Genet v. President of the Delaware & Hudson Canal Co. — 50 N.Y. St. Rep. 53

Majority

p. 53

Augusta G. Genet, App’lt., v. The President, Etc., of the Delaware & Hudson Canal Co., Resp't.^[1]

(Court of Appeals,

Filed January 17, 1893.)

Headnote

1. Mnmra lease—Constbuctioit of.

By a “memorandum of agreement” the lessors “leased” “all the coal contained in, on or under” the parcel of land specifically described. Bat by other provisions this was limited to the “ merchantable” coal, equal in quality to the average yield of the adjacent mine ; such as would pass a screen with half inch meshes ; could be safely and economically mined ; so much as could be mined and cleaned without greater expense than in the adjoining mines, &c., &c. 'HeId, that this was not a deed of land but an executory contract, the interpretation of which is open to clear and reasonable implications.

p. 54

3. Same—Implied guabanty against negligence.

The lessee company agreed to pay a royalty per ton upon the coal mined, a minimum amount of tons to be taken out each year. Instead of mining the upper veins first, they drove their shaft down through three veins and the complaint in this action charged that the lower vein was mined and supported with such negligence that the entire mass of superincumbent rock and earth crashed down into the chamber and thus prevented access to the mines, whereby the whole body of coal became lost to the plaintiff. Up to such ‘‘squeeze” in 1886 lessee had taken out 48,000 tons; since it, nothing, and defendant claims that the conti act is unbroken so long as it pays the minimum royalty. Held, that while there was no express stipulation by the lease that it would not wilfully or negligently incapacitate itself from taking out more than the minimum quantity of coal per year, one was to be implied from the terms of the contract, and the complaint stated a good cause of action.

Appeal from judgment of the supreme court, general term, first department, reversing order overruling demurrer to complaint.

Geo. G. Genet, for app’lt;

Frank F. /Smith, for resp’t.

The questions in this case, which are both difficult and important, arise upon a demurrer which denies that the complaint of the plaintiff contains any cause of action. That complaint sets out literally the contract between the parties, which is in writing, and in the form of a lease. They differ widely as to its construction, the lessors describing it as an agreement merely, which, although relating to an interest in land, does not convey the land in fee, while the lessee construes it as a deed of the coal veins or strata underlying the surface, and as a severed parcel of the land itself. It is important to settle that question at the outset, for we shall find in the end that the application of very material rules of construction depends upon the legal character and effect of the paper which the parties executed.

That paper denominates itself a “memorandum of agreement,” and not an indenture or deed, and yet takes the form of a lease. It certifies that the parties of the first part have “ leased ” to the party of the second part “all the coal contained in, on or under” the parcel of land specifically described. This general provision, however, is narrowed, restricted and limited by other provisions of the lease which modify its effect and operation. It is stipulated “ that if the coal in any of the veins shall not prove to be of a merchantable quality, or if it become impractical to mine the same in consequence of extraordinary expenses in mining or cleaning said coal, or if the veins should prove to be of such quality or thickness that the coal cannot be mined and prepared for market without greater expense than is bestowed upon coal taken from the same veins in the mines of the party of the second part for the time then being, then the liability of the party of the second part to mine, take and pay for said coal shall cease. _ And it is further understood and agreed, that in case the quantity of coal mined and taken out in any one year shall fall below the quantity agreed to be taken out in such year, in consequence of the unmerchantable quality of the coal in any of the veins, or in consequence of increased expense and difficulty in mining and cleaning the said coal, as hereinbefore recited, or in case the said land shall become so far exhausted as to render it impracticable or

p. 55

unprofitable to mine the stipulated quantity in any one year, then, in either case, the party of the second part are to pay for only the quantity of the coal that can be safely and economically taken out.” Then follows a further limitation, that the lessee shall only pay royalty “for the coal mined and taken out” upon every ton “ of clear merchantable coal, exclusive of culm or mine waste, that will pass through a mesh of one-half inch square.” There is also a precise description of what is meant by the phrase “ merchantable coal,”, and what should be deemed such is, after inspection, to be left to' the final decision of the defendant’s superintendent, or some other selected inspector. Reading the contract as a whole, I think we are bound to say that there was no sale of the bulk or body of the coal in place, and as a severed portion of the land, and that there was no such intention, purpose or agreement on either side. It is quite true that in an action between the same parties the second division of this court has expressed the opinion, very briefly, and I think incidentally, that this contract operated as a deed to convey the fee of the coal to the defendant corporation. 122 N. Y., 527 ; 34 St. Rep., 246 . If the decision to that effect had been material to a disposition of the case, necessary to its determination, and within the issues presented, I should hold it conclusive as settling the law between these parties, however I might regard it in the future as a precedent. But the question was not in the case, or at all necessary to its decision. That action was brought by the plaintiff to recover damages against the defendant for not mining the coal with reasonable diligence, and for a misuse of the mine in connection with other properties. The first cause of action failed because there was no proof except that offered by paroi of the assumption by defendant of any such obligation, and the second, because whatever was done was held to be within the explicit terms of the contract itself. Thus the right to use the shafts and machinery on plaintiff’s land in aid of mining operations on adjoining lands was held to be expressly given as a present right by the terms of the instrument; the right to pile culm and waste upon the surface was found in its express permission; and the right of drainage through the gangways opened to other shafts to the lower point of the Marvin shaft, to be thence pumped out to the river, was deduced from the terms and conditions of the contract. It was not vital or essential to any of these conclusions that the contract did or did not convey the coal in fee. That opinion, therefore, does not bind us; but respect for it requires a careful examination of the question.

The authorities cited were all cases determined in the supreme court of Pennsylvania. The decisions of that court are entitled to great weight in the present inquiry, not only because of its character and ability, but also because coal mining in that state is an enormous industry, over which its courts naturally watch with anxious care, and to the law controlling which they are required to give constant study. They have held, until the rule must be deemed firmly established in those tribunals, that a transfer of all the coal in, on or under a given described surface, even though taking the form of a lease and terminable in a fixed num

p. 56

ber of years, is a sale of the coal and a grant of it in fee as a severed parcel of the land. The doctrine is, perhaps, most fully developed in Sanderson v. Scranton, 105 Pa. St. 472 . It was there said that a mineral lease was often in fact a sale; that it differs from an ordinary lease, in that the latter gives only the temporary use and for a fixed period, which is the term, and so implies and leaves in the lessor a reversion, while the former conveys the entire interest in the coal and leaves no reversion ; that in such a case there is a severance of the surface from the underlying strata, which creates a divided ownership in the land, the coal belonging in fee to one and the surface to another. The court said frankly that the case was not free from doubt, because the agreement was in form a lease for a fixed period, with a rent reserved and power of distress. Whatever we may think of the general doctrine, one thing about it is quite obvious. It applies to a case, and only to a case, in which, by the terms of the agreement and in contemplation of the parties, the whole body of the coal considered as of cubical dimensions and capable of descriptive separation from the earth above and around it, Massot v. Moses, 8 Mining Rep.,607, and as it lies in its place, is absolutely and presently conveyed. The thing sold must be such that it can be identified as land and severed as land from the estate of which it forms a part. Every case upholding- the doctrine, which I have been able to examine, has that marked characteristic. Caldwell v. Fulton, 31 Pa. St., 475 ; Caldwell v. Copeland, 37 id., 427; Armstrong v. Caldwell, 53 id., 284; Scranton v. Phillips, 13 Norris, 15; Sanderson v. Scranton, 105 Pa. St., 472 , and 109 id., 588 ; Fairchild v. Fairchild, 7 Cent. Rep., 873; Montooth v. Gamble, 123 Pa. St., 240 ; Kingsley v. Coal & Iron Co., 144 id., 613; Lazarus' Estate, 145 id., 1.

1. That feature seems to me to be not merely accidental or incidental, but a vital and essential element of the doctrine as it is asserted and applied. But that feature does not eyist in the present case. The broad words of the primary grant are, indeed, sufficient, within the cases cited, to carry title to the coal as land, but they are cut down, narrowed and restrained by the specific provisions which follow. It is not the mine as such; it is not the veins or strata as such ; it is not the coal in place ; it is not even the whole of the coal which one party contracts to sell and the other party to buy, but only some unknown and indeterminate fraction or portion of the coal which no human power can locate or identify as land. It is mineral product, not land, which is the subject of the dealing. It is to be, first, such portion of the coal as shall prove to be “ merchantable,” and which equals in quality the average yield of the adjacent mines, the quality to be conclusively settled, by the defendant’s- superintendent or other inspectors after it is mined; it is, second, to be such and so much as does not pass a screen with half inch meshes ; it is to be, third, only so much as can be safely and economically mined; it is to be, fourth, so much merely as can be mined and cleaned without greater expense than the mining on adjoining properties requires; and it is to be, fifth, no more than it will be profitable to mine when the veins approach

p. 57

exhaustion. Further than that, if a “ fault ” .is disclosed in the mine, which occurs when by some convulsion of nature the vein has been broken off, and its continuity lifted or depressed so that earth and rock end the drift, and must be cut through and removed to recover the vein, it is provided that the lessee need not remove it if the cost of the process shall exceed $500, in which event the coal beyond the fault would not pass at all. The very terms of this description show that nothing was further from the purpose of the parties than a grant of coal as land, and that the defendant could not lay its hand upon any specified cubical mass of coal and say this is mine as land according to the description in the deed, for it could not know, and nobody could know, until a future determination, what part or portion of the vein would really pass.

It will not meet the difficulty to say that these restrictive clauses bear only upon the amounts to be paid and the method of ascertaining those amounts. Nothing indicates that the defendant was to have any coal that it did not pay for, and so, by its conclusive inspection, could confiscate as below grade half the product of the mine; and the very terms used show that they describe not only what the company should pay for but also what it should “take.” Thus, three possibilities are specified; that some of the coal may not be merchantable; or may be such as to require extraordinary expenses to mine or clean; or demand a greater expenditure than the average of the adjacent mines; in either or all of which events the contract provides that “ the liability of the said party of the second part to mine, take and pay for said coal shall cease.” In other words, the contract does not cover or operate upon any such coal and the company is not liable to take it.

This clause suggests another difficulty in the way of treating the contract as a deed of land. It shows that the title to the coal was to pass in the future and conditionally upon the existence of facts later to be ascertained. Of course it was absurd to provide that the company should not be liable to take a part of the coal when by force of the deed it took the whole at once and in presentí and absolutely in fee. All the terms of the instrument are inconsistent vyith an immediate passing of the title. What was to pass and what price should become payable were both adjourned to be settled by the developments of the future. The ■contract was executory on both sides. What and how much coal was to pass from the lessors and to the lessee was made dependent upon the revelations of the actual mining process, and what and how much was to be paid depended also upon future conditions. The thing to be sold and the price to be paid were each alike dependent upon subsequent events, and the contract was, therefore, executory, and must be treated, not as a deed, into which no unexpressed covenants can be implied, but as an executory contract, the interpretation of which is open to clear and reasonable implications.

Having thus determined the nature of the contract, we are

p. 58

required to consider whether the allegations of the complaint show an actionable breach of its terms. The lessee company agreed to pay as royalty twelve and one-half cents per ton upon all the coal of the prescribed quality which should be taken out of the mine; and further covenanted for a minimum rent which alone should be obligatory, by agreeing to take out ten thousand tons for the first and second year, and not less than twenty thousand tons in each year thereafter, and leaving itself free to mine more than that or notas its business interests and convenience should require. That provision was in the form of a minimum royalty, and is not exactly synonymous with a dead or sleeping rent, which is not a royalty at all, but a fixed sum of money payable as rent, and prima fade payable even after the mine is exhausted, R. v. Bedworth, 8 East, 387, and even though the mine supposed to exist develops no mineral at all. Jefferys v. Fairs, L. R., 4 Ch. Div., 448. But since in the case at bar the minimum royalty was payable whether the mine was worked or not, the difference referred to is not important or practical for any present purpose. The minimum royalty has never been withheld, and the theory of the defendant is that its payment is the only contract obligation due to the plaintiff. What has happened according to the complaint is this: There were three veins of coal underlying the surface; the Diamond vein, about eight feet thick and about one hundred feet below the surface; the Fourteen-foot vein, lying one hundred and fifty feet deeper, and from ten to twenty feet thick; and the Clark vein, about eight feet thick, and lying at a depth of four hundred and fifty feet below the surface. The lessee pierced all three veins with the Marvin shaft, which it sunk near one end of the property leased. It struck the Fourteen-foot vein at its lowest point of depression, and where its thickness was greatest It inclined upwards on each side of the shaft, so that the removal of coal at that point involved an obvious tendency to a lateral as well as direct thrust upon the opening. The principal work of the lessee was done at this point and in this vein. The upper or Diamond vein should have been mined out first, but only 'a moderate quantity was taken out of that, and the Fourteen-foot vein was mined out under about seventy-five acres of the property leased.

" The complaint charges that this work was done with gross negligence and want of care; that the supporting pillars were robbed to the point of weakness, and insufficient masts or columns of wood supplied to support the roof, and as a consequence what is known as a “ squeeze ” occurred ; the whole mass of superincumbent rock and earth and coal crashed down into the chamber, ruined the shaft, broke up and distorted the veins, mixed thepoal in with the other material, utterly prevented access to the mines, whereby, as the complaint avers, the whole body of coal has become lost to the plaintiff. How true this is appears from other allegations. Before this destruction of the mine the defendant company had taken out since the completion of the Marvin shaft about seventy thousand tons of coal per year; in 1883 had taken out almost ninety thousand tons, and during the year 1886, up

p. 59

to September, when the “ squeeze ” occurred, had already taken out over forty-three thousand tons; since then, nothing, not even a pound. And now the defendant claims that the contract is unbroken so long as it pays the minimum royalty. It is abundantly disclosed that the plaintiff is not getting, can never get, what she would have received, what she’ expected to receive, what was the chief inducement to the contract,, what the lessee expected to pay, and what in the ordinary course of business it would have paid, solely because of the negligent destruction of the mine. The loss has come from a cause which both parties assumed would not occur, and against which, for that reason, the lessor took no express covenant, and it is because the lessee -did not expressly covenant that it would not willfully or negligently incapacitate itself from taking out more than the minimum quantity of coal per year that it grounds its contention.

There is no such express stipulation, but I think one is to be implied, and fairly and justly may be found interwoven with the terms expressed and growing out of their scope and meaning. In McIntyre v. Belcher, 14 C. B. (N. S.), 654, the plaintiff sold out his business as a surgeon, getting in return a cash payment for his drugs and instruments of about £17, but taking an agreement that the purchaser would account for and pay over to the plaintiff the one-fourth part of the receipts of the business for four years, if he should live so long, provided that their annual aggregate should reach £300. The defendant during the third year chose to abandon the business and the plaintiff sued. There was no express agreement that the purchaser would continue the business, or that if he did that its annual proceeds would reach £300.

The court held that a covenant was implied that the defendant would not willfully incapacitate himself from carrying on the business. Of course, that plaintiff took the risk, beyond the payment in cash, of the defendant’s business capacity, of his tact and skill, of his industry and ability to gather in more than the annual £300, but the risk he did not take was of the willful or negligent abandonment by the defendant of any effort to do business at all, so that the earning of profits was rendered utterly impossible. And so here the lessor, beyond her minimum royalty, took the risk of the defendant’s business capacity and necessities of its judgment of markets, of its ability to sell and find customers for the product, of the demands of its own interest and welfare; but the risk she did not take was that the lessee should make royalties beyond the minimum absolutely impossible by a total destruction of the mine, out of which the royalties were to come, and that through the agency of its own willful or negligent act. The plaintiff took a chance undoubtedly; but she was entitled to have it, and to have it as she took it; bad enough at the best, but such as it was, her’s, and which the defendant was not at liberty, willfully or negligently, to destroy.

I known very well that implied promises are to be cautiously, and hastily raised. What they are was very well stated in Scranton v. Booth, 29 Barb., 174 ; in Allamon v. Mayor of Albany, 43 id., 36, and in Booth v. Cleveland Rolling Mills Co., 6 Hun, 597 .

p. 60

They always exist where equity and justice require the party to do, or to refrain from doing the thing in question, where the covenant on one side involves some corresponding obligation on the other; where by the relations of the parties and the subject-matter of the contract a duty is owing by one not expressly bound by the contract to the other party in reference to the subject of it. In this court we have thrown some safeguards about the doctrine, to secure its prudent application, and have said that a promise can be implied only where we may rightfully assume that it would have been made if attention had been drawn to it, Dermott v. The State, 99 N. Y., 101 , and that it is to be raised only to enforce a manifest equity, or to reach a result which the unequivocal acts of the parties indicate that they intended to effect. King v. Leighton, 100 N. Y., 386 .

It seems to me that within the rule of these cases the plaintiff has a right of action upon the implied promise of the defendant not willfully or negligently to incapacitate itself from taking out more than the minimum quantity of coal. The acceptance of a minimum royalty for the safety and benefit of the lessee equally with that of the lessor, when a larger one was contemplated on both sides, involves an obligation of the lessee not willfully or negligently to prevent the expected accruing of the greater royalty. For, examine the situation at the making of the contract. The plaintiff owned a tract of coal land, the vein under which held about four millions of tons, which at twenty thousand tons a year it would take two hundred years to exhaust, and worth at the small price of this contract, above the mining and marketing and the operator’s profits, half a million of dollars. She desired to utilize so valuable a property. Unable or unwilling to plant a colliery upon the land, she turns to the defendant. That is a rich' and powerful corporation engaged both in mining and transportation. It had mines adjacent, adequate and sufficient plants, large capital, numerous customers, complete control of transportation. The parties sat down to agree. The rate per ton as royalty and the quality and inspection of the coal were settled. Then came the vital inquiry of how much the company would bind itself to mine. It said twenty thousand tons per year. Of course it proposed and expected to mine much more than that, and its own business interest would impel it to mine more, but it would not be bound for more than twenty thousand tons. Imagine Mrs. Grenet reflecting on the proposition. As an offer to mine twenty thous- and tons per year and no more, she would instantly have refused it. A contract to run for two hundred years was not to be endured, but as an offer to mine at least twenty thousand tons per year, and as much more as the company, with due regard to its business interests and convenience, would take out, the offer was better and not to be curtly rejected. It would be taking a chance, yes ; but business largely consists in taking chances, more or less hopeful or perilous. Mrs. Grenet studies this chance. It involves within its possibilities thechief and principal and only tolerable consideration of her bargain.. She measures that chance narrowly. She reasons ; there is the coal, I know it; I am sure of its quality .

p. 61

these men will want it; to get out the twenty thousand tons they will need to sink a shaft, to put up pumps, to establish a plant; having done so much, their own interest will impel them not to-stop at the minimum ; they never will stop there, and I will take the chance. Suppose somebody had said to her, they may willfully or negligently destroy your mine, and with her attention drawn to that suggestion she had asked the company to agree that it would not do that, is there any doubt that it would have so promised, or that if it deliberately refused that Mrs. Genet would have declined a contract with such a destructive possibility within its admitted scope? But neither party thought of it; both would have deemed it an absurd suggestion. There is not the least doubt of the manner in which Mrs. Genet viewed the chance offered to her, of the measure which she took of it, of its boundaries in her mind, nor that the company which held it out to her knew how she regarded it, and understood it in the same way on its. part. The equity of an implied promise is strong and clear. Good faith, honest dealing, business candor and fairness require that this contract should be enforced in the sense and with the meaning which was in the mind of both parties at the time of its execution. The mine which was to be exhausted, and paid for as exhausted, is to-day as much exhausted as if every ton of coal had been taken out and sold. To the plaintiff there is no difference. In either event the coal is gone ; and to say that she shall be paid for it at the annual rate of twenty-five hundred dollars a year for two hundred years is to put upon her a contract which she never made and never dreamed of making, and which never entered the mind of the defendant itself until the “ squeeze ” in the mine suggested an equally destructive pressure of literal construction.

The view which I have taken of this case was foreshadowed in the opinion of Barrett, J., when this contract was before him. in another action. He declared that “ the conduct of the defendant has been entirely subversive of the spirit of the contract and of the object and purpose for which it was entered into: ” that “ the execution of the contract in good faith was fully contemplated : ” that “ defendants have acted as if a minimum rent was in the nature of an annual bonus paid to the plaintiff merely to keep the property out of the market, or to prevent it falling into the hands of a rival: ” that “ they certainly have no right to make-any such use of the contract, and that would be to ignore its essence and destroy its life.” The learned judge in those remarks touched the vital point of this controversy and disclosed his appreciation of the equity inhering in plaintiff’s claim.

The question here is not one of waste or of injury to real property, or even of a tort or a wrong. It is whether, under this contract, fairly and justly construed between the parties, there was an understood consideration for it, beyond the minimum royalty secured, in the business option and choice of the lessee to mine a much larger amount if, under the existing circumstances, it should think proper to do so. I think there was. I can readily see that it served as the determining motive on the part of the plaintiff to the making of the contract. Corporations follow their in

p. 62

terests, as they should. What the defendant’s interest would be Mrs. Genet knew ,; and when she took the risk of what it would do, of its reserved option, she was entitled to have it, and not bound to submit to its utter destruction. To-day, if by a miracle the mine could be restored, she would still be obliged to submit to the option, and we should tell her that she must do so; but the profit in the coal, with all the machinery at hand, the plant existing, the miners near by, the trains waiting for their loads, would make almost certain its exercise, so as to produce the expected royalties far beyond the minimum. The chance of that option, exercised as both parties understood it should be, fairly and honestly and in good faith, was of great value to Mrs. Genet, but the lessee has destroyed it utterly by its own negligent act. In so doing, we think it broke the contract, and, therefore, that the complaint stated a good cause of action.

The order and judgment of the general term should be reversed, and that of the special term, overruling the demurrer, affirmed, with costs, but with leave to the defendant to answer within twenty days from notice of the entry of judgment, and upon payment of all costs which have accrued since the interposition of the demurrer.

All concur, except Earl, J., not voting.