Barrowman, Etc. v. Kentland Coal & Coke Co.
| Decision Date | 31 May 1946 |
| Citation | 302 Ky. 803 |
| Parties | Barrowman Coal Corporation et al. v. Kentland Coal & Coke Co. et al. |
| Court | United States State Supreme Court — District of Kentucky |
3. Mines and Minerals. — Stockholders of lessee corporation abandoned mining lease and whatever rights they may have had as successors to corporation when, following notice of termination of lease because of expiration of lessee's corporate charter, they removed large part of essential mining machinery and equipment from leasehold, regardless of whether reasons given for termination of lease could be sustained.
4. Fraud. — Victim of fraud must promptly seek redress and prosecute his suit with diligence, and he may not wait and speculate upon the probabilities of the case.
5. Equity. — Equity will refuse its aid and decline to give relief where a party has slept on his rights, or has failed to exercise reasonable diligence, during which period of slumber, material changes in conditions or relations of the parties were induced or resulted, and where it would be unjust to adverse party to disturb the status quo thus created.
6. Equity. — What constitutes reasonable diligence in asserting rights so that remedy will not be barred by laches cannot be determined by any established rule but must be determined upon the circumstances of each case.
7. Equity. — Time is the controlling element in doctrine of laches where a long-standing claim has become stale through the passing of the years with a loss of evidence or obscuration of the facts.
8. Equity. — Relief in equity may be barred by laches by only a brief delay in asserting a right, where during such delay the parties spent much money and created conditions so materially different that granting of relief would result in gross injustice to one taken unawares.
9. Equity. — Equitable maxims of clean hands and doing equity are applicable to a party who seeks the aid of a court of equity to extricate himself from a position created by his own wrong or to get what he claims is a just remedy, and it is he who seeks affirmative relief who is denied it when he is himself guilty of inequitable or unconscionable conduct in relation to the transaction.
10. Equity. — The maxim that he who seeks equity must do equity ordinarily assumes that different equitable rights have arisen from same subject matter or transaction, some in favor of plaintiff and some of defendant, and maxim requires that court should, as condition of its enforcing plaintiff's equity and conferring a remedy upon him, compel plaintiff to recognize, admit, and provide for corresponding equity of defendant and award defendant also proper relief.
11. Equity. — The "clean hands" doctrine assumes that one seeking aid of equity has himself been guilty of conduct in violation of fundamental concepts of equity jurisprudence, and therefore refuses him all recognition and relief with reference to subject matter or transaction in question.
12. Equity. — Where both parties have been guilty of inequitable conduct in relation to a transaction, court will leave them in position in which they have placed themselves and will grant relief to neither by refusing all affirmative aid.
13. Cancellation of Instruments. — Laches may bar rescission of a transaction entered into by reason of fraud of other party.
14. Mines and Minerals. — Where lessee, though learning shortly after discontinuing mining operations and removing machinery of construction of railroad accessible to leasehold, stood by while owner leased property to another without asserting adverse right for nearly two years while second lessee spent large sums in erection of operating facilities, first lessee was barred by laches from asserting that surrender of rights under lease was procured by deceit through concealment of proposed railroad construction.
15. Mines and Minerals. — Conflicting evidence sustained chancellor's finding that lessee was not liable to lessor in damages for improper operation of mine, or for injuries allegedly resulting from condition in which mine was left upon cessation of operations.
Appeal from Pike Circuit Court.
O.T. Hinton, F.M. Burke, and P.B. Stratton for appellants.
J.P. Hobson, Jr. for appellees.
Before R. Monroe Fields, Judge.
Affirming.
The Kentland Coal & Coke Company, owners of the minerals, executed a mining lease of a certain 450 acres of coal at the head of the Left Fork of Beaver Creek, in Pike County, to the Barrowman Coal Corporation, on July 28, 1939. The property was about seven miles from a railroad and was to be developed as a trucking mine. The judgment declared that the rights and obligations of the parties under the lease had terminated and the plaintiffs had not shown themselves entitled to any rights under it. The judgment also denied recovery upon the counterclaim of the defendants of any damages for improper mining. We have an appeal and a cross appeal.
The duration of the lease was until the coal had been exhausted, which it appears might have been for as long as 60 years under the character of current operations. In May, 1943, the lessor, the Kentland Company, began negotiations with the lessee to modify the lease or execute a new one so as to reduce the acreage and embrace only the part being mined and perhaps coal reasonably accessible to the present operating facilities. Eventually the lessee refused to agree. On August 2, 1943, the lessor notified the lessee that the lease had expired on June 10, 1943, because of the expiration of its corporate charter on that day. Reference was also made to the rejection of the offer to execute a new lease and reduce the boundary. The lessee was warned that continuance of operations would result in a suit to recover compensation for coal taken as by a wilful trespasser. Operations continued and remittances were made for rents and royalties for a brief time. They were not accepted as such but retained, as the lessor advised, to apply as credits on any sum that might be recovered for coal removed without right.
The stock of the Barrowman Coal Corporation, whose charter expired, was owned by David Barrowman, W.E. Barrowman and Annie B. Price. On July 8, 1943, 19 days after the date of expiration, articles of incorporation were filed for a new corporation of the identical name as the old, but with $25,000 capital stock instead of $200,000, which the old company had. It appears that these new articles had been prepared some time before the expiration of the charter, but nothing was done toward amending the articles of the old company to extend its life beyond the 25 years ending June 10, 1943. After a few months following the notice and continued operations, a large part of the essential mining machinery and equipment was removed from the leasehold by the Barrowmans. The lessor regarded this as an abandonment and leased the land with mining rights to the Russell Fork Coal Company, which promptly constructed facilities and entered upon the mining of coal.
This suit was filed against the Kentland Company by the new Barrowman Coal Corporation and the three individuals who owned all the stock of both the old and the new companies. The old corporation was also named as a party plaintiff. The subsequent lessee, the Russell Fork Company, interpleaded. The petition does not allege that there was ever a transfer or assignment by either the old corporation or the stockholders to the new corporation, but it does allege that the new company was at all times ready, willing and able to proceed with the mining operations. The prayer was for a declaration of rights, including the adjudication that the new company be substituted as successor lessee.
It is doubtful whether the reason given in the notice or declaration of the termination of the lease could be sustained. Departing from the rule of the common law, that upon expiration of a charter real estate of the corporation reverted to the grantor and the personal property to the Crown, it became the American rule that after the satisfaction of debts title to a defunct corporation's property passes to the stockholders as owners in common or sometimes as partners. So that a lease to a corporation is not ipso facto extinguished or terminated by its dissolution. 32 Am. Jur., Landlord and Tenant, Sec. 827; Fletcher Cyclopedia of Corporations, Par. 8124; Cummington Realty Associates v. Whitten, 239 Mass. 313, 132 N.E. 53, 17 A.L.R. 527. Nor does such a dissolution give the lessor a right to regard it as an anticipatory breach of the contract. Perry v. Shaw, 152 Fla. 765, 13 So. 2d 811, 147 A.L.R. 352. We have recognized this rule as applicable to a mineral lease. Shadoin v. Sellars, 223 Ky. 751, 4 S.W. 2d 717. The doubt in this case arises from the fact that the lease contained very strong and specific provisions prohibiting its assignment or transfer, or the parting with possession of the leasehold estate or of the rights created by the instrument, in whole or in part, without the previous consent of the lessor. It declared that such an assignment or transfer, or even the sale under judicial decree or the adjudication of the lessee as a bankrupt, would cause a forfeiture and authorize the lessor, at its option, to resume possession of the premises and all improvements thereon. We need not pursue the interesting question of the effect of such provisions on the right of the old corporation to dispose of the lease as an asset in the winding up of its affairs, or of the stockholders to receive the same as a distribution of assets and to hold the lease as partners, for it satisfactorily appears that the...
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