National Bank of Kentucky v. Kentucky River Coal Corporation

• Decision Date: 01 October 1929
• Citation: 20 S.W.2d 724,230 Ky. 683
• Parties: NATIONAL BANK OF KENTUCKY et al. v. KENTUCKY RIVER COAL CORPORATION et al.
• Court: Kentucky Court of Appeals

20 S.W.2d 724

230 Ky. 683

NATIONAL BANK OF KENTUCKY et al. v. KENTUCKY RIVER COAL CORPORATION et al.

Court of Appeals of Kentucky

October 1, 1929

Appeal from Circuit Court, Letcher County.

Suit by the National Bank of Kentucky and another against the Kentucky River Coal Corporation and others. From the judgment rendered, plaintiffs appeal. Affirmed.

T. E Moore, Jr., of Hazard, and Morgan & Harvie, of Whitesburg for appellants.

Allen Botts & Duncan, of Lexington, and D. I. Day, of Whitesburg, for appellee Day Min. Co.

P. T. Wheeler, of Hazard, for appellee Kentucky River Corporation.

HOBSON C.

On January 3, 1918, the Kentucky River Coal Corporation executed to W. H. West a coal lease on about 1,000 acres of land in Letcher county. West transferred his rights to the Amburgy Coal Company, which assumed all the liabilities imposed on West by the lease and undertook to operate the property. Later it changed its name to the Letcher Coal Company. It made extensive additions to the property and became insolvent. On October 2, 1925, it conveyed the property with all its rights under the lease to the Harlan Coal Company. The Harlan Coal Company on November 30, 1925, conveyed the property to the Day Coal Company for $40,000, of which $10,000 was paid cash and notes executed for the remainder. All the notes were paid except two notes, each for $5,000 and one note for $2,000 which had been assigned to the Security Bank and National Bank of Kentucky. The banks brought suit on March 28, 1928, to enforce the payment of the notes and a sale of the property under the lien secured by the deed made by the Harlan Coal Company to the Day Coal Company. They made the Kentucky River Coal Corporation a party to the actions, and it set up its claim for unpaid royalties, due under the terms of the lease. The Day Coal Company ceased operations under the lease on April 1, 1928. At that time numerous creditors were taking steps to enforce their claims, and on June 9, 1928, in the consolidated actions which had been brought upon motion of appellants, the property of the coal company was placed in the hands of a receiver. By the terms of the lease the Kentucky River Coal Corporation was to receive a minimum royalty of $5,000 a year payable monthly. There was a balance due it on account of royalties on April 1, 1928, of $4,006. It asserted its lien for this money, also for the minimum royalty of $416.66 a month from that time on. On February 22, 1929, the banks tendered an amended petition in which they averred that all the minable coal on the premises had been exhausted on April 1, 1928, when the Day Coal Company ceased operation; that they had requested of the Day Coal Company and its receiver to demand a cancellation of the lease and had made the same demand of the Kentucky River Coal Corporation, but they had each declined to take any action. They prayed the court to adjudge a cancellation of the lease as of April 1, 1928, and to adjudge that no minimum royalty was payable after this date. The court refused to allow this pleading to be filed and, the case being submitted, entered judgment directing the property to be sold as a whole, including all the additions made thereto and adjudging the Kentucky River Coal Company a first lien for the amount of its royalties, including the minimum royalty to the day of sale and the purchaser to take the property subject to the charge of the minimum royalty of $5,000 a year from that time on. The banks appeal.

During the time that the Letcher Coal Mining Company held the property, it placed upon it improvements such as railroad tracks, tipples, power plant, transformers, cutting machines, and buildings, etc., in all of the value of something like $100,000. All these things were a part of the plant. Appellants insist that under the lease the lessor, though given by the lease a lien upon the after-acquired property placed upon the leasehold, cannot enforce this lien to the prejudice of appellant's lien under the deed made to the Day Coal Company by the Harlan Coal Company. But that deed, after describing the property conveyed and referring to the lease under which it was held, conveys to the Day Coal Company "the above real, personal and mixed property, unto the party of the second part absolutely with covenant of general warranty, subject, however, to the terms of and conditions of the said lease hereinabove referred to." It is clear therefore that when the Day Coal Company accepted this deed it took the property subject to the terms of the original lease, by which the payment of the stipulated royalties were secured by a lien on all the property as it then stood or any future additions to the plans. The Harlan Coal Company, so taking the property, is as much bound by the terms of the lease as the original lessee.

Appellants earnestly insist that although it is so specified in the writing, a lien upon the property does not extend to property subsequently acquired, as against creditors and purchasers. But whatever might be the rule, if the creditors of the Letcher Coal Company were here complaining, the rule referred to has no application here. For this property under the pleadings was all there when the Day Company bought, and by the terms of its deed it took the property subject to the original lease and subject to the lien that then existed in favor of the lessor. Appellants who bought from the Harlan Coal Company, are in no better position than the Harlan Coal Company, for they bought with full notice of all the facts and the Harlan Coal Company could not set up this claim against...