106 Tenn. 651 | Tenn. | 1901
The bill in this cause was filed to collect royalties alleged to be due to the complainant under a lease made on January 30, 1888, by the complainant to J. W. Renfroe and others, assigned by the latter to the Cumberland Coal Mining Company, and by that company to the defendant, both assignments having been made with the consent of the complainant; also another lease, dated January 25, 1892, made hy the complainant to the Cumberland Coal Mining Company, and by the latter, with the consent of the complainant, assigned to the defendant.
It is unnecessary to set out all the clauses in
“6. And the said parties of the second part hereby covenant and agree that they will pay to die party of the first part for all steam or run of mine coal, mined or agreed to be mined,, a rent, or royalty, of one-half (-J) cent per bushel of eighty (80) pounds; and will also pay a rent, or royalty, of one (1) cent per bushel of eighty (80) pounds for all lump or domestic-coal mined, or agreed to be mined, and the said party of the second part also covenant and agree-that they will mine and take from the said premises ' hereby (demised) not less than twenty-five thousand (25,000) tons, or six hundred and twenty-five thousand (625,000) bushels of coal during each of the years 1889 and 1890; and for every year thereafter .during the continuation of this lease they agree to mine and take from said premises not less than fifty thousand (50,-000) tons, or one million two hundred and fifty thousand (1,250,000) bushels of coal; and that if during each of the years 1889 and 1890 they . shall not have mined and taken from said demised premises at least twenty-five thousand (25,-000) tons, as herein provided, then they shall pay to the party of the first part, on the. twenti-
While the controversy, so far as this lease is concerned, arises upon the clause six, it is proper to call attention to clauses fourteen and fifteen, which are incidental to it.
■ By the fourteenth clause of the lease it was provided that “the party of the second part (the lessees), on the happening of any occurrence that should render the mining of coal unprofitable, without fault or negligence on their part, at the expiration of any year of the term, shall have the right to surrender the lease 'by giving notice of such surrender to the party of the first part and paying to it all sums of money due up to the time of such surrenderwhile by clause fifteen it was provided that “the successors and
This lease was for the term of twenty-five 5 ears, unless otherwise legally terminated.
The second of these leases, to wit, that made to the Cumberland Coal Mining Company, is substantially the same as the one just quoted, with the following exceptions: It is made directly to the Cumberland Coal Mining Company instead of to Renfroe & Company; was to run twenty-one years from the first day of July, 1892; the subject of it was a tract of 1,700 acres, fully described in the lease; it contained a covenant and agreement that the party of the second part, the Cumberland Coal Mining Company, would mine and take from the premises not less than 15,000 tons, or 37,5,000 bushels of coal diiring the year 1892, and for every year thereafter during the continuance of the lease not less than 50,000 tons, or 1,250,000 bushels of coal, and that if during the year 1892 they should not have mined and taken from the premises at least fifteen thousand tons, then the party of the second part should pay to the party of the first part, on the twentieth day of .January next succeeding the expiration of such year, in cash, as liquidated
Immediately upon receiving the assignments of' these leases the defendant company took possession, of the properties covered, and operated them until about July 1, 1894. However, on March 14, 1894,. the Tennessee Coal, Iron & Railroad Company addressed a letter to the complainant, in which it" wa.s stated that because of “existing conditions-of the mine it is impossible for us to conduct operations without losing money,” and that the-company had “decided to surrender the leases on the tenth of July next,” under the authority of' that clause in each of the • leases providing fora surrender of the same at the close of any year under certain conditions which the letter-
“GeNtuemeN — T have your favor of March 14th, and regret very much to hear of your decision to surrender the Big Mountain leases. You have, however, worked the mines long enough to be able to determine whether or not you can operate them successfully.
“I beg to call your attention, in this connection, that by the clause of the lease under which you surrender the mines it provides that before the final surrender is made that you should pay whatever is due up to that time, which, of course, means the minimum royalty as provided for in the _ lease.
“When parties leasing from this company have continued their effort to mine coal, we have never enforced the minimum royalty, as provided for in the lease. In case, however, a lessee availed himself of his privilege of surrendering the lease under the clause to which you allude, 1 think this company should collect the minimum amount as provided for by the lease, and which you doubtless ,.would expect to do. You will readily see the amount you have been paying is not up to the minimum provided for by the lease, and I therefore would be glad to have you make up
“Very truly yours,
“W. P. OhamberlaiN, Treas.”
On or about the first of July, 1894, the defendant abandoned the property, and the complainant entered. Questions of liability growing out of the occupancy by the defendant being unadjusted, the bill in the present cause was filed to enforce payment of a large balance of $2o;890.53, with interest, claimed by the complainant to be due from the defendant as liquidated rent or royalty under these leases during its period of occupancy. This claim is thus stated in a- paragraph of the bill: “Complainant further shows to the Court that under the terms of the aforesaid leases, owing to the failure of defendant during the years 1892, 1893, and 1894 to mine a sufficient amount of coal to yield the minimum liquidated rent or royalty stipulated for in said leases, there became due and owing to. complainant on January' 20, 1894, the sum of $12,438.05, -which bears interest from that date, and on July 1, 1894, the date of the abandonment of the leases by defendant, the sum of $6,033.64, which bears interest from that date, making the aggregate principal sum of $25,890.53, with interest on the respective portions thereof from the dates above mentioned. This amount -was due and unpaid on •July 1, 1894, and owing from defendant to com
There was an original answer, and several amended answers, filed to the bill, in which a number of defenses, some material and others now immaterial to the case, were set up. Those material are that defendant, with reference to all matters-growing out of its occupation of the mines, under these leases, had made a full and final settlement with complainant, and had paid to it the amount cf funds due on this settlement,: that the - defendant- had expended $60,000 or more in developing these mines, and had discovered that 'the coal therein was worthless and unmerchantable, and that being so their leases were not supported by any legal consideration, and that no action upon them would lie; that complainant is a corporation of the State of Tennessee, chartered on March 14, 1872, by decree of the Chancery Court of Roane County of this State, under Chapter . 54 of the Acts of the Legislature of 1870; that it v-as incorporated as a manufacturing, quarrying, and mining corporation, with the power “to hold,, purchase, dispose of, and convey real and personal estate to the -extent prescribed by law, and if not limited by law, such an amount as the business of the corporation requires;” that the corporation exceeded its power in the lease to J. W. Renfroe and others, and that the lease was therefore ultra vires and void, as was the transfer of
It was further averred by way of defense that though incorporated for the purpose of mining, manufacturing, and quarrying, yet complainant had never engaged in doing either of these things; ‘■that it had utterly failed to discharge any of its corporate functions; that its duties and functions as a mining company had been relegated to and discharged by lessees of its coal lands; that it was a mining and manufacturing company only in name; that its only business in fact had been to lease its coal lands and collect its rents;” and for these reasons the leases in question were ultra vires. ’
The answer also relies on a noncompliance by the complainant in making these leases with Chapter 198 of the Acts of 1887, which is entitled “An Act to empower corporations to lease and dispose of their property and franchises.” Section 1 of this Act provides as follows:
“That all corporations now or hereafter existing under the laws of this State, whether incorporated under special or general laws of 'the State, shall have the power, and they are hereby authorized and empowered, to lease and dispose of their property and franchises, or any part thereof, to
It is averred in the answer that the requirements of this proviso were in no particular complied with; that the original lease nor the several assignments thereof were at no time authorized or approved by the “vote of the majority in amount of -the stock of the lessor corporation present or represented at a regular or called meeting of the stockholders of such corporation; that sixty days notice of such meeting was at no time published in the newspapers, and that in the case of Cumberland Coal Mining Company this corporation accepted its original lease and transferred this and the Renfroe lease to the defendant without the authority of its stockholders in like manner and without publication calling for a meeting of its stockholders, and that the defendant corporation also failed to obtain the approval and authority of its stockholders to the acceptance of said lease as required by the statute. It is therefore insisted that the makine- of the original leases was ultra vires as to complainant company,’ and the acceptance of the Cumberland Coal Mining Company of the lease made
• Much evidence was taken by both parties, and upon tbe bearing of tbe case tbe Chancellor decreed that there was a balance due from defendant to the complainant, under tbe royalty clauses already . set out in ' tbe lease, aggregating ($23,-184-. 28) twenty-three thousand seven hundred and eighty-four dollars and twenty-eight cents, to which interest was added, making the total recovery $34,-280.03) thirty-four thousand two hundred and eighty dollars and three cents. From this decree an appeal was taken by the defendant. The Court of Chancery Appeals affirmed this holding, and the case is now before .us on an appeal.
The assignments of error to the action of the Court of Chancery Appeals are as follows:
(1) That complainant’s charter has expired, and it is therefore no longer a corporation.
(2) That complainant had no authority in law to execute the leases.
(3) That neither complainant or defendant complied with Chapter 198, Acts of . 1881, nor did the Cumberland Coal Mining Company, therefore the defendant acquired no title under the assignments made to it.
(5) That inasmuch as complainant treated the leases as null and void on July 1, 1894, when the defendant surrendered, or attempted to surrender them, it cannot now predicate an action thereon, even for the time the defendant was in actual possession of the leased premises.
(6) That the minimum royalty clause in the leases is not enforceable because of failure of consideration.
As to the first assignment of error, as little, if any, stress is laid upon it in argument, it is only necessary to say that the complainant was incorporated by decree of the Chancery Court of Roane County in March, 1872 (Heck v. McEwen, 12 Lea, 97), and that it had a life of twenty years; that Chapter 197 of. the Acts of 1887 authorized the continuance of the existence of all corporations whose charter expired by limitation for the term of five years from the period of such limitation; and that subsequently, but before the dissolution of this corporation, the persons organized as such availed themselves of the privilege granted by Chapter 146 of the Acts of 1893, and conforming in every respect to its provisions, continued the existence of the corporation. There is nothing in the assignment of error, and it is overruled.
The argument of the defendant seems ' to concede, and if this is not true, it is at least well established, that the complainant, though incorporated to carry on a mining, quarrying, and manufacturing concern, has not done either of these things, and that it is the owner of a very large body of lands which might be utilized by it for either of these corporate purposes, but has not been. These matters cannot be the subjects of judicial determination in this cause. If the corporation has been guilty of neglect or abuse of its corporate privileges in respect to these matters, it is for the State alone to make the question. Barron v. Turnpike Co., 9 Hum., 304; Thompson on Corp., Sec. 8358; Cowel v. Colorado
This being the law, it can therefore make no difference with the defendant, even if it be true, as suggested in the brief of defendant’s counsel, that by a failure to compel complainant to employ so much of its capital as may be necessary ‘"in opening mines, constructing tracks, buildings, machinery, structures,” etc., it may be enabled “to reach out and monopolize all the coal lands in the State.” For the greater the abuse in this regard, the more imminent will be the necessity for, and the greater the probability of the State instituting - proceedings for a forfeiture of its charter. •
The . exact point of the insistence in this regal’d of the able counsel is thus stated by him in his printed argument: “I do not contend that complainant has ■ no power to execute a lease. On the contrary, I concede that it may execute any lease provided the purpose of executing the same be not to énable the company to carry on its business through the agency of another corporation. To illustrate: Complainant may lawfully make leases of its lands for agricultural purposes, inasmuch as the surface of the lands for agricultural purposes - would not impair their use for mining purposes. Complainant may also make leases for the cutting of timber, provided such timber
If this argument be sound, then carried to its legitimate result, if the complainant corporation was engaged by its employees in digging coal or quarrying marble, and "there were large deposits of coal or of marble on -its lands, which it could not hope to reach with its own capital and. labor, intelligently and energetically bestowed, it' could not lease a foot of its ■ land to other corporations to develop these minerals, but would be put to the alternative of permitting the land containing this excess of deposits to lie -idle and be a consequent burden on its resources, or else of selling it. Or if the complainant, corporation had a manufacturing plant on a portion of its property which was being operated actively by it, and yet had other eligible but unused sites for such plants, it could not lease these to other parties. Or if it had bodies of timber on its lands, far in excess of its own requirement, it could not lease an acre of this timber, if the
It / is true the statement of the proposition is limited to leases made to other corporations, but is it sound, when it leads ' to such results, however limited ?
The contention is rested largely, though not altogether, as is seen in the paragraph from counsel’s brief set out above, upon Marble Company v. Harvey, reported in 92 Tenn., 115. We do not think .that case supports this contention. The gist of that case, and the Court’s opinion in determining it, is found in the first of the syllabi, which is as follows: “A corporation cannot lawfully become the owner of shares in any other-corporation unless by power specially granted by its charter or necessarily implied in it. The unauthorized purchase by a corporation of the shares-of another corporation is ultra vires and void. No suit can be maintained by either party in furtherance or affirmance of such void contract, not even by a party who' has fully executed the-contract on his own part. Such illegal contract creates no estoppel upon either party.”
. That was a case where an Ohio corporation had purchased all the shares of stock of a Tennessee corporation engaged in a similar business and under a similar charter, and the controversy arose from the purchase of the last of the shares. The principle announced is limited to the facts-
The pith of the present contention is in the statement that “a corporation must carry on its business by its own agents, and not through the agency of another corporation.” This statement forms a part of a paragraph taken' from the text of Mr- Morawetz, Section 481, embraced approvingly in the marble company case opinion. The entire paragraph is as follows:
“A corporation has no implied right to purchase shares in another company for the purpose of controlling its management, nor may a corporation hold shares in another company as an investment, unless this be the usual method of carrying on its own proper business. A corporation must carry on its business by its own agents, and not through the agency of another corporation. It is clear also that a corporation has no implied right to speculate in shares unless this be the kind of business for which the company ivas formed.”
It will be seen that the author is dealing with the purchase by one corporation of shares in another company, either for the purpose of controlling its management or as an hovescment, or with the víoav to speculate, and the sentence relied on here is to be limited to these matters. This is further apparent, when the eases are examined cited by the author in support of his text, to
It is also insisted that Mallory v. Oil Works, 86 Tenn., 604, supports this contention. We do not think so. In that case a number of oil companies formed a combination or syndicate and turned over their properties to an executive committee or management, upon terms which the Court held made a partnership unlawful in its character, and which either party could repudiate.
But after all, however stated, we agree with the Court of Chancery Appeals that “the contention goes back . to the point that complainant is neglecting to use its franchises, . as to running, manufacturing, and quarrying,” and so neglecting could not make these leases. This is, however,' a matter for the State, and not the defendant.
3. It is true that neither complainant nor the defendant complied with Chapter 198, Acts of 1887, and the question is, Hoes this failure make the contract of leasing, void? Conceding for the moment that this Act applies to all corporations organized for profit, whether they be private or
We do not think such a purpose was in the
If ' this be the right interpretation of the Act,. even with the concession that a private corporation is embraced by it, then these leases cannot fall within it. For the record discloses that the complainant owns seArenty-five thousand acres of" mineral lands, of which these leases ‘cover only twenty-eight hundred acres, while all the other-leases given out by the company embrace only about sixteen thousand acres, leaving thus three-fourths of its holdings subject to its absolute control.
But we are satisfied that this legislation was. never intended to embrace private corporations as-contradistinguished from quasi public corporations. This is an enabling Act, and such a corporation-
At common law, the right of a corporation, acting by a majority of its stockholders, to sell its property was absolute, and was not limited as to objects, circumstances or quality. 2 Kent, 280; Mayor v. Lawton, 1 Vesey & B., 226; Dinneys Case, 2 Bland, 142; 4 Thompson Corp., §§ 5374, 5358.
And this common law right is as inherent in a quasi-public corporation, within well-defined limits, as in a mere private corporation. As was said by Mr. Justice Bradley, in Branch v. Jessup, 106 U. S., 468: “Outlying lands not needed for railroad ■ uses may be sold. Machinery and other personal property may be sold.” But when it comes to the disposition by mortgage, sale or lease of its franchises or of corporate property essential to its operation as a quasi-public corporation, then there is an exception to this right of alienation. This power of alienation by such a corporation, “by the great weight of authority, must be expressly conferred.” Frazier v. Railway Co., 88 Tenn., 138.
The reason for this exception to the general
Such a corporation, therefore, needed the aid of this statute. But it was ;‘not so with corporations •of a private character established solely for trading and manufacturing purposes. Neither the public nor the Legislature has any direct interest in their business or its management. These are committed solely to the stockholders, 'who have a pecuniary stake in the .proper conduct of their affairs. By accepting a charter they do not undertake to carry, on the business for which they are incorporated indefinitely and without any regard to the condition of their corporate property.” Treadwell v. Salisbury Mfg. Co., 7 Gray, 393; Ardisco Oil Co. v. Oil Co., 66 Pa. St., 375.
In view of these considerations, we think it
4. It is earnestly insisted that the Court of Chancery Appeals was in error in holding the clauses in the lease contracts providing for a minimum rc-nt or royalty were agreements to pay liquidated rent or royalty.
In making a contract parties are at liberty to-leave open the question of damages for breaches, thereof to the determination of the Courts, or else they may fix these damages in the contract itself. The confusion in the cases arises from the-disposition of the Courts to relieve parties to contracts from what seem to be improvident bargains, by converting provisions which would naturally im
It would seem that in a mining contract this latter rule would especially apply. The value of the lessor’s coal imbedded in the earth as an income-producing property depends upon ‘ the amount ■of it which is excavated by the labor of the lessees. If much is thus produced the results for the lessor will be favorable; if little, then they "will be correspondingly less. It is impossible for the lessor antecedently to determine how well the lessee wall discharge his obligation, whether he will be slothful or diligent, and thus he is unable to calculate, either accurately or with approximation, what his money loss will be if the lessee is negligent in performing or wholly disregards his contract. Such a contract, it would appear, would be an eminently proper one for a stipulation providing liquidated rent or royalty for a breach. An ■examination of the authorities indicates that this
In the new work of Barringer & Adams, of 'the Philadelphia bar, on the ‘"'Law of Mines and Mining,” p. 108, it is said: “If the lessee sees it to covenant to mine a certain amount, he will, ■as a general thing, be held to strict performance, •or in case the ore is not taken out he will be held liable for the payment of rent and royalty the same as if it had been taken out — this being regarded as equivalent to stipulated damages, which may not be reduced by evidence of the .actual value of the mineral, and this whether or not there is an expressed covenant to pay a royalty on a minimum amount.”
In Lehigh Zinc & Iron Company v. Bamford, 150 U. S., 655, there was a mibing lease providing for the payment by the lessee of a royalty of one dollar and fifty cents per ton on all ■concentrated ore mined from or used on the premises, with an additional provision that “in case the royalty due ... to the parties of the first part according to the above rates shall in any year fall below the sum of $1,000, then the party of the second part shall pay to the parties of the first part such additional sum of money as shall make the royalty of such year amount to the sum of $1,000, which sum shall be held and taken as the royalty of that year.” The suit was for a breach of this covenant for
In Flynn v. Coal Co., 72 Iowa, 738, a lease of coal land provided that the lessee should pay a certain royalty on coal taken out, and also provided that a certain amount should be taken out, and it was held that the lessee was bound to pay royalty on the amount agreed to be taken out, whether actually taken out or not, and that, too, although a poi’tion of the term was necessarily occupied in making preparations to begin mining.
In Gilmore v. Ontario Iron Co., 86 N. Y., 455, the plaintiff leased certain land to the defendant for him to mine and move the iron ore therefrom. Among other things, the lessee agreed to pay twenty cents a ton for all ore and to mine eight thousand tons annually. It was held, in an action to recover for a breach of this agreement, that the lessee, upon his failure to exercise an option given him by the contract, was
In McIntyre v. McIntyre Coal Co., 105 N. Y., 264, under dissimilar conditions, but such as required the consideration of a royalty clause in the lease of coal lands, it was recognized as a fixed and enforceable stipulation according to its terms.
The case of the Consolidated Coal Co. v. Prees, 150 Ill., 344, involved, among other questions, one as to a minimum royalty provision in a coal mining contract. As to this the Court said:
“We understand the rule to be that if, from the nature of the contract, damages cannot be calculated with any degree ■ of certainty, or from the peculiar circumstances contemplated by the contract, the stipulated sum will be held to be liquidated damages. ., . . We think that the rule last, above stated is applicable to the case at bar. . . . Besides this, the clause in question was, under the circumstances of the case, an eminently reasonable one.' Without it the effect of thfe contract would have been to divest appellee of all control over the coal under their land for the long period of twenty-five years, and would have left them without any povrer to compel the lessee or its assigns to take out a bushel of it. The lessee was a coal mining company and must be presumed to have been woll informed in respect to the subject matter in regard to which it was contracting. It is manifest from the terms of the lease, as there
In Powell v. Burroughs, 54 Pa. St., 329, with regard to the uncertainty attending a mining venture and the reasonableness of fixing a minimum 'royalty, the Court said: “The defendant covenanted to take out of the Burroughs mine leased in 1862, without any reference to any other mine or lease, so many tons per year while the term lasted; and on a failure to take them out to pay for the stipulated number taken or not taken. ... It was therefore a clear case of stipulated damages in case of non-performance pro ianto. The parties fixed it as the true measure of damages in case of failure . . . and . . . were bound by it. The uncertainty as to the extent of the injury which may ensue is a criterion by which to determine whether it is a case of liquidated damages or penalty.”
See also Central Appalachian Co. Limited v. Buchanan, 13 Fed. Rep., 1006; Lehigh & Wilkesbarre Coal Co. v. Wright, 171 Pa., 387; Clark v. Midland Blast Furnace, 21 Mo. App., 58.
The question of reasonableness or unreasonableness must be determined from the situation of the parties at the time the. contract Avas made, and the nature of the business itself. On these points
But it is insisted that there was a contemporaneous construction of these royalty clauses by the parties, showing that the sum stipulated was. regarded as a penalty, rather . than as liquidated damages. As to this the Court of Chancery Appeals finds the facts to be as follows:
“Taking up the matter at the time when the-defendant became interested, the first installment of liquidated rent, or royalty, was due on the 20th of January, 1898, for the previous year, and on the 20th of January, 189-1, for the year 1893. The proof shows that the lessees, at . the end of each quarter, reported to the lessor the number of tons of coal actually mined during that quarter, and the lessor made out accounts against the lessees, for the stuns due to lessor for the coal so reported to have been mined during that quarter. The lessor itself, therefore, has made at least sixteen quarterly accounts for rent due under said leases, and in no one of said accounts did the lessor claim any rent, except the price per ton for coal actually mined; that is to say, in claim
In Powell v. Burroughs, supra, it appears the trial Judge declined to charge that a settlement for the rent of the past year, without exacting rent for coal not mined, according to the terms of the lease, was a discharge from liability on the covenant to mine a certain number of tons per annum, or, on failure to mine so much, to pay the rent as if mined. Upon an assignment ■of error to this refusal the Supreme Court said: ■‘'The learned Judge refused to respond as requested, and" we agree he was entirely right in doing so. It was quite too much to affirm, as a conclusion of law, that payment for coal taken out was a discharge of all liability for a breach of the contract to take out a defined number of tons. The covenant to pay rent for the coal mined and taken away was distinct from the covenant to mine a certain number of tons. Receiving a stipulated sum for one was not necessarily a release of the other.”
We think it equally too much to affirm as a
“The force of this contract of the lessee to pay in advance is sought to be avoided by the previous practice of the parties; which, as it appears by the testimony, was not in accordance with the terms of the lease; but the rent had before, in fact, been paid at the end of each quarter, and, of course, after it had accrued by occupation of the premises. But I apprehend the authorities relied upon do not reach the case before us. In French, v. Carhart, 1 N. Y., 96, certain often recognized rules of construction were quoted and approved by His Honor, Judge Jewett, and among the rest, that when the words of grant are
5. The fifth objection is founded upon1 a1 misconception of a single phrase in complainant’s bill, and is not warranted by the facts found in the-ease. There was no forfeiture on the- part of the; complainant, but a surrender of the lease- by the-defendant under a clause therein, which authorized! it, and ■ an acceptance of this surrender-. Without elaborating this further, we are content to overrule this objection.
6. The sixth objection is that the coal in the-property leased uTas unmerchantable, and that being-so there was such a failure of consideration as; to make the minimum royalty clauses unenforcable.
“While non-existence or exhaustion of' coal may relieve a lessee from the covenants of Ma-lease, unmerchantability in the absence of special]
Other incidental questions have been discussed. The points pressed upon us have had that consideration which the importance ■ of the controversy required, but after a careful consideration we find no error in the record, and the decree of the Court of Chancery Appeals is affirmed:
