Cal-Am Corp. v. Spence, CAL-AM
| Decision Date | 18 September 1981 |
| Docket Number | CAL-AM,No. 80-1013,80-1013 |
| Citation | 659 F.2d 1034 |
| Parties | CORPORATION, Plaintiff and Counter-Defendant, Appellee, v. Joe Talley SPENCE, Defendant, Appellant, Joseph R. Laird, Jr., Third Party Defendant. |
| Court | U.S. Court of Appeals — Tenth Circuit |
John R. Tiwald, Dickson & Dubois, Albuquerque, N. M. (Michael P. Watkins, Dickson & Dubois, Albuquerque, N. M., with him on the brief), for defendant, appellant.
Jonathan B. Cole, Nemecek, Gonzalez & Linsley, Sherman Oaks, Cal., for plaintiff and counter-defendant, appellee.
Before BARRETT, DOYLE and SEYMOUR, Circuit Judges.
Defendant-Appellant Joe T. Spence seeks reversal of a final judgment which found the plaintiff-appellee, Cal-Am Corp., not liable on a counter-claim for amounts allegedly due to the defendant-appellant Spence under an Assignment of Material Mining Lease.
Cal-Am is a New York corporation which has its principal place of business in California. The third-party defendant, Joseph F. Laird, Jr., is the president and a director of Cal-Am and a resident of California. Spence resides in New Mexico.
There is no dispute about the facts here and, as a matter of fact, the trial court's findings are not disputed. On August 6, 1976, Spence entered into an agreement entitled Material Mining Lease, with one Felix Chicharello, Sr. As lessee Spence was granted the right to mine and sell material from a tract of land in McKinley County, New Mexico. The property contained humates, a low grade coal useful in fertilizer production. By the terms of the lease, Chicharello was to receive approximately $1.00 per ton of shipped material as a royalty. A clarifying letter provided for payment of $100.00 per month rent for two and one-half acres of land, commencing in the month in which construction of a sacking and processing facility was begun on the property. On the same day, that is August 6, 1976, Spence assigned the Material Mining Lease to Cal-Am Corporation. That assignment called for a $15,000 advance royalty to be paid to Spence; Spence received $14,000 of that amount. Cal-Am assumed all of Spence's duties under the Material Mining Lease, including the royalty obligation to Chicharello. Under the Assignment, Spence was also to receive a royalty of $2.25 for each ton of material mined and sold and these payments were to be made monthly. Other provisions providing for a minimum royalty and a re-entry in the event of default are discussed below.
Following a trial to the court the judge found that Cal-Am's interest in the property was as a tax shelter, which was to be offered to third parties through syndication in a limited partnership. The trial court found that Cal-Am never made a serious effort to profitably mine the property. Following a change in the tax laws, Cal-Am's interest in the property "diminished tremendously." Cal-Am ceased making royalty payments, and sought to negotiate with Spence concerning the lump sum due in August 1977. Thereafter, Cal-Am determined to close the New Mexico operation. On August 27, 1977, after learning of this decision, Spence padlocked the property and removed the rolling equipment present without giving 30 days written notice. The trial court found that Spence took possession of the property for his own benefit.
The action herein was commenced by Cal-Am; Spence was named as the defendant, and damages for breach of contract were sought. Also, the alleged breach consisted of conversion of over 70,000 tons of humates and coal which had been stockpiled on the property and fraudulent misrepresentation. Spence in turn counter-claimed for breach of contract. He alleged that the third party defendant Laird was liable for the actions of Cal-Am as Cal-Am's alleged "alter ego." The trial court found that Spence had not misrepresented the quantity of humates on the property in any way. The court also found that Cal-Am suffered no damage through Spence's acts in taking possession of the material on the property or in failing to give 30 days written notice as provided in the Assignment.
The only part of the trial court's findings of fact and conclusions of law at issue is the holding that by exercising his contractual right to repossess the property, Spence relieved Cal-Am of any further obligations under the contract. Having so found, the court declined to rule on the alter ego question. Spence here urges that the court erred in not permitting him to recover the minimum royalty payment for the year of August 6, 1976 to August 6, 1977. He would have this court reverse that determination and remand to the trial court for a ruling on the alter ego question. Cal-Am has not cross appealed and urges that this court affirm the trial court's judgment and order.
New Mexico law governs in this case. Spence argues that the Assignment at issue is actually a sublease. By analogy to law governing landlord-tenant relations, Spence urges that the minimum royalty ought to be treated like accrued rent, which he is entitled to recover in spite of having exercised his right to retake possession of the property under the contract.
The Supreme Court of New Mexico has said:
It is settled law in this jurisdiction that if a lessee conveys the entire term, and thereby parts with all reversionary interests in the property, the transaction is construed to be an assignment. However, if the tenant, by the terms, conditions and limitations in the instrument, does not part with the entire term granted him by the landlord so that there remains a reversionary interest, however small, it is a sublease. May v. Walters, 67 N.M. 297, 354 P.2d 1114 (1960), citing Hobbs v. Cawley, 35 N.M. 413, 299 P. 1073 (1931); DeBaca v. Fidel, (61 N.M. 181, 297 P.2d 322 (1956)). Spears v. Canon De Carnue Land Grant, 80 N.M. 766, 461 P.2d 415, 417 (1969).
In Hobbs v. Cawley, cited above, the New Mexico court determined that as between the first lessee/sublessor and his sublessee, the question of whether an assignment or a sublease exists is to be determined by the intent of the parties.
In the present case, Spence transferred the entire term of the Chicharello lease to Cal-Am. Cal-Am assumed all of Spence's rights and duties under the lease and the document itself is titled "Assignment of Material Mining Lease." The only interests retained by Spence were the right to receive royalty payments and the right to retake possession in the event of default in rent or royalty payments. So it would appear that the conveyance here in question is an assignment. See, Haynes v. Eagle-Picher Co., 295 F.2d 761 (10th Cir. 1961), cert. denied, 369 U.S. 828, 82 S.Ct. 846, 7 L.Ed.2d 794 (1962). However, Spears v. Canon De Carnue Land Grant suggests that in New Mexico, this conveyance would be considered a sublease. This opinion is not entirely clear, but it appears that there the effect of a conveyance was found to be a sublease, where the sublessor retained only a right of re-entry upon condition broken. In this case, Spence clearly retained a right of re-entry on a condition broken. We accept Spence's contention that the conveyance be treated as a sublease. 1
Appellant has argued that the general rule allows a landlord to exercise a contractual right to re-enter and declare the forfeiture of the lease without foregoing the right to accrued rent. Camelback Land & Investment Co. v. Phoenix Entertainment Corp., 2 Ariz.App. 250, 407 P.2d 791 (1965); Schuldes v. Wubbolding, 15 Ariz.App. 527, 489 P.2d 1229 (1971). See also, Heighes v. Porterfield, 28 N.M. 445, 214 P. 323 (1923). There is also authority for the view that generally a provision for a minimum royalty can be treated like a provision for rent. Lehigh Zinc & Iron Co. v. Bamford, 150 U.S. 665, 14 S.Ct. 219, 37 L.Ed. 1215 (1893); Mullins v. Evans, 43 Tenn.App. 330, 308 S.W.2d 494 (1957); 54 Am.Jur.2d, Mines and Minerals, § 135 (1971); 49 Am.Jur.2d, Landlord and Tenant, § 514 (1970). A well accepted principle also exists to the effect that while a landlord who exercises a right to re-enter may recover rent accrued to the date of re-entry, the lessee may not be held liable for rent accruing after the date of re-entry. Burns Trading Co. v. Welborn, 81 F.2d 691 (10th Cir. 1936), cert. denied, 298 U.S. 672, 56 S.Ct. 936, 80 L.Ed. 1394 (1936); Heighes v. Porterfield, supra.
All of the general rules are subject to the overriding proposition that parties are at liberty to control the terms of their relationship by contract. Owen v. Burn Construction Co., ...
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