Hutchison v. Sunbeam Coal Corp.

Glenn and Virginia Hutchison (plaintiffs) owned a tract of land. The Hutchisons entered into a lease agreement with the Sunbeam Coal Corporation (Sunbeam) (defendant). Under the agreement, Sunbeam had a right to remove coal from under the land. The agreement required Sunbeam to pay minimum royalties for at least three years if it was not actively mining coal. The three-year period, evidence would later show, was different from Sunbeam’s normal practice of a five-year term. Moreover, Sunbeam drafted the agreement. The agreement also provided for royalties based on the amount of coal removed if Sunbeam actively mined the property. The parties later disputed the meaning of the three-year clause. Sunbeam claimed that the clause described the minimum period of the lease; the Hutchisons claimed it described the maximum period under which Sunbeam could pay minimum royalties and fail to mine the property. Sunbeam paid minimum royalties for three years and failed to mine the property. The Hutchisons then sued, seeking a declaratory judgment that the lease had terminated because Sunbeam had paid minimum royalties and failed to develop the land. The trial court disagreed, concluding that Sunbeam could maintain its interest for as long as it paid the minimum royalties. The intermediate appellate court reversed, concluding that the law implied a covenant to reasonably develop the mine notwithstanding the minimum-royalty provision. Sunbeam appealed.