Browning v. Mountain States Coal Corp.

Several landowners (plaintiffs) owned six tracts of land and entered a lease with a coal company to allow the coal company to mine the land. Under the lease, the coal company was obligated to pay annual minimum royalties of annually increasing amounts. At the time the parties entered the lease, they knew that the coal was unlikely to be profitable due to its poor quality. The coal company went bankrupt, and its interest was eventually assigned to the Mountain States Coal Corporation (Mountain States) (defendant). Under the terms of the lease, if the original coal company went bankrupt, the landowners had the right to void the lease. Later testimony indicated that one of the landowners (who later died) had allowed Mountain States to mine the land for whatever it could find. Over several years, Mountain States mined small amounts of coal. Mountain States paid a small royalty per ton of coal mined but did not pay the annual minimum royalties. The landowners then sued for the annual minimum royalties. Mountain States responded with two arguments: (1) there was no mineable or merchantable coal under the land, so it was not obligated to pay the minimum royalties, and (2) the lease had terminated due to the landowner’s statement that Mountain States could mine what it could, which indicated that the landowners had voided the lease when the original coal company went bankrupt. The trial court sided with Mountain States, and the landowners appealed.