no manner contingent upon the lessee obtaining a lease from such co-owners. It has entered into an absolute contract in so far as the terms of the lease under consideration are concerned; has received from the lessor the consideration for this engagement; its liability arises from its own direct undertaking; and it must, therefore, abide by its contract, or pay the damages resulting from a breach. School Trustees of City of Trenton v. Bennett, 27 N. J. Law, 513; Beebe v. Johnson, 19 Wend. 500. The demurrer to these two special defenses was properly sustained.

2. The second question presented for determination necessitates a consideration and examination of the evidence. The testimony is voluminous, and to notice it in detail would be impracticable, and its review will therefore be limited to a mention of the particular facts to which it was directed, and what, in effect, the testimony of the respective parties was as bearing on these facts. The main questions of fact involved were, was there merchantable coal under the demised premises, and, if so, was there reasonable diligence exercised on behalf of appellant in endeavoring to reach it? And, next, was there sufficient evidence or data from which the court could determine the damages awarded, or that appellee was entitled to substantial damages on the case made? The lease in question was executed at a time when the lessee was engaged in extracting coal from the mines in the near vicinity of the leased premises, known as the "Santa Clara." It was supposed that the same veins opened on the Santa Clara would be found on the lands described in the lease; but prospecting with a spring pole drill near or upon these lands failed to disclose a body of coal at the depth at which it should exist, as determined by the direction and dip of the coal measure disclosed on the Santa Clara, in the openings known as the "Walsen" and "Cameron." The discovery of a fault in the formation between these openings and the lands in question was supposed to account for the failure to find coal with the spring pole drill, as this fault would cause the vein on the leased premises to be at a greater depth than anticipated. Two explorations were then made with diamond drills, one hole having been bored near the south line of these lands, and the other not far distant from their east line. In the latter, which is designated "drill hole No. 1," at a depth of about 285 feet, a vein 6 feet 8 inches in thickness, with an intervening strata of 3 inches of slate, was discovered. In the former, though extended to a much greater depth (fully twice), no discovery of coal was made which could be said to correspond with this vein, nor was any discovery made which appeared to have any value. Subsequent to these explorations, a slope was commenced to the northeast of these premises, at a point about 2,925 feet from drill hole No. 1, and driven in the direction of these lands, and a vein of coal opened and exposed for a distance of several hundred feet in this slope as

3

extended. The thickness of this vein was a little over 6 feet. Taking into consideration the dip of the vein found in the slope, its elevation in this opening as compared with the elevation at the point where drill hole No. 1 was bored, the distance between these two points, and the depth of the vein as disclosed by this boring, in connection with the statement of several of the witnesses called on behalf of each party that, in their opinion, the vein opened in the slope extended under the leased premises, there is certainly sufficient competent evidence to support the finding of fact on this subject by the trial judge that it did; so that the next question to determine is whether the evidence justified the finding that this vein was of merchantable quality. On this subject the evidence is conflicting. Witnesses on behalf of appellant stated that, in their opinion, the coal from the slope was not marketable; that the degree of impurities it contained, and their distribution, was such that the expense of separating them from the coal rendered its extraction impracticable as a mining enterprise; that the coal was of that character, even if properly cleaned, it was undesirable, and practically unmarketable, as it was neither a true coking nor true domestic coal, it being located at that point in the southern coal fields where the one class was in a state of transition to the other. On behalf of appellee witnesses stated that the coal in the slope was of the same general character as in the Walsen opening, that it was a good coal for steam and domestic purposes, did not contain impurities to the extent stated by witnesses for appellant, and improved in quality as the slope was extended. From the record it is understood that the vein in the Walsen opening and the slope is the same. It appears that the Santa Clara mines were operated for several years, and from the openings known as the Walsen and Cameron a great many thousand tons were mined and marketed; that coal from the slope and cross entries was mingled with that from the others, and sold; that, after work on the slope ceased, the water was kept pumped out for over two years; that no offer to return or cancel the lease was ever made by appellant until after the commencement of this suit, or that it ever notified appellee, or claimed in conversation with him, that the coal was of an inferior or unmerchantable quality; the excuse for not working, when interrogated by appellee, being that there was no market. With this conflict in competent evidence on the subject of the quality of the coal disclosed in the slope, the finding of the trial judge that it was of a merchantable grade cannot be disturbed on review. It was his province to determine this question from all the evidence in the case, judge of the credibility of the witnesses, take into consideration their knowledge and means of information on the subjects about which they testified, the acts of appellant, and from all the facts and circumstances surrounding the transaction determine

this vital question regarding the quality of the coal in the slope; and, the finding of fact in this respect being supported by competent evidence, this court cannot interfere by substituting its judgment for that of the trial court, upon the weight of the evidence in the case. Wallace v. Giltinan, 18 Colo. 473, 33 Pac. 185; Railway Co. v. Hodgson, 18 Colo. 117, 31 Pac. 95+; Publishing Co. v. Russell, 18 Colo. 75, 31 Pac. 503; Rust v. Strickland, 21 Colo. 177, 40 Pac. 350.

The work of extending the slope was commenced in 1888, and continued for about two years, at which time it was suspended, and no further work of that character prosecuted. The period between the date this work ceased and the time this suit was commenced was nearly two years. The evidence was that by the prosecution of work with reasonable diligence the leased lands could have been reached through the slope within eighteen months or two years from the date work on the slope was commenced; so that the finding of the trial court that reasonable diligence had not been exercised by appellant in the prosecution of work for the purpose of reaching the coal on the demised premises is supported by the evidence.

The trial court, in determining the damages awarded, appears to have adopted the rule that for violation of the covenants in the lease, no coal having been mined from the demised premises, the measure of damages would be the stipulated royalty on the number of tons which the lessee could have mined, by the exercise of reasonable diligence, during the period covered by this action. This is the rule for which appellee contends, and we will assume, but not decide, it is correct for the purpose of determining the final question in the case, which relates to the damages awarded. The contention of counsel for appellant is that at most appellee was only entitled to nominal damages under the proofs made, and the disposition of this question necessitates a further review of the evidence, and a construction of the covenant in the lease upon the breach of which this action is based, which reads as follows: 662 * * To enter upon said premises, and work the same in a manner necessary to good and economical mining as a coal mine, with due regard to the preservation of the same as a workable mine; to take possession of the said premises on or before the fifteenth day of September, 1888, and to thereafter use reasonable diligence in putting said premises in working order for the mining of coal." The party seeking to recover substantial damages for breach of a contract must establish the facts which entitle him to such recovery. Jones v. Nathrop, 7 Colo. 1, 1 Pac. 435; Patrick v. Smelting Co., 20 Colo. 268, 38 Pac. 236. In construing a contract, the first point to ascertain is what the parties meant, understood, and intended, as determined by the words employed (2 Pars. Cont. *491; Mining Co. v. Tierney, 5 Colo. 582; Wollf v. Helbig,

21 Colo. 490, 43 Pac. 133); and, as an aid in this respect, the situation of the parties, and the facts and circumstances surrounding the transaction at the time of the execution of the contract, as also its subject-matter and the object of the parties in making it, may be taken into consideration (Mining Co. v. Tierney, supra). The premises were demised expressly for coal-mining purposes. They were not then, nor are they yet, in shape to produce. Whether they could be successfully operated as a coal mine depended upon future development. By the transaction the lessor expected to receive compensation in the way of royalty, and the lessee profits from the operation of the leased premises as a coal mine; so that the benefits thus realized would be mutual. Unless coal was found of a merchantable grade, which could be produced at a reasonable profit, or if that discovered was valueless, to require the lessee to mine it and pay royalty on the production would impose a burden without any benefits in return. The obligation was imposed upon the lessee to open the premises as a coal mine, and operate them as such; but, in the absence of express provisions in the lease regarding what conditions should exist before a penalty would attach for a failure to observe this obligation, or under what circumstances it should comply with this provision, the law presumes that the parties to the lease, at the time of its execution, considered the purpose for which it was executed and the conditions under which it would be mutually beneficial to carry out its terms and provisions, and therefore intended, by the language employed, to contract accordingly. 2 Pars. Cont. *499. The right to mine having been granted, the law implies that the lessee should exercise. reasonable diligence in working the mine (Koch's Appeal, 93 Pa. St. 434); but unless coal actually existed on the premises of a merchantable grade, which could be produced at a reasonable profit, or, if none existed, or that which was found was valueless, then, under this contract of lease, it would be under no such obligation. The court found that the degree of diligence required of the lessee to put the premises in working order had nət been exercised; that a vein of merchantable coal existed on these lands, and that by the exercise of reasonable diligence a certain tonnage could have been produced; but that was not sufficient upon which to base a judgment for substantial damages. The coal might be merchantable, and yet the lessee be unable to produce it at that profit, after deducting the stipulated royalty, which would be regarded as fair and reasonable for ventures of this kind, as determined from all the facts bearing on this subject. There was no attempt to prove that the coal could be mined. or the leased premises operated. at such a profit; or, if there was, the testimony which in any manner related to the subject was legally insufficient to establish this fact; and, without it being established, there was not

sufficient from which to deduce the conclusion that the lessee was under any obligation to mine the leased premises. It was incumbent upon the lessor to establish every fact necessary to entitle him to a judgment for substantial damages, for the lessee would not be required to introduce any evidence to defeat a recovery for such damages, unless the lessor, at the close of his evidence, had established all the facts entitling him to such a judgment. Counsel for appellee appear to have fully recognized what was necessary to plead in order to state a cause of action, for in the complaint it was alleged that the lands demised contained deposits of merchantable coal which can be worked and extracted at a profit by the reasonable expenditure of money for that purpose; and, there being no evidence to sustain the issue tendered by appellee on the question of profit, or the finding of the court in his favor on this subject, he was not entitled to a judgment for substantial damages. The judgment of the district court is reversed, and the cause remanded for a new trial. Reversed and remanded.

(34 Or. 585)

LOOMIS et al. v. ROSENTHAL et al. (Supreme Court of Oregon. April 24, 1899.) ADMINISTRATOR-FRAUD-SECRET TRUST-EVI

DENCE-LACHES.

was

a

1. To prove that one purchasing the dower interest of a widow agreed to pay off a mortgage, but instead procured it to be assigned to another in trust for himself, to whom he also had the fee conveyed under the guise of an administrator's sale, the widow and others testified that they were told the purchaser was to pay off the mortgage; but he denied this, and testified that he never heard of the mortgage until long after. The evidence tended to show that he paid the full value of the land. The mortgagee's books showed that the mortgage was assigned for its face, without interest, though several years' interest was due, thus supporting the inference that the land was not worth then more than the mortgage. At the time of the purchase the purchaser was very poor, and the alleged trustee wealthy friend, who loaned him money, and sold him goods on credit, to whom he mortgaged the land for a debt the same day the latter took the assignment of the first mortgage; and the inference was justified that the creditor, knowing the purchaser had only a life estate, bought the first mortgage to protect himself. The purchaser testified that he made payments on the debt, but his creditor, being financially embarrassed, demanded the amount due, and it was agreed that the former should quitclaim the land to a friend of the creditor, who would hold it in trust for him; and the purchaser prepared to move, but the creditor, having afterwards bought the interest of the heirs in the administration proceedings, in which the purchaser was the administrator, asked him to remain on the place until he could find a purchaser, which he did, buying the place back in a few years, paying the full price, and taking a deed from the creditor's trustee. He was corroborated in this by his wife and several children. The trustee testi.fied that it was his impression that the land was to be conveyed from the creditor to him to be held, and then conveyed to the purchaser. The creditor s wife testified that he had told her the land never cost him anything. Ar

other witness testified that the purchaser had told him his friends had come to his help, and were holding the land over for him till he could recover it; but this conversation was probably after the purchaser had arranged to repurchase it of the creditor. Two attorneys for the administrator, and the guardian ad litem for the minor heirs, testified that the administrator's proceedings were in good faith, and that the claim of the creditor based on the assignment of the first mortgage, with which he paid for the land at the sale, was a just claim. Hell, that fraud was not shown.

2. The purchaser of land at an administrator's sale hold notorious and exclusive possession of it 19 years, and 15 years after the youngest heir became of age. The heirs lived in the same neighborhood, knew their father had owned the land, and visited the purchaser's family, and were notified of the administrator's sale. The purchaser cut the timber, erected costly buildings, and contributed a large sum towards bringing an electric railway from the city to the premises, and the land rapidly increased in value. The deeds showing the transactions were of record. Held, that the heirs were guilty of laches preventing their recovery of the land, notwithstanding no notice of the appointment of the administrator was served on them.

Appeal from circuit court, Multnomah county; L. B. Stearns, Judge.

Suit by Katie J. Loomis and others against Lewis Rosenthal and others. There was a decree for defendants, and plaintiffs appeal. Affirmed.

This is a suit to establish a trust in real property, to set aside certain conveyances thereof, and to recover the rents and profits arising therefrom. The material facts are: That on February 21, 1860, one J. V. Clary, being the owner in fee simple of the N. W. of section 33, in township 1 N., of range 2 E. of the Willamette meridian, in Multnomah county, executed with his wife, Barbara A., a mortgage thereof to Messrs. Ladd & Tilton, bankers, to secure the payment of the sum of $300, payable six months from that date, with interest thereon, after maturity, at the rate of 5 per cent. per month, which was duly recorded in the records of mortgages of said county. That, Clary and his wife having moved off the premises, the latter, on October 21, 1861, for the expressed consideration of $135, executed to the defendant Lewis Rosenthal what purported to be a bargain and sale deed thereof, in pursuance of which he moved thereon in 1862, remaining in possession only a few months, but returned thereto in 1865, since which time he has been constantly in the possession thereof. That J. V. Clary died intestate March 12, 1862, leaving the said Barbara A., now the wife of H. C. Baugher, and three daughters, who, since the death of their father, have married, and whose names and date of birth are as follows: Olive Swafford, May 15, 1856; Lola Lane, April 16, 1859; and Katie J. Loomis, February 6, 1861,-who still survive. That Rosenthal and wife, on November 3, 1863, executed to one H. F. Bloch a mortgage of said land to secure the payment of a promissory note, purporting to have been executed May 12, 182, for the sum of $1,500, with interest

thereon at the rate of 2 per cent. per month. That Ladd & Tilton executed to Bloch, on November 5, 1863, an assignment of the said Clary mortgage, and the same was recorded in the records of mortgages of said county. That on April 6, 1871, Rosenthal and wife, for the expressed consideration of $800, executed to one B. Goldsmith a quitclaim deed of said land, reciting therein that the interest intended to be conveyed thereby was the dower right of Barbara A. Clary. That Rosenthal, having been appointed administrator of the estate of J. V. Clary, deceased, obtained an order of the county court of said county, in pursuance of which he, on March 18, 1871, sold said land for the sum of $1,800 to Bloch, and, said sale having been confirmed by an order of the county court, the administrator, on April 14, 1871, executed to the purchaser a deed to the premises. That Bloch and wife, on April 18, 1871, for the expressed consideration of $1,800, executed a quitclaim deed to Goldsmith, who, with his wife, on April 26, 1876, in consideration of one dollar, conveyed said premises by a like deed to Rosenthal. That, the tax levied upon said land for the year 1873 becoming delinquent, the premises were sold to satisfy the same to one William Barnes, who, on September 18, 1890, conveyed to Rosenthal all the interest that he thereby acquired. That, Barbara A. Baugher and Lola Lane having conveyed their respective interests in said premises to Katie J. Loomis, she, with her sister Olive Swafford, instituted this suit, alleging in their complaint the facts, in substance, as hereinbefore detailed, and that Rosenthal, as a part of the consideration for Barbara A. Clary's deed, agreed to satisfy the Ladd & Tilton mortgage, but that he neglected to do so, and, in order to defraud the heirs of J. V. Clary, procured said mortgage to be assigned to Bloch, to be held in trust for him; that he secured the appointment of administrator of Clary's estate, and had Bloch present said mortgage as a claim against the estate, and, notwithstanding the statute of limitations had run against the lien, he allowed the claim, amounting to the sum of $1,800; and that each of said deeds was executed in pursuance of a plan whereby the several grantees held the title to said real property in trust for Rosenthal, who, without having been discharged as administrator, caused said premises to be conveyed to him, seeking thereby to defraud the cestuis que trustent of their estate therein; and that the reasonable value of the rent of said land for a period of six years immediately preceding the commencement of this suit is $6,000. As an excuse for the delay in commencing this suit it is averred as follows: "That the plaintiffs and said Lola Lane during said times were minors, and wholly unacquainted with the business affairs of their father's estate, and without any knowledge that he had left an estate for them, or that they were entitled thereto; and they knew nothing of the said fraudulent acts and conduct of the defendant Lewis Rosenthal, or of

his fraudulent intent and purpose towards them. That the said defendant carefully concealed all of his said acts and conduct from them, and covered up his fraudulent purpose and intent by deeds and proceedings of record which appeared to be regular on their face, and which diverted all suspicion from said defendant, and were intended by him to be, and were, misleading; and the plaintiffs and said Lola Lane were without any knowledge or any information of said fraudulent acts, purpose, and intent of said defendant until on or about the 1st day of September, 1891, when they were informed thereof by their attorneys. That up to said time they were totally ignorant of all said fraudulent acts and conduct by the defendant, and of his intent to defraud them, and were without means of knowledge or information respecting the same. That, as soon as they were informed thereof, they began legal proceedings against said defendant Lewis Rosenthal in the circuit court of the United States for the district of Oregon, which they prosecuted to final trial, but their bill of complaint was dismissed on the 27th day of March, 1895, by said court, because said court found and held that the plaintiff Kate J. Loomis was a resident of the state of Oregon when said cause was commenced." The defendants, having denied the material allegations of the complaint, averred that all of said conveyances were executed and said probate proceedings were had in good faith; that Bloch purchased said land at the administrator's sale thereof for himself, and that there never was any agreement or understanding, directly or indirectly, either before, at, or after said sale, whereby the title to said land should be held in trust for the defendants, or either of them; and that Rosenthal, for more than 15 years prior to the commencement of this suit, had been in the open, notorious, continuous, adverse possession of all of said land, claiming to own the same in his own right; that he had cleared said land, set out orchards and erected buildings thereon, and contributed the sum of $5,000 towards the construction of an electric railway from the city of Portland thereto. The reply having put in issue the allegations of new matter contained in the answer, a trial was had, and from the evidence taken before a referee the court found the facts in substance as hereinbefore stated, and as alleged in the answer, and that the plaintiffs had been guilty of gross laches in the commencement of their suit, and that they had not established any facts tending to justify such long delay, and thereupon dismissed the suit, and plaintiffs appeal.

Henry St. Rayner and Mary Leonard, for appellants. Joseph Simon and Wallace McCamant, for respondents.

MOORE, J. (after stating the facts). It is contended by plaintiffs' counsel that the petition for the appointment of an administrator of the estate of J. V. Clary, deceased, did not state facts sufficient to confer upon the county

court of Multnomah county jurisdiction of the subject-matter; that Clary's heirs were not served with a citation to appear, and show why their ancestor's real property should not be sold to satisfy his debts, and hence said court never acquired jurisdiction of their persons, in consequence of which it was powerless to order a sale of the premises, thereby rendering any attempted sale thereof void. Defendants' counsel maintain, however, that, inasmuch as the complaint nowhere charges that Rosenthal was improperly appointed administrator, the question sought to be presented is not in issue; that, if it were conceded that such sale was void,-which is denied,-the plaintiffs were never devested of their legal estate in the premises, and their proper remedy would have been an action in ejectment, but, having commenced a suit in equity to have Rosenthal declared a trustee, who, by reason of the alleged fraudulent sale of the premises as administrator to himself, holds the title to the land in trust for them, they thereby admit the jurisdiction of the county court, and the legality of its proceedings in the matter of said estate, and the sale of said property, and hence are precluded from questioning such proceedings. The argument adduced by defendants' counsel seems logically to support the legal principle for which they contend, but we do not deem it necessary to a decision of the case to consider the questions thus presented by either party, for, if Rosenthal, as administrator, conveyed the premises to any person under an agreement or understanding that the latter would hold the legal title thereto in trust for him, in pursuance of which the land was thereafter conveyed to him, a court of equity would not permit him to take advantage of his own wrong, but would treat him as a trustee for the heirs, whom he had tried to defraud. If, however, Rosenthal, as such administrator, made a bona fide sale of the land to Bloch, and thereafter, in good faith, purchased it in his individual capacity, obtaining a deed therefor, in pursuance of which he made valuable improvements upon, and has been in the open, notorious, and adverse possession thereof, to plaintiffs' knowledge of their rights, for such a period of time as to render it inequitable to restore the land to them, the deed which Rosenthal obtained being a colorable title to the whole premises, the jurisdiction of the county court and the legality of its proceedings, so far as the administrator's sale is concerned, would be rendered wholly immaterial. The fraud charged in the complaint as a basis for the relief demanded is that Rosenthal bought the land from Mrs. Clary under an agreement to pay off the Ladd & Tilton mortgage; that, instead of keeping his engagement in this respect, he procured the mortgage to be assigned to Bloch, who undertook to enforce it for his benefit; and, being the equitable owner of this mortgage, to satisfy which he sought and secured the appointment as administrator of Clary's estate, in pursuance of which he sold the land

to Bloch, who held the title thereto in trust for him. Mrs. Baugher, as a witness for plaintiffs, in speaking of what her brother-in-law said to her about Rosenthal's alleged agreement to procure the discharge of the lien upon the premises, says: "Mr. Kerns told me at the time of the sale that he would pay the mortgage off, and pay me a little besides; and I got one hundred and thirty-five dollars, I think." Mrs. Rebecca Wells, formerly Mrs. Kerns, in speaking upon this subject, says: "As I remember, Mr. Rosenthal met my husband, and told him he wanted to get his property or Mrs. Clary's. Mr. Kerns then wrote to Mrs. Clary. When she came down, they talked it over at our house, and my understanding was that Mr. Rosenthal was to pay off the mortgage that was on the place, and was to pay her a certain amount of money, if she would sign away her dower, or whatever right she had in the place." Rosenthal testifies that he never agreed to pay off the mortgage, and that he did not know of its existence until informed thereof by Bloch some time after 1865. It will be observed that the testimony of Mrs. Baugher and of Mrs. Wells relating to Rosenthal's alleged agreement is wholly hearsay, and refers exclusively to what Mr. Kerns said to his wife and her sister concerning the purchase price of the land. The evidence tends to show that when Rosenthal secured Mrs. Clary's deed the land in question was covered with heavy timber, except about three or four acres, which was partially cleared, and a small board house built thereon; that at the time vacant school land in the vicinity of equal or greater value could have been obtained by any citizen of the state of Oregon for the sum of $1.25 per acre, and that Rosenthal paid the full value of the land. The books of Ladd & Tilton in relation to the mortgage loan, being offered in evidence, show that on February 21, 1860, J. V. Clary executed to the bank a note, No. 284, for which a credit is claimed on account of cash in the sum of $277.98, and on March 1, 1860, the bank is charged, on account of bills receivable, with note No. 284 in the sum of $300. The books also show the following payments on account of said note: June 9, 1862, $10; August 9th,probably the same year,-$7.98; and November 3, 1863, $260, in full payment thereof. It is fairly inferable from an inspection of these books that, since Clary's note did not provide for the payment of any interest until after maturity, six months' interest thereon was deducted from the face of the note, and that the maker received the remainder, which was $277.98, the amount charged to cash on account of said note. The books of the bank also show that it received this sum only in full settlement of the note, thus conclusively showing that no interest whatever was paid thereon, notwithstanding the note, at the time it was surrendered to Bloch, amounted to the sum of $678. If the land, in 1863. had been worth more than $277.98, and the costs and expenses of the mortgage foreclosure and the