February 6, 1935
CONNERY ET AL.
MCFARLAND ET AL.
Appeal from the District Court of the United States for the Eastern District of Illinois; Walter C. Lindley, Judge.
Before EVANS, SPARKS, and FITZHENRY, Circuit Judges.
EVANS, Circuit Judge.
It is upon the terms of the instrument (by appellees called a lease) and their construction by the court that this appeal turns.
Appellants contend that the instrument was one for the sale of minable coal, to be paid for when mined, with a further provision that at least 1,000 tons of coal should be mined per day, and if not royalties on such amount would be payable.
Appellees, on the other hand, contend that the contract was an ordinary twenty year lease terminable at any time by appellees. The rental was based upon the amount of coal mined, which in no instance was to be less than 1,000 tons per day.
The Miami Coal Company's predecessor agreed to mine 1,000 tons of coal a day, or in default thereof, to pay each month a royalty on 1,000 tons per day. He thereby fixed the maximum amount of liability. This maximum liability was subject to reduction, for the agreement provided that any sums paid in excess of royalties on coal actually mined "shall be treated as advance payments and shall be deducted out of any excess over One Thousand (1,000) tons per day mined any month or months thereafter." Deductions for advance payment were expressly limited to any excess over 1,000 tons per day mined in any one month. They could not be applied to the unmined coal in the mine unless we construe the entire contract as a sale of coal rather than a lease.
In states where the coal industry is active similar questions have arisen, and the decisions of analogous fact cases are to the effect that the contract is a lease not a sale of the coal. Denniston et al. v. Haddock, 200 Pa. 426, 50 A. 197; McDowell et al. v. Hendrix, 67 Ind. 513, 523; Nelson v. Republic Iron & Steel Co., 240 F. 285 (C.C.A. 8).
There are numerous words and provisions appearing in the contract which strongly support the conclusion that the instrument was a lease. The parties called it a "Coal Lease Contract." The words of grant were "lease, demise and let." The provision "this lease is to continue for the term of Twenty years" is also rather persuasive. This deduction is reinforced by the word used in the further provision that the party agreed after the date "of this lease," etc. Then too, "the lessee" was given the right to abandon said lands or the mining of coal therefrom at any time. And finally, failure of the second party to comply with the covenants "shall at the option of the first parties render this lease null and void."
Two decisions, Von Baumbach v. Sargent Land Co., 242 U.S. 503, 37 S. Ct. 201, 61 L. Ed. 460, and United States v. Biwabik Mining Co., 247 U.S. 116, 38 S. Ct. 462, 62 L. Ed. 1017, in the somewhat foreign field of taxation, are illuminating. In both of these cases the question presented was whether the instrument was a sale of ore or a lease of property. In both cases the court held the contracts were leases.
The decree is affirmed.
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