United States District Court, N.D. Illinois
May 28, 2004.
MARSEILLES HYDRO POWER LLC, Plaintiff, V. MARSEILLES LAND AND WATER COMPANY, Defendant
The opinion of the court was delivered by: HARRY LEINENWEBER, District Judge
MEMORANDUM OPINION AND ORDER
In 2000, Plaintiff Marseilles Hydro Power ("MHP") filed suit against
Defendant Marseilles Land and Water Company ("MLWC," or "Water Power
Company") seeking declaratory and injunctive relief with respect to two
agreements for water rights between the parties, known as the 1910 and
1924 Indentures (together, "Indentures"). Following a long litigation
history, including a remand from the Seventh Circuit and MLWC's filing of
counterclaims, this case has again reached the summary judgment stage.
MLWC and MHP both seek summary judgment concerning Count IV of MLWC's
Counterclaim. MHP also asks the Court, via summary judgment, to make four
declarations as a matter of law. Specifically, MHP requests that the
Court find that: (1) MHP is the holder of all rights, title and interests
of the Second Party under the Indentures; (2) MHP is entitled to receive
and use all the water power producible by the North Head race at
Marseilles, Illinois, excepting therefrom only that water power allocated
to others under written leases still in effect that predate June 1, 1910; (3) MHP
validly extended the Indentures until October 15, 2090; and (4) MHP shall
pay for the water power taken under the Indentures according to § 9
of the 1924 Indenture.
For the following reasons herein, the Court hereby denies to MLWC's
Motion for Summary Judgment as to Count IV of its Counterclaim and grants
MHP Summary Judgment on that issue; grants MHP's Motion for Summary
Judgment as to MHP's Issues 1 and 3; partially grants and partially
denies MHP's Motion for Summary Judgment as to Issues 2 and 4; and as the
allegations made in Count III of MLWC's Counterclaim stand entirely
inconsistent with the Court's declarations as to MHP's Issues 1 and 3,
the Court sua sponte Grants MHP summary judgment on that claim.
I. FACTUAL BACKGROUND
In 1867, the Illinois State legislature formed MLWC. The charter vested
in MLWC the responsibility of leasing water power generated by diverting
the Illinois River via a dam, through canals constructed by MLWC, to
businesses along these canals. Among these canals is the North Race
canal, extending around a dam in a crescent shape for approximately 2,800
In 1910, MLWC entered into a ninety (90) year lease with H. Eugene
Chubbuck ("Chubback"), who owned a power plant and land adjoining the
canal, for rights to portion of the water flowing through the canal. By
1924, certain disputes arose between MLWC and the Light Corporation a/k/a
Illinois Power ("LC"), the successor In interest to Chubbuck. MLWC and LC resolved this
dispute by entering into a 1924 Indenture intended to clarify the 1910
Section 12 of the 1910 lease contained the following clause:
Any act or thing which shall have the effect in
law to change the right of possession in said
premises as an entirety from one party to another
shall operate as an assignment of this indenture
to the party lawfully entitled to such possession.
Thus, according to the 1910 "lease," (as detailed below, although the
Court occasionally uses the term "lease" for purposes of convenience, it
does not technically find that the Indentures constitute "leases") any
attempt by Chubback to transfer possession his power plant, or the land
under it, would require him similarly to convey the leases to the new
possessor. Section 28 of the 1924 Indenture modified this clause as
ASSIGNMENT OF WATER LEASES: It is mutually
understood and agreed that the rights of the Light
Corporation in the use of water granted in its
said leases shall not be separated from the right
of possession of the premises occupied by its
hydroelectric plant or plants. Any act or thing
which shall have the effect in law to change the
right of possession of said premises from the
Light Corporation to another shall operate as an
assignment of this indenture, and all of the water
leases of the Light Corporation, to the party
lawfully entitled to such possession; but the
Water Power Company shall, in the event the Light
Corporation transfers the right to the possession
of said premises to another, separate and apart
from the use of the water granted in said leases,
have the option to cancel this indenture and the
said water leases by notifying the Light
Corporation, its successors or assigns, in writing of its
election so to do.
On February 2, 1999, LC sold its interest in the hydroelectric plant to
Midwest Hydro, Inc. ("MH"). On August 13, 1999, LC transferred its
interest in the water leases to MH. On March 20, 2000, MH transferred
ownership of the plant to Marseilles Hydro Power, LLC ("MHP"). On May 19,
2000, MH similarly transferred its interests in the water leases to MHP.
Due to a scribe's error, the transfer document erroneously stated that
the leases were transferred to Midwest Hydro Power (to this Court's
knowledge, a nonexistent company) instead of Marseilles Hydro Power. In
any event, during 1999 and 2000, the possession of the "premises" and the
interests in the leases got briefly separated not once, but twice, in
apparent violation of the 1910 and 1924 contracts.
The 1910 agreement (and the subsequent 1924 Indenture) provided for the
"Second Party" (Chubback and his successors in interest) the option to
renew the lease for another ninety years before the lease's conclusion.
In October 2000, MHP exercised this option.
Although MHP, as the purported "Second Party," elected to extend the
lease another ninety years, significant disputes existed between it and
MLWC. In 1988, LC shut down its hydroelectric power plant, although it
continued after some complications to pay its required
rent. Around the same time that LC closed its power plant, MLWC ceased
maintaining the canal. By 1998 or 1999, the canal had fallen into significant disrepair. Much like the water
within the dilapidated canal, rental payments stopped flowing to MLWC
during fiscal year 1999 (which ended October 15, 2000). During fiscal
1999, LP, MH, and MHP combined paid only $15,000. Since then, MHP has
withheld rent, citing the condition of the canal.
In 2000, MHP began the process of seeking to reopen the power plant. To
acquire the necessary permits and licenses, MHP felt that it needed the
canal in working order. Since MLWC refused to repair the canal, MHP filed
suit in federal court seeking declaratory relief that MLWC was in
violation of its obligations under the Indenture, and injunctive relief
entitling it to enter onto MLWC's property to enact repairs. On April 27,
2000, MHP filed for a temporary restraining order seeking permission to
repair the canal due to its imminent collapse. On appeal, the Seventh
Circuit remanded the case back to the District Court on the grounds that
Judge Conlon improperly denied MLWC's request for a jury trial. In
addition, the Seventh Circuit recommended that the District Court stay
the case pending resolution of related claims before the Federal Energy
Regulatory Commission ("FERC").
Meanwhile, in July 2001, MLWC filed a notice with the Recorder of Deeds
of LaSalle County stating that it was terminating the water leases. MLWC
based its termination on alleged breaches of "specific conditions and
covenants of the aforementioned Water Power Leases." This filing led to Count III of MHP's second amended
complaint, which charged MLWC with "slander of title."
Upon remand to the District Court, the case was reassigned to these
chambers. After MHP filed an amended complaint and MLWC responded with a
motion to dismiss, this Court stayed Count II (calling for injunctive
relief) pending resolution of the FERC proceedings. The Court also
partially dismissed the newly added Count III. In March 2003, MLWC filed
its counterclaim. Counts I and II of the counterclaim allege that MHP
committed trespass and negligence by entering onto MLWC's property to
enact unauthorized repairs on the canal. Count III seeks a declaratory
judgment that the leases were terminated in 2000 because the May 2000
lease transfer entrusted the lease rights to Midwest Hydro Power. Ergo,
Marseilles Hydro Power had no authority to renew the leases in October
2000. Lastly, Count IV, pled in the alternative to Count III, seeks money
damages for MHP's failure to pay rent under the contract.
A. Is MHP the "Second Party"
Under the 1910 and 1924 Indentures?
1. Did the 1999 and 2000 transfers of power plant
ownership automatically transfer the interest in the
Indentures, or constitute a breach of § 28 authorizing
MLWC to cancel the water leases?
To have standing to sue, MHP must demonstrate that it has rights and
duties owed to it under the 1910 and 1924 Indentures. In its motion for summary judgment, MLWC argues that MHP cannot
establish such standing under two different theories. First, MLWC argues
that the May 2000 contract illegally separated the ownership of the
premises and the interests in the Indentures by assigning the latter to
"Midwest Hydro Power." This argument is easily disposed of as MHP
contends, and MLWC does not refute, that the reference to "Midwest Hydro
Power" constitutes a mere typographical error with no legal or factual
significance. Worthy of more serious consideration is MLWC's second
theory: that the 1999 and 2000 brief separations of power plant ownership
and interest in the Indentures constituted a breach of § 28 of the
As noted in the factual record, § 28 contains two seemingly
contradictory clauses. Initially, § 28 states that:
It is mutually understood and agreed that the
rights of the Light Corporation in the use of
water granted in its said leases shall not be
separated from the right of possession of the
premises occupied by its hydroelectric plant or
plants. Any act or thing which shall have the
effect in law to change the right of possession of
said premises from the Light Corporation to
another shall operate as an assignment of this
indenture, and all of the water leases of the
Light Corporation, to the party lawfully entitled
to such possession
Read on its face, this provision appears to act like a covenant running
with the land making it legally impossible to separate possession
of the power plant premises from interest in the leases. Under this
interpretation, any effort to separate the two would prove nil, as the leases would automatically transfer to
the new possessor of the power plant.
The above provision however is flatly contradicted by the remainder of
§ 28, which states:
. . . but the Water Power Company [i.e., MLWP]
shall, in the event the Light Corporation
transfers the right to the possession of said
premises to another, separate and apart from the
use of the water granted in said leases, have the
option to cancel this indenture and the said water
leases by notifying the Light Corporation, its
successors or assigns, in writing of its election
so to do.
Read together, the Indenture seemingly creates a legal Catch-22: MLWP
has the right to cancel if the right to possession is ever transferred
separate from the water rights, but any such situation is impossible, as
the transfer of possession would automatically transfer with it the water
rights. This, indeed, is the interpretation MHP advances. However, such a
contractual reading renders the second half of § 28 utterly
meaningless. In doing so, this interpretation conflicts with the
well-settled Illinois rule of contract construction that "all provisions
are presumed to have been inserted for a purpose, and that a contract
should be interpreted to give meaning and effect to each provision
contained therein." Dolezal v. Plastic & Reconstructive Surgery,
S.C., 640 N.E.2d 1359
, 1366 (Ill.App. Ct. 1994). Therefore, the
Court must look for a way to harmonize the conflicting terms.
The Court begins by rejecting the approach of viewing § 28 as akin
to a covenant running with the land. Illinois courts will enforce agreements as covenants running with the land only if: (1)
the parties so intended; (2) the covenant touches and concerns the land;
and (3) there is privity of estate between the parties. U.S. Fidelity
and Guar. Co. v. Old Orchard, 672 N.E.2d 876, 884 (Ill.App. Ct.
1996). A covenant "touches and concerns the land" if it "affects the use,
value and enjoyment of the leasehold estate and of the property."
Id. (internal citations omitted). Illinois law permits leases to
qualify as covenants running with the land. See Nassau Terrace
Condominium Assoc. v. Silverstein, 537 N.E.2d 998, 1001 (Ill.App.
Ct. 1989). However, during the legal research this Court conducted, every
case construing a lease as a covenant running with the land concerned a
lease for the land itself, or the rights to extract minerals contained
within it. In either event, the actual land was leased. Here,
the Indentures lease neither the hydroelectric plant nor the land
underneath it. Rather, they simply require the hydroelectric plant
possessor to purchase water or pay at least a minimum fee to MLWC.
Although this arrangement, if found to bind all subsequent possessors of
the power plant premises, affects the value of the land in question, it
does not affect the use of the land. Indeed, for the ten years MLWC had
ceased operating a hydroelectric plant with no apparent effect on the
lease's status. The Indentures therefore do not "touch and concern" the
premises of the hydroelectric plant.
The 1999 and 2000 transfers also evidence the failure of the Indentures
to function as covenants running with the land. In both 1999 and 2000, the selling and purchasing party contracted
separately and apart for the ownership of the premises and the interest
in the leases. Had LC or its assignors MH and MHP considered the water
leases a covenant running with the land, they would have made no effort
separately to distinguish the rights to the premises from the rights to
the Indentures. Conversely, these efforts suggested that MHP, along with
LC and MH, viewed the premises and Indentures as legally separable.
Although this does not constitute the best evidence of the
parties intent, as Chubback was the original covenantee, it nevertheless
is instructive given that MHP now seeks to enforce the Indenture against
himself as such a restrictive covenant.
Rather, MHP's conduct during the 2000 transfer agreements suggests that
the Court favor the interpretation of MLWC, an original covenantor. Under
this rubric, the first portion of § 28 does not mean that it is
legally impossible for MLWC, or its assignees, to separate the premise
from land. Rather, § 28 obligates the Second Party, by contract, not
to cause such a separation. If the Second Party, violates this provision,
it stands in breach of its contractual responsibilities. Consequently,
MLWC then receives the option to either accept the breach, or intervene
and cancel the lease. Unlike MHP's interpretation, this, in the Court's
view proper, contractual reading gives meaning to both halves of §
28, logically harmonizing the entire clause. Therefore, the Court finds
that both the 1999 and 2000 transfers constituted a breach of the 1924 Indenture,
providing MLWC with the right to cancel the water leases.
2. Did MLWC Waive its Right to Terminate the
Next the Court turns to MHP's argument that, even if MLWC had a right
to terminate the leases, it waived this right by waiting too long to
exercise it while accepting the benefits of the temporary
separations and transfers. MHP argues that MLWC knew about the temporary
separations no later than July 28, 2000, when its counsel delivered
documents to MLWC's counsel evidencing the temporary separation. MLWC
acknowledges receiving the documents around that date, but claims that
the parties soon after agreed to a discovery stay pending the outcome of
settlement negotiations. MLWC submits that it reviewed the documents only
after the parties settlement negotiations fell apart, and preventing it
from learning of the temporary separations until October 29,
2000. MLWC then argues that an order from Judge Conlon "effectively
barred MLWC from conducting any business." MLWC does not specify what
part of which judicial order prevented it from terminating the
After reviewing both parties' accounts, the Court takes no position on
the date when MLWC could be said to "know" of the temporary separations.
However, even if the Court accepts MLWC's date of October 29, 2000, MLWC
did not attempt to exercise its termination rights until July 17, 2001
a full eight and a half months after it admittedly learned of the
separations. During this extensive period of time, MLWC proceeded with
litigation including going to trial attempting fully to collect the
monthly rents MHP owed to it under the Indentures. Furthermore, after
reviewing the case docket, the Court could not find the mysterious
purported order from Judge Conlon that "effectively barred" MLWC from
terminating the Indentures. The Court therefore agrees with MHP that MLWC
waived its right to terminate the Indentures.
3. Did MHP materially breach the Indentures in other
ways, preventing it from remaining the proper "Second
MLWC contends that, even if the water leases would otherwise remain
valid, MHP forfeited its rights as the Indentures' Second Party in four
ways: not paying rent, failing to operate the power plant, unilaterally
dewatering the power plant, and failing to abide by the duty of good
faith and fair dealing by attempting a hostile takeover of MLWC.
The Court does not find MLWC's arguments persuasive. Under the
Indentures, MLWC cannot terminate the water leases for nonpayment of rent
until it achieves a final judgment of nonpayment of rent against the
Second Party, and the Second Party does not pay that judgment within 90
days. Since MLWC has never achieved such a judgment, it has never had a
legal right to terminate the Indentures on that basis. Similarly, MLWC
has pointed to nothing in the Indentures that require MHP to operate a
power plant. Indeed, at certain points in the Indentures or their
amendments, the contract between MLWC and MHP specifically provides for
alterations of MHP's obligations in the event that the power plant is not in use. Additionally, even if this Court were to entertain
this frivolous argument that non-operation of the power plant constituted
a material breach of the leases, MLWC itself waived this material breach
by knowingly accepting rent during 1988 to 1999, an eleven-year period in
which the power plant did not operate. Nor has MLWC pointed to anything
in the Indentures that indicates that MHP's dewatering constituted a
breach of the contract, instead of arguably a common law tort. Lastly,
there is nothing in the Indentures that preclude MHP from initiating an
attempt to takeover MLWC involuntarily. Accordingly, MLWC has failed to
present any material issue that could lead a reasonable fact finder to
the conclusion that MHP stands in material breach of the Indentures,
authorizing it to cancel them.
The Court therefore declares that MHP remains the Second Party to the
1910 and 1924 Indentures. As such, it grants MHP summary judgment as to
MHP's Issues 1 and 3.
Resolution of Issues 1 and 3, by necessity, impacts the legal standing
of Count III of MLWC's Counterclaim. In its response to MLWC's summary
judgment motion concerning Count IV of MLWC's Counterclaim, MHP requests
that the Court grant it summary judgment on both Counts III and
IV. MHP's request is improper, as it occurs in response only to
a motion concerning strictly Count IV, and nowhere else. Nevertheless,
the Court cannot permit MLWC to continue to pursue Count III in light of
its findings here. Notably, the Court points out that the allegations of
Count III are entirely inconsistent with the Court's declaration here that, as a
matter of law, MHP remains the Second Party to the Indentures.
Accordingly, the Court sua sponte grants Summary Judgement to
MHP with respect to Count III of MLWC's Counterclaim.
B. As Second Party to the Indentures, what rights and
obligations does MHP have?
1. Does MHP have a right to the use of all water power
from the North Head race, except for that allocated to
others under leases predating June 1, 1910?
MHP argues that page 4 of the 1910 Indenture gives it the right to all
water power generated from the North Head race, except for that allocated
to others under written leases still in effect that predate June 1, 1910.
This clause gives the Second Party rights to:
. . . all power obtainable from the water in the
North head-race [sic] which The Water
Power Company now has or may hereafter have that
is not already leased or which may, from time to
time, be freed from its contract or lease by
expiration, cancellation or otherwise.
MLWC responds by noting that S 30 of the 1924 Indenture apparently
modifies this provision as follows:
. . . the Light Corporation shall have the first
right to the use of any water released from
existing leases with tenants other than the Light
Corporation. . . . If the Light Corporation elects
to take over such lease and use the water
according to the terms and conditions of said
lease, then the Water Power Company shall
thereupon enter into a new lease with the Light
Corporation for the use of said water and the same
price and upon the same terms and conditions as
are contained in said lease; and in case the Light Corporation shall not
elect to take over such lease and use and develop
said water then [MLWC] shall have the privilege of
using or leasing such power.
MLWC argues, and MHP does not contest, that at several times in the
past, leases had expired and that MLWC, as the then-Second Party,
declined to assume these newly available leases. MLWC claims that, under
§ 30 of the 1924 Indenture, it has the rights to any of this water
power offered to LC, but declined by LC.
The Court does not see a conflict between the 1910 and 1924 Indentures
on this issue. Both effectively speak of water power "released" or
"freed" from expiring leases. The only difference is that the 1924
Indenture clarifies that, if the Second Party declines its first rights
to the water, MLWC may use it itself, or lease it to another party.
However, MLWC rights to lease water declined by the Second Party to
another entity does not eliminate MHP's first refusal riparian rights in
perpetuity to this declined water. Rather, if MLWC leases the declined
water to another entity, and that lease subsequently expires,
then the water has again been "released from existing leases."
Accordingly, even if MHP declined this water once previously (allowing it
to sign the eventually expiring lease with another entity), it clearly
keeps its first rights to use this water should the water get released
Ergo, the Court finds that MLWC has rights to any water power except
water: (a) allocated to others by virtue of a continuing pre-June 1, 1910 agreement; or (b) allocated to others by virtue of
a post-June 1, 1910 agreement, in which immediately prior to that
agreement the water power had first been offered to and rejected by the
Second Party. In so doing, it partially grants and partially denies MHP's
Motion for Summary Judgment on its second issue.
2. Under the Indentures, what price does MLWC charge MHP?
Both parties agree that § 9 of the 1924 Indenture sets forth the
method of computing rents for the water originally allocated to the
Second Party under the Indentures. However, MLWC correctly disputes, that
it is unclear at best whether § 9 controls the price for water power
originally allocated to parties other than MHP, and only leased to MHP
upon expiration of the other leases. In the Court's view, this is
especially true given § 30 guidance that, if the Second Party takes
over a cancelled lease, it does so "at the same price and upon the same
terms and conditions as are contained in said lease." Therefore, while
the Court declares that § 9 controls the rent for water power
allocated by the Indentures, the question of whether § 9 also
controls water power arising from cancelled leases assumed by MLWC
The Court hereby partially grants and partially denies MHP's Motion for
Summary Judgment as to issue 2.
3. Is MHP liable for unpaid rent dating from 1999
till the present?
MLWC seeks partial summary judgment on Count IV of its Counterclaim.
This Count demands that MHP pay the MLWC $26,500 in minimum and additional rent for 1999, and $41,500 for each fiscal
year (October 15 to October 14 of the next year) thereafter. Since this
Court has found that MHP remains the Second Party, and validly extended
its lease till 2090, this means that MLWC seeks rent up until now. In its
response, MHP seeks not only a denial of MLWC's motion, but a grant of
summary judgment to it on Counts III and IV of MLWC's Counterclaim.
MLWC argues the Indentures constitute "leases" under Illinois law. As
such, MLWC contends that the lessee's covenant to pay rent is independent
of the lessor's covenant to repair and maintain property. Therefore, MLWC
argues that even if the Court finds that MLWC breached its
obligation to keep the canal in working order MHP still owes MLWC
all the rent prescribed by the water leases. To support its argument,
MLWC cites A.O. Smith Corp. v. Kaufman Grain Co.
231 Ill. App.3d 390 (Ill.App. Ct. 1992). To avoid paying rent, MLWC claims
that MHP must claim and then establish "constructive eviction."
Conveniently, an MHP claim for "constructive eviction" would suit
MLWC's agenda perfectly, as it has already attempted to cancel the
MHP responds that under Illinois contract law, the party that commits
the first breach cannot maintain an action for the other party's
retaliatory breach, citing Daniggelis v. Pivan, 159 Ill, App.3d
1097, 1103 (Ill.App. Ct. 1987). Additionally, MHP argues that the
Indentures do not constitute a lease, but rather only a license.
Consequently, MHP contends that its covenant to pay rent depends on MLWC abiding by its covenants to repair and maintain the
canal. In this vain, MHP claims that "An instrument that merely gives to
another the right to use premises for a specific purpose, the owner of
the premises retaining the possession and control of the premises,
confers no interest in the land and is not a lease, but a mere license."
In Re Application of Rosewell, 69 Ill. App.3d 996, 1002 (Ill.
App. Ct. 1979) (internal citation omitted).
The parties have thus presented the Court with three possible ways to
construe the water rights granted by the Indentures: a lease, a license,
or an ordinary contract. However, none of the cases cited by the parties
involve any fact pattern remotely similar to the case at bar. Rather, all
but one involve agreements that conferred partial or total interests in
land or buildings (the exception was Daniggelis, which involved
airline discount coupons).
After careful review by this Court, there appears to be no
direct Illinois law as to whether the right to use water constitutes a
lease or a mere license. However, MLWC legitimately analogizes the
pending riparian issue to the legal status of hunting rights (as both
involve taking something off land, while not directly concerning the land
as land), noting that in Illinois the right to hunt on a particular
parcel of land qualifies as a lease and not a license. See Gustin v.
Barney, 250 Ill. App. 209, 214 (Ill.App. Ct. 1924). A review of the
laws of other states indicates a strong trend to treat riparian, hunting,
or mining rights as leases or quasi leases. One finds that the states of California, North Carolina, and Pennsylvania qualify these types of
agreements as leases. See San Juan Gold Co. v. San Juan Ridge Mut.
Water Assoc., 93 P.2d 582, 589 (Ca. App. Ct. 1939) ("we are
satisfied that this instrument is what it purports to be a
lease"); J. P. Council, et al. v. W.T. Sanderlin, et al.,
111 S.E. 365, 367 (N.C. 1922) ("The right to hunt . . . is not a mere
license, but is an interest in the real estate in the nature of an
incorporeal hereditament."); St. Helen Shooting Club v. Mogle,
207 N.W. 915, 917 (Mich. 1926) ("the right to hunt . . . is not a mere
license, but is an interest in the real estate of an incorporeal
hereditament."); Equitable Gas Co. v. Smith,
13 Pa. D. & C. 616, 625 (Pa. D. & C. 1928) ("The agreement
. . . is a lease for oil and gas purposes and not a mere license to
explore."). Based on the Court's research, Ohio qualifies as the
sole exception in treating such agreements strictly as licenses. See
Hubbard v. The City of Toledo, 21 Ohio St. 379, 399 (Ohio 1871)
(regarding water rights, "We think the plaintiffs' lease did not
vest in them such claim or right. They had a mere license, which
the abandonment extinguished.").
Vermont, unlike other states, flexibly permits parties to structure
riparian agreements as they wish. Under Vermont law, "water rights may be
conferred in many forms, such as by license, by lease, or by simple
contract." Kelly v. Alpstetten Ass'n, 303 A.2d 136, 138 (Vt.
1973). Accordingly, Courts interpret what form a riparian agreement takes not by resort to any hard-and-fast legal
rule, but by turning to ordinary contract interpretation principles. See
Bergeron v. Forger, 214 A.2d 85, 88 (Vt. 1965).
The Court considers this modern approach, enunciated by Kelly
and Bergeron, significantly more equitable than the now-dead law
applied by the variety of various state decisions cited above. As noted
above, the Court does believe that one could plausibly analogize hunting
and/or mining rights to water rights issues. Still, since there remains
no Illinois law directly on point, the Court elects to reject
this analogy in favor of the fairer and far more recent law of Vermont.
In so doing, the Court believes that it conforms with Illinois' general
contractual principals. Specifically, the Court calls to mind that "a
contract should be construed as a whole to give effect to the intention
of the parties, and great weight is to be given to the principal,
apparent purpose, and intention of the parties at the time that they
entered into the contract." DeWitt County Public Building Comm'n v.
County of DeWitt, 128 Ill. App.3d 11, 18, 83 Ill. Dec. 82,
469 N.E.2d 689, 695 (1984)(internal citations omitted). The Court therefore
interprets the Indentures just as it would any contract in
harmony with the principles of Illinois law, and flexibility borrowed
from Vermont law.
Given its choice to construe the Indentures as an ordinary contract,
the Court finds it totally implausible that either Chubback or the Light
Corporation, as the original respective Second Parties to the 1910 and 1924 Indentures, believed or
intended that the Indentures would require them to continue to pay their
normal minimum rent regardless of whether MLWC maintained the canal in
working order or that MLWC originally believed that the Indentures
required them to so do. The Court notes that MLWC specifically "covenants
and agrees to at all times keep its dam, pond, head-gates and channels to
said leased premises in good repair and condition and to remove deposits
and obstructions." 1910 Indenture, p.5. Furthermore, MLWC agreed that
"rent shall at all times accrue as hereinbefore provided whenever the
Water Power Company is ready to furnish the power, the use of which is
herein leased," 1910 Indenture, p.6. Implicitly, the 1924 Indenture
repeats this agreement when it states that:
REBATE: The minimum rental shall not be reduced
because of . . . or because the Water Power
Company fails to supply the water contracted for
herein by reason of floods, ice or backwater, or
because the Water Power Company has shut off the
water for necessary repairs, not exceeding ten
(10) days in any fiscal year as hereinafter
provided. When, however, the Water Power Company
fails for more than ten (10) days in any fiscal
year to supply the use of the water contracted for
herein due to any cause except floods, ice or back
water, or shut-downs at the request of the Light
Corporation, the Light Corporation shall be
entitled to a rebate in the minimum rent as
hereinafter provided. . . . The total amount of
said rebate, computed as aforesaid, is to be
credited to the Light Corporation in the annual
settlement next accruing thereafter.
1924 Indenture, § 19. Consequently, the Indentures are crystal clear that the Second Party
does not have to pay the minimum rent when the canal is not in proper
working order for more than ten days per fiscal year. Here, it is
undisputed that the canal has not been in working order at least since
mid-1999 (and possibly as far back as 1988), when MHP ceased
paying its minimum rent. It has not been shown however, for purposes of
summary judgment, that the canal's disrepair extended back to 1998.
The 1924 Indenture does not provide MHP with the remedy of immediately
ceasing its rental payments. However, as shown above, the Indenture does
entitle MHP to a "rebate" of rent at the "annual settlement next accruing
thereafter," which apparently takes place on January 20 of the next
fiscal year. See 1924 Indenture, §§ 18-19. This means that,
without having first established the canal's disrepair in the year prior,
MHP did not appropriately stop paying rent to MLWC in 1999. However,
MHP's failure to pay rent is harmless as MLWC would have
necessarily refunded any and all rent MHP would have paid in 1999.
Similarly, under the Indenture, MHP almost certainly needed to pay rent
throughout 2000-2003, and MLWC just as clearly needed to refund that rent
on January 20 of each successive year.
The current year is no different. The Indenture requires that MHP
maintain its rental payments this year, with the right to a possibly full
rebate next January. Technically then, the Court could order MHP to pay
its obligations for this fiscal year. However, MLWC has expressed no desire or ability to
bring the canal up to working order by the close of this fiscal year.
Accordingly, it is a near certainty that the canal will remain totally
defunct for the entirety of the present fiscal year. Given that, the
Court believes it would be silly and pointless to require MHP to pay, or
rather loan at 0% interest, its rental payments for this year to MLWC,
and then correspondingly require MLWC to refund those payments in full
next January. The Indentures, in speaking of a rebate, clearly envisioned
partial rebates for temporary disruptions of water power. They did not
intend to provide for an absurd situation whereby MHP must pay in full
its rent obligations throughout the year, only to receive a full rebate
later, year after endless year. Should lightning strike and MLWC
miraculously repair the canal to proper working order before the close of
this fiscal year, and MHP still refuses to pay rent, MLWC maintains the
right to file anew for the portion of the rent owed to it consistent with
The Court therefore denies Summary Judgment to MLWC on Count IV of its
Counterclaim, and instead grants Summary Judgment to MHP on this claim.
The Court grants MHP's Motion for Partial Summary Judgment almost in
its entirety. It hereby issues an order declaring that MHP is the holder
of all rights, title, and interest of the Second Party under the 1910 and
1924 Indentures. It further declares that MHP, as the Second Party, properly extended these Indentures until
October 15, 2090. MHP's rights under the Indentures include all water
power producible by the North Head Race in Marseilles, Illinois, except
from water power allocated to others under written leases that predate
June 1, 1910 or allocated to written leases that expired between June 1,
1910 and the present day, but which MLWC had previously offered to the
Second Party and then rejected by the Second Party, and that MLWC
subsequently sold to another party who remains under contract for those
water rights. Finally, the Court for now only agrees to
grant summary judgment on the issue of § 9 controlling the rent for
water leased originally under the Indentures, and does not grant summary
judgment on whether § 9 also controls the rent on water picked up by
MHP from cancelled leases by other parties.
IT IS SO ORDERED.
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