## Facts

- John and Lucinda Ionno owned a tract of land and succeeded to the lessors’ rights under a coal-and-clay mineral lease.
- Several entities, including Glen-Gery Corporation and others with assigned interests (the lessees/miners), held lease rights to remove coal and clay from the property.
- The lease provided for production-based royalties, but also required annual “minimum rent or royalty” payments ($300 for the first two years and $600 per year thereafter).
- The minimum annual payments were not a separate, final rental; they were creditable against future royalties that might later become due from actual mining.
- The lease contained a forfeiture clause allowing the lessors, after notice and a continued default, to declare the lease null and void if the lessees failed to pay amounts due or failed to perform lease covenants.
- The lessees timely paid all minimum amounts but conducted no mining or development activity for many years.
- The Ionnos sued seeking forfeiture and cancellation of the lease for nonperformance, asserting breach of the implied covenant to reasonably develop the minerals.
- The trial court ruled for the lessees; the court of appeals reversed and ordered forfeiture and cancellation; the lessees appealed to the Supreme Court of Ohio.

## Issues

1. Does an annual minimum payment that is credited against future production royalties relieve a mineral lessee of the implied obligation to reasonably develop the leased premises?
2. If the lessee breaches the implied covenant to reasonably develop, may a court cancel/forfeit the lease despite payment of minimum royalties, and what must the lessor prove to obtain forfeiture?

## Decision

- The court held that annual minimum payments that are credited against future royalties do not excuse the lessee from the implied duty to reasonably develop the land.
- The court held that forfeiture is an equitable remedy that is not automatic upon breach of the implied covenant to develop, even where minimum royalties have been paid.
- The lessor bears the burden to prove that money damages are inadequate before a court may declare forfeiture/cancellation for breach of the implied covenant to reasonably develop.
- The Supreme Court of Ohio reversed the court of appeals’ judgment ordering forfeiture and remanded for further proceedings consistent with these rules (including consideration of whether damages are an inadequate remedy).

## Legal Principles

- A mineral lease that contemplates compensation primarily through production royalties carries an implied covenant that the lessee will act with reasonable diligence to develop the minerals so the lessor can receive the expected benefit.
- Where “minimum royalties” function as advance payments creditable against later production royalties, those payments do not convert the lease into a pure rental arrangement or grant a right to hold the minerals without development.
- Cancellation/forfeiture of a mineral lease for breach of the implied covenant to develop is an extraordinary equitable remedy; courts generally prefer damages when they will adequately compensate the lessor.
- A lessor seeking forfeiture for nondevelopment must prove that legal remedies (money damages) are inadequate; without that showing, forfeiture should not be granted even if nondevelopment is established.
- Payment of minimum royalties does not, by itself, bar a forfeiture claim, but it affects the remedy analysis because the court must still determine whether damages can provide adequate relief.

## Conclusion

Ionno v. Glen-Gery Corp. holds that a mineral lessee’s payment of annual minimum sums that are creditable against future royalties does not eliminate the implied obligation to reasonably develop the leased minerals, but forfeiture is not automatic for nondevelopment; the lessor must prove that money damages are inadequate before a court may cancel the lease, so the court of appeals’ forfeiture order was reversed and the case remanded for further proceedings on remedy.


Ionno v. Glen-Gery Corp., 443 N.E.2d 504 (1983)