Opinion ID: 2612907
Heading Depth: 4
Heading Rank: 1

Heading: Breach of the Lease

Text: At trial, Miscovich contended that Shropshire's 1955 lease of the Upper Poorman claims to Miscovich Brothers terminated by its own terms when mining first became uneconomical and ceased in 1958. Thus, Shropshire had no valid interest in the Upper Poorman claims when he purported to terminate the Miscovich Brothers lease in 1987. The trial court rejected this argument, finding that cessation of mining activity in 1958 did not terminate the lease, that the lease continued in effect until Shropshire notified Miscovich of its termination in 1987, and that Shropshire's notice of termination was justified, because Miscovich Brothers had continuously breached the lease at least since 1981 by failing to pay royalties and not mining the claims in a minerlike manner. Miscovich challenges these findings on appeal. He bases this challenge on the language of the lease, which provides that it would remain in effect until said claims are worked out unless sooner forfeited through violation of any covenant hereinafter contained to be performed by [Miscovich Brothers]. Miscovich argues that, when Miscovich Brothers ceased mining the Upper Poorman claims in 1958 because the claims were no longer profitable, the claims were in effect worked out. In support of this argument, Miscovich cites United States Smelting, Refining & Mining Co. v. Wigger, 684 P.2d 850 (Alaska 1984). Miscovich's reliance on Wigger is misplaced. The lease in Wigger provided that it was to remain in effect until all gold and other precious metals and minerals recoverable in the sole opinion of the Lessee at a profit shall have been recovered from the demised premises. Id. at 854 (emphasis added). Thus, the duration of the lease in Wigger expressly turned on the continued profitability of mining. By contrast, as the trial court in the present case correctly recognized, the duration of the Miscovich Brothers lease hinged on exhaustion of gold from the claims, not on continued profitability. By its own terms the lease was to remain in effect  barring a breach of its covenants  until the Upper Poorman claims were worked out. Although profitability did play a role in the covenants of the lease, that role related to Miscovich Brothers' duty to mine the claims actively, not to the duration of the lease. The lease covenants included the following: That [Miscovich Brothers] will mine said claims in a workmanlike manner in accordance with approved mining methods and will work all ground that can be mined at a profit. The effect of this covenant was to exempt Miscovich Brothers from abiding by the duty of mining in a workmanlike manner during periods when the claims could not be mined at a profit. Although making Miscovich Brothers' duty to mine the claims in a workmanlike manner contingent on profitability, this covenant had no effect on the duration of the lease; indeed, the provision assured that inactivity due to unprofitability could not be construed to violate the lease covenants. [4] The undisputed evidence at trial established that Miscovich Brothers ceased mining in 1958 due to economic factors related to the price of gold, and not due to the claims being worked out. [5] Under the circumstances, failure to continue active mining activities did not amount to a breach of the covenant of workmanlike mining and had no effect on the continued validity of lease. Cf. Black Star Coal Corp. v. Napier, 303 Ky. 778, 199 S.W.2d 449, 452 (Ky.App. 1947); Commercial Coal Mining Co. v. Big Bend Coal Mining Co., 293 Pa. 39, 141 A. 732, 734 (1928). Miscovich next argues that the superior court incorrectly found that Miscovich Brothers breached the lease covenants by failing to mine the claims in a workmanlike manner after 1981. However, testimony at trial established that although mining the Upper Poorman claims was not economically feasible for many years due to government control of gold prices, government restraints were relaxed in 1968 and by 1973 the price of gold was allowed to float freely on the open market. Testimony indicated that by 1979, the price of gold had increased fourfold from the previously fixed price of thirty-five dollars per ounce, and reached an astounding eight hundred dollars per ounce in the early 1980's. The increased price of gold made it possible to mine profitably in the Upper Poorman area once again. The superior court concluded that workmanlike miners would have drilled the site since at least 1981. This factual finding is supported by the evidence and is not clearly erroneous. It follows that the trial court correctly determined that Miscovich Brothers was in breach of the lease covenants beginning in at least 1981. Because the evidence further established that this breach continued throughout the remaining time that Miscovich held the lease, the trial court also properly determined that Shropshire had the right to terminate the lease in 1987.