919; N. Y. Coal Co. v. New Pittsburgh Coal Co., 86 Ohio St. 140, 99 N. E. 198; McDowell v. Hendrix, 67 Ind. 513.
Then, in Lehigh Zinc Co. v. Bamford, 150 U. S. 665, 14 Sup. Ct. 219, 37 L. Ed. 1215|’, it is held that where the right to mine ore in the premises was not the substantial inducement for the lease; and the covenant to pay a fixed royalty as rent per year is not qualified, the lessor is not released even if the mineral is exhausted. Then there are cases where it is said that the amount of mineral was known to the parties at the time the lease was entered into, and the contract was for the sale and purchase of such mineral.'^ Timlin v. Brown, 158 Pa. 606, 28 Atl. 236; Bute v. Thompson, 13 M & W. 487, 153 Eng. Rep. 202; Jervis v. Tompkins, 4 Week. Rep. 683.
murrer.
Equity jurisdiction to decree cancellation of an instrument because at the time of its execution either one or both of the parties labored under a mistake of facts is well recognized. 4 R. C. L. 506.
In Briggs v. Watkins, 112 Va. 26, 70 S. E. 555, this is quoted from Mowatt v. Wright, 1 Wend. (N. Y.) 855, 19 Am Dec. 508: “An error of fact takes place either when • some fact really existing is unknown, or some fact is supposed to exist which does not exist.” *707 In Lee v. Laprade, 106 Va. 597, 56 S. E. 720, 117 Am. St. Rep. 1021, 10 Ann. Cas. 303, in which it was held that a court of equity had jurisdiction to rescind a deed for a plain mistake which was material in its character and of the very substance of the transaction—that is, that the lot conveyed was a part of a public street—this is quoted from 4 Min. Inst. (4th ed.) 697: “In cases of plain mistake or misapprehension, though not the effect of fraud or contrivance, equity will rescind the conveyance, if the error goes essentially to the substance of the contract, so that the purchaser does not get what he bargained for, or the vendor sells that which he did not design to sell.”
It is clearly settled that relief may be had in equity for the cancellation or rescission of a contract if the mistake affects its very substance, and is not a mere incident or inducement for entering into it. The subject is discussed in a comprehensive note to Steinmeyer v. Sehroeppel (226 Ill. 9, 80 N. E. 564, 10 L. R. A. [N. S.] 114), 117 Am. St. Rep. 228.
In the note to Miles v. Stevens, 3 Pa. 21, in 45 Am. Dec. 632, this is stated: “No principle of equity is more firmly settled than that relief will be granted from the consequences of a mistake of fact, provided that such mistake is in reference to a fact material to the transaction, and was not occasioned by the parties’ own neglect of a legal duty. There is no doubt of this general rule. The g’reat difficulty arises in applying it to the multiform circumstances attending various kinds of transactions. A mistake of fact • may arise in two ways, either in reference to the subject matter of the contract, such as its situation, value, extent, boundaries, amount, and so forth, or in reference to its terms, as where the mistake consists in reducing a verbal agreement to writing. It may be either a mistake as to a fact past or present, arising from unconscious ignorance or forgetfulness, or a mistake occasioned by a belief in the past *708 or present existence of a fact. Under all circumstances, in order to obtain equitable relief, the mistake must have been unintentional.” Citing a number of cases.
*710 The discussion could be prolonged, and many other authorities are cited in the briefs, but those to which we have referred are sufficient. We are convinced that the trial court erred in sustaining the demurrer. A decree will, therefore, be entered here overruling it, and the cause will be remanded for trial upon the issues of fact tendered by the answer.
Reversed <md remanded.
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