Long v. Reiss

• Decision Date: 27 March 1942
• Citation: 160 S.W.2d 668,290 Ky. 198
• Parties: LONG et al. v. REISS et al.
• Court: Kentucky Court of Appeals

160 S.W.2d 668

290 Ky. 198

LONG et al. v. REISS et al.

Court of Appeals of Kentucky

March 27, 1942

Appeal from Circuit Court, Jefferson County, Chancery Branch, First Division; Churchill Humphrey, Judge.

Action by Dennis H. Long and Ohio River Coal Company against Dr Fred Reiss and others for specific performance of a written contract to convey a coal mining property, wherein Adolph Reutlinger filed an intervening petition. From an order dismissing Ohio River Coal Company as a party plaintiff, the plaintiffs appeal.

Affirmed with directions.

Stites & Stites and Norris McPherson, all of Louisville, for appellants.

Richard P. Dietzman and J. Wheeler Campbell, both of Louisville, for appellees.

PERRY Chief Justice.

This is an action for the specific performance of a written contract to convey a coal mining property. The appellant asserted that he was such a beneficiary under the terms of the contract as authorized his enforcement of it against the appellees. The lower court having refused to grant the specific relief sought, this appeal is prosecuted from its final order dismissing his co-appellant, Ohio River Coal Co., as a party plaintiff in the action, after having sustained the many demurrers of the defendants and appellees, Dr. Reiss and the Highland Creek Coal Co., to his petition and same as repeatedly amended by plaintiffs and appellants, Dennis H Long and the Ohio River Coal Co., and also after its sustaining in part a demurrer to the intervening petition of Adolph Reutlinger and further directing that appellees join issue on the allegations of the petition and intervening petition setting up their claims against Dr. Reiss as a constructive trustee of the mining property which he had refused to convey, according to contract, to the plaintiff corporation.

The storm center or focal point of this litigation is the written contract made by and between Dr. Fred Reiss, the appellee, and the appellant, Dennis H. Long, to which we shall hereinafter refer and discuss, but before doing so we deem it appropriate to give first the background out of which this litigation arises, as tending to aid in our determination of the issue presented, and then the course of the pleadings and orders of the lower court involved on this appeal, as, there having been no proof heard, the case turns or goes off on the pleadings and the written contract filed therewith as an exhibit, the lower court having dismissed the petition based thereon, as same was many times amended, and entered thereon the final order, of which appellants complain and from which this appeal is prosecuted, dismissing the appellant, Ohio River Coal Co., as a party in the action and directing that defendants and appellees join issue on the allegations of the petition and intervening petition setting up a constructive trust.

The background of this litigation, as its facts are reflected by the pleadings (the allegations of which, for the purposes of the demurrers thereto, are to be taken as true), appears to be that for some years prior to January, 1919, the appellee, Dr. Fred Reiss, was the owner of a 4,000-acre tract of coal land, described in the pleading, in Union county, Kentucky, which he then sold to the Union County Mining Co., a corporation organized by him, and had it, as purchaser of the coal land, put upon it a mortgage to secure a bond issue of $160,000. Of this issue, $80,000 of the bonds were turned over to Dr. Reiss in payment for the coal land he sold the company, while the remaining half of $80,000 of the issue was sold to the public for the purpose of raising necessary funds for working capital and machinery required for the mining operation.

It further appears that this Union County Mining Co. soon encountered many financial difficulties and reverses in the operation of its mining business, rendering needful, as a financing operation, a reorganization of the company, which was carried out by organizing, in 1923, the Interstate Coal Co. as its successor, to which it conveyed all its assets upon the latter's assuming its liabilities.

Through this financing operation fresh working capital, it appears, came into the hands of the Interstate Coal Co., but the old mortgage secured bonds, totalling $160,000, issued by the purchaser of the coal land, the Union County Mining Co., remained unpaid and in effect against it.

It is further shown by the record that the Interstate Coal Co. did in turn, due also to like adverse economic and marketing conditions, encounter repeated financial difficulties in operating this coal mining property conveyed it, but nevertheless and despite these financial difficulties experienced, managed to continue carrying on the mining operation until 1934, when, its officers and bondholders recognizing that the company had become insolvent, the written contract, which as stated supra is the storm center of this litigation, was made and entered into by and between the appellee, Dr. Reiss, a then director of the company, and the appellant, Dennis H. Long, its then president, for the purpose of working out a further reorganizing plan by which some of the assets of the company and the bondholders' investments therein might be salvaged.

This contract, stripped to its essentials, does by its prefatory paragraphs first expressly recognize and point out that the Interstate Coal Co. had become insolvent and was unable to continue the operation of its mine; second, that by reason of Dr. Reiss and the other bondholders having purchased their bonds originally on account of the interest of Long in such coal property, they felt he should lend his best efforts toward salvaging their unprofitable bond investment; and, third, that "for and in consideration of the premises and in the further consideration of good and valuable consideration, the receipt of which is acknowledged," the parties, Reiss and Long, agreed that: (1) Dr. Reiss, the owner of half of the bonds, should cause the institution of proceedings to foreclose the mortgage securing the bonds, "using for that purpose the first mortgage bonds owned by him together with any bonds owned by those who may cooperate," and would undertake to purchase such property at such foreclosure sale "for the benefit of himself and other holders of said bonds who may cooperate with him, if such purchase can be made for a satisfactory price." (Italics ours) The contract further provided that (2) at the resulting sale, failing an adequate outside bid, Dr. Reiss (first party) would not only purchase the property, but would, upon his doing so, thereafter convey same to a designated corporation controlled by Long (second party), such conveyance to be subject only to a lien for a total bond issue of $80,000, to be evidenced by bonds of various denominations, etc. and which bonds would be apportioned between the existing bondholders in the ratio of 50% of their holdings; (3) the lien securing such new bonds, issued in exchange, might be subordinated "on their face" to a lien given to secure an authorized loan not to exceed the principal sum of $20,000, to be obtained from the Federal Government or other source; and the fourth paragraph provides for a sinking fund for the bonds; the fifth provides that should someone else bid in the property at the foreclosure sale, the contract should be null and void, while the last and sixth paragraph provides that if Dr. Reiss and other assisting bondholders should purchase the said property at the foreclosure sale, then, it was agreed, the party of the second part, Long, would organize a Long-controlled corporation to accept title to said property, subject only to the $80,000 bond lien set out supra, which was to be subordinated to the lien given to secure the authorized $20,000 loan.

Pursuant to the terms of this contract made between Reiss and Long in November, 1934, Dr. Reiss engineered a foreclosure sale of the property early in 1935, at which he became its purchaser or bought it in, to quote the contract, "for the benefit of himself and other holders of said bonds who may cooperate with him." However, having carried out the contract to this extent, he thereupon declined to carry out its further provision by which he promised that should he become the purchaser of the property upon its foreclosure sale, he would convey it to the designated corporation to be organized and controlled by Long, the party of the second part, subject to the terms of their contract.

It further appears that Long, before confirmation of the sale to Reiss, protested against Reiss' failure and refusal to carry out this part of his agreement requiring him to convey the property to a corporation to be organized and controlled by Long "for the benefit of Reiss and the other bondholders cooperating with him" and asserted his ability and willingness to then organize such corporation to take over and operate the purchased mining property upon Reiss' conveyance of it to him, as by their contract provided.

However it is alleged, and admitted, that Reiss persisted in his refusal to so carry out the contract and, in outright violation and repudiation of it, that he organized another corporation, the Highland Creek Coal Co., which was, except for qualifying shares, entirely owned by him, and to which he conveyed this Interstate Coal Co. property purchased by him at its foreclosure sale. By reason of such alleged breach of his agreement, suit was thereupon brought by the Interstate Coal Co. in the Western U.S. District Court of Kentucky against the defendants, Reiss and his creature corporation, the said Highland Creek Coal Co., seeking specific performance of this same contract had between Reiss and Long in November, 1934, the construction of which, as stated supra, is the focal point of...