Rains Coal Corporation v. Southern Coal Company, Inc.

• Decision Date: 03 November 1941
• Docket Number: 4-6452
• Citation: 155 S.W.2d 348,202 Ark. 1077
• Parties: RAINS COAL CORPORATION v. SOUTHERN COAL COMPANY, INC
• Court: Arkansas Supreme Court

155 S.W.2d 348

202 Ark. 1077

RAINS COAL CORPORATION v. SOUTHERN COAL COMPANY, INC

4-6452

Supreme Court of Arkansas

November 3, 1941

Appeal from Sebastian Chancery Court, Greenwood District; C. M Wofford, Chancellor; affirmed.

Decree affirmed.

R A. Young, Jr., and Harper & Harper, for appellant.

Warner & Warner, for appellee.

OPINION

HOLT, J.

July 5 1940, appellee, Southern Coal Company, Inc., brought suit against Arthur L. Rains, Rains Coal Corporation and Ben H Bedwell, appellants, to cancel a coal mining lease contract and for possession of the property described in the lease. The lease contract is made a part of the complaint. As grounds for cancellation and possession of the leased property, the complaint alleged, among other things, the insolvency of the lessees; that they had abandoned the property; and had committed waste and had breached the terms of the lease contract. A demurrer by the defendants below to the complaint was overruled. They then answered denying every material allegation in the complaint and alleged that appellee had breached the terms of the lease contract thereby preventing continued performance thereof by the lessees. Along with the answer, the lessees (defendants below) filed a "counterclaim" against appellee in which a large sum was sought as damages.

Upon a trial the chancellor found the issues in favor of appellee (plaintiff below) and quoting from the decree:

"The court further finds that on September 30, 1939, plaintiff entered into a written lease contract with the defendant, Arthur L. Rains, whereby it leased to him the mining property and equipment described in said lease contract and the inventory attached thereto; that said lease was transferred and assigned to said Rains Coal Corporation, and said property was used by it in operating its mine until February 15, 1940, when it ceased operations; that said defendant was insolvent and that it abandoned said lease and property, and forfeited said contract; that plaintiff is entitled to the cancellation of said lease and to immediate possession of all property therein described, and to the relief prayed against the said defendant, Rains Coal Corporation.

"The court further finds that the defendant, Arthur L. Rains and Ben H. Bedwell, have no right, title, claim, interest or equity in or to said lease, or the property therein described and that they are not personally interested therein, and that the complaint should be dismissed as to them."

Accordingly the lease contract in question was ordered canceled and all rights thereunder of the lessees annulled. It was decreed that appellee (plaintiff below) be given immediate possession of the leased property and that the complaint be dismissed as to Arthur L. Rains and Ben H. Bedwell. From this decree appellant, Rains Coal Corporation, has appealed.

Under the terms of the lease contract appellee, as lessor, leased to Arthur L. Rains all the mining machinery, equipment, and appurtenances, tracks and tipple situated on the land in Sebastian county, Arkansas, described in the lease for a term of three years. This lease was assigned to appellant by Arthur L. Rains.

The lease provides, among other things, that the property was leased to appellant "for the purpose of using the same in mining and removing the coal lying underneath said described premises and such adjoining lands as the lessee may hereafter acquire, by lease or otherwise, upon the conditions hereinafter stated . . .;" that the lessee pay for the use of the leased property twenty- five cents per ton for all coal removed from the premises and adjoining lands and a minimum annual royalty of not less than $ 2,500 for the first year and $ 3,750 for the remaining two years of the lease term.

The lease further provided "that if at any time the said lessee, or the corporation to be organized by him, shall become insolvent, or if waste be committed, or if said leased property, or any part thereof, is attached, seized or levied upon, then, in any or either event, the said lessor shall be entitled to immediately terminate this lease. . . . Said lessee further agrees to procure and maintain at his sole expense insurance against loss and damage by fire and tornado on said leased property in one or more reliable insurance companies to be approved by lessor, in the sum of ten thousand ($ 10,000) dollars, with loss payable clause in favor of said lessor."

The lease further provided: "Upon the expiration or termination of this lease, said lessee agrees to surrender and deliver up to the lessor the possession of said property in as good condition as the same is now in, ordinary wear and tear excepted. . . . Said lessee covenants and agrees to take good care of all of said leased property and to make all necessary and proper repairs and replacements thereto, and to at all times preserve and protect all said machinery, equipment, appliances and appurtenances situated in said mine, and that all such repairs and replacements as shall be necessary on said property, shall be made at the sole cost and expense of said lessee."

It is also provided that if lessee "fails to keep and perform any or all of the covenants and agreements herein specified upon his part to be kept and performed, then said lessor shall be entitled to give said lessee thirty days' notice in writing of such default, and in the event the said lessee fails to fully comply with and perform all such requirements of said lease within said period, the said lessor shall thereupon be entitled to immediately declare this lease forfeited.

There was a further provision that the lessee should not allow the water in the mine to rise above the third east entry, nor waste to be committed.

It is undisputed that appellant operated the mine under the lease agreement until February 15, 1940, or for a period of approximately five months. November, 1939, mining operations in the mine broke into an adjoining abandoned mine from which large quantities of water flowed into the leased mine, causing the death of four employees of appellant. February 15, 1940, suits were brought against appellant claiming total damages as a result of these deaths in the amount of $ 140,000. Garnishments were immediately served on the Farmers Bank at Greenwood, the Frisco Railroad and appellee, and the funds and property of appellant were impounded to apply on these death claims. Following the filing of the above damage claims and the impounding of appellant's funds, appellant, Rains Coal Corporation, filed a voluntary petition in bankruptcy and it was adjudged a bankrupt on February 26, 1940. It filed its verified schedule of assets and liabilities, listing debts of $ 154,795.53 and assets, $ 12,712.47. The listed debts, other than the death claims, amount to $ 14,795.53, or $ 2,083.06 in excess of all assets. The four death claims were settled for a total of $ 3,000.

After mining operations ceased on February 15, 1940, water began to accumulate in the mine and while appellee at its own expense pumped water from the mine for a short time, no pumping has been done since the latter part of February, 1940.

In March, 1940, Mr. Rains, who was president of the Rains Coal Corporation, appellant, and in charge of its mining operations, according to the great preponderance of the testimony as reflected by this record, abandoned the leased property and accepted employment with the Bates Coal Company at Bates, Arkansas, and has since been employed by that company. The bankruptcy proceedings were terminated the latter part of March, 1940, and according to the testimony of Rains, after an adjustment with appellant's creditors, except for the four death claims amounting to $ 3,000, all property of appellant, except its lease, was "wiped out completely," leaving it "flat broke." He further testified that after he left the leased property the mine filled with water.

On April 27, 1940, the tipple and the boiler house of the mine were destroyed by fire. This was after appellant had abandoned the property. Insurance in the amount of $ 6,200 was paid to appellee for this loss. The insurance covering the tipple and boiler house carried by appellant and effective during the time appellant operated the mine, had been canceled in March, 1940, and other insurance had been acquired by appellee at its own expense.

The mining lease in question had first been acquired by Arthur L Rains from Edward Abrams. As has been indicated, Rains assigned this lease to appellant corporation, of which he was president. The record reflects that Rains paid nothing for the lease from Abrams, although at the trial in the instant case he valued the lease at $ 40,000. It had been previously owned by the Midland Coal Company, which had gone into bankruptcy and its property sold on June 12, 1939. Said lease, however, was not sold, but was surrendered to the owner of the land (Abrams). When appellant corporation became bankrupt in February, 1940, Mr. Rains' verified valuation of all the assets and property of appellant corporation was $ 12,712.47. Clearly at that time he considered the lease of no value. Appellant's creditors were entitled to all of its assets of any value and according to...