Pope County Quarries, LLC v. Eulis and Mary Standridge

ARKANSAS COURT OF APPEALS
NOT DESIGNATED FOR PUBLICATION

DIVISION IV

POPE COUNTY QUARRIES, LLC

APPELLANT

V.

EULIS and MARY STANDRIDGE

APPELLEES

CA04-447

January 26, 2005

APPEAL FROM THE POPE COUNTY CIRCUIT COURT

[NO. CV-2002-469]

HON. DENNIS C. SUTTERFIELD,

JUDGE

AFFIRMED

Robert J. Gladwin, Judge

Appellant Pope County Quarries, LLC, appeals the judgment of the Pope County Circuit Court construing a lease for the operation of a rock quarry and awarding damages for the breach of that lease. Appellant raises four points, and, finding no error, we affirm.

On September 20, 2000, appellant and appellees Eulis and Mary Standridge entered into a "Real Estate Lease/Gravel Purchase Agreement" (Agreement), whereby appellant would purchase rock and dirt from appellees. The Agreement contained the following pertinent provisions:

TERMS. [Appellees] agree to sell rock and dirt to [appellant] at a cost of 15 cents per ton. Rock shall be weighed and tickets issued to [appellees]. [Appellant] shall pay [appellees] on a monthly basis. Dirt shall not be weighed, but shall be based on the weight of an average load of dirt. [Appellant] shall also pay [appellees] for dirt on a monthly basis.

DURATION OF LEASE. The terms of this agreement shall extend as long as [appellant] is actively working the quarry. If [appellant] chooses not to work the quarry, it shall pay [appellees] $2,000 per year to extend this agreement. In addition to the $2,000, [appellant] agrees to pay any increase in real estate taxes from this date.

....

TIME OF ESSENCE. The time of the making of the payments and of the keeping of the covenants herein are of the essence of this agreement and the parties hereto so agree.

The Agreement was signed by appellees and by John Curtis on behalf of appellant. On August 28, 2002, appellees filed suit, alleging that appellant had failed to pay for all of the dirt removed. Appellees also alleged that appellant ceased working the quarry in November 2001 and had failed to make the $2,000 payment to extend the Agreement. Appellees sought cancellation of the Agreement, a money judgment for the dirt that had been removed and for which they had not been paid, and their attorney's fees and costs. Appellant denied that it had breached the Agreement. Appellant also asserted that any debts sought to be recovered by appellees were the result of the unauthorized actions of John Curtis.

Following a bench trial, the trial court entered a judgment on January 27, 2004, finding that appellant had breached the lease by failing to pay for the dirt that had already been removed. Judgment was awarded to appellees in the sum of $9,198.80 for the removed dirt, and the court found that the Agreement should be canceled because appellant ceased operating the quarry in November 2001 and thereafter failed to make the annual $2,000 payment to extend the agreement. The court defined a "working quarry" as one that is "actively and continuously blasting, crushing, stockpiling, and selling rock, dirt material for the purpose of making a profit." The trial court noted that the payment of the $2,000 was in addition to the payments for rock and dirt that had already been removed. Appellees were also awarded attorney's fees of $5,000 and their costs. This appeal followed.

Appellant raises four points on appeal: that the trial court erred as a matter of law in canceling the Agreement; that the trial court erred in finding that appellant failed to make the necessary payment under the Agreement; that the trial court erred in ruling that appellant was no longer working the quarry; that the trial court erred in awarding appellees $9,198.80 for the removed dirt and rock.

In bench trials, the standard of review is whether the judge's findings were clearly erroneous or clearly against the preponderance of the evidence. Reding v. Wagner, 350 Ark. 322, 86 S.W.3d 386 (2002); Shelter Mut. Ins. Co. v. Kennedy, 347 Ark. 184, 60 S.W.3d 458 (2001). A finding is clearly erroneous when, although there is evidence to support it, the reviewing court on the entire evidence is left with a firm conviction that a mistake has been committed. Sharp v. State, 350 Ark. 529, 88 S.W.3d 848 (2002). Disputed facts and determinations of credibility are within the province of the fact-finder. Pre-Paid Solutions, Inc. v. City of Little Rock, 343 Ark. 317, 34 S.W.3d 360 (2001).

We first discuss appellant's related issues that the trial court erred as a matter of law in canceling the Agreement and in finding that appellant had failed to make the necessary payments to extend the Agreement. Appellant argues that appellees have an adequate remedy at law and that the trial court should not have forfeited the Agreement. However, the proper issue is whether a lapse had occurred because of appellant's failure to make the payment necessary to extend the Agreement. Upon appellant's ceasing to actively work the quarry, the original lease period expired, and it was incumbent upon appellant to pay the $2,000 per year in order to continue the lease in full force and effect. See Uebe v. Bowman, 243 Ark. 531, 420 S.W.2d 889 (1967). In such a case, the interest created in appellant by such a lease does not become forfeited upon failure to comply with its conditions; it simply expires. Forfeiture of a lease results from a default or breach of the obligations of the lease while the termination or expiration of a lease occurs upon the end of the specific term of the lease or upon some other condition. Gvozdanovic v. McCracken, 44 P.2d 1 (Okla. 1935).

The trial court ruled that the $2,000 annual payment necessary to extend the lease if appellant was not working the quarry was in addition to any royalty payments appellant was required to make. Appellant argues that it is necessary to pay appellees only $2,000 per year in order to extend the Agreement. Where there is a dispute as to the meaning of a contract term or provision, the trial court must initially perform the role of gatekeeper, determining first whether the dispute may be resolved by looking solely to the contract or whether the parties rely on disputed extrinsic evidence to support their proposed interpretation. Nichols v. Farmers Ins. Co., 83 Ark. App. 324, 128 S.W.3d 1 (2003). Where the meaning of the contract does not depend upon disputed extrinsic evidence, the construction and legal effect of written contracts are matters of law to be determined by the court. Id.

According to the definition established by the trial court, appellant ceased working the quarry in November 2001 but did not tender a payment to specifically extend the Agreement until August 2003. The Agreement provides that "time is of the essence" in making payments due under the Agreement. We cannot say that the August 2003 payment was a timely extension of the Agreement. Further, the trial court's construction is consistent with Arkansas law on mineral leases. In mineral leases where royalties constitute the chief consideration, an implied covenant exists that the lessee will exploit the property with reasonable diligence. Smart v. Crow, 220 Ark. 141, 246 S.W.2d 432 (1952). Furthermore, the lessee must act not only for his own benefit but also for the benefit of the lessor. Id.; Ezzell v. Oil Assocs., Inc., 180 Ark. 802, 22 S.W.2d 1015 (1930). If appellant's interpretation was correct, it could mine the quarry only once a year to create enough rock to pay appellees $2,000, even if it did no other work. Further, appellant could create a stockpile of rock and dirt and sell just enough each year to pay the $2,000 payment to extend the lease, which is what occurred in the present case. That would allow appellant to have exclusive use of what would otherwise be a productive quarry with very little benefit to appellees. We affirm on these points.

For its third point, appellant argues that the trial court erred in finding that appellant was no longer working the quarry. Appellant argues that there was substantial evidence that it was still working the quarry after November 2001. However, that is not the proper question on appeal; instead, the proper question is whether the judge's findings were clearly erroneous or clearly against the preponderance of the evidence. Crooked Creek, III, Inc. v. City of Greenwood, 352 Ark. 465, 101 S.W.3d 829 (2003); Reding v. Wagner, supra.

Appellant states that the trial court's definition is "unsupported." However, cases from other states have used similar definitions to the one adopted by the trial court. To "quarry" means to cut, dig, or take out as from a quarry. Allied Chem. Corp. v. Alpha Portland Indus. Inc., 397 N.Y.S.2d 480 (1977); 53A am. jur. 2d Mines and Minerals §§ 13, 15, 16 (1996). In the present case, appellant argues that the trial court erred in finding that it was not "working the quarry." Appellant asserts that, because state inspectors list the quarry as "active" and appellant occasionally sells rock and dirt from stockpiles and maintains certain equipment on the premises, it is "working the quarry." However, in Allied Chemical Corp. v. Alpha Portland Industries, supra, a New York appellate court held that "quarrying" did not include such related activities as operating a crushing plant or dumps and storage facilities, even in close proximity to the quarry. Scott Kaufman, one of the owners of appellant, opined that, as long as appellant maintains its permit with the state, appellant is in compliance with the lease. He admitted that appellant had not conducted blasting operations since October or November 2001 but that appellant continues to sell rock from the quarry. He also testified that crushing and selling rock were part of operating the quarry but that appellant moved its rock crusher to Northwest Arkansas in March 2003 because the demand for rock was greater there. He also stated that the pit was half full of water and, if appellant were to resume quarry operations, the next step would be to start a new pit. Appellee Eulis Standridge confirmed that there was water in the pit and that no blasting had occurred since November 2001. He also testified that, after November 2001, he occasionally saw trucks hauling material out of the quarry and received payments for this material.

Whether appellant was "working the quarry" is essentially a question of fact. Even though the trial court included selling rock as part of its definition of "working" the quarry and appellant was still selling rock, such sales may have been de minimus. We cannot say that the trial court was clearly erroneous in finding that appellant had ceased "working" the quarry.

For its fourth and final point, appellant argues that the court erred in awarding appellees damages of $9,198.80 for dirt removed from the quarry. Appellant's argument is that the amount awarded is based on speculation.

John Curtis, a former co-owner of appellant and currently the owner of Curtis Enterprises, testified that he was in charge of appellant's books during the time he was a member of the firm and that he knows appellant did not pay for all of the dirt removed from appellees' property, in part because appellant did not bill Raven Asphalt for the dirt. Raven Asphalt used the dirt at issue to build a pad, a ramp, and a road on its property. Curtis stated that he helped calculate the amount of dirt removed from appellees' property by the cross-section method because he did not have an accurate count of the number of loads of dirt removed. He stated that the dirt hauled in could be distinguished from the dirt on Raven Asphalt's property by its color - the dirt hauled in was a gray shale while the "virgin" dirt from the site was reddish-brown. Curtis stated that 45,999 cubic yards of dirt were removed from appellees' property. Curtis also testified that a July 25, 2001 check he signed while still a co-owner of appellant in the amount of $4,756 was for payment of the dirt hauled to the Raven Asphalt plant but not the dirt for which appellees seek payment.

Jack Paty, an estimator with Curtis Enterprises, testified that, based on his measurements and calculations, 45,999 cubic yards of dirt were removed from appellees' property. He stated that, at the rate charged, this amounted to $9,198.80. He also explained his methods in cross-sectioning the dirt, including the expansion of the dirt after it is removed. Paty stated that the dirt in the fill had a grayish color while the base area was reddish-brown in color. He admitted that he did not know that Raven Asphalt had earth-moving equipment and had been leveling a hill on its property. He also stated that, if Raven Asphalt had brought dirt in from another site, he could not distinguish that dirt from dirt from appellees' land.

Scott Kaufman testified that he believed that some of the dirt included in Paty's calculations was dirt that Raven Asphalt moved from its own property because almost all of the dirt used in the pad came from Raven Asphalt's property. He also stated that he could not differentiate between dirt that may have come from appellees' property and that from elsewhere. Kaufman testified that he believed that a $4,900 check written while John Curtis was a co-owner paid for all of the dirt hauled from appellees' property.

Appellant's argument is that appellees did not prove that all of the dirt used at the asphalt plant came from their property or that Jack Paty's calculations did not take into account the piles of dirt on appellees' property. However, there was no need to take into account the stockpiles on appellees' property because that was not dirt used at the Raven Asphalt plant. Further, there was conflicting testimony about whether appellant paid for the dirt at issue. This is essentially a credibility-based determination based on conflicting testimony. In such circumstances, we cannot say that the trial court's decision was clearly erroneous. See Chavers v. Epsco, Inc., 352 Ark. 65, 98 S.W.3d 421 (2003).

Affirmed.

Robbins and Neal, JJ., agree.